What is Business Process Outsourcing (BPO)?
Business process outsourcing (BPO) refers to contracting an external provider in business needs, which cover requirements for tasks related to management or support in an organization.
For example, if you need to handle the administrative task in your company but your budget is limited, and it’s not appropriate for you to hire additional employees just for that, you can contract a third-party service provider with expertise on that task, such as handling invitations. BPOs refer to this kind of arrangement.
The BPO industry is divided into three categories:
Offshore call centers are usually located in a nation far from where a business owner is expanding their business. The main benefit of having an offshore service center is lower operating costs and more overhead. This allows companies to save more money when outsourcing jobs, like telemarketing jobs, for example.
Nearshore BPOs are similar to offshore BPOs, but they’re much closer. Often they’re even based in the same country as the employer. These BPOs often serve more prominent clients while still offering competitive prices compared to their Offshore counterparts.
This is because their operations and expenses tend to be higher than their Offshored counterparts (this is because Nearshore BPOs can tap into the local talent pool, and talent is usually cheaper when closer to home).
Onshore BPOs are like Nearshore BPOs in that they’re also based in the same country as their clients, but instead of serving big businesses or conglomerates, Onshore companies tend to serve small business owners much more because it’s typically easier for smaller companies to tap into local talent compared to bigger businesses (e.g., corporations) to do so.
What are its Benefits?
Business process outsourcing reduces costs because there is no need to hire additional labour when performing specialized business tasks. Also, it does not require high-level technical knowledge, so it is easier to outsource administrative tasks..
The client also does not need to expand its facilities and equipment to complete the outsourced task. It’s like getting the “best of both worlds” – your company can concentrate on its core competency while outsourcing non-core tasks, such as heat treatment, for example, to be handled by a lower-cost third-party service provider who has the expertise and manpower necessary for completing such a task.
There are six main reasons why companies outsource processes:
Cost reduction: The company’s goal is to lower operational costs to increase profitability, increase shareholder value, and improve the bottom line. Since outsourcing allows companies to save money by hiring an outside firm or individual that does not have major overhead expenses, firms can achieve this goal.
An excellent example of cost-saving would be using a spreadsheet template instead of creating complex spreadsheets from scratch each time you need one. It will reduce development costs and maintenance costs.
Concentrate on key functions: The company wants to focus its attention and energy only on the most critical activities that will help them grow. By outsourcing non-core functions, companies can free up time and resources to concentrate on more value-adding projects.
For example, a firm might outsource customer service calls to a toll-free call center instead of employing agents internally. This allows employees to work with customers rather than talk about phone interventions all day.
Achieve better results in non-core functions: In this situation, the company sees no benefits from spending money trying to improve low-quality processes that have little impact on their overall success.
If a particular process is below standard or going poorly, then it might make sense to outsource this process instead of investing valuable time and money to improve something that will not contribute much. A company can then focus on what they are good at doing, strengthening the organization as a whole.
For example, an auto-maker might outsource tire production because it lacks the technology or equipment needed to produce quality tires.
Expanding their global presence: Global expansion is one way for companies to gain access to new markets, increase sales opportunities, enter new industries, etc.
An expanding company often finds outsourcing processes beneficial by helping them find advantages in focusing on their core strengths rather than having limited time available for learning how to do things outside of their expertise zone.
However, if outsourcing goes poorly, it can result in the outsourcing organization learning more about how to compete with the company, which hurts long-term success.
For example, a large US retailer sent their technology support jobs overseas to hire low-cost individuals and have good English skills. They planned to outsource this process for six months, but they continued using Indian call centers after seeing the benefits.
Enable flexibility: One of the main reasons companies decide to outsource is to enable flexibility by switching service providers if necessary without requiring significant organizational changes.
Companies often want to deal with as few vendors as possible and prefer task shifting, even though they do not want to be locked into continuous relationships.
Improve speed and efficiency: This is a common reason for many organizations to consider outsourcing. By outsourcing, companies can devote their employees’ skills and time to initiatives that will advance their goals and objectives.
Since, in this situation, the company has found another party who is better at doing something faster and cheaper than the business could do itself, it makes sense to outsource.
Who Can Outsource?
Outsourcing could be done by any business entity, regardless if its small or large scale. This means that if you have a small business operation with only a few employees in your staff, this kind of arrangement could still benefit you since you won’t incur additional labor costs and get help with your task with expertise in the third party you are contracting.
What are its Drawbacks?
The benefits of outsourcing might seem too good to be true since it is getting things done at a low cost while also not compromising on quality. However, there could always be some tradeoffs.
For example, if you contract a BPO service provider who has access to your sensitive data and information through your company or business process, then you need to make sure that they have security mechanisms in place to protect such information from leaking out to unauthorized personnel.
Also, there is no control over what would happen with the outsourced tasks once it has been handed off to the third party contracted for the job. This means that any mistakes or deficiencies in performing the outsourced task would be solely their responsibility.
Steps to Consider When Outsourcing Business Processes:
The first thing you have to do is identify what tasks or processes in your company need outsourcing. It’s a good idea also to get a list of potential service providers and choose the ones with services that could best match your business operations.
You can then request an outline from each service provider for how they handle such processes, including the manpower involved and the time frame it would take them to complete such a task.
After reviewing these outlines, make sure to ask specific questions about any concerns you might have regarding information security and confidentiality and other associated risks—decisions accordingly by weighing costs and risks involved with outsourcing.
