For example, Sony's core competence is miniaturization and Intel's core competency lies in chip design. Their competency does not lie in manufacturing or in processing payrolls. Similarly, a successful bank should be good at managing funds and need not be good at processing cheque book requests.
In today's world Outsourcing of non-core activities makes a lot of Business and Economic sense. Organisations are realizing that they cannot be all things to all people. As a result, they are focusing more on their core competences and relying on service providers to manage critical but non-core process for them. They have discovered that outsourcing discrete functions such as accounting and information technology is a highly effective strategy for controlling costs, improving focus and gaining access to capabilities not available internally. By outsourcing an organisation can enjoy various other benefits such as reducing capital expenditure; economizing on manpower and training costs; reducing operating costs; better speed and service; providing value added services at a minimal cost; increased customer satisfaction; avoiding the cost of new technology; etc.
Advantages of BPO
Focus can remain on core business activities
Competitiveness is enhanced
Cost structure becomes variable
Inside resources are freed for other purposes
Operating expenses are reduced and controlled
New ideas are acquired
Investment in assets is lowered & Risk is reduced
Advantage of the economies of scale and improved quality can be obtained
Fosters innovation and conserves capital
Drivers of Outsourcing
BPO, in the late nineties has emerged as one of the booming services industries in the whole world. There were business houses that outsourced as and when required but to a very low level. Off late there has been a trend in all big business and industries of outsourcing the work that is not the core competency of the company. There are number of reasons that can be stated as the driving force behind outsourcing. Some of the commonly identified and the most forceful reasons are: -
Attempt to focus on Core Competencies
The number one driver behind the growth in the BPO market today is an increase in the number of enterprises that are reviewing their internal operations in an attempt to better understand their true core competencies, and focus on only those competencies. All other internally provided services then become candidates for examination in terms of how efficiently and effectively those services are being delivered compared to what is available from an external service provider. This decision-making process often includes an evaluation of the cost of owning technology - with its associated support costs, that are not core to the enterprise (HR applications as an example). This is leading to an increased willingness to outsource processes considered non-core, yet critical - activities such as claims administration, HR services and payment services.- Desire to Improve Service Levels
A secondary driver of growth in this market is a desire by enterprises to improve their current service levels. BPO offers enterprises an opportunity to do so in many cases, and at the same time removes the requirement for the capital expenditure that would be necessary if the enterprise sought to improve those service levels internally. Service providers who can best communicate their ability to deliver significant process improvement (as opposed to simply taking on an existing process in a status quo manner) are likely to emerge as the market leaders who will change the way in which business has traditionally been done.
- Aim of reducing internal costs
The third most prominent driver of growth in this market is a desire by enterprises to extract all possible costs from within their internal operations. Any chance of decreasing transaction-processing costs frees up precious capital that can then be applied to more strategic initiatives.
- Aim of reducing internal costs
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