Overview About The Business Process Outsourcing Industry Business Essay


As outlined in the section before, the literature reviews aims to cover the brief

Overview about the Business Process Outsourcing (BPO) industry in India and definition of human resource management (HRM), recruitment and selection, retaining employee and the last section of the literature review will explain about the contemporary theory of human resource management.

2.2 Business Process Outsourcing (BPO)

2.2.1 Definition to Business Process Outsourcing (BPO)

BPO can be defined as "delegation of an IT-intensive business process to an external provider who owns, administers and manages it, according to a defined set of metrics" (Gartner Group, 2004, quoted in Rouse and Corbitt, 2004). BPO can be defined in terms of various "back office" functions, such as human resources, finance and accounting, processing of insurance and credit transactions, procurement, and IT services (Feeny et al., 2003). Some writers view ITO as a subset of BPO (Robinson and Kalakota, 2004). BPO is defined as the outsourcing of any knowledge-intensive business process, including IT processes. The degree of overlap between ITO and BPO is particularly evident when the research subject is offshore BPO (Rouse and Corbitt, 2004).

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There are various classifications for the types of BPO activities. For example, BPO

Activities may be classified by the extent to which the task is unscripted and/or

Requires domain (or vertical market) knowledge (Bhargava, 2006; Nilekani, 2007).

"Knowledge Services" is often used to refer to this type of BPO performed by people with specialized skills and knowledge. Another form of BPO classification considers the extent to which business processes are core (i.e. key to firm success and strategic in nature), critical and non-critical (Ramachandran and Voleti, 2004).

The BPO Market: Different Segments for Different Players

Source: www.mtholyoke.edu

The BPO sector is a heterogeneous and rapidly growing offshore market with a projected annual growth rate of 60 per cent (Tapper, 2004). Brown and Stone (2004) reported that BPO accounted for 34 per cent of the global outsourcing contract value in 2004 and projected that BPO services would grow from $1.3 billion in 2002 to $4.3 billion in 2007 (Mehta et al., 2006; Budhwar et al., 2006). According to a recent survey carried out by A.T. Kerney (2007), an unbeatable mix of low costs, deep technical and language skills, mature vendors and supportive government policies have taken India to the top among global destinations for offshoring services. This is despite all the concerns indicated about overheating, wage inflation and service levels, as reported in a recent survey (India Business, 2007).

Figure: Process of Outsourcing (Source: Brown and Wilson (2005)

"Business process outsourcing (BPO) is the delegation of one or more business processes to an external entity that in turn owns administers and manages the outsourced process based on defined and measurable performance criteria. Such back-end functions may include anything that can be moved over the bandwidth and include services such as customer support through call centers, accounting, order processing, insurance claim processing, procurement or other logistic functions" Technology has really made life fast and easy for people all over the world. The distances don't matter so much in today's world; one click of a button can connect you to anyone in almost any part of the world for whatever reason you may choose. Communication is free-flowing and speedy and you can send your message across the globe in just seconds.

Customer service is another thing that has fast gained popularity in the recent years, Frequently see big multi-nationals raving about their customers and often stating how important their customers are to them and rightly so because a business is nothing without its customers. Also, due to lack of time, companies now rely on easy-to-use technological systems to reach out to their customers. They use these systems to launch their products/services to customers, to listen to their complaints and suggestions and for other information purposes.

As the need to serve customers in an efficient and effective manner becomes greater so does the need for a place to communicate and interact with them. This is where the much talked-about "Call-Centers' come in. Although, they have been used as a communication medium for long in the west, call-centers have recently started their journey in the East particularly in like India and Pakistan. Our neighbor, India, has already reaped many benefits from the call-centre seed that it sowed and Pakistan, too, is now opening up to the many opportunities that call centers have to offer.

2.2.2 Business Process Outsourcing in India

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The BPO industry in India has becoming a growth engine for the economy, contributing substantially to increases in the GDP and urban employment to achieve the vision of a "young and resilient" India (Nasscom 2010). The BPO industry has achieved staggering growth in the last 10 years - added 5 million jobs and USD 15 billion in revenues. 2008 was a year of transformation for the Indian IT - BPO sector as it began to re-engineer challenges posed by macro-economic environment, with the worldwide spending aggregate estimated to reach nearly USD 1.6 trillion, a growth of 5.6 per cent over the previous year. (Nasscom 2010)

The beginnings of trend in the business process outsourcing in Europe was signaled by the contract between BP Exploration and Andersen Consulting in 1991.by 1993, input identified an excising market of $ 150 million (Rothery, B& Robertson, I, 1995). In addition, the cult of core competency was reinforced by another significant management theory in the 1990s, with that trend, organizations studied in detail way of their business process to find ever more efficient ways of carrying them out. Armed with this knowledge of process and frustrated by the difficulty of generating real performance gains, many executives followed reengineering to one of its logical conclusions: outsourcing processes to external providers that could perform them more efficiently (Cohen, L, al et, 2006).

The Indian BPO industry could grow nearly five-fold to reach US$50 billion in size by 2012

2.2.3 Benefits and Risks - Business Process outsourcing (BPO)


Cost savings (CS). The big question that must be answered is which of the

Companies want to undertake BPO (Udo, 2000).

Focus on core competencies (FCC). Processes and competencies that do not have significant strategic value to a firm are prime candidates for BPO (Mouhalis, 2006). It is already recognized that firms which focus on core activities and competencies, are in a better position to deliver cost-effective, efficient services to their customers (Weerakkody et al., 2003).

Flexibility (FLX). BPO can improve FLX and responsiveness in meeting market needs and business requirements. Quick response in this area is becoming a strategic necessity of time-based competition (Grover et al., 1994).

Access to skills and resources (ASR). BPO vendors offer a broad range of skills, knowledge and technology to their clients (Mahnke et al., 2005). Cost-effective access to specialized skills and resources helps to facilitate changing customer requirements (Quinn and Hilmer, 1994; Finlay and King, 1999).

Service quality (SQ). BPO can improve SQ, as the BPO vendor is a specialist in a key area (Embleton and Wright, 1998). When faced with competitive pressures, some companies are choosing to partner with reputable BPO vendors that can deliver high-quality services for a lower total cost of operations (Mouhalis, 2006).

Product and process innovations (INV). Outsourcing of certain business process, such as web-based information technologies have a positive impact on overall


Information security and privacy (ISP). BPO vendors have to meet all regulatory and security requirements (Mouhalis, 2006). A vendor's slacking security practices can increase the risk of an ISP for the clients (Shi, 2007).

Hidden costs (HC). The major reason affecting BPO decision may be the need to reduce and control HC (Willcocks et al., 1995). These costs may be incurred in communicating and coordinating with the BPO vendor, in transferring employees and software licensing agreements, and in managing contracts (Grover et al., 1994; Embleton and Wright, 1998).

Loss of management control (LMC). The greatest risk in BPO arrangements, after security considerations, is the LMC that may result in greater dependency on the vendor (McFarlan and Nolan, 1995). Thus, careful assessment of which business processes are strategic and which ones can be outsourced is essential (Ketler and Walstrom, 1993).

Employees' morale problems (EMP). BPO obviously has an effect on company morale (Mahnke et al., 2005; Yang et al., 2007). Severe cuts in staff can decrease morale of existing workers. The human aspect of BPO often is overlooked (Embleton and Wright, 1998).

Business environment (BE). The nature of the BE should be considered when deciding to outsource business process. Ages of company, trends in the industry, degree of competition, and responsiveness to changes are some of the key risk factors that have to be considered in BE (Udo, 2000). Thus, companies need a stable and mature environment for conducting suitable BPO.

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Vendor issues (VI). A vendor's competence in technology, business function, business process, project management, and client management bears direct impact on the success or failure of a BPO project (Shi, 2007). BPO vendors not only help reduce clients' costs, but also provide expertise, help improve clients' services, and increase clients' profits (Mehta et al., 2006).

2.3 Human resource management in BPO sector

2.3.1 Human resource management (HRM) - Introduction

Human resource management is defined as a strategic and coherent approach to the management of an organization's most value assets- the people working there who individually and collectively contribute to the achievement of its objectives.(Armstrong 2006, p-1)

Human Resource Management is center where it is directed mainly at management for human resources (not necessarily employees) to be provided and developed problem solving is with other members of management on human resource issues rather than directly with employees or their representatives .Totally identified with management expectations, being a general management activity, and relatively distant from the workforce as a whole. (Martin & Jackson, 1997, p-9)

The Harvard model of HRM

The analytical framework of the 'Harvard model' offered by Beer et al. consists of six basic components:

Situational factors

Stakeholder interests

Human resource management policy choices

HR outcomes

Long-term consequences

a feedback loop through which the outputs flow directly into the organization and to the stakeholders.

The situational factors influence management's choice of strategy. This normative model incorporates workforce characteristics, management philosophy, labour market regulations, societal values and patterns of unionization and suggests a meshing of both 'product market' and 'socio-cultural logics' (Evans and Lorange, 1989). Analytically, both HRM scholars and practitioners will be more comfortable with contextual variables included in the model because it confirms to the reality of what they know: 'the employment relationship entails a blending of business and societal expectations' (Boxall, 1992, p. 72).

The stakeholder interests recognize the importance of 'trade-offs', either explicitly or implicitly, between the interests of owners and those of employees and their organizations, the unions. Although the model is still vulnerable to the charge of 'unitarism', it is a much more pluralist frame of reference than that found in later models.

Human resource management policy choices emphasize that management's decisions and actions in HR management can be appreciated fully only if it is recognized that they result from an interaction between constraints and choices. The model depicts management as a real actor, capable of making at least some degree of unique contribution within environmental and organizational parameters and of influencing those parameters itself over time (Beer et al, 1984)

The human resource outcomes are high employee commitment to organizational goals and high individual performance leading to cost-effective products or services. The underlying assumption here is that employees have talents that are rarely fully utilized at work, and they show a desire to experience growth work. Thus the HRM model takes the view that organizations should be designed on the basis of the assumptions inherent in McGregor's Theory Y (Guest, 1990)

The long-term consequences distinguish between three levels: individual, organizational and societal. At the individual employee level the long-term outputs comprise the psychological rewards workers receive in exchange for effort. At the organizational level increased effectiveness ensures the survival of the organization. In turn, at the societal level, as a result of fully utilizing people at work, some of society's goals (for example employment and growth) are attained. Guest (1990) argues that the central themes of HRM are contemporary manifestations of the so-called 'American Dream': 'a kind of rugged entrepreneurial individualism reflected in and reinforced by a strong organizational culture' (1990, p. 391).

According to the Harvard model on HRM the human resource management in BPO sectors will enable to support the employees in motivating them in work and provide benefits as discussed in hiring the employees and the HR outcomes will be in positive side with good relationships with all employees and avoid the attrition rate in BPO sectors. According to this model, the HRM functions its goals and aims, need to be aligned with the strategy of the organization. Here emphasis is both on the on projects and routine products and services and where the job requirements are well defined and stable.

Jackson & Shuler (2002) referred to it as an umbrella term that encompasses (a).specific human resources practices such as recruitment, selection and appraisal and (b).formal human resource policies which directs and partially constrain the development of specific practices and in all, it comprise a system that attracts develops, motivates and retains those employees who ensure the effective functioning and survival of the organization.

Against this background this paper aims at evaluating the human resource management strategies of the BPO sector and human resource challenges of BPO sector and detailed of the model can be explained in analysis chapter of this research.

2.3.2 Define Recruitment and Retaining

Emphasizing the essential nature of the recruitment function in today's business environment, Peter Drucker notes that "every organization is in competition for its most essential resource: qualified, knowledgeable people" (Drucker, 1992). Today's successful organizations need to hire the most qualified people they can at the most competitive price.

Recruitment is the activity were the companies discover, develop, seek, and attract individuals to fill actual or anticipated jobs or from another perspective it is activity to bring talented people. According to David A DeCenzo in Human Resource Management recruiting is defined as the "discovering of potential applicants for actual or anticipated organizational vacancies" (p.156). Organizations with a clear recruiting and retention strategy should also have a great selection and exit process documented so they can attract and retain qualified employees and simultaneous screen the unqualified at no added cost to the organization. This will keep the Company competitive by lowering the cost associated with the hiring and recruiting process.

According to Danny W. Avery in Recruiting for Retention "stated the greatest need to every human being is to feel needed or appreciated. Recognizing and meeting that need within the retention programs for your workplace will go very far in satisfying retention goals" (p.1). A good retention strategy should include competitive wages and fringe benefits, flexible work schedule, employee respect, horizontal and vertical communication, training, bonuses, new hire referral bonuses, and longevity. Boeing retention strategy has met all the above except longevity. Boeing has a cyclical business with mass hiring and later mass layoffs. The best strategy they can use is communicate the business plan with emphasis on how employees fit into the plan. Implement plans that consist of employee's engagement at all levels of the organization. This will create an environment where employees feel trusted, welcome, and where people know their work matters. According to Dennis Travers in The Key To Successful Recruiting (2000) "…we must develop an organization in which people want to work and can take personal and professional pride in being a part of (i.e. Employer of Choice) (p.2)". The employees are a corporation's best recruiting and retention source.

Retaining Top employees

Employee retention means many things to many people in each organization. There is no single definition of employee retention. Some views mentioned by J. Leslie Mckeown are as under: -

'Employee retention means stopping poop Ie from leaving this organization.'

'Employee retention is all about 'keeping good people.'

-'Getting our compensation and benefits into line with the marketplace.'

'Stock options creche facilities, and other perks.'

'It's got to do with our culture and how we treat people.'

Infact, the concept of employee retention arose in response to increasing number of employees leaving the organization due to various reasons.

According to Bhatnagar (2007), Retention can be defined as a part of recruitment coin and hire of top applicants and candidates may end with successful hires, but to retaining qualified employees in BPO industry and motivate them is a critical issue that will become more important for BPO employers in the very competitive market. Few BPO employees leave the job and company for some personal reasons, and we identify that in exist interviews conducted by HR professionals. Addressing these issues demands a specialized approach to develop the retaining strategies in controlling the attrition and attract the best talented employees in BPO industries.

2.3.3 Human resource strategy in BPO sector

According to Sveiby (1997) a key to retaining personnel in knowledge based-organisation is ensuring that employees had the opportunities to work on interesting projects with interesting careers challenges clearly defined. At BPO companies, the very first priority for the employees is making the working environment a memorable and enjoyable one. According to one of the employees, "the work place is forming a new social group, workers spend about 65% of their day at the work place, our priority is to let them enjoy, feel relax while they work".

From a review of the company webpage, the Human Resource Department in BPO companies tends to be very goal/employee oriented and one can deduce that the management believes that conductive workplaces are an argument against competitiveness. According to Sveiby (1997), organisations under such a situation should create and incorporate healthier psychological work environments. This was the same position echoed by Gilbreath (2008) when the researcher postulates that, healthy psychological environments contribute to career conduciveness.

According to Gilbreath (2008), creating strong HRM policies requires creating a strong psychological environment in which employees can thrive. Such an environment requires conducting stress audit, monitoring the work of the environment, matching people and work environment and using teams of employees and researchers to study the work environment. The BPO companies should eliminate unnecessary stressors (e.g., poor job design, ineffective supervisor behaviour, poor communication, mismatches between employee's skills and job demands). The Human Resource Department can also facilitate this through greater involvement, employee's autonomy, physical comfort, organisational security and recognition. At the BPO companies, there is no substitute for these as security of its activities have increased with regard to terrorist threats.

To be critically useful to management, Ellis et al(2007) argue that an overall HRM framework should capture and integrate various functions and also clarify how various aspect of HRM add value to an organisation. Gilbreath supported this argument when the researcher calls for organisation facing communication and job satisfaction problems to institutes good fit between employees and their work environment. Under good fit theory, demand ability fit, suppliers value fit, self concept jobs fit and person group fit should be primary for workers integration and commitments. At the airlines, the employee's recruitment and retention strategies lay emphasis on this.

One factor that affects the implementation of HRM practices that has received significant attention is culture. Culture can be defined at different levels that range from the group to the organization to the national level (Erez&Earley, 1994).

Culture comprises values and norms that guide individuals' behavior. Many view organizational practices and theories as culturally bound (Adler, 1997; Hofstede, 1980) which would mean that the values of a country should be compatible with a management practice for it to result in employee motivation. The company has a strong culture, defined by a hierarchy, routines, procedures values and norms (Company Report 2007)

According to Piercy (1995) the larger the gap between a company's employees and customer's perception concerning both service product and service delivery the smaller the probability of satisfying the customers .It's a way of defining proper individual and group behaviors, and assuring that the HR policies are understood and followed.

2.3.4 Factors effecting the BPO professionals to stay in same position

BPO professionals will consider to a number of factors when they want to remain in the company, including:

Salary and other packages.

Position responsibilities in the job

Opportunities to growth and development;

Ability to move laterally to learn new skills or to make career change;

Potential for promotion and ownership

Quality of work balance.

Relationship with supervisor and colleagues,

Work environment and image/reputation of the BPO organization.

Recruiting a right person for a right job.

2.3.5 Growth of strategies for employee retaining Top employees in different periods

The approach to employee retention has developed gradually and has undergone focused attention in

various periods. (J. Leslie Mckeown):

(i) Paternalistic 'Status quo' employer-employee relationship to reduce rate of employee turnover.

(ii) Focus on providing hygiene factors. However job mobility and turnover of employee increased

due to changes in job market and opportunities outside the organization. People did not remain

with one employer for long or for career in working life, so employees started voluntarily leaving

the organizations. Thus to retain employees, organizations laid emphasis on providing

Hygiene factors (Herzberg two factor theory of motivation) i.e. compensation, benefits

and physical aspects of working environment (health, safety and comfort) at workplace.

The focus was to reduce employee turnover and also to workout data i.e. to maintain

turnover rates on regular basis in the organization.

(iii) Thrust on motivating factors. Then came another change when emphasis of employers became

dominant on motivating factors (Herzberg) such as:

• Feeling of achievement.

• Recognition.

• Challenging work itself.

• Career advancement.

• Increased responsibility.

• Opportunity for growth as a person.

The emphasis was equally on growth or higher order needs of A. Maslow social needs (affection,

friendship, acceptance, belongingness in work group), esteem or ego needs (status, recognition, self-

-respect, etc.) and self--actualization needs (growth, achieving one's potential, self--fulfillment etc.).

(iv) Improvement in quality of work life. Later organizations started providing various job--redesign

and improvement in quality of work life (QWL) measures to enable individuals to satisfy variety of needs. These measures are meaningful work, challenge in learning and problem solving, control over one's job, a chance to collaborate with one's colleagues. Nature of work one' is involved has a profound impact on shaping individual's personality, determining performance, commitment and job satisfaction.

(v) Building organization culture. Other areas of focus have been j such as making compensation

rewards and benefits more competitive so as to have a difference with other organizations and also

building organization culture. During 1990's it came to be realized that corporate culture is important

for corporate growth, success, excellence and survival. It has motivating" effect on employees as

it influences initiative, trust, support and innovation. Good culture is usually typified by quality

of excellence, openness in communication, participation in decision-making, high

standard of safety, good corporate citizen. This is sustained employee retention called 'holistic

approach' that dealt with employees' higher needs, such as acceptance, esteem and self-fulfillment.

(vi) Retention factors for knowledge workforce. According to J. Leslie Mckeown, the current

approach in employee retention is to lay emphasis on following factors in know ledge era.

(a) Core competencies and out sourcing stratategies.

C.K. Prahalad and Gary Hamel emphasized that organizations have to adopt core competency

model (i.e. skills and activities that are essential to an organization's success) and must do well to

formulate a competitive strategy. Organizations will focus on hiring employees only for their core

activities and will be purchasing non-core products and services externally. This trend is continuing.

(b) Concentrating on perfor-mance related rewards

Concentrating on performance related reward systems to meet expectations of employees who

have their own core competencies (knowledge workforce) and provide them work-life balance

programs. Employer has to attract high caliber individuals and keep such individuals who can

perform the organization' s 'mission-critical' (core-competencies) tasks. Employer has to offer

different 'retention stimuli' in winning potential employee and not allowing him to go elsewhere.

This is also referred as 'employee value proposition' approach, which emphasizes the benchmarking

activities and involving organizations in adopting the employee retention best practices of similar


(c) Employee retention strategy, an 'employer of choice'.

Employee retention concept of becoming an' employer of choice' or 'building company image.' It

lays emphasis as under: -

• Process of becoming an employer of choice begins before hiring highlighting in recruitment literature

i.e. advertisement, product branding, company image, management reputation and other releases

for public. The object is, to attract right employees.

• It is important what management says and does after hiring, Process continues aspect for retention

(beyond the hire stage) to include, treatment with employees, their development efforts and they

feel a t home etc.

• Another aspect is to develop retention mindset in the leadership for building a welcome environment

when people want to stay. It is developing a retention culture -a retention way of life. It is about

creating a genuinely welcoming place, where employee's love to work based on credibility, respect,

fairness, pride and camaraderie. It is good performance management process, which can help

improve retention such as-

• Use of role clarity and annual review of goal achievement,

• Use of performance appraisal mechanism to measure those goals.

• Employer's mentor / coach role to encourage and advise to produce enduring, productive employee relationship.

• Jim Collins - author of 'Built to Last and Good to Great' - explains the first key to success is

indeed people. You have to find the right people first, the vision and strategy can follow. According

to Deepak Chopra, the ultimate test of business leadership is what happens to a company after the

CEO leaves. Business leader to have meaning in his life, should have love and compassion for his

employees. It is the people in organization, who are key to success. (Indian Management -June


• Still another aspect that has become important is business leaders to fulfill their corporate social

responsibilities in the current global context. We have classic examples of such companies in

India- as Infosys, Wipro, Tata's which have attained s status of respected companies and are

realizing the virtues of brand. These companies have build up their corporate images basically due

to role's of their CEOs.

(d) What ticks knowledge workforce

Other current retention approaches are towards following aspects:

• Provision of fun.

• Nurture creativity.

• Continuous learning.

• Work and life balance.

• Love and individual dignity.

• Involvement and team working.

• Performance related compen-sation etc.

4. Developing a retention strategy in an. organization.

It is desirable to plan employee retention strategy by an organization, which should cover following aspects (J. Leslie. Mckeown):

• 'Identify and prioritize key employees that present a current or future retention risk'

• For each key retention group, clarify reasons for wanting to retain them.

• With each group, use interviews (entry, exit-reasons for his taking the job and reasons for his

staying. To ascertain what we need to do to retain the employees in that group such as loss of

institutional knowledge, which may go to competitors.

• Make the interviews with employee independently and keep them confidential for best results.

• Use the information that is collected to establish clear, quantifiable retention goals for each group

of employees.

(a) Some areas of employee retention, which require particular attention for achieving

competitive advantage, are: -

i. A pleasant work environment.

ii. Work content is associated with performance of goals.

iii. Career and personal growth opportunities as long-term perspective.

iv. Compensation and performance related rewards to be around 30% of total gross pay.

v. The organization culture based on vision, values and a mission. In addition how members do

things, communicate and interact.

vi. Employee ownership in the organization.

vii. Participation and empowerment by encouraging decentralization of decision- making.

viii. Equality or treatment among employees.

ix. Employee centered practices.

(b) Some key expectations of employees are: -

• Work-life balance.

• Acceptance of their views and opinions.

• Respect for the individuals.

(c) Relationship with the manager.

i. A Manager to be considered as a mentor and coach, generally taking responsibility for each

other's welfare in relationship building.

ii. Manager to set realistic, challenging, and relevant goals for employees by involvement.

iii. To implement a realistic, challenging, and. relevant performance appraisal process.

iv. Design and implement an individual growth plan for each employee.

v. To act as a buffer between any employee and other managers.

vi. To act as a representative of employees and play key leadership role.

vii. If people want to work for you, you are 'Manager of choice'. This develops when you

Have won the trust of your employees, and they will stand for you in tough times and remain in the organization. It is pertinent to note that an employee's relationship with his manager will largely explain his view of the company. A company will not become an' Employer of choice' unless it has 'Managers of choice' over all the organization who are using the best practices in people management.

(d) Employees' work relationship with colleagues.

Though it may be competitive but should provide good opportunities for special interaction,

development skills and knowledge.

To conclude, a successful strategy starts with the management's right mindset, which ensures that the

strategy adds value throughout the organization, implementing processes sincerely, that the top management

is fully involved and their enthusiasm in it is of critical importance.

2.4 Summary

This chapter outlines the different strategies for retaining top employees in BPO companies from all positions. It is explains how the HR function has to be changed in terms of employees growth and organizational success. In this research the strategies to retain the top employees will help the BPO companies to control the attrition rate and the analysis on the research will be explained in analysis chapter by linking the questionnaire with strategies.

Therefore the next chapter will discuss the research methods for developing the strategies in BPO companies in controlling employee attrition rates.