BPO (business process outsourcing) isaword that we often heard thrown about us in India in the mid-’90s.Soon it was akin to a baby boom. India was engulfed in the birth of a newfound job opportunity for the masses who could earn quick money all from working at a desk with their computers. BPO in other words, means you are using a third-party to handle non-primary business activities for your company. Companies choose to outsource when they decide that another, more specialized company can handle a business task better than they can in-house. To stay ahead of the competition, control costs of operation, increase quality, and improve productivity, reduce time–to–market and offer innovative solutions, companies consider outsourcing.But essentially, money is at the core of all reasons for outsourcing.
It was Raman Roy’s well- defined strategies and leadership skills that spearheaded the BPO plan in India. By 1999, Raman is believed to have created more than 35,000 new jobs in India and indirectly enabled the employment of over 700,000 people. He is often regarded as the “Father of the Business Process Outsourcing Industry in India”.
BPO is often divided into two main types of services: back office and front office.
Back-office services
include internal business processes, such as billing or purchasing.
Front-office services
Pertain to the contracting company’s customers, such as marketing and tech support.
These can be largely divided into the four following subdivisions-
MNC Subsidiaries - GE, British Airways, HSBC, Hewlett Packard International, etc
BPO Companies - Convergys, Sitel, eFunds
Diversified - Daksh, Brigade, Talisma, Hero
IT Companies - Infosys (Progeon), Wipro (Spectramind), Satyam, HCL
India has been till now the world’s preferred outsourcing destination. Though you can get access to all the acclaimed benefits by outsourcing to India, it is in the area of costing that India has proven to be the most cost-effective. It offers not only flexibility but also a reduction in capital expenditure, infrastructure, and maintenance costs by a considerable margin. However, all said and done, there are a considerable amount of Risk Factors that come in play when Companies outsource their businesses to India.
The term “Risk” has been defined as the “measurable probability of the negative deviation of a target value from a reference value” (Jorion and Khoury 1996). To understand the risk quotient, it is necessary to identify the gamut of possible undesirable outcomes that could occur with regard to an outsourcing agreement, as well as the probability of occurrence of such outcomes.
The term “Operational risk” is the risk of loss resulting from inadequate or failed processes, people and systems or from external events. The following lists the event types with some examples for each category:
1. Internal Fraud
- misappropriation of assets, tax evasion, bribery
2. External Fraud
- theft of information, hacking damage, third-party theft, and forgery
3. Employment Practices and Workplace Safety
- discrimination, workers compensation, employee health and safety
4. Clients, Products, & Business Practice-
market manipulation, antitrust, improper trade, product defects, fiduciary breaches, account churning
5. Damage to Physical Assets -
natural disasters, terrorism, vandalism
6. Business Disruption & Systems Failures -
utility disruptions, software failures, hardware failures
7. Execution, Delivery, & Process Management -
data entry errors, accounting errors, failed mandatory reporting, negligent loss of client assets.
Inexperienced Customer/Vendor, Failing interfaces (human interaction), Misuse of Trust, Loss of Strategic business flexibility, and Loss of competencies “added risks” when the same is outsourced to an offshore location like India.
Relatively poor Telecommunications in India.
Cultural differences, Accents, and Language ability coupled with Time-zone differences, Political Instability, have been cited as other risks relating to outsourcing to India.
But the two biggest Risks of all are-
Risk of exposing Confidential Data-
There are risks to personal data. Once the data is outsourced, there is very little control over the data. It involves a risk of exposing confidential company information to a third-party.
Security Issues
To the competitors, outsourced projects can be copied and sold again. It becomes a serious issue regarding licensing and copyright.
Global customers consider network security, physical security, customer privacy, and information protection to be extremely important.
It is also observed that the breach of personal data security is more visible in the areas of voice-based outsourcing, with employees often gaining access to customer ids, pin codes, and other confidential data. Moreover, the security risk is magnified in specific strategic processes such as financial reporting, tax, and legal support, and in the areas of healthcare and insurance.
Service providers are aware of the privacy and IP related concerns of their clients and in a large number of cases, are compliant with global standards which are now considered ‘must-haves’ for the bigger companies. Further, most clients have taken steps in the areas of physical security, technological initiatives, policies, ethical guidelines on their own initiative, to ensure that data confidentiality is maintained. Regular training on issues of security awareness, nondisclosure agreements, screening of employees, and periodic compliance audits are some of the best practices that have been introduced. In addition to the above, clients have also begun to detail specific steps that they expect the service providers to take to ensure data confidentiality. Security clauses at network and data levels are built into contracts.
Further, technological arrangements between clients and service-providers may ensure that offshore employees are unable to enter the client’s system, with all offshore inputs being mirrored onto the master database on a periodic basis.
Despite such stringent measures, service providers often find loopholes in the system and resort to security frauds that can cause long-lasting damage to the client both in its monetary dealings as well as its brand image. As in all business clients soon reach out to other players and expand their offshore scope of outsourcing. With ethical practices, India should clean up its act and retain its image of the BPO baby boomer for all times to come
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