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May 2011 | Outsourcing Blog | BPO Industry Updates and Articles

Captive Outsourcing for Businesses

A recent benchmarking study using the captive outsourcing model was recently completed among outsourcing service providers in India by outsourcing advisory firm TPI. Aside from including cost factors, the TPI study also added operations and processes into the mix in identifying and evaluating current industry trends. They have identified the following trends occurring among the captive operations of outsourcing service providers:

Increased use of global service delivery centers. Captive operations have crossed geographical boundaries, with outsourcing service providers opening service delivery centers in Tier 1 and Tier 2 cities. Usually, operations are based on the specific human resource offerings of a city. The number of large companies pursuing the multicountry/multiregion captive model is also on the rise.

Increased use of combined delivery models. Outsourcing service providers are also “outsourcing” services themselves by hiring third party service providers for their non-core processes. Captive models have shifted to using third-party service providers in delivery services to clients, maintaining supervisory control and project responsibility.

Meeting cost efficiency issues through innovative solutions. Attrition among entry-level BPO employees has evolved from being a problem to becoming a solution to meet costing challenges. Companies have turned to cloud computing and virtualization technologies to augment manpower, optimize costs, and streamline delivery operations.

Focus of core business on emerging local markets. Clients are leveraging their captive models to gain entry into emerging markets, such as the developing economies of India, the Philippines, and China. Captive operations are also used for domestic markets via localized services.

Talent pool for global operations. Captive operations have become a source of world-class workers for client companies. Personnel and staff are often shifted to other delivery centers to either start up pioneer centers or lead scaling-up operations.

In the world of outsourcing, the word benchmark basically means comparing data with those of the other players in the industry. This is done to regulate pricing schemes and methods, according to the market’s criteria. Benchmarks don’t only serve as points of reference, these are also used to study cost reduction practices, and in some cases, point out areas for improvement in operational structures.

Ways to maximize information from benchmarking practices

TPI, an outsourcing consultancy firm, shared five ways on how an outsourcing company can maximize information from benchmarking practices, based on the article by Max Staines, President of Compass North America:

1. Plan. For example, results from benchmarking show that you are spending more than the usual on data storage. You learn that the factors that are causing the heightened expenditure are instigated by defunct and costly processes. It is highly suggested that rather than going for quick resolution, one should opt for a long-term solution that can fix the current situation, and then become an unceasing beneficial system.

2. Use it as leverage.  Benchmarking can either make or break a company if not used properly. You can incorporate findings from benchmarking into your strategy and improve your company’s weak areas. Also, findings from benchmarking do not always mean you have to adjust your prices, it means improving your core processes so that you are able to satisfy clients and improve practices.    
3. Establish universal standards. All companies involved in data gathering should decide which factors should be considered in benchmarking.

4. Avoid misunderstandings by being transparent. Once the results have been collected, there will be times when data will be perceived by other parties as weak and unreliable. All questions should be entertained and doubts should be addressed immediately. Practice being open with one another, not only in the benchmarking process but also the data collected. Show that you are willing to participate instead of opposing other members.   

5. Schedule your benchmark analysis properly. The study should be conducted before sourcing changes are applied to the participating companies. Data gathering done way after the contract term may result to unwanted conflicts.