Service Operations Management In The Business Process Outsourcing (BPO) Industry - Report Example

A Report on Service operations management in the Business Process Outsourcing (BPO) industry. Table of Contents Introduction 5 2. Methods 5 3. Findings 6 i. Strategic integration 6 ii. Customer service and client management: 7 iii. Performance management 8 iv. Technology and skills 9 v. HRM perspective 9 4. Discussion 10 5. Conclusions 12 Appendices Bibliography List of Abbreviations: BPO: Business Process Outsourcing GE: General Electric HSBC: Hong Kong and Shanghai Banking Corporation HRM: Human Resources Management IT: Information Technology. NHS: National Health Services SLA: Service Level Agreement Executive summary This is a report on services operations management in the business process outsourcing (BPO) industry. This report attempts to evaluate service operations management in the BPO sector based on main operations management functions such as strategic orientation, quality, capacity, supply and inventory perspectives, performance management, technology and skills, and human resources management. In the process of doing so, various approaches and practices in each of these functions have been studied briefly and assessed for their impact on overall organizational performance. 1. Introduction: The service sector poses tough competition to the conventional manufacturing industrial sector. The service operations management in the business process outsourcing (BPO) industry nurtures millions of jobs throughout the world. Many companies from the developed nations have outsourced their operations to other locations with benefits of low cost labor, lower investment in infrastructure and technology and employees with good skills and competencies. The BPO industry that serves organizations at other locations has emerged as global competitor for other industries in the manufacturing, service and public sectors in terms of revenues generated, profits made and costs saved, and work dynamics. An evaluation of services operations management in the BPO sector has been undertaken in order to understand various dimensions attached services operations management in this sector. 2. Methods The immense success recorded by the BPO industry has attracted many researchers from all over the world to study and understand business management; these cases are also examples of many management studies. The success of service delivery by companies from different locations in the world occupies much of management literature and research conducted during the previous two decades. This report will be based on Haskett’s (1987) review that provides basic framework for construction of service operations on integrated functions, strategic service vision, inner-directed vision, quality, information and technology. Transferring business operations from one location to other is highly challenging and requires special skills and competencies in terms of the five main management functions, planning, organizing, leading, coordinating and controlling. These five core functions are achieved through strategic planning and management; effective leadership; technology and skills; and human resources management. In general, these functions seem quite similar to any other service/production management, however, the practices, policies, and approaches differ in the BPO industry. 3. Findings : i. Strategic integration: Organizations adopt strategic management to excel in their respective businesses and to achieve a sustainable position in the long term by predefining all functional areas’ objectives based on anticipated external and internal forces, opportunities and threats, and by preparing control/preventive plans accordingly (Witcher & Chau, 2010). From service operations perspective, all operational functions are pre-planned and assessed in terms of costs, infrastructure, staffing etc; these operational functions require the support of other functions like the administration, facilities, human resources department, training and quality assessment departments etc. The BPO industry is strategically aligned with main organization’s goals for improving profits, reducing costs and enhancing opportunities to expand their businesses. The Gartner Group defines Business Process Outsourcing as the delegation of one or more business processes to an external provider, who, in turn, owns, administers, and manages the selected processes, based upon defined and measurable performance metrics to improve overall business performance (qtd in Thompson et al., 2006, p.178). The services offered by BPO industry can be categorized into three main groups (see appendix 1.1). Evolution of the BPO services is shown in appendix 1.2. The business model of BPO can be either wholly owned ‘captive centers, third-party vendors supported by external funding, and IT-owned BPO firms (Hunter, 2006). In all these groups, the main focus is cost-saving. The strategic decisions of operations management determine plan of actions to address customers’ needs and achieve firm’s objectives. For BPO organization, its customers include both end-users of the services and the outsourcing firms. To set up a BPO unit, the volume and nature of business, types of services, capital investment, qualification of manpower etc are assessed. The most appropriate location for most service BPO firms with all these requirements has been India. ii. Customer service and client management: Improving process quality and efficiency have also been the goals of few multinationals like Dell, AIG, IBM, Citi Group etc (Li & Meissner, 2008). These business parameters directly impact their customer satisfaction levels. Many BPO companies adopt quality systems like ISO, Six Sigma, BS7799, COPC etc to standardize their operations (Hill & Jones, 2007). Yet, not all service lines have been equally successful. For instance, the logistics outsourcing in countries like India face issues of poor communication and transportation (Mitra, 2005). From audit and compliance perspective, most of the BPOs follow international audit regulations and policies such as the Sarbanes-Oxley Act 2002 and others. Few BPOs also frame their own codes of conduct and business ethics, which not only help in conforming to confidentiality and other audit requirements but also in gaining confidence of their clientele (Sople, 2009). Moreover, the service providers have to also abide by the regulations and security certifications followed by their clients, which is more pronounced in the captive centers, for example HSBC, Accenture, GE Capital, and American Express etc in India (see appendix 2.1). Security management is critical to client and customer satisfaction, for which most BPO firms link with external security agencies that provide various security functions (see appendix 2.2). In addition to this, BPO firms usually acquire their human resources from external HR vendors. iii. Performance management: Performance management in a service operations management, such as a BPO industry is complex due to intangibility of service. However, most BPO firms have defined metrics formed by benchmarking; these metrics are usually for measuring offshore or onshore leverage ratios, blended rates, quality, head count, revenues and cost, cost and revenue per deliverable, SLA parameters, and time and materials utilization (Sople, 2009; p.89). Performance evaluation is carried out at all levels, measured against different goals. Employee remuneration and rewards are based on performance against the metrics. Organizations use benchmarking of specific metrics such as quality, efficiency, speed, profits, employee recruitment and turnover, etc. As pointed out by a HR manager at GE Capital, most of the performance management process is similar in their BPO sector (Budwar & Bhatnagar, 2009). A number of BPO partnerships such as Accenture, Shared Business Services of NHS, UK, Infosys etc use he balanced score card system (BSC) for performance measurement (Duening & Click, 2005). iv. Technology and skills: Service operations are highly dependent upon technology and skills of employees delivering the services. In the BPO industry, special emphasis is laid on skills such as communication, management and leadership skills, decision making, etc rather than technical skills; however, efficient training is also provided on technical aspects of the service delivery, which involves systems training, process training, troubleshooting etc. A number of these organizations provide e-learning courses to their employees besides other training and development activities. Creation and maintenance of superior talent gives competitive advantage to these firms in terms of efficiency and quality as well as recruitment and retention of best talent (Bullen, LeFave & Selig, 2010). v. HRM perspective: People are the most critical of the three main pillars of service operations (Pandey, 2009). In service organizations, human resource management is key organizational capability and needs to be highly integrated with strategic goals of the business (Schneider & Bowen, 1993). Service quality and HRM are closely linked in service operations. Schneider and Bowen (1993) present five HRM dimensions that were surveyed, which proved to be closely linked with service quality (see appendix 3). An extremely challenging and important aspect of HRM is recruitment and selection of the right employees that suit the job and can align to organizational vision. For this, the BPO sectors rely on their HR department and other recruitment firms. The newly hired candidates are inducted into the organization by professional trainers. As a part of HR development, employees are given special training on the work processes as well as non-work areas for skill enhancement. Another critical element of HRM is the salary and compensation, which is reasonably higher compared to other service sectors in most countries. Lower incomes result in higher employee turnover and hence loss for the company. Another challenge facing the BPO industry is the cultural differences, which affect communication, understanding and management style (Hofstede, 1980). Most of the BPO firms adopt HR policies and practices followed at parent companies, which may not be effective in other locations. HR can play a major role in minimizing the impact by making HR policies, practices mutually compatible with local cultures and organizational values (Sople, 2009). 4. Discussion For operations planning, service operations involve capacity planning in terms of staffing, infrastructure, logistics, capital investment, and technology. Moreover, short-term planning involves staffing as per work volume and systems to accommodate fluctuation in work volume. Cost-oriented functions within a BPO company include the administration and facilities, and support functions such as the HR team, training and development functions, and leadership positions. Strategic management in the BPO industry focuses on maintaining costs attached to these functions at the optimum level, without affecting quality of these functions. Secondly, the technology for coordinating, and controlling service operations in the BPO companies such as communication channels, IT, software and hardware etc are critical to carrying out high-quality service operations. This significance shifts the notion of BPO companies as cost-reduction centers to strategic and essential elements for overall organizational growth (Mital, 2007). Establishing business continuity plans (BCP) or contingency planning to avoid business disruptions due to any unforeseen situations is an essential aspect of capacity planning (Duening & Click, 2005). While cost-saving or profit-making being the most important competitive priority in BPO industry, certain other priorities would have to be traded off to meet this one. For instance, capitalizing on the advantage of low-cost labor, most BPO companies in India, China, and Philippines employ highly qualified personnel on low salary packages, which eventually results in employee dissatisfaction, lower performance and attrition. Cascio reports that the attrition rates in the Indian BPO industry had touched 50% (2010; p.53). According to Pandey (2009), the most important pillars of the BPO industry are technology, processes and people. Employers tend to trade-off costs associated with qualification and skills, which leads to people, and hence directly impacts the business. Organizations’ sustainability depends upon their customers’ satisfaction levels, and the same applies to BPO industry that works for clients and customers from different parts of the world. According to Hill and Jain (2009), focus on customer satisfaction and a constant thrust on improving the existing client servicing levels will help companies to capitalize on the sustainability of the BPO industry in countries like India. Performance measurement is critical to the success of any BPO firm because performance is an indicator of customer/client satisfaction and organization’s progress. At organizational or department level, ability to manage fluctuating work volume is a major challenge that BPO firms have to be prepared for. This aspect constitutes inventory management in terms of preparing employees with required capabilities and skills. Inability to handle larger volume can affect the company’s revenue as well cause reputational loss to the parental company. For this, capacity planning in terms of forecasted work volume, appropriate staffing, technology and infrastructure play a critical role. In the services sector, knowledge sharing and building human capabilities through training and skill development become important as inventory management criteria (Bossett, 1992). In the BPO industry, supply chain is composed of all external vendors that provide services such as HR, security management, and sometimes logistics and administrative functions. Service operations management solely depends upon HRM capability, and hence there is high dependence on supplier capabilities. In the BPO sector, organizations implement effective HR policies, codes of conduct, security and integrity related policies in order to ensure smooth workflow and gain confidence of internal and external customers, employees and other stakeholders. 5. Conclusions: In conclusion, success of service operations management is decided by human capabilities and technology. Service operations management in BPO industry is a comprehensive process which includes complex activities in terms of planning, organizing, coordinating, leading and controlling between external and internal customers, and sometimes multiple types of customers. In this industry, business sustenance depends upon customer satisfaction, which further depends upon quality of service. Service operations are delivered by operations teams with the support of other functions like HR function, finance, technology, security and administration, training and developmental teams etc. Human resource management function plays major role in the BPO service management because employees need to be motivated and committed towards providing high-quality service; understand customers’ requirements; and perform in challenging and competitive environment. APPENDICES APPENDIX 1.1 Source: Thompson, 2006; p.180. APPENDIX 1.2 Source: Mehrotra, 2005; p.4. APPENDIX 2.1 Principal Regulations that affect BPOs Source: Sople, 2009; p.103. APPENDIX 2.2. HR and security related practices Source: Sople,2009; p.83 APPENDIX 3 Source: Schneider & Bowen, 1993; p.42. Bibliography Bossett, G.A. 1992. Operations management for service industries: Competing in the service era. Connecticut: Greenwood Publishing Group. Budhwar, P.S. 2009. HRM in business process outsourcing firms operating in India. In Budhwar, P.S and Bhatnagar, J’s The changing face of people management in India. New York: Routledge. (pp: 132-160). Bullen, C.V, LeFave, R and Selig, G.J. 2010. Implementing strategic sourcing. Netherlands, Van Haren Publishing. Cascio, W.F and Nambudiri, Ranjeet. 2010. Managing human resources: Productivity, quality of work life, profits. New Delhi: Tata McGraw Hill Edition. Duening, T.N and Click, R.L. 2005. Essentials of business process outsourcing. New Jersey: John Wiley and Sons. Heskett, J.L. 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