Business process outsourcing means outsourcing specific business tasks to a different organization. By eliminating in-house labor and all that comes with it, outsourcing benefits businesses by lowering expenses, boosting efficiency, and increasing revenue.
The most typical BPO is when a business outsources the management of its customer support to a department overseas. For example, salaries in Mexico and India are much lower than in the United States, and BPO can lower labor expenses by transferring business to countries with lower salary expectations
Business Process Outsourcing: Meaning
The meaning of business process outsourcing (BPO) is simple—it is essentially the practice of employing a third-party company to carry out some of your business tasks. It might include more complex operations, like payroll and accounting, or it may deal with customer service or IT support.
It’s a fairly popular and widely used strategy because it enables you to concentrate on what your company does best while having other businesses handle non-core activities for you. It will involve two parties: your company and the company that specializes in the task you’re outsourcing to them.
Business process outsourcing is not risk-free. There are many advantages and disadvantages to outsourcing tasks, depending on what kind of business you run and where you are located (e.g., near a large city with lower wages).
Dealing with all business operations in-house can be a difficult task to achieve, and it can affect your budget greatly.
Business process outsourcing can help you stay within your budget comfortably and give you an advantage in the market. BPO can achieve this by letting you focus on core tasks and analyzing the market within your niche.
Why Do Businesses Choose Outsourcing?
There are many benefits for businesses that outsource their internal operations to a third party.
Some of them are the following:
- Cost reductions. By eliminating overhead and the need for specialized staff and equipment, outsourcing can save expenses in the long run and allow for the redirection of costs to core tasks. In the digital age, it’s much easier to connect with companies that do outsourcing at cheaper prices, depending on where they’re located.
- Increased focus. When non-essential tasks are outsourced rather than carried out internally (or through a partner company or agency), time and resources are refocused on the core activities that have the highest potential to affect success and revenue. Automating tasks, if possible, is an even better option than outsourcing.
- More time. With business process outsourcing, you will free up more time and resources to develop new goods and services or create procedures that will foster innovation within your market or industry sector.
6 Benefits of Business Process Outsourcing
6 Benefits of Business Process Outsourcing
It is important to consider everything if you’re debating whether or not outsourcing is right for your company. Make sure you’re getting value for money and that you’re investing it in the right sector.
Here are some of the main benefits of business process outsourcing:
#1. Saving Costs
The use of external resources and technology can reduce costs by up to 50% compared with in-house operations. You can save money by hiring outside contractors who charge less than employees would. BPO can help reduce the overhead costs associated with the operation of your business.
The hiring and education processes for your team typically cost a lot. Since outsourced employees operate remotely, outsourcing significantly reduces costs such as office space, supplies, and equipment.
#2. Competitive Advantage
Competition on the market is never taken lightly. Business process services are crucial for any small or medium-sized enterprise. Outsourcing can give you an advantage over competitors without hiring more staff.
You are more likely to compete with large companies if you save resources, strategically utilize your current workforce, and are flexible.
Business process outsourcing will give you leverage in terms of time zone since you will likely work with a company that’s on the other side of the globe.
You will have workers that get the job done by night and focus on the main task with the workforce you have within your physical space. As a small or medium business, it will be easier to focus on the competition and identify what you need to improve to stand out in the market.
#3. Access to Talent
With more profit, you will have more options to expand and attract talent. Almost every company will experience the need for more personnel, especially for short-term projects. Outsourcing can help with temporary employees or consultants, which will help you get the job done faster and with added quality.
The ideal time to use business process outsourcing is when a project needs to make use of your worker’s primary skills. Employees usually have to deal with tedious tasks on top of their main job, so outsourcing can be a great tool for offloading those tasks to outside help.
BPO will allow you to establish a defined schedule and workflow for contracted workers on a project-by-project basis. You won’t have to post job ads, and you’ll get access to experts right away.
#4. Better Quality
With business process outsourcing, the processes are usually becoming more efficient because they’re not constricted by internal regulations.
Since outsourced companies or employees work on a per-project basis, they will be more motivated to give their all to the task at hand, which will lead to a higher-quality outcome.
On the other hand, by having your in-house workforce focus exclusively on core tasks, you will be able to further increase the quality of output and do that where it matters the most.
#5. Saving Time
By outsourcing time-consuming tasks, you can immediately get more time to focus on the core tasks and finish any project sooner. This means employees within your business operations, sales department, HR, and marketing can finish tasks faster or take on more responsibility.
People tend to be happier when their work allows them enough time to use their skills creatively. Having happier workers increases workplace productivity. A bonus of such a working environment is that your team will likely come up with new ideas for your business and be able to see things from a different point of view.
You can easily scale up or down depending on your requirements at any given time. This makes it easier for you to respond quickly when your business grows. Businesses can have greater development when they can outsource efficiently and do more with less effort and expense.
However, when a company is growing, there are situations when the decisions may be hasty, or there may be a discrepancy between expenditures and expected revenue. This could make robust hiring financially risky.
Business process outsourcing can greatly lower this risk and give your company the flexibility to quickly adjust the size of operations as needed. That’s why BPO is a great tool for growing companies that are still unsure about taking big steps within the business.
6 Disadvantages of Business Process Outsourcing
Business process outsourcing is definitely not without its risks and drawbacks.
Let’s take a look at the most important ones to consider:
#1. Less Control
When you outsource, you will have less control over how things are done. This involves giving up some decision-making power, and you can’t make sure that processes are followed correctly at all times.
The corporate culture, products, processes, and values will frequently be less familiar to outsourced workers. As a result, they might lack commitment to your project or customers, and they might not provide the kind of service you require.
It’s crucial to train your outsourced workers, or at least get them familiar with your standards and procedures. Assemble a committed team if they need specialized training so they can bring the results you want. These workers must have all the necessary skills to provide the desired outcome you paid for.
#2. Communication Disruption
Since you’ll likely work with people from different countries and cultures, you can come across language barriers and cultural differences. For some services, it might not be a problem, but what about your business? Is this a significant obstacle for your area?
Depending on your services, customers might be used to foreign agents or completely taken aback. Discuss with your team if familiarity with your culture and language fluency will affect customer service and overall performance.
#3. Risk of Tainting Reputation
If something goes wrong during an outsourcing process and it wasn’t communicated beforehand, there could be negative consequences for both parties involved. It’s usually because neither party knows how to best respond under such circumstances after all is said and done.
#4. Lack of Knowledge
When outsourcing, it’s important to choose people with the right skill set for the process you will outsource to them.
Don’t rely on somebody’s resume. If you plan on outsourcing, get to know your future coworkers. See what they’re like, if they know what you’re talking about, and if they’re reliable.
You will probably work with them more than once if you decide BPO is for you, so it’s worth the effort to know your outsourcing workers. Speak to their best performers and ask for case studies.
#5. Cost-related Issues
Pay attention to any hidden charges, such as legal fees and expenses. Before you do BPO, you need to understand pricing, the structure of the company you’re hiring, and their fees before you strike a deal.
You will need to explain everything in detail in the business process outsourcing agreement. The costs of outsourcing procedures can often be difficult to foresee, especially if they arise months after you think you’re done with the project.
You can easily underestimate the number of workers needed or how much they will charge for the services, so double-check everything and explain everything you want to achieve.
#6. Security Risk
When you sign a contract with a BPO provider, they will establish ongoing tech ties with your business. Sharing confidential client and company information puts your business’s security at risk. For companies without a thorough information security policy, data theft and a security breach involving sensitive data can be serious problems.
The potential of a third party stealing private data, such as customer lists or bank account details, is always possible. When it comes to signing contracts with a business process outsourcing provider, some guarantees on security concerns and data protection need to be included.
Examples of Business Process Outsourcing
BPO providers frequently have in-depth expertise and experience in the fields in which they provide services. They can offer your company a higher level of service quality and effectiveness than you could manage yourself.
Some of the common business process outsourcing examples are:
- Front office outsourcing. Any type of customer care outsourcing focuses mainly on cold calls, scheduling appointments, or dealing with customer complaints. We mentioned above that you should do your research and don’t be afraid to ask for recordings of some calls or case studies to be sure the company’s the right fit.
- Sales outsourcing. Sales are similar to the way customer support works, although in this case, you should consider someone who has the experience or fits your style of sales. Middle-Eastern countries are famous for their sales pitch and negotiation skills, so this job usually goes to them.
- Market research. SaaS providers are usually searching for someone they can outsource their services to. Marketing is an important part of any business, and it’s a typical example of a business process that can be outsourced. Third-party companies will usually deal with managing events, hiring virtual assistants, creating marketing strategies, or writing content for businesses. From SEO to landing page design, outsourcing companies will do the job.
- IT outsourcing. Countries like Ukraine and Poland are overflowing with IT experts who will charge you way less than you’d expect. This is why they’re among the top BPO countries; many skilled programmers will offer top services for a lower price. Services can include app development, website hosting, database management, and more.
- Back-office outsourcing. Payroll and accounting outsourcing are very common, especially since digitalization has really taken off. You can easily hire someone who will deal with bookkeeping, writing and proofreading financial contracts, and tracking reports regarding taxes.
- HR department. HR is among the most popular business process outsourcing examples. You can find a great HR team that will take care of employee engagement, recruit new people, deal with employee data, and make sure everyone is staying on top of their game.
Business Process Outsourcing Companies & Locations
A lot of companies will choose countries with low wages for outsourcing. While it might not sound great, the company benefits from cutting expenses, and the employees abroad will still get a good paycheck for their standard of living.
For example, you’ve probably heard a familiar accent many times while calling customer support. This is no surprise since India is the number one country for outsourcing almost any business process. India became a popular talent outsourcing area since employees can be found in lower-cost cities and the wages are low.
India was colonized by the British Empire, and it still has a great impact on their culture. Many people are familiar with the culture outside of India and the English language. You can find good talent, and you can be sure outsourcing will pay off since many young, educated people are very eager to work.
IT companies often outsource any customer support-related work to India, including any back-office job. Global airlines, banks, and companies like Paypal will usually turn to Indian workers when they want to delegate business without cutting expenses. In general, companies of any size often make use of India’s workforce.
Besides India, business process outsourcing companies are widely spread in the Philippines, Ukraine, South Africa, and Brazil. All of these countries have many IT experts who will work for a smaller wage than someone from the US or the UK. This is the driving force behind the main BPO countries—the quality of service is high, and prices are low.
With quite a few benefits and drawbacks, it’s up to you to decide whether business process outsourcing is the right thing for your company. If you decide it’s worth a shot, think about the tasks that would be best suited for outsourcing in your case.
Keep in mind that some things might not be worth spending money on if they don’t add enough value to the company. However, if done correctly, BPO can free up your company’s resources to focus on its core strengths instead of drowning in tedious tasks.
Additionally, business process outsourcing increases flexibility, lowers costs for doing business, and gives you access to hard-working talent around the world. Consider it if you have a growing business that needs additional manpower to successfully compete in the market.