Can Business Process Outsourcing Be Impactful?

Y Karimi100x100By: Yekta Karimi, GRI Data Partner Report Analyst at Governance & Accountability Institute

Those persons who tend to disapprove of the outsourcing phenomenon often think of three things when they hear the word: first, that outsourcing necessarily means offshore outsourcing; second, the idea of businesses encouraging inhumane treatment of workers and the presence of sweatshops; and third, that outsourcing is taking away jobs from perfectly capable domestic citizens and giving the jobs to foreigners.

Even though this mindset seems to be on the decline, it is still very essential to address each of these issues as they relate to effective Business Process Outsourcing (BPO).

BPO is the outsourcing of one or more parts of a company’s supply chain to a vendor, either in the same country or somewhere outside of the home country. This approach is now being complemented by business process management—a management approach of aligning a business’ processes with its clients’ wants and needs.

As globalization trends in various industries increases the reach of industry players to many venues, and transparency becomes a more sought after characteristic by consumers, many large multinational companies and even smaller enterprises are now focusing on improving the business ethics of their outsourcing operations.

In fact, the relationship between many American companies, for example, and their outsourcing vendors is evolving to resemble a partnership rather than the traditional company-vendor relationships. This new model is often referred to as the Managed Service Model (MSM).

The shift to a Managed Service Model means that companies are
increasingly relying on the governance of their vendors for success.

The shift to MSM means that companies are increasingly relying on the governance of their vendors for success as up to 15 percent of the value of an outsourcing contract can be lost due to mismanaged vendor governance. This has encouraged many companies to invest in entities, both locally and abroad, which have efficient governing structures and adhere to governance best practices.

Oftentimes the ethical issues connected to outsourcing are generally perceived as the exploitation of workers living in poverty in the developing world. However, the BPO industry has the potential to empower a lot of foreign workers to lift themselves out of poverty and pursue further education. This new trend is referred to as Impact Sourcing (IS) and is steadily on the rise. IS is a perfect blend of Corporate Social Responsibility (CSR) and BPO in order to benefit the companies and consumer while also delivering a social impact.

The company Impact Hub serves as a liaison for companies and BPO service providers that hire and train disadvantaged women and youth in developing nations. Impact Hub estimates that there are 560,850 IS workers today. Even though studies show that both workers in the developing world usually approve of the presence of multinationals and that these same multinationals are aiming to enhance the working conditions of their foreign employees, the unfortunate reality of sweatshops is still something that needs to be addressed in a concrete way.

The American Prism

As expanded exposure of unethical behavior by outsourcing vendors in other countries continues, and more stakeholders learn more about certain practices or companies, American companies are forced to consider working only with vendors that practice ethical treatment of their laborers.

The news is not all bad. In places like the Philippines and El Salvador, the booming outsourcing industry has helped create a growing middle class as more people are benefiting from jobs that are stable and abundant.

Philippines call center. Photo Courtesy of Yugatech BPO News

Philippines Call Center.
Photo Courtesy of Yugatech BPO News

Additionally, the existence of a growing middle class and the availability of higher paying jobs means a decrease in the “brain drain” phenomenon as less people are forced to leave their countries in order to make financially stable lives for their families back home.

So why is it that so many Americans may still fear the mistreatment of employees in foreign US subsidiaries or vendor operations in the developing world? Is it feasible to expect a company to pay their foreign workers in a developing nation the same wage that they pay their American workers when we are looking at completely different economies, spending and saving cultures, and living standards?

It is important to understand the weight behind the use of the word “sweatshop.” Sweatshops are more than just businesses paying below living wages; they are also places that practice child labor; have inhumane and unsafe working environments; and are noted for the constant exploitation of workers’ poverty to work them hours on end without breaks or time for sleep.

An article on foxnews.com (2004) mentions that sweatshops for laborers in the developing world “…may actually be the best of a series of bad employment options available to them, and/or the only or best option for supporting themselves and lifting their families out of poverty.” If developed countries are to live by this standard, than we can just as easily say, for example, that the best option for American youth in poverty is to obtain a high school diploma so there is no reason to aim for anything higher.

It is understandable that child labor is a different matter in the developing world as it is in the United States. In many developing nations, removing a child from their job can result in much worse fates for them and their families. Not abiding by Western child labor law ideals does not change the economic setting of the developing countries and instead can make matters worse, sometimes resulting in child prostitution or crime.

The global community can do better to alleviate abuses on several fronts.
This is where Corporate Social Responsibility can play a large role.

The global community can certainly do better to alleviate these abuses on several fronts. This is where Corporate Social Responsibility (CSR) can play a large role. Rather than drastically eliminating certain aspects of outsourcing operations or completely ending these operations, companies – especially those that are financially able – can use their R&D resources to promote education, child and health care, and other community benefit programs to support their offshore outsourcing.

Word Cloud Photo Courtesy of Kheng Guan Toh  and www.referenceforbusiness.com

Photo Courtesy of Kheng Guan Toh and www.referenceforbusiness.com

The decline in the use of sweatshops and increasing wages for workers employed at foreign companies in the developing world can be attributed to two trends: (1) the increased demand for ethical behavior and transparency from consumers, and (2) the better understanding of the benefits of CSR.

CSR Impacts

A company that engages in CSR and practices good business ethics, can make a better case for its clients who may not believe that outsourcing is a good thing for either the company or its foreign workers. The CSR program can serve as a mitigating factor in some of the perceived negative aspects of BPO. It has been shown that companies who have formal CSR strategies have happier and more efficient employees, which means that a company that supports its BPO activities with a CSR strategy, should be able to reduce some of the potential risks related to outsourcing by creating a more welcoming environment for employees to thrive. Employees who work for companies committed to ethical practices and engage with their communities in a positive and impactful way often feel more values, happy, and safe, which results in higher productivity levels and lower risk of attrition. Indeed, a 2012 Net Impact survey showed that 45% of respondents would take a 15% pay cut, with all other factors equal, for a job that makes a social or environmental impact.

An active CSR strategy has been proven to serve as a positive financial benefit to company – Unilever is a well publicized exampled of this. However, more than just financial gains, CSR engagement results in better branding for companies and can mitigate the negative perceptions that many have on outsourcing. As more companies ensure that their BPO activities are ethical and socially beneficial, those companies that are left behind will need to find ways to catch up in order to maintain customer retention rates and remain as going concerns. BPO has even higher impact potential with the influence of CSR and IS.

About the Author: Yekta Karimi is a GRI Data Partner Report Analyst at Governance & Accountability Institute (the exclusive GRI data partner in the US, UK, and Ireland). She is also a graduate student at Columbia University’s School of International and Public Affairs, pursuing her Master’s degree in international affairs with a focus on international finance and economic policy.

Prior to coming to New York, she worked as a program director for a Small Business Development Center in California. Having lived and traveled all over the world, Yekta has invested her interest in international relations and sustainability looking to fuse the private and civil service sectors.

 

 

Doing Good By Doing Well & More – Impact Sourcing

F Walsh100x100By: Fiona Walsh & Guillaume Poznanski, Authors of the 2014 study and survey “Social Sourcing and Socio-Commercial Outsourcing” conducted for University College Dublin.

Impact Sourcing (IS) combines commercial objectives to provide digitally enabled services with a development scheme to hire and train individuals, marginalised because of race, religion, gender, disability, location and income, who live at the bottom of the pyramid (BOP) with few opportunities for good employment. IS can be seen as a way to leverage a €400 billion outsourcing industry in G Poznanski100x100order to create stronger employment retention rates and improved engagement. Approximately 10% of people employed in the BPO industry fall into the category of IS workers.

The theoretical foundations of IS may be related to research by Prahalad and Hart in 2002 regarding the commercial benefits of involvement with low-income marginalised groups. Public awareness of Corporate Social Responsibility (CSR) has also forced commercial businesses to work on implementing social objectives as strategic goals along with earning a profit. In 2013, Malik and Nicholson conceptualised IS into two categories: Social Outsourcing (SO) and Socio-Commercial Outsourcing (SCO) based on CSR.

The social enterprise concept has gained increasing popularity since the late 1990’s. In their work on self-determination and new social entrepreneurs, Jed Emerson and Fay Twersky in 1996 defined “social enterprise” as “a revenue-generating venture founded to create jobs or training opportunities for very low-income individuals, while simultaneously operating with reference to the financial bottom-line”.

Photo courtesy of JSW Foundation

Photo courtesy of JSW Foundation

IS is a viable business option for clients and can sometimes offer higher standards of quality than traditional BPO service providers. Cheaper options for any product or service tend to be perceived with lower quality, but not in this case. Employees of the non-profit organisations examined in our study conducted in 2013-2014 are from the poorest socio-economic group. These companies have lower overheads and, therefore, the services they offer can be priced competitively.

In 2011, Monitor Group anticipated that a number of trends will drive the growth of the IS market in the coming years. For example: organisations and governments are under pressure to source and deliver non-core services in a cost efficient manner; a trend exists for archive digitalisation, be it documentation, images, journals, newspapers or books. There is also an inherent desire to digitise old data while they are still salvageable; advances in global infrastructure will reach into more remote areas and open up opportunities to allow new regions and countries to compete for outsourcing work.

Why Impact Sourcing is Needed

There is criticism and debate about global outsourcing in a number of areas, such as the unequal distribution of wealth, unemployment issues related to the low wages offered to marginalized communities and the authenticity of social development objectives of commercial organisations. Nonetheless, in the last decade especially, the use of Information and Communication Technologies (ICTs) has become an important part of the social development movement.

The Monitor Group reported in 2011 that IS increased the net income of marginalized people (40% to 200%) thereby facilitating family spending on health and education. The same report also claimed that IS creates business profitability for impact sourcing organisations established in small cities and rural areas by reducing approximately 40% of the total comparative operational expenses in metropolitan areas.

IS is characterized by three attributes of social enterprise: social development goals, business strategy and innovation. Organisations in the Social Outsourcing category are different from commercial outsourcing organisations because they conduct non-profit or for-profit ITO or BPO outsourcing activities, instigated specifically to achieve the social development of marginalized people.

The second class of IS, Socio-Commercial Outsourcing, derives from CSR – “doing well by doing good”. CSR is typically presented as a management strategy as it can improve the perception of its core values to clients and external parties and increase a firm’s long-term competitiveness. This class of IS includes all outsourcing activities generated as a result of CSR initiatives of a business for the social development of marginalized people which ultimately grows the bottom-line.

Case Studies

As with any domain of activity in its early stages, there is a range of different participants using a variety of IS models to provide services. The following entities in Table 1.1 reflect some of the models and illustrate key problems and operating limitations that need to be addressed as these organisations and the field of IS develops. These impact sourcing service providers (ISSP) employ individuals with a variable range of educational backgrounds.

Table 1.1Case Studies

Table 1.1 for Item8DataHalli

DataHalli was established in 2006in Karnataka India as a pilot project under the general CSR objectives of the JSW Group, its parent company. DataHalli employs around 300 young women and provides non-voice BPO solutions to industry, specialising in process manufacturing. The company’s aim is to empower women in rural areas and change their lives by offering meaningful employment.

These women learn to view themselves as valuable contributors and responsible members of the organisation. The income earned improves their family’s standard of living and provides them the ability to fund additional education. At the entry level, DataHalli employees earn an average monthly income ranging from 3,000 Rupees (€35) to 5,000 Rupees (€60) depending on experience.

Digital Data Divide

Digital Data Divide (DDD) is a BPO service provider established in 2001, operating in Cambodia, Laos and Kenya. DDD employs young people while sponsoring them to go to university and gain a degree. Staff work a six-hour day and attend university in the evenings.

DDD has a 3-8 month training program to build basic computer skills and master business English, at the end of which, trainees are hired as BPO operators.

Typically, staff proceed to better jobs with alternative employers, however, there are managerial positions within DDD for those who exhibit the required skills and wish to do so. DDD graduates on average earn four times the average wage for their country and their living conditions are vastly improved, for example, a DDD graduate would have running water in their home as opposed to an outside well.

iMerit Global Smartsourcing

iMerit born out of The Anudip Foundation, a non-profit organisation that sets up IT training centres in rural India, provides IT and BPO services. Providing employment to the desperately poor Ganges Delta region, it became an independent company in 2012. They have since expanded to operate in other areas of East India, such as Kolkata and Bengal.

Photo courtesy of iMerit

Photo courtesy of iMerit

They focus on employing youth and women in these areas who are graduates of The Anudip Foundation’s MAST (Market Aligned Skill Training) training program. MAST offers technical training in a wide range of areas from desktop publishing to cyber café management. They also offer modules in workplace culture, workplace English, entrepreneurial skills and business basics. On average, their staff earns roughly three times more than they had in previous informal employment.

IndiVillage

IndiVillage is a BPO service provider established in 2009, located in Yemmigannur, Andhra Pradesh, India, employing 50 staff. Their purpose is to bring the benefits of globalisation to rural locations in India where opportunities for employment did not exist.

The profits from the business are reinvested in the local community. IndiVillage sponsors the education of 280 local children, underscoring their belief that it is critical for empowering people in disadvantaged communities. Their future employees will be better educated, have relevant skills and will, therefore, require less training investment.

Invincible Outsourcing

Invincible Outsourcing is a BPO service provider in Johannesburg, established in 2012 and part of the Maharishi Institute. Students complete a training program to equip them with the skills to perform basic call centre duties whilst completing a two-year foundation program to enable access to a BA degree program.

Students receive a proportion of the revenue gained and the surplus goes to pay for their tuition fees. Using tuition-reimbursement principles, the students use part of their earnings to repay the fees to fund their education. In addition to their education, students gain valuable real life experience by working in a professional environment. With this business model, all revenue raised is for the benefit of the students.

VADS Berhad

VADS Berhad is a BPO and ICT service provider based in Malaysia. The business was established in 1991 as a joint venture between IBM and Telekom Malaysia. In 2010, a team was commissioned to brainstorm ways to reduce staff attrition. At that time, attrition rates for BPO services were on average 35% annually.

The vision was to employ people with disabilities as Kuala Lumpur had little opportunity for disabled people. In order to provide a suitable working environment for a disabled team, VADS installed a wheelchair ramp, disabled toilets, and special desks and equipment to enable them to work efficiently. VADS has a continuous improvement program to ensure their disabled staff have access to the latest disability aids.

Operational Benefits of the Impact Sourcing Model

The main benefits noted by our survey respondents relate to staff management aspects such as lower attrition rate and staff satisfaction which account for 50% of the results. One can also note in Graph 1.2 that 33% of respondents confirmed that 80-100% of their customers would choose their organisation because of their IS model.

Graph 1.1 – Benefits of Impact Sourcing model

Graph 1.1 for Item8

Graph 1.2 – Customers selecting business because of Impact Sourcing model

Graph 1.2 for Item8

With regard to the decision to create a BPO or ITO business with an IS model, 93% of the respondents pointed out their primary motivations were lower staff attrition rates, lower staff costs, ease of recruitment and skill set labour pool (see Graph 3.1). Furthermore, 67% of the companies involved in impact investing would do so in order to improve the quality of life of their employees rather than working on a socio-commercial goal or CSR strategy (see Graph 3.2).

Graph 3.1 – Decisional influences to invest in an Impact Sourcing model

Graph 3.1 for Item8

Graph 3.2 – Is your initiative part of a global CSR enterprise?

Graph 3.2 for Item8
Investment Considerations

Lower attrition rates are typically the biggest factor influencing investment in an IS model. In 2010, VADS Berhad, working with The Global Sourcing Council, established a project team to address the high attrition rates within their BPO teams. Their objective was to answer the question: “What does it take to create a high performing and sustainable BPO operations team?” Two integral components were identified:

  1. Alternative resource that is not from the traditional resource pools.
  2. The creation of a structured enablement program (the disabled employee model).

Following the above insights, VADS Berhad looked to shift their primary resource pool to people with disabilities, deciding to “disable disabilities at the workplace”. To ensure their disabled staff had the latest disability aids, equipment, and technology to allow them to perform their jobs, they formed a working committee with representation from varying functions. The aim of the committee is to continuously improve the working environment and conditions for each new entry of disabled staff.

VADS Berhad attrition rate for their disabled team in 2011 was 4%, compared with the industry standard for BPOs that were 35% annually at that time.

The business model of sponsoring students naturally reduces attrition rates as employees are committed to a fixed term education program. In the case of Invincible Outsourcing, this is a two-year program. For Digital Data Divide, the term varies as sponsorship is granted for a range of courses.

In the example of a rural business model, attrition rates are low and tend to stay low, as there are no other potential employers in the immediate vicinity.

On the issue of whether IS caused the compromise of any services on offer, our survey revealed an interesting answer. The highest response to this question was: “nothing compromised.” However, respondents did comment that the scope of services on offer was limited depending upon the skill sets of the local labour pool.

Five of our six survey respondents who have pure IS models, the exception being Vads Berhad, felt that some of their clients choose them due to their business model, and two of the non-profit organisations claimed all clients choose them for this reason.

What Next?

According to a 2012 report from the International Labor Organisation, half of today’s global population is under 25 years old with 90 percent of these living in poor countries and 88 million are jobless. Many are growing up in rural areas where there are very little work opportunities. Furthermore, 152 million youth live on employments that offer no tangible prospects to get out of poverty. Disheartening statistics? Yes. Hopeless improvement probabilities? No. Social enterprise goals, especially in the ICT sector, are providing viable exits from poverty and illiteracy for millions of people around the globe. Concerted efforts to continue to do good by doing well holds enormous potential.

It is true that while Impact Sourcing is gaining momentum and attracting attention, there are still very few BPO and ITO companies operating with socially responsible business models. However, the BPO and ITO market sector is set to continue its growth in the coming years, and there will be more opportunities for the creation of new and the expansion of existing IS ventures.

About the Authors:

Fiona Walsh is originally from Birmingham, England and now resides in Wicklow, Ireland. She is a graduate student studying for a Masters Degree in iBusiness (Innovation through ICT) at Michael Smurfit Graduate School of Business at University College Dublin in Ireland. She has a background in Applied Chemistry and previously worked for Oriflame, a global cosmetics company for over 14 years starting her career in new product development before entering the professional IT sector six years ago.

Guillaume Poznanski is originally from Paris, France and is now based in Dublin, Ireland. He is an IT Systems Specialist with over 10 years of experience in IT Service Management. Guillaume holds a Bachelor of Arts Degree in Business Information Systems from Liverpool John Moores University and is studying for a Master’s Degree in iBusiness (Innovation through ICT) at Michael Smurfit Graduate School of Business at University College Dublin.

Table A: Taxonomy of Impact Sourcing Organisations

Table A for Item8

Table B: Walsh & Poznanski 2014 Survey Results

Table B for Item8

 

 

 

GSC 3S Boot Camp© – Experience that Makes a Difference

J Gandhi100x100By: Jimmy Gandhi, GSC Board Member and Director of the GSC 3S Boot Camp©

The GSC 3S Boot Camp©, held in New York City from May 29 through June 3, was attended by the winners of the 2013 GSC Awards in Sustainable and Socially Responsible Sourcing and students of the sustainability program at New York’s Stony Brook University.

“It was an absolutely life changing experience”, said Karmesh Ghosh from JSW, the winner of the People’s Choice Award for GSC 3S Awards. And life changing it was – from Tigers in the Jungle©  survival simulation team exercise, to The Treasure Hunt through Sustainable NYC© an eye opener for both New Yorkers and oversees attendees.

The participants of the GSC 3S Boot Camp© had an opportunity to study and discuss the latest developments in the science of sustainability, enhance their executive skills, learn new communication techniques and problem-solving methods, and share their own experiences under the guidance of the world-class executive trainers.

Boot camp3

GSC 3S Boot Camp© participants with GSC Chairwoman Wanda Lopuch and GSC President Bharat Ramani

The Treasure Hunt through Sustainable NYC©, an exercise-adventure conducted over the course of an entire day, combined teamwork and discovering a sustainable NYC. It was one of the highlights of the Boot Camp: from viewing the New York skyline from the water while discussing the shoreline protection challenges against the backdrop of the 2030 NYC Plan; to exploring the revived economy of the Meatpacking District from the perspective of the old railroad tracks of the Highline Park while appreciating the power of community initiatives in making change happened; to learning details of the ConEdison Sustainability Program on the top floor of the Roosevelt Landings residential complex, a compelling example of a public-private initiative in an energy saving project .

The GSC 3S Boot Camp© experience was enhanced by the attendees participating in The World BPO/ITO Forum on June 2-3, which allowed them to acquire new knowledge in this sector, as well as provide networking opportunities with C-Suite executives, and learn ways to implement the newly learned skills and techniques.

Trainer Julie Ellis leads GSC Boot Camp Executive Skills Training Session

Trainer Julie Ellis leads GSC Boot Camp© Executive Skills Training Session

All GSC 3S Boot Camp© attendees participated in lively discussions, where they challenged traditional views and ideas, shared different cultural perspectives, generational views and professional experiences. Contributions by the students, who offered refreshing insights into motivation, communication and teamwork, were very much appreciated by all. An illustration of how much these contributions were valued, involves the GSC 3S Boot Camp© participant and winner of 3S People’s Choice Award, Dr. Vishal Pattal, who heads the CSR program at JSW Group. Dr. Pattal extended an invitation to three students/participants to study sustainability at JSW Group facilities in India for an expense-paid sustainability internship.

Upon finishing a real application project, the GSC 3S Boot Camp© participants will receive 3S Certification – Certification in Sustainable and Socially Responsible Sourcing.

“The battery of newly acquired skills, management tools and new contacts made during the six days in New York City, enables the GSC 3S Boot Camp© participants to grow and scale-up their 3S Award winning programs in their companies and communities” said Wanda Lopuch, Ph.D., the Chairwoman of the Board of the Global Sourcing Council. We are very grateful to JSW for their internships offer to the youngest participants of the GSC 3S Boot Camp©, which is a tangible example of breaching cultural and generational gaps. This is truly a win-win initiative. The GSC is looking forward to hosting the next event in 2015.

About the Author: Jimmy Gandhi, Ph.D., is the Director of the GSC 3S Boot Camp©. The program demonstrates the commitment of the Global Sourcing Council to incorporate the latest aspects of socially sustainable sourcing in its training and professional development courses.