By Prof Ndede Amadi
Business process outsourcing (BPO) is predicted to be the creator of the greatest number of jobs in Kenya in the next decade. A good understanding of the BPO concept is therefore vital for you to reap the benefits from this sector.
We’ll start by defining business, then business process, before defining sourcing, and then out-sourcing. We’ll conclude by coining the different terms, defining them, and then showing the reader why, and how, businesses are outsourced, and why, and, how the concept works, finally how it might work for the reader.
These objectives will be achieved in a series of articles in this column in the next few consecutive weeks. The reader is thus advised to read the column consistently for several weeks in order to get well educated on what BPO is and why and how it works for all its players.
What is a business?
A business (also called a company, enterprise or firm) is a legally registered and recognized organisation set up to providing goods and/or services to its target consumers. It is generally used to refer to for-profit, privately owned and operated organisations predominantly found in capitalist economies. The primary purpose of starting a business is to earn profit, which will increase the wealth for its owners and will grow the business itself. The responsibility of achieving these business objectives is usually left to the business managers, under the guidance of a Board of Directors.
A process is as "a set of ‘linked’ activities that transform inputs into outputs. The process adds value to the input to create an output that is more useful to the recipient than was the input"
A business process is a collection of structured and related activities that produce a specific service or product by serving a particular goal for a particular group of customers.
The outcome of a well designed business process is increased effectiveness (value addition for the customer), and increased efficiency (cuts costs for the company). A business process begins with a customer’s need in mind and ends with fulfillment of that need.
There are three different types of business processes:
First, there are management processes, which govern the operation of an organisation or a system. It includes corporate governance and strategic management.
Second, there are operational processes which constitute the core business and create the primary value stream and include purchasing, manufacturing, marketing, and sales.
Third, there are supporting processes, which provide support to the core business processes. They include accounting, recruitment, and technical support.
Determines profitability
A business process defines how work gets done in an efficient, cost effective, and profitable way. The diligence with which business processes are handled determines the profitability, success and even survival of a business.
A business can handle its business processes in one of several different ways:
a) It can engage a consultant to assist with business process improvement and redesign
b) It can implement business process management (BPM) systems to better automate, manage, and optimize business processes;
c) It can outsource its business processes to another organization that specializes in the execution of those particular processes (BPO).
In business, the term sourcing refers to a number of procurement practices aimed at finding, evaluating, and engaging suppliers of goods and services.
For example, Global Sourcing refers to a procurement strategy aimed at exploiting global efficiencies in production, while Strategic Sourcing is a component of supply chain management for improving and re-evaluating purchasing activities. Low-Cost Country Sourcing is a procurement strategy for acquiring materials from countries with lower labour and production costs,. in order to cut operating expenses.
Outsourcing is the subcontracting of a service to a third-party company.
Reasons for outsourcing range from expectations of achieving a lower production cost, achieving better speeds of service delivery, focusing energy and other resources on the core competencies of the business, to making more efficient use of labour, capital, land, information technology and other resources.
Business process outsourcing (BPO) is therefore the contracting of a specific business task or set of activities, such as payroll, to a third-party service provider, as opposed to doing the work in-house.
The BPO is implemented as a cost-saving measure for tasks that the outsourcing company requires, but does not depend upon, to maintain its position in the marketplace (non-core activities).
BPO is often divided into two categories: back office outsourcing, which includes internal business functions, and front office outsourcing, which includes customer-related services.
Next week, we will look at the different kinds of business process outsourcing (BPO) assignments.
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