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Outsourcing Fundamentals

Independent guide to Outsourcing: BPO strategy, Service Provider selection, contracting and implementation projects. Assessing and improving your current service.

Strategy > BPO vs. Captive

Deciding between Internal and External

Captive shared services and BPO share many of the same benefits. However, there some significant differences in how you would go about a project to realize one or the other, hence treating this question early. This section focuses on the differences to allow a choice to be made.

Since we are still working at the overall process level, the choice between having captive shared services and outsourced should consider the impact on the majority of activities potentially in scope and not worry too much about a few exceptions. The question is whether there would be more benefit vs. risk from one or the other. Having selected one as a premise, the detailed scope can be reviewed and activities may be moved in or out of scope.

Consider the criteria in the table to the right and their implications on your choice.

Simplistically, if the service requirements cannot be specified, then outsourcing is inappropriate; If they can be, then the focus and capability of an external service provider can achieve better performance.

Using BPO brings the capability of the service provider. This can mean an injection of resources, expertise, flexibility and a different culture that, in a well matched relationship, raise the performance of the outsourced activities. Most organisations going through transformation also benefit from having a third party involved.

Captive shared services avoid the need for working across a contractual relationship and sharing information with a third party. They also make changes in direction seem easier.

Both solutions can be applied to most processes and both have proven both successful and occasionally unsuccessful in practice. The decision is often best made on whether the company will put management focus on being world class in this particular process area, or would benefit more from buying that service. Success depends more on implementation than strategy.

Some important criteria:

CriteriaFor BPOFor Captive
The process and/or outcome can be well specifiedRequirementHelpful
Volumes and outcomes are measurableRequirementHelpful
External service providers deliver similar activities already.DesirableN/A
In-depth internal knowledge is essential for delivery. UndesirableAcceptable
The process is highly integrated across other company operations.UndesirableUnhelpful
The company has strong process and service centre management capability.usefulRequirement
The company needs new skills in these activities.Acceptableundesirable
Leakage of proprietary process would put competitive advantage at risk.InappropriateAcceptable
The company cannot achieve full scale economies internallyDesirableundesirable
There are likely to be significant growth, reduction or variability in activity volumesAcceptableInappropriate
There is particular customer or leadership sensitivity to offshore outsourcing. UndesirableN/A
The company has poor track record in managing transformation?unhelpfulInappropriate