[sbinews] Nuts and bolts of BPO -ET in the Classroom

  • From: rspai@xxxxxxxx
  • To: sbinews@xxxxxxxxxxxxx
  • Date: Sun, 16 Nov 2003 05:54:29 +0500

Nuts and bolts of BPO
ET April 29,2002

What is BPO all about? 

BPO (business process outsourcing) can be defined as the contractual service to 
completely manage, deliver and operate one or more (typically IT intensive) 
business processes or functions. 

This could include anything from insurance claim processing to contact centre 
operations to payroll processing among others. A more simplified way to think 
of BPO is to compare it to the functions most organisations include in the 
general and administrative category, specifically back office and 
administrative functions. 

Some of the key business processes and functions that are outsourced and form a 
large part of the BPO market are administration, finance and accounting, human 
resources, payment services, manufacturing services, distribution, logistics, 
sales and marketing, customer care among others. 

What is the potential size of the BPO business? 

Gartner Dataquest forecasts the global BPO market to grow to $543 billion in 
2004, at a compound annual growth rate (CAGR) of 21 per cent. Distribution and 
logistics comprise the largest portion of the market today at 29 per cent, 
followed by human resources at 24 per cent and payment services at 16 per cent. 

At present, the US comprises 50 per cent of the global BPO market. Of the 
various BPO areas, customer relationship management (CRM) is expected to 
undergo most rapid growth, projected at over 20 per cent annually by experts. 

Within CRM BPO, more specifically, call centre outsourcing is expected to grow 
at 29 per cent annually over the next five years. 

Why would a company want to outsource such jobs rather than do it in-house? 

There are several principal reasons for the same, pricing and cost being the 
foremost. If a business entity could outsource its mundane functions and 
achieve the desired result at a significantly lower cost, that would be the 
primary initiative for BPO. Besides, a potentially better service level and 
continuous improvement or innovations in processes are key objectives for 

More than reducing costs and improving service levels, there exist several 
other growth drivers. As IT outsourcing has become more widely accepted, 
organizations are more willing to outsource additional work, leaving themselves 
free to focus on their core business. 

The early BPO successes are now attracting the attention of additional 
companies. As globalisation moves forward, the pressure to cut costs also 
increases. Technology and internet have created additional markets, such as 
email support. Once an organization is e-enabled, the demand for customer 
service tends to increase. 

How can India gain from the BPO boom? 

India stands at a great advantage in the global BPO market for several factors 
like low cost manpower, a large pool of English speaking and western thinking 
people as well as India’s advantageous time zone. 

Large multinational companies, especially in US and increasingly in Europe, 
already understand and in many cases are utilising India’s advantage as a cost 
efficient base for software development and maintenance. 

Companies like GE, American Express and British Airways, have successfully 
demonstrated the benefit of the model, with total annual savings of few hundred 
million dollars between them alone. 

What kind of BPO business are Indian companies handling? 

In India, BPO would essentially imply IT enabled services, as manufacturing 
services have still not picked up. Amongst IT enabled services (ITES), contact 
centers, back office and data processing, medical transcriptions, content 
development and administration are key areas. 

Other ITES areas are legal database outsourcing, HR outsourcing and geographic 
information system. The market size of ITES in India at present is Rs 4,100 

While call centres are known in India, the trend for contact centers is picking 
up as voice telephony as the main channel for interaction is being supplemented 
by email and chat interactions. 

Back office processing is expected to pick up in India in a significant way. 

Industries like banks and aviation require large-scale data processing and data 
based decision-making capabilities. For instance, large insurance companies 
need to process claims that they receive on a regular basis. 

With the help of well laid out rules on how they are to be processed, such 
processing can be done anywhere, as long as there are a large number of 
graduates available who can read and write English, a few doctors and a few 
accountants. A higher version of BPO is also forthcoming. 

One Indian company is managing the entire activity of 4 US insurance companies 
from India. Those companies just need to sell their brands in US while their 
entire activity — accounting, claim processing and fund management — is 
processed from India. The insurance companies would distinguish themselves by 
merely their brands and service levels.  

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