The BPO (Business Process Outsourcing) is a $245.9 billion industry (2021). The practice of outsourcing business tasks to BPO firms has risen rapidly in the past decade. It is a practice that has proven to:
- Cut costs,
- Improve efficiency,
- Bring scalability,
- Beat the competition,
- Improve business outcomes.
Most organizations, whether they are enterprises or start-ups, use BPO services in one form or another. Some outsource processes like data entry, while others outsource manufacturing (more on that in a bit).
But the question is, what exactly is Business Process Outsourcing, and how do you define a business process?
In this article, we’ll discuss that and more on BPO, such as its types and examples. So without wasting any time, let us begin.
Table of Contents
What is Business Process Outsourcing (BPO)?
A business comprises various processes necessary to accomplish essential objectives and achieve desired outcomes. These can be the core business processes such as manufacturing or support processes that may include customer experience or payroll. Businesses often outsource these processes to third-party organizations, and this practice is called Business Process Outsourcing, or BPO. This practice is also known as externalization or subcontracting.
Initially, when this practice became a norm, organizations preferred to outsource only their non-core processes. However, companies today outsource their core processes to reduce business costs. Apple is a case study that shows how a business can be successful even if it outsources its core operations like supply chain and manufacturing.
Alright, let’s move to the attributes an organization needs to consider when choosing a BPO service provider.
How to Choose a BPO Service Provider
- Experience. The experience of your BPO service provider is of utmost importance. An experienced firm will have the expertise and knowledge to manage all the situations related to outsourcing effectively.
- Strengths of the Firm. The next thing an organization should consider before choosing a BPO firm is the strength and availability of its skilled resources. It is incredibly important to have a dependable team of qualified professionals who can complete tasks promptly.
- Technology. A BPO firm with the latest technology at the center of its operations outperforms its competitors. The technology and innovation must also be relevant to the nature of your business.
- Scalability. A BPO firm with room to add more services for you as the need arises is essential. This will save you from reaching out to a new BPO firm whenever you need to outsource a new process, which often increases cost.
- Cost-Effectiveness. Many organizations assume that the first BPO firm they come across will help reduce costs. However, taking your time to study the prices and comparing them with other providers will save you from hiring an expensive BPO provider.
We are now moving to the various types of Business Process Outsourcing.
Types of BPO
BPO is divided into two categories, i.e., based on functions and geographical location. Let’s start with the types based on outsourced functions and processes.
BPO Types Based on Functions Performed
Back Office Outsourcing:
Back office outsourcing is the type of outsourcing that handles in-house business processes. Examples include:
- Internet research,
- Data entry,
- Data collection,
- Data analysis,
- Payment processing,
- Order processing,
- Quality assurance,
- IT services,
- Billing, and more.
Front Office Outsourcing:
Front office outsourcing refers to the type of outsourcing that handles customer-facing processes. Examples include:
- Customer Support
- Customer Experience
- Tech Support
- Complaints and Suggestions, and more.
BPO Types Based on Geographical Location
As the name suggests, offshore outsourcing refers to the hiring services of a BPO firm located in a country different from where your business is situated.
For example, WhatsApp offshored its software development to a BPO firm based in Eastern Europe in 2009.
Nearshore outsourcing refers to hiring the services of a BPO firm in your neighboring country.
For example, Whirlpool, an American company that manufactures home appliances, nearshored its operations to Mexico in 1987.
Onshore outsourcing refers to hiring the services of a BPO firm located in your country of operation.
For example, Philips, a renowned electronics company based in the Netherlands, onshored its HR and payroll functions to another Netherlands-based BPO firm Randstad Holding NV.
Advantages of Business Process Outsourcing
Cost reduction is one of the most significant advantages of hiring a BPO firm, and 70% of companies cite this reason for using BPO services. Organizations that outsource their processes end up saving money due to:
- Wage differences,
- No expenditure on onboarding or training,
- No need to buy expensive equipment,
- Saving money on infrastructure, and
- Focusing surplus on core money-making activities.
Ability to Concentrate on Core Functions
After the cost reduction, the opportunity to concentrate efforts on the core functions of a business is the biggest advantage of hiring a BPO firm. Doing so brings many other benefits directly connected to the availability of time and resources.
Outsourcing non-critical business activities to a BPO firm has proven to improve the overall efficiency of an organization. In fact, 24% of small businesses outsource to enhance efficiency. Outsourcing improves efficiency by freeing time and resources to look after more critical business processes.
Gaining Competitive Advantage
The key to gaining the upper hand over your business competitors is to consistently bring innovation and improve the quality of your core products and services.
By outsourcing secondary or non-core processes to BPO firms, organizations find it easier to focus on their core money-making tasks, getting a greater opportunity to acquire more customers in their target market. Apart from that, outsourcing relevant tasks to experts in BPO firms means your business is in trustable hands.
Achieving Better Quality
When organizations have more time to focus energies and resources on core tasks, they get to improve the quality of their products and services. Today, it is only possible by hiring the services of a BPO firm.
One of the perks of hiring an offshore BPO firm is the ease it brings in globally expanding your business. It doesn’t make sense for a company to spend time learning about the market and local business laws of new territory when they can simply hire a BPO to do business there for them.
As with everything else, there are also some disadvantages of hiring BPO services. Here’s what they are.
Disadvantages of Business Process Outsourcing
Over-dependence on the BPO Firm
Using BPO services for too long or too many processes can make organizations lazy and over-dependent. As a result, they find it harder to do things in-house when they can’t outsource for some reason. Moreover, they gradually become more willing to pay higher prices to continue using those BPO services.
35% of companies feel anxious about losing their intellectual property by hiring BPO services. This is a considerable disadvantage, and only the BPO firms with excellent reputations and client testimonials are likely to be trusted with the data of big organizations.
Miscommunication can become an issue when using the services of offshore BPO firms. This occurs because of language barriers, and time, money, and resources may be lost because of miscommunication, further impacting the efficiency and productivity of an organization.
Costs of Services
Hiring a BPO firm can only be cost-effective if a company has taken the time to calculate everything involved down to the minutest details. But it is only possible in an ideal world.
Once an organization hires a BPO firm, they find out that more and more processes need to be outsourced, overshooting the estimated costs of service. Moreover, a company can lose money after hiring BPO services in case of a legal dispute with the BPO firm.
There is no doubt that outsourcing business processes bring tangible benefits to an organization, and its disadvantages can be managed with proper care and consideration. It can be a great way of staying ahead of the competition while improving the quality of your products and services.
What processes would you outsource if you were in charge of running a business? Let us know in the comments!