Application of a process methodology and a strategic decision model for business process outsourcing

Abstract

The objectives of this case study are to explore the strategy of business process outsourcing with focus on the service sector industry, and present a toolkit for deciding what and when to outsource in order to optimize a company's process metric, profitability or productivity while minimizing risks and exposures. The recommended process methodology for outsourcing features life cycle phases with go-no-go decisions in each phase. This assumes a mature, highly competitive company wanting to leverage the global outsourcing market opportunities. Emphasis was given on the strategy creation and business analysis activities, which highlighted use of strategy formulation tools and business decision modeling. The software-based model was vetted against a fictitious company modeled after an existing e-commerce company, faced with an outsourcing decision for its website maintenance and call center operations. Decision modeling was conducted in two stages: 1) Using Decision Matrix and Failure Mode and Effects Analysis (FMEA), compare the attractiveness and risk numbers among three locations assessed - USA, India, and South Africa, and 2) Using @Risk software, perform a statistical/financial analysis and modeling. India turned out to be the best choice, where the company would expect to realize a significant increase in cash flow per year. This paper outlines a roadmap for managers contemplating an outsourcing strategy. Leveraging a business decision model will assist in choosing from among various alternatives and forecasting expected financial benefits. The authors also incorporated industry best practice of making go-no-go decisions for each phase of the project, serving as gates to the next phase. This will allow management to tightly manage resources and control cost of outsourcing. An original element of this paper is the business decision model for the service sector.

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