Business Process Outsourcing, the outsourcing of IT-enabled services centered on a specific business function to a third-party provider, allows retail organizations to simultaneously achieve cost-containment to adjust to the "new normal" in retailing and achieve differentiation through innovation of internal functions.
BPO not only helps retailers drive out costs, but also helps them achieve new levels of productivity. Smart retailers use the cost savings from BPO engagements to help large transformational projects that might not have sufficient funding to move forward on their own. Also, retailers use BPO engagements to help them rewire operations to achieve further benefits by streamlining organizational processes.
When properly leveraged, BPO can offer retailers measurable offensive benefits to achieve success in the marketplace, while also driving defensive benefits. On the offensive side, BPO enables retailers to streamline operations, reduce head count while not losing productivity, increase efficiency, and apply best practices to routine tasks, thereby allowing the retailer to re-allocate resources where they can achieve greater customer benefits.
On the defensive side, BPO drives cost containment and greater business efficiencies that can be added to the bottom line. Through BPO, retailers can significantly reduce capital investment, improve organizational efficiency and agility, and increase focus on core areas of competitive differentiation. It also can free up time for executives and critical thinkers to devote more effort to innovation and "out-of-the-box" strategies.
BPO Deployment Roadmap Retail organizations that are considering launching a BPO program and developing a deployment roadmap should carefully examine the following:
BPO can measurably reduce operational costs by shifting budget away from internal personnel, IT systems and organizational processes for rou
tine tasks that do not provide competitive differentiation or strategic advantage and yet must be performed at a high level of competency. Low-hanging fruit in this category includes certain functions in finance, operations and human capital management. However, in recent years, many retailers have begun opening up vertical-specific areas of the enterprise to BPO. These include some functions in the purchasing and supply chain divisions. By separating high-level, proprietary activities in these areas from lower-level, non-core areas, retailers can achieve new levels of cost savings without jeopardizing competitive advantage or differentiation.
Speed of Operation: For retailers managing routine business functions in-house, speed is a significant issue. As a result of staff cuts, many retailers cannot dedicate as many personnel to low-level, routine tasks as they used to, and instead ask employees to multi-task. This trickles up to reducing productivity of higher-level tasks, due to delays and the fact that many employees are doing both. Using BPO to handle low-level tasks in this scenario solves the problem by simultaneously speeding up delivery of low-level tasks and the higher-level tasks that are dependent on them.
Effective Communication/Collaboration: providers offer a 24/7 model that is a major benefit for achieving satisfaction levels for customer, internal and external communications and support. By outsourcing such functions as procurement, payment and logistics, retailers can increase the efficiency and effectiveness of how they communicate and collaborate with suppliers and partners.
Service Level Agreements: Increasingly, BPO providers are turning to flexible, service-level agreements with their clients. This means that rather than assigning fixed costs and manpower to a specific task, the BPO provider builds in flexibility so that a retailer can adjust the resources directed at a task depending on changing needs.
Change Management: BPO providers have moved beyond their original role of filling specific needs for retailers. Modern BPO providers are leveraging their expertise to provide a full-range of services for complex change-management engagements.
In these scenarios, the BPO provider works with the retailer to examine internal processes and procedures and find innovative ways to streamline and re-organize them to increase efficiency and productivity. For engagements like these, the BPO provider becomes a full strategic partner with a vested interest in the success of the retailer.
Security: In today's world, retailers need to be extremely vigilant about protecting customer data. As a result of handling vast streams of personal and financial data, retailers are prime targets for criminals seeking to steal sensitive data. Several high-profile lawsuits involving major retail chains have led to costly and embarrassing settlements. Therefore, it is imperative for any retailer entering into a BPO agreement to ensure that their BPO partner fully guarantees the security of confidential data.
This article is an excerpt from the RIS Thought Leadership Report, "Using Business Process Outsourcing to Achieve Strategic Innovation." To download the full report, go to www.risnews.com and click on the "Thought Leadership" tab.