Popular Offshore Outsourcing Models

The term “offshore outsourcing” refers to the processing of work flow from large organizations by outsourcing companies halfway across the globe. In past decade rapid growth in the BPO trend is evidenced by more and more companies offshoring to destinations like China, the Philippines and India. Cost reductions, improved quality standards and greater productivity are the key factors empowering offshore outsourcing strategies.

However, the facts of business process outsourcing reveal a somewhat different reality. Before finalizing any BPO contract, management must make complex decisions when selecting the right offshore models that fulfil their business requirements. The selection process involves considering several factors such as:

·     International business strategy.

·     Selecting the best outsourcing location.

·     Scanning the landscape

·     Deciding upon a BPO strategy.

The three popular and successful models currently in use among large business enterprises are joint ventures, subsidiaries and outsourcing to service providers. Given below are details on how these models work and what their benefits are.

·                     Joint Venture Offshoring

In a joint venture (JV), one company ties itself with another organization or local firm by either forming an independent company or taking an equity stake. The aims of a joint venture are to  benefit from the individual strengths of each party involved, scale up value chains and overcome market risks. Joint venture contracts mostly include build-operate-transfer (BOT) clauses to encourage both parties to work together on defined strategies to achieve business milestones. The JV model offers several benefits, especially if the company wants to learn intricacies of managing business customs directly from the domestic partner.

·                     Subsidiary/Captive Development Center Offshoring

Common terms used to describe the subsidiary model are offshore development center (ODC), captive development center or local office. Subsidiaries are independent business units or branch executing projects and programs for onsite teams. The main challenge faced by subsidiaries is managing expert staff, technical experts, line workers and line supervisors from multicultural backgrounds. This model is quite popular among high tech companies that have adapted to new technological developments and consider offshoring as an innovative way to achieve increased diversification of their strategies.

Large software companies such as Microsoft, Oracle and IBM have already developed a reputable position in the global marketplace. Outsourcing some of their projects to other destinations is an effective way to extend their geographic foot print.

·                     Service Provider Offshoring

Joint ventures and subsidiary models require strong commitment on the part of the client organization. To remove risks tied with these models and to maximize benefits of offshore outsourcing companies tend to outsource their projects to offshore service providers. Interestingly enough, service provider offshoring is the most commonly used model as it encompasses a wide range of jobs from small projects to multi-year contracts.

In summary, offshoring can be a complex decision which directly impacts a company’s market reputation. Business leaders need to consider both the pros and cons of each of these models before implementing a specific course of action within their organization. These days many companies are using customized hybrids which incorporate various principles from all of these models in order to stand out in a competitive market.

Is Cloud Computing a key enabler for BPO?

With evolution of the concept of cloud computing many BPO firms consider it to be a game changer in the next generation of outsourcing.  As cloud concept represents a new way to remotely manage computing resources.  One of the most promising features of combining cloud with business process outsourcing is that it allows enterprises to improve service quality, expand market reach, customer interaction and the ability to to deliver customer care from anywhere in the world. 

 Furthermore BPO concept coupled with cloud technology offers enhanced scalability, reliability, agility and cost arbitrage.  

The main benefits offered by this hybrid include:

• Geographic Diversity

Cloud computing offers geographic diversity by building geo-distributed data centers and networks. This diversity decreases redundancy to users and improves reliability.

• Flexibility

Most firms face the problem to manage much needed bandwidth for business demands. In such a scenario the increased bandwidth requirement can be easily managed by utilizing the vast capacity of remote servers.

• Disaster Recovery

Utilization of cloud based services improves disaster recovery time and eliminates the need of having a costly system to deal with unexpected situation.

• Improved Collaboration Channel

Cloud based platforms offer better collaboration channels to employees allowing them to work on shared documents and apps simultaneously. This improves communication, which is a principal requirement of outsourcing.

There is little doubt that the cloud based innovative approach has helped businesses to minimize operating cost and maximize resource utilization while maintaining high quality standards for customer service.

Outsourcing vs In-sourcing: Which is better?

In today’s competitive business environment, owners want to increase margins by cutting costs but are generally uncertain on how to go about it.  Sometimes such decisions lead them to compare cost differentials, process efficiencies, quality of staff, etc. between outsourcing and in-sourcing. The giant leaps taken in process efficiencies through the use of technological innovations, automation and cloud services have really added value to the concept of outsourcing and moved it ahead of insourcing in many aspects of the efficiency, cost, and staffing scale.  Now one finds many companies consider the route to outsourcing as the way to generate business efficiencies, cut costs, save valuable time and concentrate on core business functions.

However both outsourcing and in-sourcing have their own pros and cons.

Outsourcing:

These days’ companies outsource their operations from data entry to handling email security, medical billing, customer care, budgeting and forecasting. Need of specialized skills, equipment, lower cost solutions and quality customer care are some of the main reasons companies outsource.  Some benefits of outsourcing services to third parties include:

• It allows companies to hire skilled staff for defined period of time without any long term commitments, payroll taxes, and high generally high wages.
• Multi-regional businesses can hire customer care agents to ensure 24/7 support.
• In-house staff can concentrate exclusively on core business operations by outsourcing non-core functions to outsourcing firm.
• Outsourcing leads to improvement in efficiency, accuracy and effectiveness of business operations.

In-sourcing:

In-sourcing to run a business and to try and improve process efficiencies is a path normally practiced by most companies. Security issues, lack of communication and lesser control over team activities are some of the main reasons that drive the company’s decision to stick with in-sourcing. Some advantages of in-sourcing over outsourcing include:

• Managing operations in-house gives greater control over daily operations, time utilization and quality.
• Goals and targets can be more effectively communicated to in-house team.
• In-sourcing allows greater interaction between in-house team and management leading to increased level of motivation in workers.
• Managing all functions in house, allows decision makers to better understand market trends and enable company to create backup plans.

Which is better?

While choosing between in-sourcing and outsourcing companies first need to be very clear about their business goal. If management is not clear about its objectives neither insourcing nor outsourcing will be beneficial.  

In-sourcing results in greater control over business functions but increases the annual budget of a company’s business as insourcing adds up cost of expensive local staff, machinery, software, hardware costs, and other technology needs. On the other hand, outsourcing cuts cost of staffing (currency valuation, lower base salaries, and abundance of educated population), staff training, and maintenance of hardware and software systems.

Recent statics appearing in Bloomberg Business, suggest that a majority of companies are considering outsourcing over in-sourcing.  These statistics suggest:

• 50% of companies outsource production or delivery of core products and services
• 33% of companies outsource sales and marketing operations.
• 32% of companies outsource R&D activities.
• 70% of companies outsource strategic functions.

No doubt both outsourcing and in-sourcing offer good and bad results.  Based on the achieved industry wide results through outsourcing, it is clearly a trend that is worth considering to get a competitive edge over your competition in your industry.  Smart businesses are earning huge dividend – in cost, process efficiencies, educated staff, and quality customer care by utilizing outsourcing concept intelligently.

Technology Enabled offshore Claims Management

In Claims Management, two of the biggest challenges faced by companies are the lack of well-organized and the staff to handle such transactions that require specialization and experience. In most cases, the inability of the companies to set up a proper management system is due to availability of trained and experienced staff, the costs associated for setting up such operation, or simply that there are not enough transactions available to have a big unit just for claims management. One of the most challenging factors in this process is individual judgment on part of claims handler. So replication of this intuitive assessment in an in-house setup is quite difficult.

Generally it takes around six to eight weeks to transfer claims management offshore.  As some of the claims management processes involve a high degree of local knowledge and intuition, the off shoring of the claims management processes may take around 6 to 8 months.

In the past decade, the introduction of new technology platforms has served as a good replacement to individual judgments.  Technology platforms can assist in providing access to company’s claims data and settlement bands. Actually these platforms have in-built series of interactive questions which facilitate decisions and objective evaluations for claims validity and value.

Let’s take the example of a house hold insurance claim management where the claim’s handler needs local know how and experience. The online claims management platform makes an assessment of the nature and extent of the damage by accessing data of damage in the surrounding areas. Based on that information, the insurance carrier will send a local agent and contractor to repair any damages to the home of the policyholder. Thus, online claim processing platform can make claim handling easy and fast across countries and continents.

No doubt, innovations and introduction of technology in the offshore claims management systems ensures standardized processing for customers while maintaining speed, quality and lower costs of the overall processes.

The offshore claims management processes are further facilitated by the proliferation of bandwidth, which enables connectivity both in data and voice and makes the offshore provider as an extension of the company.

How offshore Outsourcing Contribute towards Growth of Companies

Today’s competitive market allows only those businesses to survive which can cope with customers needs and satisfaction level. In this regard offshore outsourcing has emerged as a growing concept which has led many companies to a strong and successful business future. Let’s check out some benefits of offshore outsourcing:

Reduce Operating Cost

Offshore outsourcing results reduce operational and administrative cost by delivering skilled labor at lower wage rates. Outsourcing non core activities at reduced rates can minimize over all expenses of business.

Get Access to Experts Globally

Generally people in countries like Philippines, India and China accept latest technologies more readily as compared to other countries. So if any specific expertise or skill is not available locally then you can find skilled people globally.  These days companies are remotely hiring experts in areas like human resource, help desk, telemarketing, IT support, telemarketing etc. This not only reduces cost of operational setup but also adds value to your service standards.

Improved Customer Care

Outsourcing customer care to specialized agents can ensure quality support services for your customers. Offshore outsourcing allows business to cater multilingual support services by hiring agents around the globe. Moreover help desk services can be provided to customers anywhere in the world and at anytime.

In addition to above given advantages there are many other factors which have added to the popularity of offshore outsourcing in past few years. As per new forecasts 2015 is considered the year of success for BPO industry.