Outsourcing and business process standardization

July 5, 2008

In late 1990 businesses started outsourcing their noncore business processes, mainly to save cost. Recently businesses started seeing the potential of outsourcing and started using outsource vendors for both their noncore and core business processes to gain strategic value in their businesses. Companies are seeing success in their outsourcing initiatives and reporting all the outsourcing benefits like cost saving, operational efficiency, and strategic advantage in their core businesses. For companies there is no way to measure all the outsourcing benefits achieved by their outsourcing efforts.

How do you know your accounts receivable outsourcing project brings all the benefits?

Of course the cost can be measured easily, what about other benefits? In fact recent KPMG International study revels that companies couldn’t quantify the benefits of their outsourcing initiatives.

Business process standardization can be the answer for companies to measure their outsourcing success or failure.

Process Standardization
A business process is a set of activities a company can perform to fulfill a particular goal for either their internal or external customers. A process can happen within a department or with intradepartments within a company or across companies. Irrespective of where the business process occurs companies must agree on what set of activities makes up a business process in their specific industry. For example, what activities are needed to perform an accounts receivable business process within a retail industry? Of course within a retail business each company has its own set of activities for their accounts receivable process. But if they all agree on overall reference model for account receivable process, if all the outsource vendors follow that reference model then companies can make a qualitative measurement on different vendors accounts receivable processes. Industries are responding slowly in creating and formalizing the standard process reference models. The supply chain council created SCOR, supply chain operations reference model that are followed by several companies. Efforts like this will ensure companies to agree on what it takes to fulfill a business process with the outsource vendors.

Process Performance Standardization
Process standardization helps companies to agree on what activities makes up a given business process, within a given business process it does not say anything about the outcome of performing the activities. Specifically companies must agree on the common answers for the following questions within the business process reference model:

  • What should be the result of following the activities of a business reference model?
  • How long it takes to complete an individual activity within the business reference model?
  • How long it takes to complete all the activities of a business reference model?
  • What are the outcomes of delaying to complete the activities of a business reference model?

Once the companies and the outsource vendors have a common answers for these questions, companies can compare the performance of their internal team with the outsource providers. Here again the industry is moving in the right direction, the nonprofit organization American productivity and quality center (AQPC) has been working with many organizations to create process performance standards for companies to measure and improve their process performances.

BPstandard Outsourcing and business process standardization

Process Management Standardization
Once the process standards and process performance standards are defined final step is process management standards, deals with process and its measurement management. The process management standardization helps both the companies and the outsource vendors to have uniform mechanism to check and improve the quality of the processes and its performance. In software (CMM) and manufacturing (ISO 9000) domain, companies have been using process management standard for several years.

Measuring business process outsourcing
The combination process, process performance, and process management standards will give companies to measure all the outsourcing benefits like cost, quality, efficiency, and strategic value. Given a process companies can measure if is better to do it internally or give it to an outsource vendor. The business process outsource providers can use the process standards to measure and improve their service offerings to its customers.

Once the standardization happens within an industry and all the outsource providers follow the process standards then all the outsource vendors will provide same quality of service for the same cost. In this case how the outsource vendors will distinguish their service offerings? They need to come up with new ideas and innovations in their business process services to distinguish among their competitors. This is already happening in the form of BTO.

Future of outsourcing and business Standardization
The process standardization alone cannot guarantee for companies to measure the business value of their outsourcing efforts. The business process standardization gives a reference model for the companies to define, check, and manage the business processes. It should be the responsibility of the companies to use the reference model effectively to measure their business process outsourcing efforts with the outsource vendors.

Though there are several efforts are going on in business process standardization, it is a long way to go for all the companies to agree on a common set of business process standards. Also companies need to overcome the issues like integrating their unique processes with the rest of the standard processes managed by the outsource vendors. For example, within a given business domain, say electronic retailing each company has its own internal processes to perform their daily operations that distinguishes the company among its competitors. These companies don’t want to change or expose those processes to the outside world. Even if they standardize majority of their non core business processes and outsource them to the outsource vendors, if they need to integrate those business processes to their internal non standard business processes, measuring the outsource value will be a daunting task.

However as companies move towards the process standardization it brings significant strategic value to its outsourcing initiatives. Companies can have a way to measure how their internal team is performing the business processes and compare the result with the external outsource providers. This helps the management team to make an informative decision on their outsourcing initiatives.


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