(Business Process Outsourcing) in - Index of

The potential of BPO (Business Process Outsourcing) in
the current Spanish pre-recessive frame
M. Monterrey 1 , D. De La Fuente 1 , N. Garcia 1 and J. Lozano 1
1 Department of Business Management, University of Oviedo, Gijón, Asturias, Spain
Abstract - The present research is aimed at analyzing the
current outsourcing situation in European companies and,
particularly, in the Spanish ones, and at establishing the bases
to be able to understand the foreseen transition to more
developed practices such as the Business Process Outsourcing
(BPO). The current macroeconomic frame, especially adverse
in the case of Spain, makes this kind of methodologies have a
warm welcome among companies, either public or private
ones, since they are seen as having important chances to save
money. The aim is definitely to take some measures to cut not
only general costs in the usual outsourcing field, but also
operation and core processes costs, following mostly the
modern BPO. Moreover, a new economic activity is generated
around BPO, which can be interesting for the Spanish
strategic consultancy firms. At this time, the limited
development of BPO can be determined, to a certain extent, by
the little confidence clients have giving “sovereignty” when
they make their strategic decisions. Anyway, this kind of initial
reluctances are hoped to be saved as time goes by and with
the generalization of this sort of practices in all sectors and
geographic environments. Some aspects like economies of
scale and the consequent obtaining of minor costs or the
know-how of the companies which provide this kind of
services that could even produce an increase in the chapter of
incomes based on economies of scope make that BPO clients
think at least of the possibility of including them in some of
their processes and sub-processes. Finally, this research
makes a brief observation about the relation between BPO
and the so-called Offshoring, by which growing companies or
simply those eager to enhance their income statement
accounts, can relocate their productive processes by means of
costs.
Keywords: Outsourcing Process, Subcontracting, Business
Process Outsourcing, Core Business, Offshoring
1 Introduction
Since the crisis at the beginning of the 90s, the Spanish
economy has had a decade of growth in an environment of
sustained expansion. However, since 2008, the country has
been suffering from an important worsening in its
macroeconomic indexes, to give way to a long period of
recession (2008-2010), followed by a weak growth stage with
an inter-annual increase of 0.7% in 2011. As it can be seen in
Figure 1, it can be expected the Spanish economy will go into
a recession phase again during 2012 as a consequence of the
crisis in the sovereign debt. Even though there had been
previously several indexes that led to symptoms of
deceleration, the damages reflected on economy could be seen
from January 2008 with the stock market crisis together with
the problems in the real- estate market. All this together with
an inflationary frame in the increase on petrol prices and food
products have led to the current pre-recessive situation. In
August 2011 Spanish authorities reacted taking additional
fiscal adjustment measures, as well as including a rule of
budgetary stability in the Spanish Constitution, which
reassured the compromise by the Spanish public finances with
the maintenance of a healthy budgetary situation for the
medium and long term. According to the forecast by El Banco
de España [1], during 2012 and 2013 employment will
continue decreasing as to reach an unemployment rate of
23.4%, which is the main structural problem of the Spanish
economy. Furthermore, a replacement of domestic markets by
external markets has been considered as probable by the
Spanish business network in a context where the second ones
are relatively stronger than the first ones, which are under a
considerable withdrawal in private consumption. On the other
hand, importations would support a great decrease – about
5%- having into account the strong adjustment in the national
demand
Figure 1. Expected evolution of Spanish GDP
Source: Banco de España
In this pre-recessive context of Spanish economy, the
current research is aimed at analyzing the opportunity of
development of outsourcing techniques as a way to reinforce

the competitive position of Spanish companies or, in some
cases, to make even their own survival easier. Even though
these practices have been applied for some decades in
different ways, authors consider that the current approach to
shared facilities, the act of making strategic decisions together
with specialized companies, the know-how profit which these
ones can contribute and definitely cost-cutting and income
increasing that the outsourcing produces, will make some of
these companies be able to get competitive positions that
strengthen their future for a medium and long term.
On the other hand, outsourcing is evolving fast to
processes where each time it is necessary to have a greater
specific knowledge as well as having the support of more
sophisticated technological tools. In short, we might be
witnesses of an increase in the value of these services in
relation to their costs. Obviously, the outsourcing business is
still far from being well structured, as it is still in the starting
phases of settlement as a product. It needs to grow
quantitatively and qualitatively not only on the supply – to
companies multi-specialized in more and more processes and
to more and more core processes- but also on the demand – to
smaller companies, in a wider environment and in more varied
sectors
2 Current Outsourcing approaches: to
Core Processes Subcontracting
In the Global Outsourcing Survey 2007 [2],
Pricewaterhouse Coopers has reached the conclusion that for
a wide majority of clients – 87% of respondents-, outsourcing
gets the expected benefits totally or partially. 31% think the
aims have been completely achieved, which is important
considering the complexity and uncertainty they face before
contracting these services. As regards financial institutions,
the degree of total satisfaction reaches 46%. On the other
hand, 91% of the respondents either satisfied or not with the
results, say they will contract outsourcing services again.
The main reasons companies give to outsource processes
are the following ones:
� Lower costs (an important or very important factor for
76% of respondents).
� Getting access to know-how (70%).
� Offering services others can do better (63%).
� Increasing the flexibility in business (56%).
� Improving the relationship with clients (42%).
� Developing new products or services (37%).
� Geographic expansion (33%).
Many of the respondents (53%) stated that they
outsourced processes considered as core. Obviously, the
definition of activity or core process was up to the
respondents and it can have different meanings for each of
them. An evolution can be noticed from the external ring, (see
figure 2) where no-core processes are situated, to a second
ring of essentials no-core activities. For instance, in the
finance function, this can be understood as an evolution from
the outsourcing of payrolls and accounts payable to the
technical support in the annual budget calculation, in
forecasting and management control.
Figure 2. Core vs Non-core in the Finance Function
Source: Pricewaterhouse Coopers
ICT services are still the most widely outsourced activity for
57% of the respondents. In general, 70% of them outsource
one or more activities which are intrinsically strategic:
� 53% outsource the production or delivery of core
products or services.
� 33% outsource sales and marketing (including third
party distribution channels)
� 32% outsource innovation, research and development.
Figure 3. Outsourcing is intensifying. Source:Pricewaterhouse
Coopers Global Outsourcing Survey 2007
Financial institutions, with 40%, are especially prone to
outsource sales and marketing – for instance, to insurance
brokers and financial agents. Civil engineering, mass media
and ICT firms are less inclined to outsource core activities
although nearly 40% of them do it. Companies that operate in

mature, medium markets like Australia, Canada and New
Zealand, are especially aggressive contracting outsourcing for
strategic activities (up to 71%). 48% of respondents outsource
sales and marketing. Growing companies from these countries
have small domestic markets, which can cause the necessary
pressure to force them to contract strategic capacities which
enable their growth abroad. Over the last years there has been
a phenomenon which affects a small number of big clients:
outsourcing customer service by contracting call centers in
emerging countries with low salary costs. In some cases, this
option has found a serious competitor in the switchboard
managed by an ICT company and without enough staff.
Outsourcing is spreading in a dynamic way to areas like R+D
from much more static positions in a long term, with contracts
between a provider company and a client company. The
freedom each one had to act was very limited. At present, as
we go into the second era of outsourcing with many mature
ICT contracts, clients admit that the new approaches present a
rich variety of opportunities. Nowadays, the senior
management team of a company must take into account
culture, structures and processes attached to the geographic
and sectorial markets they compete in. For this reason, they
must be eager to establish alliances and collaborations which
enable them to design an innovative business model. They are
important factors when business people start thinking about
outsourcing new functions and the joint management of
shared services like human resources and accountancy.
Depending on their business activity, geographical setting or
size, between 27% and 55% of the respondents showed their
interest to widen their current outsourcing levels within five
years later than the survey was made (2007). There is still a
margin to grow the ICT outsourcing services: 55% of the
present clients of these services hope to increase their
outsourcing levels. The key points in the outsourcing growth
would be the following ones:
� For big mature markets: purchases (53%), call centers and
customer services (45%) and financial and accountancy
activities (44%).
� For emerging markets: Worldwide, the highest forecast
growth is based on contracting call centers and customer
service centers (56%), core products and services (54%)
and delivery /logistic (53%). The relocation strategy is
linked to these answers to a certain extent.
� Financial services: core products and services (56%), call
centers customer service centers (46%) and
sales/marketing (40%).
� Mass media/telecommunications/ICT: R+D (64%), call
centers and customer service centers (73%) and
finances/accountancy (50%). In these so highly
competitive sectors, companies are especially pressured
into taking on new initiatives.
3 The potential of BPO as a
competitiveness alternative in times
of crisis.
The constant improvements in Information &
Communication Technologies (ICT), together with the global
availability of skilled labor and the reduction of international
business barriers have caused the value services supply has
been broken off ([3], [4] and [5]). Many companies have gone
from an asset ownership strategy to one of outsourcing a part
or all the components of a service for cost-cutting, to enhance
the cycle times and to get innovation capacity [6]. In this
context, Business Process Outsourcing (BPO) means a further
step in the strategy of outsourcing organizations. It consists of
integrating several processes, even key or core processes in
organizational structures unconnected with their own ones. So,
in this way a new economic activity of companies specialized
in making processes for third parties arises. Obviously, a great
part of the competitive advantage of these companies, either
back office or front office of their activity, lies on the
economy of scale that is reached and, therefore, on the
optimum competitive position that means to offer lower unit
costs.
It is worth to mention the traditional purchasing centers,
which are based on the joint realization of the purchasing
process by several companies. Obviously, the management of
this purchasing method can be outsourced to only one
company, such as it is the case of Fortia. This company is
founded as a way to adjust the great consumers to the
disappearance of industrial electricity charges in Spain. It is
formed by 17 business parties of different economic sectors
and it develops a service that benefits all the parties involved
and the economy in general, ensuring competitiveness of the
Spanish basic industries. The previously mentioned groups of
companies employ 40,000 workers directly in 70 factories all
over the country. They have a joint turnover of about € 15,000
millions, which stands for 12% of the Spanish industrial
electricity consumption. The structure of Fortia is divided into
iron and steel (47,2%), cement (25,8%), metallurgical
(20,8%), gas fitter (6,20%) and paper (0,07%) industries.
Therefore, Fortia is in charge of another part more of the
activities of the specialized companies in BPO, where the
purchasing process- generally no core component or services –
is outsourced.
In Spain, there is a second example of purchasing center,
but with some specific features that make it different from
Fortia. It is a private consultancy- Compras58, placed in
Valencia, whose main features are the following ones :
� It is a transversal purchasing center dedicated to the
negotiation of contracts of any type of purchases, either
raw or auxiliary material or services. It is not like Fortia,
whose purchase is focused on energy.

� Its potential clients are sectorial business associations and,
even more, those which operate regionally. Therefore, the
Compras58 activity is mainly aimed at industrial clusters.
� Compras58 cannot be said to be strictly a BPO company,
since as it has been mentioned before, it only deals with
purchasing process and, indeed, contract negotiation. In
short, it is a classic sub-process outsourcing- contract
negotiation.
From the previously mentioned aspects, it can be
deduced that the only competence the Compras 58 client
clusters subcontract – the renegotiation of contracts- will be
for a short time and it will finish when the new purchasing
contracts are signed. This does not stay integrated in
processes and sub-processes series that their client companies
make, which, for instance, eliminates logistic part concerning
provisioning, which is an habitual purchasing process. The
competitive tool used in this case is the economy of scale,
obtaining a bigger purchasing power as a result of an increase
in the purchasing volume. There is also a reduction in the
number of providers and, therefore, a greater efficiency in the
contract negotiation management. Finally, the number of
purchasing references is reduced, which makes Compras58 –
on behalf of its clients- become a preferential client for its
providers. According to the last data obtained (year 2007),
Compras58 owns a client portfolio with 300 client companies,
grouped in 12 clusters from 6 Spanish regions. These clusters
belong to the following sectors: textile, automobile industry,
plastics and maintenance. The closed negotiations during 2012
appear in this Table:
Table 1. Savings achieved in 2010. Source : Compras58.
Item
Negotiated
amount (€)
Savings (€) Savings (%)
Telephony 3,815,968 772,828 20%
National courier 368,637 113,075 31%
Electricity 29,965,668 2,647,355 9%
Office supplies 382,658 86,568 23%
International courier 899,651 196,975 22%
Lab supplies 434,422 111,579 26%
Road transport 2,341,805 131,425 6%
Fuel 185,092 7,154 4%
Natural gas 1,980,454 184,130 9%
Insurance 98,064 8,562 9%
Waste Management 7,372 601,000 8%
TOTAL 40,479,794 4,260,257 11%
According to the above description, then BPO companies
could be classified in two types:
� Companies which exploit benefits of economies of scale
applied to a kind of process (ICT, Purchasing,
Maintenance, etc.), that is, the classic outsourcing.
� Companies which, in a way, are integrated vertically into
their client companies from a more strategic position.
These companies are still very incipient and cover any
kind of process susceptible of being outsourced. This is
called BPO.
When BPO activities are placed in a specific
geographical frame and, particularly, when the relocation of
processes from developed countries into emerging economies
takes place, we have a kind of BPO known as offshoring. This
practice has attracted a considerable public attention over the
last years [7]. Companies which manage this type of BPO play
an important role, allowing their clients to specialize in their
core competences and they are used as extension of them [8].
Without detriment to the possible savings reached, many
companies are unable to value BPO advantages. Alster [9]
foretold that 60% of the BPO companies would face the client
desertion and the appearance of hidden costs that could cancel
the savings between 2005 and 2008. Aron and Singh [8] claim
that half of the companies which dealt with offshoring
processes have not been able to generate the expected
benefits. Robinson et al. [10] states that most of 75% of BPO
providers believe their clients were not prepared enough for
the initiative and lacked of a very well developed strategy
when facing how outsourcing could work. These anecdotic
findings state that the BPO companies’ management is still not
in accordance with their clients expectations. An important
reason for this problem could be the inability of service
providers and clients to handle with interdependences of
processes, which leads to failure ([11] and [8]). The effective
integration process between the service provider and its client
should be made strongly and decisively in the highest
collaboration frame. We must remember that BPO providing
companies are usually strategic consultancy firms which do
not offer a generalist view but a multi-specialist one in
contrast with the only specialization of the classic outsourcing
companies. The problem lies on the fact that on almost any
occasion there is a distrust by the senior management team of
the client company to the BPO provider requirements about
“giving sovereignty” when making organizational and
strategic decisions that affect the company as a whole.
Anyway, these problems that rise systematically in BPO
projects are determined by the business immaturity and its still
scarce visibility by potential clients. The break-even point will
be determined by the component of the corporate strategy that
the senior management team of the client company will be
willing not to transfer, but to share with its BPO provider.
Obviously, the opposite point is found in keeping the brand
name by the client, having outsourced the majority of
processes, either core or not. There is an interesting debate
concerning this, which accepts opinions in all senses, without
any solution of continuity.

Although some researchers have expressed their need of
a close relationship between the members of the supply chain
[12], only recently has the possibility of suggesting a
systematic approach to study the supply chain integration been
raised. The current competitiveness in industrial and service
markets has made several companies reconsider the need of
establishing cooperation alliances, mutual benefit and joint
improvement of transversal processes, which have become a
high priority [13]. At this point we should mention the
comakership techniques, which have worked so well in sectors
like automobile, where the intermediate margin cutting has
reached very high points. The capacity to integrate different
processes into different contexts can provide BPO companies
with unique competitive and irreplaceable positions that will
allow those companies which contract their services to reduce
failure risks in the process to improve the client service levels
and performance. Given this, it is assumed that BPO can
mean not only cost savings by cost-cutting and by economies
of scale, but also an increase in incomes as a consequence of
economies of scope, which the new core processes a BPO
company can do for its client involve.
BPO range of services (maintenance, legal services,
purchasing, marketing logistics, etc..) is as wide as varied the
functional division of the company is, obviously assuming
intermediate proposals of outsourcing of areas, sections or
hierarchically less important units in a traditional organization.
Clients can only contract one BPO supplier, provide him with
work specifications or procedures and wait for a good supply
[8]. The provider will make more mistakes and will work
more inefficiently than the client company employees, until he
can manage these tasks easily. This fact must be considered
and quantified in ROI terms when thinking of a BPO project.
Obviously, this situation is produced when the outsourced
processes belong to core business and this is usually the
reason that makes organizations not contract BPO companies
for this kind of processes. This also means discouragement for
the senior management team of companies planning to
relocate a great part of its key processes, which must be
considered when they decide whether making the project with
their own means - through expatriate - or with other’s - by
contracting an offshoring company. There are other failure
risks for BPO companies related to the contractual obligations
that they have with their clients. The effective integration can
make these problems disappear. The lack of effective
integration in a service environment can lead to a deficient
performance, so this is an important area to explore. Many of
BPO tasks have complex knowledge components [14].
Therefore, tasks can vary the complexity grade and so the
result of the execution. The quality of these services can often
depend on the coordination between different processes and
sub-processes within the same process. Consider that part of
the sub-processes or processes are made by BPO companies
and other part by the client company. The most convenient
thing might be to make a maximalist approach when
contracting BPO companies, that is, to outsource no core
complete processes. In this way, integration problems and
starting up costs would be avoided and a less payback of the
investment in reducing staff to outsource it would be obtained.
The border of BPO with the simple employment of workers,
outsourced to a temporary work agency, can mean a sign that
the BPO project has not been completely understood.
4 Conclusions
In the current work, the intention has been to make an
analysis of the different aspects of the classic outsourcing and
the promising future of the BPO variant in a pre-recessive
context such as the present one in Spain. It has been seen that
the motivations that make companies outsource their process
and sub-processes are different. The satisfaction that the
application of these techniques in the different productive
sectors, in different geographic contexts and in companies and
public capital organizations generates in contrast to the private
capital ones have also been analyzed. The attitude of
companies to give or, in all case, to share some of the strategic
decisions with companies specialized in BPO seems to be very
far. This fact can be sharply seen in small and medium size
companies, where BPO has entered less than in big
corporations.
As addition to the current work, the possibility of
establishing an Outsourcing/BPO observatory in Spain is
proposed here. It will allow to evaluate the integration degree
of these techniques in the Spanish company and to feature it
according to several parameters like the region where they are
placed, sector they belong to, size or company ownership. The
aforementioned observatory will have a department
responsible for the characterization and evaluation of the
services demand. In short, it means to quantify and know the
evolution of this economic activity in detail.
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