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Business Process Outsourcing

July 5th, 2010 by Bharath Lanka

Outsourcing for enterprise organizations comes in many forms. Many people first think of outsourcing in terms of IT third-party service providers, but another type of outsourcing is becoming more and more common.

Business process outsourcing (BPO) entails hiring another company to handle specific types of business activities for your company. BPO can consist of payroll services, employee benefits management, call center services, customer services activities, human resources, accounting, and other “non-core” functions.

Depending on the strategic business plan and the size of the company, BPO contracts can run for multiple years and cost millions of dollars. But companies utilizing BPO also can realize savings in the tens or hundreds of millions of dollars over the life of the contract through savings over implementing the outsourced activities in-house.

The typical traditional corporate structure in the last half of the twentieth century was to build companies as large as possible with all business functions kept within the company. The bigger, the better. Today, however, “lean and mean” is more of the norm, and taking advantage of service providers that specialize in certain business functions often makes better sense for many corporations; helping companies of all sizes stay more competitive in the present business environment. When deciding whether or not outsourcing is right for your company, however, means taking the time necessary to ask the right questions and putting the right internal processes in place first.

Michael Motonen, a vice-president at the Gartner Consulting Sourcing Team, and the BPO lead principal, offers several tips:

Develop an outsourcing life-cycle model and strategy first. Garter has four phases.

1. The sourcing strategy phase considers questions such as: “What are the risks for our company?” “Why are we considering outsourcing?” “What kind of relationship are we looking for with our service provider?” “Will the resulting partnership be enhancing our current processes, or will it be transformative–helping our company change by driving cost savings or increasing revenue?”

2. Selection phase: Evaluate several prospective companies and make the final selection.

3. Contract phase: Develop and finalize the contract.

4. Sourcing Management phase: Included here is the service level agreement (SLA) for milestone benchmarks and other mutual assessment tools.

Take into consideration all aspects of contract duration. BPO contracts are often long-term for a reason. Strategic changes in business functions and relationships with BPO providers take time. A balance is needed between the short-term assessment of results and long enough to meet the stated goals. Most BPO contracts last for three to five years or more. Montonen recommends shorter contracts that allow for periodic reviews and renewals rather than tying yourself into long-term contracts with ten year time frames. It is also recommended that you include in the contract policies and procedures for bringing the business activities back in-house if necessary.

Identify, assess and evaluate any potential risks.

1. Ensure that your vendor is actually able to provide the services within your contract and SLA, and

2. Retain a certain amount of control and internal oversight for the entire process and project.

Ensure that compliance procedures are stipulated in the contract. Your service provider should be able to prove that what compliance regulations apply to your company can be applied to the entire project.

Keep the lines of communication open. On-going and open communication is important for the success of the BPO relationship; not only with your vendor, but also internally with everyone concerned in your own company. Outside vendors often make employees nervous. Proper management of all types of external and internal changes is critical to the overall success of the project and overall company morale.

Posted in Business Processes, Outsourcing, SaaS | No Comments »

Trends in Internet Retailing

June 21st, 2010 by Nitin Bidi

The period 2008/2009 has been characterized as “The Great Recession”, referring to the global economic crisis that began in December 2007 increased throughout 2008. Though there remain serious economic challenges in Europe (Greece, Ireland, Italy, Spain, Portugal, Hungary) there are hopeful signs of improvement in the retail sector in the United States. Online merchants, in particular, seem to be well on their way to recovery here in mid-2010.

Tully & Holland is a United States investment bank that advises on mergers and acquisitions (M & A) and private placements. The firm specializes in consumer product manufacturers and distributors, multi-channel marketers, and retailers. The managing director of Tully & Holland, Stuart Rose, recently released a comprehensive report updating the Internet Retail industry overall and reporting on trends in the M&A internet retail market.

Despite the very difficult challenges of 2009, especially and including losses and restructuring for small and medium-sized businesses, the fourth quarter of 2009 showed strong signs of growth in the fastest growing sectors of the retail industry. Conversely, the M&A sector continued to struggle, although Tully & Holland predict slow but steady growth in this area over the next five years.

Tully and Holland studied the retail marketplace for the years of 2001 through 2008 before summarizing 2009 and making forecasts for 2010 and beyond. One benchmark used in the 2009 summary document was Compound Annual Growth Rate or CAGR. Although the CAGR of Internet sales grew 18.6% from $34.5B to $150B between 2001 and 2009, the actual annual growth rate declined to a near-negative rate in 2008. Other findings for total retail sales and e-commerce include

E-commerce grew as a percentage of total retail sales from 1.1% in 2001 to 3.7% in 2009.
Online retailers enjoyed a very strong Q4 in 2009 over Q408 with YOY (Year-Over-Year) sales increasing 14.6%. That increase represented 4.3% of total retail sales.
Publicly-traded internet retail companies experienced large increases in their stock prices, increasing 130% from February of 2009; contrasting with the S&P 500 Retailing Index which increased about 70% in the same time period.

Merger and acquisitions for Internet retail did not fare as well in 2009, reporting an overall decline of 37% in deals from a total of 57 deals in 2008 to only 36 deals in 2009. The decreased availability of credit brought on by the financial sector crisis, as well as a weak overall U.S. economy are thought to be the major causes for the drop in M&A activity. There were five major transactions which comprised the majority of deals: Retail Convergence, Zappos, NextRx, Circuit City, and Ticketmaster.

The message from Tully & Holland for SMB Internet retailers is that along with growth will come increased competition and reduced prices and margins. To avoid becoming a target for acquisition, SMBs should concentrate on increasing their brand recognition, strengthening their supply chains, and upgrading their financial performance.

Posted in Ecommerce, Internet Retail | 1 Comment »

Outsourcing and the Middle Market

June 14th, 2010 by Bill Martin

Historically, the outsourcing of functions such as help desks, human resources and communications has been concentrated in large enterprises and multi-national companies. Beyond the organizational turmoil associated with outsourcing entire functional areas and the perception of losing internal control over internal business processes, one of the main reasons why small and mid-sized businesses previously did not take advantage of outsourcing is because business outsourcing vendors generally ignored the smaller business marketplace.

In recent years, small and mid-market businesses have begun to embrace outsourcing as a way to increase operational efficiencies, reduce costs, and promote enterprise transformation. As a result, more vendors are now focusing on the small and mid-size business market; helping them to compete with larger companies.

According to Frank J. Casale, founder and CEO of The Outsourcing Institute, for many of these mid-sized organizations, the outsourcing of business processes is proving to be an effective way to cut operating costs and increase efficiencies. He also notes that, in a lot of industries, middle market companies are forced to compete with much larger enterprises. By outsourcing some of their more costly business processes, smaller companies are able to level the playing field. In that regard, outsourcing serves as an equalizer.

Outsourcing of the human resources function is at the top of the list of outsourcing processes, accounting for 73% of back-office services that are outsourced, according to a Gartner, Inc. study. That same study found that business outsourcing by SMBs (small and mid-sized businesses) was valued at over $15 billion in the United States.

With the lingering fear of a loss of control over internal operations, many smaller businesses dip a toe in the water by outsourcing only a very small portion of their functions to service providers; retaining the perceived strategic areas such as finance and accounting in-house. Activities that are increasingly outsourced include facilities management, logistics management, and HR. Small and mid-sized businesses are discovering that outsourcing a portion of their business operations frees up both time and capital resources. Senior executives and managers can then concentrate on more strategic activities that impact the revenue-producing areas of the company. For businesses that have yet to implement an enterprise resource planning (ERP) solution, outsourcing, in the form of Software-as-a-Service (SaaS) provides them the opportunity to access the newest and best technology.

SMBs face some unique challenges when attempting to implement outsourcing strategies. Due to the relative immaturity of broad-based outsourcing services to this demographic, many SMBs simply do not have the teams in place to acquire and manage service providers who may themselves be just beginning to reach out to SMBs. It is important that middle market companies find outsourcing partners that will work with them during the initial acquisition phase as well as providing continuing support as the SMB business requirements change over time.

Often, SMBs consider outsourcing as a series of tasks or separate functions instead of components of an overall sourcing strategy for the company. Service providers must work closely with small and medium-sized businesses to ensure that key business requirements are incorporated, business metrics are utilized and tracked, and specific and measurable short- and long-term outsourcing goals are in place. When researching an outsourcing partner, SMBs should look for companies which possess the knowledge, tools, expertise and experienced staff to help manage outsourced functions.

Posted in Outsourcing, SMB | 3 Comments »

Innovation in the Middle Market: An Outsourcing Option

January 18th, 2010 by Bill Martin

One of the key challenges faced by almost every middle market enterprise is that of continuous innovation. Whether we refer to business model innovation, product and/or service innovation, marketing/selling innovation or any other process, the ability to achieve real innovation rests on an almost insurmountable need to invest human, financial and, sometimes, structural capital that middle market enterprises generally don’t possess. But, there is a way.

The emerging process of “crowdsourcing” provides an avenue for creativity and innovation by tapping the power of the Internet and social media. According to Wikipedia, “crowdsourcing is a neologism for the act of taking tasks traditionally performed by an employee or contractor, and outsourcing them to a group of people or community, through an “open call” to a large group of people (a crowd) asking for contributions.” The community that sprang up around the development of Linux is a benchmark example of the success of crowdsourcing. The process of crowdsourcing is viable for any number and genre of tasks that might benefit from a varied and populous creative resource. This includes developing new technologies, designing new products or analyzing huge amounts of data/information. Crowdsourcing can shorten time to market for new products, uncover ways to cut costs or improve service levels, and heighten market success for new products or enhancements.

The global economy remains challenging for businesses of all sizes, but particularly for those in the SMB market. The notion of leveraging Web 2.0 technologies to harness the potential of tens or hundreds of thousands of talented and knowledgeable individuals in a forum for mass collaboration is the essence of crowdsourcing. While the challenges may be local, the solutions could very well be global and make the difference for middle market firms looking for sustainable channel for competitive differentiation.

Critical to success in this emerging model is precise articulation of the objective. Achieving that, companies can then access thousands of people possessing design, engineering, R & D and promotional skills that are simply not available to firms that are reticent to staff up in the current environment. Crowdsourcing is not risk-free. Participants are not employees and, thus, are not subject to enterprises’ established policies, procedures and controls. That may be a small price to pay to access critical competencies in a cost-effective and expeditious manner.

Posted in Featured, Uncategorized | No Comments »