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Business Process Outsourcing Explained

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Business Process Outsourcing (BPO) Explained

Business process outsourcing, or BPO, is a business practice in which you hire another company to perform a process task that you require for your own business to operate successfully.

BPO has its roots in the manufacturing industry, with manufacturers hiring other companies to handle specific processes, such as the parts of their supply chains unrelated to the core competencies required to make their end products.

Over time, organizations in other industries adopted the practice. Now, the use of BPO has expanded so much that businesses of all kinds — for-profit businesses, not for profits, and even government offices and agencies — contract with BPO service providers throughout  the world to perform numerous processes.

What BPO is used for

Organizations engage in business process outsourcing for two main areas of work: back-office functions and front-office functions.

Back-office functions include accounting, information technology (IT) services, human resources (HR), quality assurance (QA) and payment processing. Front-office functions include customer relation services, marketing and sales.

Over the decades, the business process outsourcing industry has expanded to offer an extremely wide range of functions and services to companies.

The breadth of functions that can be outsourced today spans from conventional back-office tasks, such as accounting, data processing and payroll processing, to digital services, such as social media marketing, and to customer support roles, such as call center operations.

You can also outsource strategic tasks, such as data mining and data analytics, both of which have emerged as essential elements for digital transformation and for competitive advantage in a digital economy.

How does BPO work?

You can arrive at the decision to outsource a business process through a variety of avenues.

Start-up companies, for example, often need to outsource back-office and front-office functions because they do not have the resources to build the staff and supporting functions to preform them in-house. On the other hand, an established company may opt to outsource a task that it had been performing all along after an analysis determined that an outsourced provider could do the job better and at a lower cost.

The best way is for you to identify functions that can be outsourced and then evaluate that function against the pros and cons of outsourcing to determine if shifting that task to an outsourced provider makes strategic sense for you.

Then, you pick your preferred BPO provider, for the work. They will then help you to shift the work itself from in-house to your new external team, usually overseas. The Philippines is most popular for Aussie companies.

This requires a significant amount of change management, as the move to an outsourced provider generally impacts staff, established processes and existing workflows.

Security and regulatory concerns

Additionally, you must address any security and regulatory concerns, requirements and restrictions. For example, some regulations require local storage of certain types of data, which could prevent the use of an offshore provider in some circumstances.

As such, organizations seeking to outsource generally need to involve IT, security, legal and financial executives in the transaction. This all requires you partnering with a well-established and professional BPO provider.

Scope of work

As you move a function to a new outsourced provider, its up to them to identify the scope of the work shifting from in-house staff to the external partner. Internally, you should identify the workflows and processes impacted by this shift and adjust, if necessary, those workflows and processes to accommodate the outsourcing of the work.

You should also identify the key objectives for outsourcing a function — whether it’s cost savings, increased quality, quicker turnaround or some other objective — and then use that criteria to determine which provider would be best suited to handle the work. Those objectives should also serve as the basis for contractual obligations that can be used to help assess the performance of the outsourced provider and success of the function once it is actually outsourced.

Types of BPO

Because companies around the world provide BPO services to other organizations, BPO can be divided into different types based on the service provider’s location:

Offshore outsourcing, or just offshoring, occurs when an organization contracts for services provided with a company in a foreign country.

Onshore outsourcing, or domestic outsourcing, happens when an organization contracts for services provided by a company that operates in the same country as the hiring organization.

Nearshore outsourcing is when an organization contracts for services provided by companies based in neighboring countries.

Benefits of BPO

The benefits typically cited by proponents of BPO include the following:

Financial benefits: Organizations often find that an outsourced provider can perform a business process at lower costs, or they often find that, by contracting with an outsourced provider, they can save money as a result of the relationship in other ways, such as in tax savings.

Flexibility: BPO contracts can allow organizations greater flexibility to adjust how it completes the outsourced business process, enabling them to better react to changing market dynamics.

Competitive advantage: BPO enables organizations to outsource those processes that aren’t core to their businesses or missions, thereby enabling organizations to focus more of its resources on the operations that distinguish them in the marketplace.

Higher quality and better performance: Because the core business of BPO providers is performing the specific processes they’re hired to do, they are, in theory, able to focus on providing those processes at the highest levels, often with greater accuracy, efficiency and speed.

Quicker access to innovations in the process: BPO providers are also more likely and better positioned to know about advances and innovations happening in the area they specialize in, and they are more likely to invest in new developments in process automation that can improve the speed, cost and/or quality of the work — benefits that flow back to the organizations that contract with the provider.

Expanded coverage: Outsourced providers can expand the hours or geographical reach of an enterprise in a cost-effective manner. For example, an organization that wants to have 24/7 call centre operations or wants to expand globally.

Future directions

The practice of business process outsourcing could be at least partially displaced in upcoming years by technology.

Robotic process automation (RPA) and artificial intelligence (AI) can handle some of the business processes now frequently outsourced, and these technologies can often perform those functions at lower costs and higher speeds.

However, not all processes are easily automated. In fact, a BPO provider may be in a better position to utilize those technologies to automate its service offerings than organizations are, thereby helping the BPO provider retain its appeal if you are looking for the best way to handle business functions.

How to Get Started?

Once you have decided what processes you would like to outsource, you then need to choose a BPO provider that’s right for you. Choose one that can provide actual referrals and has a good reputation in their specific market. Ask them lots of questions. How long have they been in the market? How is the workflow managed? What is the data security and compliance? What metrics are used to monitor the staff performance? Pricing?

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