Abstract
Business process outsourcing (BPO) is considered an enabler of flexibility and agility in current strategic management literature. The Central and Eastern Europe (CEE) region, with its unique geographical and language advantages over India and other low-cost countries, has significantly increased its share in the BPO and Shared Service Center (SSC) market over the last 20 years. The CEE region has a unique competitive advantage over the global market by providing high-value services. The strategic question of how the CEE can maintain its position in the global BPO market by leveraging these competitive attributes in today’s business world should be addressed. The findings presented in the literature review indicate a clear gap in the design of service center organizations. A decline of SSC & BPOs as a sustainable business offering is likely unless center employees are expected to work for low compensation programs to keep the centers cost-competitive against other CEE centers in the short term and against the world market in the long term.
Keywords: Business Process Outsourcing (BPO), Shared Service Centers (SSC), Central and Eastern Europe (CEE), Strategic Management, Competitive Advantage, Service Center Design, Global Market Position
Introduction
Business process outsourcing (BPO) is considered to be an enabler of flexibility and agility in current strategic management literature. It allows fixed costs to be converted into variable costs through payment terms based on usage (Economist, 2013). Agility and flexibility are critical factors in determining an organization’s competitive edge in today’s business world (Fritsch et al., 2007). The Central and Eastern Europe (CEE) region, with its unique geographical and language advantages over India and other low-cost countries, has significantly increased its share in the BPO and Shared Service Center (SSC) market over the last 20 years. BPO centers and SSCs have been established in major cities across the CEE region. However, India remains the leader with a 56 percent share of the global BPO market (including SSCs) in 2015 (Cushman & Wakefield, 2016, p. 6). Despite the rising average salaries in the CEE region and advancements in online collaborative technologies that have enabled low-cost Far East countries to offer competitive service solutions to Western BPO customers (Cushman & Wakefield, 2016), the CEE region’s unique advantages continue to provide a strong foundation for its competitiveness. The strategic question of how the CEE region can maintain its position in the BPO market by leveraging these competitive attributes against low-cost countries should be addressed within the CEE region. As suggested by Porter in 1996, companies should protect their market share and look for expansion possibilities by following market dynamics and advancements (Porter, 1996). Consequently, companies can stay competitive against rivals only by analyzing and understanding the market characteristics. Early identification of risks and threats is crucial in defining companies’ strategic standpoints and guiding them in their decision-making (J. et al., 1989). This emphasis on early risk identification helps companies to be prepared and proactive, ensuring their competitiveness in the market. Companies should also not only try to have market share but must prepare themselves to handle potential changes in the marketplace to stay competitive on a sustainable level (Hamel et al., 1989).
The challenge in the CEE region is that what was once a competitive advantage is now turning into a self-destructive development. The initial cost advantage is diminishing due to increasing employment costs (Biznespolska, 2017; Cushman & Wakefield, 2016; Investbg, 2017; SARIO, 2016). CEE BPO and service centers need to reconsider their strategies to ensure they can provide differentiated value to their customers compared to their competitors to stay competitive (J. Barney, 1991; Porter & Advantage, 1985).
Strategic positioning and sustainable competitive advantage
In literature, competitive advantage is defined as the capability to create unique value for customers through resources that a company possesses or has access to. This capability cannot be duplicated or substituted by competitors or other firms (Barney, 1991; Marques & Ferreira, 2009; Porter & Advantage, 1985). Another way to describe competitive advantage is that it can be achieved by implementing a strategy when no other firm can apply it or by applying the same strategy as competitors but in a superior way. This results in delivering hard-to-imitate customer experiences with goods or services (Barney et al., 1989; Bharadwaj et al., 1993). Suppose a company can maintain its leadership position over a long period and ensure its strategy cannot be copied by current and future competitors. In that case, this competitive advantage can be considered sustainable (Barney, 1991). CEE BPO and service centers need to reconsider their strategies, as every organization and firm strategically plans to provide differentiated value to its customers from its competitors to stay competitive (Barney, 1991; Porter, 1985).
Human resources as a unique source of SCA
In his work, Barney (1991) further explains the resources that can provide a competitive edge and sustainable competitive advantage (SCA). These resources must be valuable, rare in the industry, and difficult for competitors to obtain. Suppose a company has resources and skills that directly contribute to value creation, and these are not available to competitors nor can be imitated or substituted. In that case, they can be considered a source of SCA (J. Barney, 1991). Sources of SCA are divided into unique assets and unique skills or capabilities. These sources enable a company to offer superior customer value through differentiated products or services. They are essential for being a cost or quality leader in the market (Porter, 1985, as cited in Bharadwaj et al., 1993).
It is crucial for strategic decision-makers first to decide whether they want to position themselves in a market as a cost leader or a quality leader (Porter, 1996). Based on this decision, they can identify which resources can be considered sources of sustainable competitive advantage (SCA). To identify unique skills or capabilities, an organization should begin by assessing its human capital to recognize existing talent and capacity and then identify any gaps that need to be addressed. High-performance teams have been identified as a source of competitive advantage for organizations and companies (Becker & Gerhart, 1996; Castka et al., 2001; Porter & Advantage, 1985).
High-performance teams and PM-based management
It is a challenge to utilize human resources’ potential fully, and this is a research topic in organization management. At the beginning of the century, a managerial approach aimed to standardize and control production steps in great detail to increase efficiency, leading to the development of tightly controlled work organizations, known as Taylorism after Frederick Taylor. However, due to resistance from workers and other reactions, applying the Taylorism model was not feasible at the time, as the net benefit from the idea was not achievable given the circumstances of premature industrialization and automation with machinery. With technological developments, full automation became possible during the Industrial Revolution, leading to the emergence of new work organization methodologies such as Fordism and the Toyota Production System. These methodologies apply similar principles of Taylorism systematically to increase the efficiency and measurability of work (Flecker, 2017). However, in some applications, highly standardized and granulated job tasks can lead to inefficiency as workers may find it difficult to maintain productivity over time due to routine and monotonous tasks. Every human needs to express their creativity, intelligence, and knowledge in their work. Personal identification with daily tasks should also be considered in work organizations.
The transformation of workers from a controlled resource to an autonomous value creator can be achieved through project-based organizational models. In this approach, management can utilize indirect management techniques (Bain et al., 2002; Baldry et al., 1998; Flecker, 2017, p. 172; Taylor & Bain, 1999). Project management (PM) is recognized as a tool for indirectly managing self-managing teams and maintaining continuous control over the organization using key performance indicators (KPIs) (Ahlers, 2016; Martins et al., 2006). Various project management practices can be employed to enhance team and organizational performance.
PM as a tool to manage teams
In project management, it is crucial to unite the project team and foster a sense of unity in order to achieve optimal performance. Schelle (2004) outlined the following key points for effective team management in project management techniques:
- Clearly defined project goals that are accepted by all team members
- Encouragement of a sense of unity within the team
- Establishment of team rules
- Involvement of team members in important decisions to foster self-identification
- Open and detailed communication to ensure that all ideas are considered
- Providing feedback during implementation and seeking opportunities for improvement without attributing blame to individuals or teams
- Seeking constructive solutions to conflicts that allow benefits to be shared among team members
- Allowing each team member to contribute to the project with their skills and ideas
- Recognition of good performance, even if it is not a significant contribution to the overall project, represents a significant effort on the part of the individual.
When it comes to other recommendations in team management for better performance and to reveal the true potential of project teams, the following should be applied to maintain the balance between the requirements and the team dynamics (Hagen, 2011):
- Discipline versus freedom: Clear reporting lines but autonomous work organization for a significant contribution.
- Planning versus improvisation: Welcome on-the-spot solutions for unexpected problems.
- Rationality versus emotional acts: Make decisions based on facts and objective measurements.
- Individuality versus conformity: All ideas are considered to bring out the potential behind these suggestions or actions so creativity can be achieved.
Balancing these characteristics in any team can greatly challenge project managers. However, other practices can support management teams in achieving project performance targets, thereby establishing high-performance organizations.
Key success factors in PM
Defining clear goals and estimating necessary resources and costs is essential during the startup phase. In the planning phase, project managers address whether these assessments are objectively measurable and reflect reality (Atkinson, 1999). Existing information is particularly important in this decision-making and planning phase, as subjective requirements for project expectations can lead to failures. Success measurement methods such as the magic triangle, also known as classical control, focus on time, cost, and quality indicators (Hesseler, 2007; Schelle, 2004).
The project manager always attempts to quantify the services provided at the given time to create objectivity in the assessment (Atkinson, 1999). It’s important to note the difference between the process’s success and the project’s success. Performance measurement in classic success control uses moves between time, cost, and quality characteristics, which can be considered process success. Furthermore, newer assignments involve success measurement in the post-implementation phase (Atkinson, 1999; Hesseler, 2007). As explained in the literature (Atkinson, 1999), project managers have little or no control in the post-implementation phase, making it essential to discuss the correctness of the project’s goal during the planning phase. Recently, stakeholder analysis has become an essential part of project planning. It can help detect early risk during project implementation and correctly identify project goals (Atkinson, 1999; Schelle, 2004). It is important also to identify where to measure team performance, whether through process success or project success. Project management continually involves sampling or time-related measurements to assess whether the planned performance criteria are met. Several process performance measurement methods exist, such as comparison or account controls (Patzak & Rattay, 2009). Quality, cost, deadline, and resource control are all about finding out what has happened. Project management should respond early to achieve the project goals in motion. Team management and team performance alignment are important missions (Hesseler, 2007). Project management is a flexible management tool to help organizations respond to challenges. Team performance plays a lead role in meeting growing tasks in this problem-solving process in project management (Schelle, 2004).
Flow feeling and the individual performance
There are various team management methodologies to improve team performance, including the concept of flow. This concept was introduced by Csikszentmihalyi (1985). It can be beneficial in managing people to create a positive atmosphere within teams, allowing each team member to fulfill their duties harmoniously and perform to the best of their abilities. The flow theory suggests that individuals experience happiness when there is a balance between their abilities and the demands placed on them. Flow is a state of mind and feeling experienced by a person who is concentrated and engaged in their tasks. It occurs when a person can perform their tasks within the optimal range, avoiding both excessive demand and under-demand.
Some authors, such as B. Polat, have referred to the flow state as a Trans-state (Polat, 2013). Csikszentmihalyi (1985) outlined the prerequisites for experiencing a feeling of flow in a team, including:
- Clear goals and the ability to focus on the essentials
- Balancing demands and abilities
- Self-control of activities
- Energy and ease
- Merging of consciousness and actions
Potential research questions and discussions
Today, there is a shift in management from Taylorism, a high-controlled organizational approach, to a more flexible and self-managing team structure in globally high-performing organizations. In this new design, project management (PM) offers advantages to address the limitations of self-managing teams. PM utilizes continuous performance measurement tools to monitor team performance and identify gaps in achieving project targets. PM can empower high-performing teams and organizations to deliver high-value products and unique customer services. These offerings can help CEE shared services centers maintain their competitive edge against low-cost countries by providing high-value services. This sustainability is dependent on quality leadership in the service sector. Future research could explore the strategic positioning of service centers within the global business process outsourcing market to determine if the center’s design is suitable for strategic positioning.
Research conducted in European countries, including Slovakia (Valeyre et al., 2009), suggests a strong emphasis on Taylorism in work organizations in Slovakia. This focus results in high productivity and efficiency among the Slovak workforce. However, this approach may have drawbacks when it comes to delivering unique, high-value-added services that require high levels of creativity and self-managing teams.
Table 1: Reproduced from Valeyre et al. 2009.
Policymakers and academics should review the positioning strategy of Central and Eastern Europe (CEE) and the first Slovakian shared services centers in the global market. The findings presented in the literature review indicate a clear gap in the design of service center organizations. High-value-added services are required to remain competitive, but the work organization in Slovakia is mainly based on Taylorism, involving highly repetitive and granulated workpieces with exact planning and close control. Achieving high efficiency with low-cost leadership cannot be realized against low-cost countries, especially considering Slovakia is a member of the EU and the EURO zone. Government incentives offered to create more service centers through financial and low tax incentives seem to address only the results of the established Taylorist organizational design but do not fully consider the root of the problem of redesigning the country’s work organization. In 2016, the government of the Slovak Republic approved an action plan to actively support the development and expansion of the SSC and BPOs in Slovakia (SARIO, 2016).
Further research would help understand how CEE countries organize their strategy, if any cooperation exists, and how they form individual strategies considering other CEE capabilities and offerings. A decline of SSC & BPOs as a sustainable business offering is likely unless center employees are expected to work for low compensation programs to keep the centers cost-competitive against other CEE centers in the short term and against the global market in the long term.
Conclusion
The strategic management of Business Process Outsourcing (BPO) and Shared Service Centers (SSCs) in Central and Eastern Europe (CEE) presents a complex landscape influenced by various factors, including competitive advantages, human resources, and organizational design. The CEE region has emerged as a significant player in the global BPO and SSC market, leveraging its unique geographical and language advantages. However, the region faces challenges in maintaining its competitive edge amidst rising employment costs and evolving market dynamics.
Strategic positioning and sustainable competitive advantage (SCA) are crucial considerations for CEE BPO and service centers. Sustainable competitive advantage relies on creating and maintaining unique and difficult-to-imitate value. Human resources play a pivotal role as a source of SCA, emphasizing the importance of identifying and nurturing high-performance teams within organizations. Project-based management offers a flexible approach to harnessing human capital and driving organizational performance.
Effective team management practices, such as fostering a sense of unity, promoting open communication, and recognizing individual contributions, contribute to achieving optimal team performance. Project management is valuable for monitoring and aligning team efforts with project goals, ensuring successful outcomes.
Future research directions could explore the strategic positioning of service centers within the global BPO market, particularly in terms of organizational design and alignment with market demands. Policymakers and academics should assess the efficacy of existing strategies in addressing the evolving needs of the industry, considering factors such as work organization, government incentives, and regional cooperation.
Ultimately, the sustainability of SSCs and BPOs in the CEE region hinges on their ability to deliver high-value services while remaining cost-competitive. Addressing challenges related to organizational design, human resources, and market positioning will be essential in ensuring the long-term success of CEE service centers in the global marketplace.
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AUTHOR
Ümit G. PEKÖZ
Faculty of Management
Comenius University Bratislava
Odbojárov 10, 82005 Bratislava 25, Slovakia
REVIEWERS:
Ing. Jaroslav Vojtechovský, PhD.
Faculty of Management, Comenius University Bratislava
prof. RNDr. Michal Greguš, PhD.
Faculty of Management, Comenius University Bratislava
Digital Science Magazine, Číslo 1, Ročník X. ISSN: 1339-3782
