Arguments Supporting and Opposing Business Process Outsourcing (BPO)
Business-process outsourcing (BPO) is a type of outsourcing that consists of contracting operations and responsibilities of a specific business process (e.g., human resources) to a third-party service provider. Such outsourcing generally began with manufacturing firms outsourcing their supply chain but has grown into a much wider range of processes, including marketing, finance, sales, and accounting. Competition among firms in the BPO market is strong. Companies based in the United States include HP Enterprise Services, Affiliated Computer Services, and Automated Data Processing (ADP). A number of Indian companies, however, also provide worldwide BPO services, such as Infosys, Wipro, and Genpact.
An article in Business Wire suggested that BPO can save end users anywhere from 30-50% . International BPO service providers are particularly attractive since offshore labor offers an additional 25-30% cost savings. Furthermore, approximately 25% of the cost savings results from BPO firms’ proprietary products. The remaining 10-30% in cost reduction accrues from consolidated operations.
Suppose you are the manager of a company and must decide whether to outsource your Human Resources department.
Based on the information above, please outline arguments supporting and opposing a decision to outsource this function of your business. Use the IRAC method to outline your argument:
1: Identify the issue.
2: Relevant examples or similar cases - Here you need to explain the relevant examples or similar cases, not just list them. This could include sections of other corporate examples, cases, or laws.
3: Application to the facts - the examples are applied to the facts of the issue identified.
4: Conclusion.
Please explain, from a purely business standpoint, any issues that might arise from contracting with an international-based versus U.S.-based BPO service firm?
Business Process Outsourcing
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Identification of the Issue
Business process outsourcing (BPO) involves delegating specific business functions to external vendors. Initially employed by manufacturing firms for supply chain management, it has evolved to encompass various sectors, including services. Most business outsourcing is done domestically or from neighboring countries. When the vendor operates in a different country, it is termed offshore outsourcing, as seen in customer support. BPO has emerged as a distinct industry, with specialized companies like Accenture and DialAmerica facilitating these services globally. The key issue here is establishig if the company needs to outsource its Human Resources (HR) department, considering the benefits and cost savings associated with BPO.
Relevant examples or similar cases
Major corporations in the United States strategically outsource their HR functions to optimize operational efficiency and reduce production costs. This involves contracting with BPO service providers, both domestic and international (Di-Mauro et al., 2018). The primary motivation lies in achieving significant cost savings, often up to 50%, by leveraging the cost advantages of outsourcing, mainly through offshore labor (Business Wire, 2020). Big companies like Google, Facebook, Apple, and Microsoft often collaborate with BPO service providers known for providing additional cost savings or may opt for domestic-based firms for a more familiar operational environment. This outsourcing