DOi: 10.2478/V10051-011-0015-8
The Perspective of Business Process Outsourcing in Slovenian Organizations
Franc Brcar
REVOZ d.d., Belokranjska cesta 4, 8000 Novo mesto, Slovenia, franc.brcar@renault.com
Business process management (BPM) and business process outsourcing (BPo) play an important role in organizations helping them ensure competitiveness and competitive advantages and increase efficiency and effectiveness. our study analyzes the role of outsourcing in Slovenian organizations. Data was obtained through a survey and interpreted with descriptive statistics, frequency statistics and Wilcoxon's signed ranks test. According to the results of statistical analysis there is 95% reliability that the degree of outsourcing of business processes in Slovenian organizations will increase and this applies to most business processes. Thus we can conclude that Slovenian organizations are following the trends in global markets and are adjusting to them as well.
Key words: business process management, business process outsourcing, BPo, management, process
1 Introduction
Organizations have to constantly move forward. Only in this way they will survive and prosper in competitive markets. In order to achieve this they have to use every available opportunity. The best approach to ensuring an ongoing competitive advantage is Business Process Management (BPM). In order to successfully implement it, two factors are necessary: (1) business process re-engineering; and (2) employee involvement (Hung, 2006). Business Process Outsourcing (BPO) can be viewed as part of the business processes management.
BPO means contracting of operations and responsibilities of business function (i.e. business process or process) to a third-party company or service provider. A contract is an agreement between two or more parties, usually between vendor (organization) and supplier; and outsourcing is the process of contracting. Business process is sometimes perceived as activity or task, however in our study we will use a short expression: process. In general outsourcing means hiring a service from a company located in another country; more precisely, nearshore outsourcing means hiring a nearby country company and offshore outsourcing means hiring an overseas country company such as India. Outsourcing is a short expression for BPO.
Organizational changes are usually the consequence of adaptation to market conditions. Slovenian economy has made two major adaptations - after independence in 1991 and after joining the EU in 2004. As protectionism was eliminated and international standards adopted, Slovenian economy was forced to introduce radical organizational changes, including business process outsourcing. Initially, organizations chose to outsource business processes in the field of Food service and
Security, which are both supporting processes; while today they also opt for partially or completely outsourcing primary processes. The main objective are improvements in the area of costs, deadlines and quality, as businesses have recognized that some tasks could be performed cheaper, faster and better by a specialized supplier than by the organization itself.
The purpose and objective of our research is to determine how Slovenian organizations view outsourcing business processes and the forecasts for the future. We can expect that life-cycle rules apply for BPO: progressive growth after the introduction, followed by a period of maturity or steady growth and finally decline of activities. In accordance with this, we have defined the following hypothesis: the level of business process outsourcing will increase in Slovenian organizations over the next three years.
2 Literature review
Business process outsourcing is a strategic decision that affects the entire organization. The most common motivation for BPO introduction is cost reduction. This is not a valid approach and it leads to trouble. Abraham and Taylor (1996) believe that one of the main causes for global outsourcing is high-wage organizations taking advantage of low market wage rates, e.g. in oversees countries. Stronger strategic reasons have to be found. Beverakis, Dick and Cecez-Kecmanovic (2009) argue that the most important reason is to become more competitive in the marketplace; by reducing its operational costs, and establishing a global presence.
Often, the implementation of BPO brings with itself significant organizational changes; therefore all argu-
Received: 1st October, 2010, received in revised from: 7th June, 2011, accepted: 26th June, 2011
ments in favour must be closely examined. The reasons are (Power, Desouza & Bonifazi, 2006): (1) cost savings; (2) focus on core business; (3) access to resources and knowledge; (4) growth in global knowledge; (5) increased sophistication of IT (Information Technology); and (6) global diffusion of knowledge. Not to forget cost reduction in telecommunications, higher level of computerization and informatization, higher level of education, mobile technology, e-mail, video conferencing, web conferencing, instant messaging and other collaborative tools. Access to resources is important for all organizations; ownership of resources is only of secondary importance. Similarly Brown and Wilson (2005) list ten arguments for outsourcing: (1) accelerate re-engineering benefits; (2) gain access to world-class capabilities; (3) earn cash back; (4) release resources for other purposes; (5) re-evaluate problematic functions; (6) improve company focus; (7) make capital funds available; (8) lower operating costs; (9) minimize risk; and (10) gain access to resources not available internally. Dyer, Kale and Singh (2001) define four advantages of strategic partnerships: (1) improving knowledge management; (2) increasing external visibility; (3) providing internal coordination; and (4) facilitating intervention and accountability. Hoving (2007) stresses the importance of: (1) engaging professional skills; (2) selective partnerships; and (3) integrated external solutions. Atesci et al. (2010) draw attention to organizations' needs to: (1) manage strategic transformations; (2) be able to execute contingency plans; and (3) balance the risks and rewards of BPOs in terms of knowledge and capabilities dependencies.
Similarly, all arguments against the BPO must be closely examined as well. All risks have to be identified and in particular it has to be checked how these risks could be avoided or at least reduced to an acceptable level. Ten most common mistakes in implementation are (Power, Desouza & Bonifazi, 2006): (1) lack of management commitment; (2) minimal knowledge of outsourcing methodologies; (3) lack of an outsourcing communications plan; (4) failure to recognize outsourcing business risks; (5) failure to tap into external sources of knowledge; (6) not dedicating the best and brightest internal resources; (7) rushing through the initiative; (8) not appreciating cultural differences; (9) minimizing what it will take to make the vendor productive; and (10) poor relationship management program. Similarly, Shi (2007) indicates problems on the organization's side: (1) cost-saving mirage; (2) lack of process model maturity; and (3) lack of understanding or consensus of target business model. On the other hand, the reasons for the failure on the supplier's side are: (1) competence gap; (2) heavy turnover of key personnel; and (3) weak security practices or requirements. Finally, the causes for the failure may also be in the relationship between the organization and suppliers: (1) lack of precise and detailed project specification; (2) language and culture misalignment; (3) knowledge transfer difficulties; (4) process calibration difficulties; (5) incompatible pace of technology change; (6) incompatible architectural style; and (7) loss of continuity due to employee shuffles. Gewald and Dibbern (2009) propose risk-benefit model; risks are: (1) performance risk; (2) financial risk; (3) strategic risk; and (4) psycho-social risk; and benefits are: (1) cost advantage; (2) focus on core competences; (3) access to
specialized resources; and (4) quality improvement. Aron, Clemons and Reddi (2005) conclude that various risks are factors that restrict the growth of outsourcing. However they can be reduced by redesigning work flows and dividing work among multiple suppliers. Risks are: (1) strategic risks; (2) operational risks; (3) intrinsic risks of atrophy; and (4) intrinsic risks of location.
The process of outsourcing is very demanding. All seven steps of the life-cycle of outsourcing must be consistently implemented by the organization (Power, Desouza & Bonifazi, 2006): (1) strategic assessment; (2) needs analysis; (3) vendor assessment; (4) contract and negotiation management; (5) project initiation and transition; (6) relationship management; and (7) continuance modification or exit strategies. If any step is performed inadequately or is omitted, outsourcing is doomed to failure. Organizational changes must be initiated and supported by top management. Rottman and Lacity (2006) have collected fifteen best practices for successful IT outsourcing, which can be generalized to all outsourcing domains: (1) escalate the learning curve with an aggressive, integrated program of pilot project; (2) select an offshore outsourcing destination based on business objectives; (3) use offshore supplier competition to lower domestic supplier rates; (4) diversify the supplier portfolio to minimize risk and maximize competition; (5) allow business users to share in the benefits of offshoring to motivate adoption; (6) break project into segments to protect intellectual property; (7) ready the infrastructure; (8) understand how different contracts give suppliers different incentives; (9) elevate your own organization's Capability Maturity Model (CMM) certification to close the process gap between organization and supplier; (10) bring in a CMM expert with no domain expertise to flush out ambiguities in requirements; (11) negotiate "flexible" CMM; (12) factor in the use of an on-site engagement manager into the staffing models and ratios; (13) give offshore suppliers domain-specific training to protect quality and lower development costs; (14) overlap onshore presence to facilitate supplier-to-supplier knowledge transfer; and (15) create balance score-card metrics. Standardization of processes is a prerequisite for the success of outsourcing (Wüllenweber, Beimborn, Weitzel & König, 2008). The processes have to be evaluated according to three dimensions (Johnson, 2006): (1) complexity; (2) independence; and (3) strategic importance. Conklin (2005) argues that activities essential to a company's competitive advantage should not be outsourced.
BPO's success can be evaluated according to four criteria: (1) how successfully the project implementation was done; (2) improvement in organization's performance; (3) improvement in IT performance; and (4) how successful are the relations between customer and supplier. Gilley and Rasheed (2000) note that the connection between outsourcing and effectiveness and efficiency of the organization does not exist. Similar findings have also been revealed by Bengtsson and Dabhilkar (2009) who summarize that some authors demonstrate significant positive effects of outsourcing while others do not. In their study, Hirschheim and Lacity (2000) conclude that half of the organizations recorded savings and the other half not. Aron and Singh (2005) conclude in their study that there are three different causes for success or failure of outsourc-
ing: (1) select the right processes; (2) supervise both the operational and structural risks; and (3) adapt organizational forms to needs. Handley and Benton (2009) emphasize that strategic evaluation, contractual completeness and relationship management practice are necessary for achieving estimated outsourcing results; outsourcing performance is significantly influenced by strategic evaluation and proactive relationship management. Business process management and relationship management are the key factors of BPO success (Bharadwaj & Saxena, 2009). Integration between organization and provider is crucial (Luo, Zheng & Jayaraman, 2010): (1) process integration; (2) knowledge integration; and (3) personnel integration.
BPO market was estimated to one trillion US dollars annually in 2005 by Brown and Wilson (2005), a threefold increase over the next few years was expected. They stated in 2005 that organizations would opt mostly for outsourcing of IT (55%), administration (47%), distribution and logistics (22%), finance (20%), HR (19%), manufacturing (18%), contact centers/call centers (15%), sales/marketing (13%), real estate/facilities management (11%) and transportation (9%); the sum is greater than 100% because of multiple answers.
3 Method
A questionnaire was distributed to 484 Slovenian organizations, which were selected completely randomly. We chose the largest organizations according to the average number of employees in financial year, amount of net income from sales and asset value. In this way, we covered the medium-sized and large organizations (population) for which the sample is representative. We received 80 responses (sample), which are used in the survey. The questionnaire was sent to the Heads of IT (CIO). Respondents occupy the following professional positions or functions (share in percent): 3.8% CEO, 11.4% division director, 59.5% CIO, 13.9% Head of an IT department and 11.4% other function or position. The average seniority of respondents was 19.4 years. Based on the function or position and seniority we can conclude that the respondents had adequate knowledge to complete the questionnaire.
The basic research method was a survey questionnaire with three questions:
1)	Where are the business processes (business functions)
of organizations performed and where will they be performed in the future, over 3 years?
2)	The function or position of the respondent.
3)	Work experience of the respondent in years.
The first question is divided into fourteen processes: (1) Purchasing; (2) Sales; (3) Manufacturing - production or service activity; (4) Quality; (5) Maintenance; (6) HR - personnel, human resources; (7) Finance - finance and accounting; (8) R&D - research and development; (9) IT; (10) Logistics - logistics, transport; (11) After-sales; (12) Legal service; (13) Food service; and (14) Security - physical protection of facilities. There are four possible answers: (1) process is performed internally within the organization; (2) process is performed partly in the organization and partly by the supplier; (3) pro-
cess is performed fully by the supplier; and (4) organization has no such process. The answers to the first two questions are treated as nominal variables; the answer to the last question is a rational variable.
Data obtained from the survey was analyzed using descriptive statistics, frequency statistics and non-parametric Wilcoxon's signed ranks test. Statistical significance is denoted by p and defined at 0.05, i.e. 5%. If only p is given, we have a two-tailed test i.e. p(2-tailed). Mean is denoted by M, median by Mdn, effect size by r and z-scores by z. Statistics were recorded in accordance with the recommendation of the American Psychological Association (APA), numeric values in the text are given with an accuracy of two decimal places.
4 Results and discussion
4.1	The trend of business processes outsourcing
The question "Where are the business processes of organizations performed and where will they be performed in the future" is divided into two sub-questions. The first sub-question is aimed at finding out about the current situation and the second at finding out about the future situation. The results of the frequency statistics are shown in Table 1. From them we can draw the following conclusions: organizations (1) most frequently retain Purchasing, Sales, HR and Finance; (2) most frequently choose Food service and Security for outsourcing; and (3) most frequently do not have Logistics and Food service in organizational structure.
From the frequency statistics, we can see that the occurrences of individual processes will not change significantly at the moment or in future. We can conclude that in the future we cannot expect any radical changes in the area of outsourcing. If we look only at the column 'Internally', we can see that the share of internal execution of processes will decrease for the processes; on the contrary, the share of process outsourcing will remain unchanged or will increase, which can be seen in the column 'Externally'. From this we can conclude that generally the share of BPO will increase. All these considerations are only valid for our sample and cannot be generalized to the entire population.
4.2	Choice of business processes for outsourcing
The answers to the first question are treated as nominal variables. Therefore, to determine the relationship between the current and future business processes performance of processes, we use the Wilcoxon's signed ranks test (Table 2). Outsourcing of Quality, HR, IT and After-sales will increase the most over the next three years; and Logistics, Food service and Security the least in the same period. All processes have a dominant positive rang, which means that the level of outsourcing will further increase in the future. On the contrary, processes with a dominant negative rank will experience a decline in the level of outsourcing - there are no such processes in our case.
Table 1: Frequency statistics where a process is performed and where it will be performed
Process	Current / Future	Internally [%]	Partly [%]	Externally [%]	N/A [%]
01) Purchasing	C	90.0	8.8	1.3	0
	F	83.8	15.0	1.3	0
02) Sales	C	88.8	5.0	2.5	3.8
	F	81.3	12.5	2.5	3.8
03) Manufacturing	C	73.8	22.5	0	3.8
	F	67.5	27.5	1.3	3.8
04) Quality	C	86.3	6.3	0	7.5
	F	77.5	16.3	1.3	5.0
05) Maintenance	C	50.0	41.3	7.5	1.3
	F	38.8	51.3	8.8	1.3
06) HR	C	90.0	7.5	2.5	0
	F	76.3	21.3	2.5	0
07) Finance	C	92.5	5.0	2.5	0
	F	81.3	15.0	3.8	0
08) R&D	C	73.8	18.8	1.3	6.3
	F	68.8	23.8	1.3	6.3
09) IT	C	39.2	50.6	10.1	0
	F	28.8	58.8	12.5	0
10) Logistics	C	32.5	50.0	5.0	12.5
	F	30.0	50.0	7.5	12.5
11) After-sales	C	73.4	17.7	3.8	5.1
	F	60.8	30.4	3.8	5.1
12) Legal service	C	36.3	31.3	28.8	3.8
	F	27.5	38.8	30.0	3.8
13) Food service	C	18.8	5.0	56.3	20.0
	F	16.3	7.5	56.3	20.0
14) Security	C	7.5	23.8	61.3	6.3
	F	6.3	22.5	63.8	6.3
The rates of the current outsourcing of HR, Quality and After-sales are low, therefore it will come to an increase in the future. The rate of IT outsourcing is high and will increase further in the future. For this reason IT takes a special place, which is also confirmed by Brown and Wilson (2005). The share of services sector in the economy being on the increase, so is service outsourcing within the BPO. In this way we can talk about the transition of BPO into Knowledge Process Outsourcing (KPO), as the outsourcing of activities that require a higher level of knowledge, experience and education is on the increase (Aranha & Wheelwright, 2007). In contrast, the level of outsourcing of Food service, Security and Logistics will increase minimally, since they already have the highest rate. Wilcoxon's signed ranks test of Food service is written in the following form: current situation of outsourcing (M = 1.98, Mdn = 3.00) will not significantly increase in the future (M = 2.00, Mdn = 3.00), z = -1.41, p > 0,05 - the difference is not significant, r = 0.37. Similar statistics can also be written for all other processes. The differences for R&D, Food service, Security and Logistics are not significant, differences for other processes are statistically significant, i.e. there
is 95% reliability that the degree of outsourcing of most processes will increase in the next three years. The hypothesis - the rate of business process outsourcing will increase in Slovenian organizations over the next three years - is thus confirmed. As organizations are aware of the importance of strategic position in global supply chains, they more and more often opt for business process outsourcing (Chandraprakaikul, Baines & Lim, 2010). Also other authors have come to the same conclusion about the increase in BPO market (Duan, Grover & Balakrishnan, 2009; Weerakkody & Irani, 2010).
A decline in the level of outsourcing is in most cases due to negative experiences with suppliers. This confirms the fact that the implementation of BPO is a very demanding project. Even more complex is everyday management of relations between the organization and suppliers. Lack of precise and detailed collaboration specification result in negative experiences and suspension of cooperation. Gorla in Lau (2010) note that negative experiences from the past have a negative influence on future decisions; (1) supplier competencies and loss of control have a direct influence; and (2) supplier infrastructure
Table 2: Wilcoxon's signed ranks test between current and future performance of processes-
Future vs. Current	Negative Ranks [n]	Positive Ranks [n]	Ties [n]	Total [n]	Wilcoxon's Test	
					za	Sig.
01) Purchasing	0	5	75	80	-2.24	0.06
02) Sales	0	6	74	80	-2.45	0.03
03) Manufacturing	1	7	72	80	-2.12	0.07
04) Quality	0	10	70	80	-2.97	0.00
05) Maintenance	0	9	71	80	-2.89	0.00
06) HR	0	11	69	80	-3.32	0.00
07) Finance	0	9	71	80	-2.89	0.00
08) R&D	1	5	74	80	-1.63	0.22
09) IT	1	10	68	79*	-2.14	0.04
10) Logistics	0	4	76	80	-2.00	0.12
11) After-sales	0	10	69	79*	-3.16	0.00
12) Legal service	0	7	73	80	-2.53	0.02
13) Food service	0	2	78	80	-1.41	0.50
14) Security	1	4	74	79*	-1.34	0.37
Notes: *: missing data, a: based on negative rang, Negative Ranks: future < current, Positive ranks: future > current, Ties: future ■ current
and behaviour, and competencies inside the organization have an indirect influence.
5 Conclusions
Business process management and business process outsourcing are becoming increasingly important in helping organizations increase effectiveness and efficiency. In addition to processes, employees are very important as well. How to choose the right processes for outsourcing is a delicate choice, and educating the employees is very demanding. Failures of BPO are the consequence of mistakes in the organization, mistakes of the supplier and mistakes in the relations between the two of them.
BPO has been evolving for the last twenty years. Myths that some processes are not suitable for outsourcing are being dispelled. Some organizations are choosing to outsource supporting processes, other primary process, some also core business. The BPO market will grow in the future. However, outsourcing is a very difficult process and many attempts are not successful. In the process of outsourcing we have to pay attention to: (1) thoroughly planning the introduction of outsourcing; and (2) constantly attending to relations with suppliers.
With the hypothesis - the level of business process outsourcing will increase in Slovenian organizations over the next three years - we have confirmed that Slovenian organizations are following developments in the global markets and adapting to new economic realities. Most organizations will increase the level of outsourcing and also the level of outsourcing will increase for the majority of business processes. Processes with the largest BPO increases in the future are Quality, HR, IT and After-sales; consequently Logistics, Food service and Security
will not increase significantly in the future. This will lead to great organizational changes in organizations. Organizations will use all available means to increase efficiency and effectiveness in the future, including business processes outsourcing. This research demonstrates that the BPO in the Slovenian market will grow in the future.
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Franc Brcar holds a university degree in mechanical engineering and a master's degree in information management sciences. Currently he is working for REVOZ d.d. company. He started there as a specialist in the area of operation systems and databases. he continued his work in the area of implementation and maintenance of cAD systems and integrated ERP solutions. recently he has been working on general management, information system management, business process management and quality management.
Perspektiva zunanjega izvajanja poslovnih procesov v slovenskih organizacijah
Menedžment poslovnih procesov (BPM) in zunanje izvajanje poslovnih procesov (BPo) imata pomembno vlogo v organizacijah za zagotavljanje konkurenčnosti in konkurenčnih prednosti ter za povečevanje uspešnosti in učinkovitosti. z raziskavo analiziramo vlogo zunanjega izvajanja v slovenskih organizacijah. z anketo pridobljene podatke interpretiramo z opisno statistiko, frekvenčno statistiko in Wilcoxonovim testom za parne vzorce. z rezultati statistične analize z 95 % verjetnostjo napovemo, da se bo stopnja zunanjega izvajanja poslovnih procesov v slovenskih organizacijah povečala in da to velja za večino poslovnih procesov. Tako lahko zaključimo, da slovenske organizacije sledijo trendom na globalnih trgih in se le-tem tudi prilagajajo.
Ključne besede: menedžment poslovnih procesov, zunanje izvajanje poslovnih procesov, BPo, menedžment, proces