Business Process Outsourcing: What It Is, How it’s Done, and the Benefits of Doing It Right

Business Process Outsourcing (BPO) What It Is, How it's Done, and the Benefits of Doing It Right_2

Table of Contents

BPOs are becoming increasingly popular as companies look to outsource their business processes. Learn why they’re so beneficial.

What is Business Process Outsourcing (BPO)?

Business Process Outsourcing (BPO) refers to hiring an outside company to perform in-house tasks. This includes everything from customer service to accounting to marketing. Outsourced services are often cheaper and faster than doing things yourself, making them attractive for businesses looking to save money and improve efficiency.

BPO has become more common in recent years because outsourcing allows businesses to focus on what they do best while letting others handle the details. This frees employees to work on higher-value tasks, such as developing new products or improving existing ones.

How does BPO work? Understanding the way it works is crucial!

There are several reasons why businesses may opt to outsource a particular process. It could be that the company is seeking to cut costs or may wish to focus on other areas of its business. Whatever the reason, understanding how business process outsourcing works is crucial for any company considering this option.

The first step is to identify which processes you wish to outsource. This will involve an analysis of your current operations to pinpoint areas where outsourcing could be beneficial. Once you have identified the functions you want to outsource, you will need to find a suitable provider.

What is BPO used for? Find out the business processes that are usually outsourced

BPO is used for various reasons, such as reducing costs, increasing efficiency, and improving quality. When done correctly, it can be a powerful tool for businesses.

One of the most common uses of BPO is to reduce costs. By outsourcing certain functions to lower-cost countries, businesses can save significant money. This can be especially beneficial for companies that have high labor costs.

Another everyday use of BPO is to increase efficiency. Businesses can free up their internal resources by outsourcing certain functions to focus on more critical tasks. This can lead to higher levels of productivity and profitability.

BPO can also be used to improve quality. By outsourcing certain functions to experts, businesses can ensure they get the best possible results. This can lead to higher customer satisfaction and loyalty.

When used correctly, BPO can be a powerful tool for businesses. It can help to reduce costs, increase efficiency, and improve quality. However, you must choose the right provider and know your goals and objectives. Otherwise, you may not get the results you are hoping for.

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The business processes that are typically outsourced

Back-office operations

Back-office operations are critical to the success of any business, large or small. They provide essential support services that keep businesses running smoothly and efficiently. All back-office functions are accounting, information technology (IT), human resources (HR), quality assurance, and payment processing.

While back-office operations may not be the glamorous part of running a business, they are essential to success. Companies must keep track of their finances, manage their information and data, hire and train employees, ensure the quality of their products and services, and process payments efficiently.

Outsourcing back-office functions help your team avoid tedious, repetitive, and boring but essential tasks. Additionally, outsourcing can help your company save money by avoiding hiring additional staff to handle these simple but high-work-load tasks with more complicated procedures and management.

Front office operations

Front office operations are the lifeblood of any business. They are responsible for handling customer inquiries, processing orders, and managing day-to-day operations. Customer Services, Marketing, and Sales are front-office operations. Without a well-oiled front office, businesses would quickly grind to a halt.

Unfortunately, front-office operations can be time-consuming and expensive to manage internally. This is where front office outsourcing comes in. Front office outsourcing is the process of hiring a third-party company to manage your front-office operations for you. Their expertise can provide your company with promptly efficient solutions without spending too much time hiring, training, and, most importantly, bearing the opportunity costs of failure at decisive points.

Why BPO: Top benefits of BPO that organizations can realize

  • To reduce costs: Outsourcing is an excellent way for businesses with limited resources to reduce their overhead. This makes it easier on you, the client! There will be less competition from other companies in your area and much lower prices because you’re using variable costs instead of fixed ones that require more workforce or space due to recruitment and equipment requirements when hiring locally.
  • To concentrate on critical functions: The company will be able to focus on what it does best instead of having other people do tasks that are not core competencies. For example, when outsourcing payroll services, they do not need to monitor how well an accountant performs. This responsibility can go into someone else’s hands who has even more experience and expertise in these areas than the original staff member did! Businesses can achieve increased growth opportunities by bundling together various aspects, such as improving customer satisfaction through better interactions with value chain partners.
  • To achieve better results in non-core functions: Outsourcing companies are considered the cutting-edge providers of services for any business looking to outsource its non-core functions. These businesses specialize in processes and technologies that other organizations may not want or need. Still, an outsourcing company will invest heavily into these areas because they can provide internal and external benefits for their client’s performance goals.
  • To expand their global presence: Whether a small or large company, outsourcing can be an effective way to free up time for other essential tasks. In many cases, the in-house team can focus on managing local customers, while the outsourced teams are in charge of international customers who speak different languages and are located across multiple countries.
  • To enable flexibility: Outsourcing non-critical functions is an excellent way for companies with challenging times ahead in their industry. They can outsource less profitable but necessary jobs that don’t need constant attention.
  • To improve speed and efficiency: By outsourcing specific tasks, companies can free up time and resources for other essential business functions. For example, the IT department realizes their current system isn’t accurate or efficient enough when handling such data entries needed by law compliance requirements. They might hire a BPO company specializing in data management to have less work on their part!

BPO risks you should be prepared to avoid

The global economy is not performing well, and some countries have seen shortages of skilled workers while trade protectionism increases. Outsourcing to BPO major player countries might be very cost-effective, but it is also accompanied by several types of risks that cannot be easily seen:

  • Security breaches: The information technology (IT) department is often tasked with connecting the dots between their organization and a third-party provider. It’s essential for hiring companies to have an IT team that understands how BPOs work to monitor threats from outsiders looking at potentially sensitive records on your end!
  • Regulatory compliance requirements: Outsourcing can be an excellent way for companies to cut costs, but not just any vendor must do so. There are strict guidelines an organization needs to have successful relationships with their vendors and avoid costly mistakes that could get them into trouble- primarily if they’re based outside of the country where you do business.
  • Unanticipated or higher costs: This can significantly underestimate how much work needs to be done, resulting in higher costs than expected.
  • Relationship challenges: Organizational communication problems might arise with the outsourced providers, or there could be cultural barriers.
  • Overdependence on the external provider: The cost of outsourcing is that you are always at the mercy if they perform well. If there’s a problem, bringing back in-house and moving contracts around can be challenging because relationships between organizations need careful management.
  • Increased potential for disruption: To maintain a long-lasting and profitable relationship with an outsourcing provider, organizations must monitor them closely. This includes financial or workplace problems at their outsourced partner, geopolitical instability, natural disasters like earthquakes that may cause damage near the company’s base, changes in economic circumstances, etc. Organizations need coping strategies which add complexity when it comes time to plan & prepare – but also ensure protection against potential disruptions.

Find out more» Top 10 BPO risks and how you can avoid them to succeed

Major challenges that BPO Industry facing

With the BPO industry growing in sales and providing new employment opportunities, it becomes increasingly appealing to people. However, several factors influence this industry and make it challenging for BPO companies.

  • Regulatory Scenarios in different countries: The outsourcing industry has been growing at an unprecedented rate for the past fifteen years. As a result, regulatory bodies needed to provide a consistent legal framework with the new regulations from different countries worldwide, especially in Europe, where they’re working on it most actively.
  • The Cost of Running Business: The BPO industry has been promoting itself as a significant money-saving opportunity since it began to grow. It allows one access to top prospects at lower costs while still generating revenue over time.
  • Still, many outsourcing firms struggle with investment and budgeting issues that can put additional strain on their finances when they’re expected to provide everything to keep expenditure minimal—a challenge made more difficult because consumers are becoming demanding.
  • Customer Expectations and Quality of Service: The customer-centric market is a significant factor in all markets, including the BPO industry. This ensures that companies will have the best outcomes possible for their customers, with outsourcing firms being forced to meet these standards through constant contact and efficient distribution of funds.
  • Firms that are new to the industry will have a hard time competing with established competitors. They can either lower their prices or reduce profit margins to improve service efficiency by recruiting top talent. Still, it’s essential to not just focus on one business dimension.
  • Employee Retention and Health Issues: The BPO industry has been struggling with employee turnover for years. The larger companies have managed to reduce their rate of employee attrition. Still, smaller firms struggle to get new employees on board and keep them through tough times because consumer demand does not seem to be picking up anytime soon.
  • Health risks are also a severe issue for BPO employees. As you might be aware, these firms have no territorial limits. They can deal with customers from all over the world at different time zones, which means their workforce operates on a rough timeline raising potential health problems.
  • Equity and Brand Building: Most BPO companies find developing a long-term branding strategy challenging, as they must compete with other brands for attention and investment.
  • To remain competitive in the global market, these businesses need to spend far more than most companies do on promotional campaigns, which can lead to disgruntled ex-employees telling negative stories about their experience at your organization.

Find out more» Current challenges to BPO Industry: Can we still satisfy our clients?

What are the different types of BPO?

Classification based on the service provider’s location

Offshore outsourcing

The use of offshore vendors is becoming more common. For example, US companies may outsource their business processing needs to a Vietnam-based BPO company.

Onshore outsourcing

Onshore vendors can be found in the same country as your contractor, or they might operate across state lines. On-site staff members are typically local to where their client resides. Still, onshore outsourcing has been known for using people from different cities and states around America, so no matter what location you go to, there will always be someone qualified available!

Nearshore outsourcing

Contracting work to companies in your own country is more cost-effective than using a faraway firm. The term “nearshore outsourcing” refers to these arrangements, where businesses contract with other countries near them (i e., within the same time zone) for service offerings they have available locally instead of choosing international vendors across borders.

Categorized by the types of services being provided (KPO, LPO và RPO)

Knowledge process outsourcing (KPO)

Knowledge process outsourcing (KPO) is contracting out core business activities to individuals with advanced degrees and expertise in a specialized field. Depending on what you need to do, these workers may be located inside or outside your organization; there’s no risk involved when there is time for them to finish their tasks!

When an organization outsources its knowledge process, they are not only hiring for capacity but also providing expertise to help with the performance.

Legal process outsourcing (LPO) is an innovative way for law firms and other legal services providers to outsource their most time-consuming tasks while maintaining control over pricing. By moving these mundane yet essential operations into the hands of outside professionals who specialize in this area – often referred to as “processors”- companies can reduce costs associated with running a crowded department that mainly performs required work around paperwork; without sacrificing quality.

Research process outsourcing (RPO)

Research process outsourcing (RPO) is a type of KPO that refers to the act and analysis functions. Biotech companies, investment firms, and marketing agencies are among those who hire their respective tasks for services through working with BPO vendors.

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BPO Decision: How can you choose the right BPO service provider for your business?

Steps of BPO Decision

Working with many vendors is no easy task, but ensuring you get the best service for your company is crucial. The following list provides steps in order from first identifying needs throughout contract negotiation, so there won’t be any surprises along their journey:

  • Define your requirements and review potential vendors: This is one of the most crucial steps in outsourcing because it will determine how well your company performs. It will help if you start by defining key stakeholders and engaging them early, setting all expectations for this process before beginning any work (this ensures there are no surprises later down the road).

The next thing you want to do after that initial meeting would be to figure out what objectives need fulfilling through BPO. These could include anything from quality assurance processes like testing or training employees alongside new hires so they can take over if something goes wrong.

  • Put together a request for proposal (RFP) and source vendors: The most crucial elements of a BPO provider are determined during this phase. These include what service management model your company will use and developing and sending out an RFP from market research to get all potential vendors on board with the idea that somebody wants them.
  • Choose the right vendor for your company: The evaluation process begins with an in-depth proposal analysis. It is crucial to consider the risks and benefits determined from shortlisting potential vendors and any other factors that may affect your decision, such as the price or quality of service they provide.
  • Negotiate the contract: It’s essential to have your team members participating before you start negotiating prices and service terms. The last thing any company wants is their contract with a third-party provider of services, which can be expensive if done wrong or even illegal in some cases. So ensure that all employees understand what’s happening; don’t just involve those who will handle payments.
  • Transition the work and processes to your chosen vendor: The plan should be well thought out and communicate the change in an organized manner. Everyone involved must be on board with transitioning to this new model. So it helps if you have open communication within your business and between you and service providers throughout each relevant process.
  • Manage your relationship: One of the most important things to do when you’re outsourcing something is performance monitoring. You want your company to get all it can get out of this agreement, so make sure there are no surprises on the contract’s end, plan accordingly and be ready for renegotiation.

BPO service provider evaluation

When choosing a BPO, people should consider more than just price. To be successful and competitive in today’s business world, an organization must also ensure they are getting value from their investment by evaluating providers on multiple dimensions, including capability or ability to meet goals, flexibility, and innovation.

Experience

Your business needs to choose the right partner. A company with ample experience will be able to help you deal not only with the assigned tasks but also provide an edge over competitors who offer similar services. Because they have sold similar issues before, they know how to handle difficult situations the best when it comes up. They will know how best to approach the process and get results for you.

Security Policy

The idea that security should be a top priority when outsourcing may seem daunting. However, assessing if your partner has good practices for protecting sensitive information is essential.

As you look into BPO services providers, ensure they follow adequate measures, including having binding agreements such as a Non-Disclosure Agreement (NDA), which prohibit sharing Confidential Information. It ensures only specific people who have access at any given time and prevent accidental breaches due to carelessness on behalf of either party involved.

Your partner needs to be equipped with a security system so they can prevent unsolicited access to Confidential Information either. This could include biometric authentication, CCTV cameras, and firewalls.

Reputation

Choosing a BPO service provider who can offer qualified resources for your project is essential. To avoid a below-par solution, pick an experienced BPO service provider who has worked in your industry. Check out their staff and make sure they have enough skilled workers on hand before committing them as well.

Reputation also means everything in business. The right BPO service provider will have earned the trust and respect of other companies within the industry.

What kind of reputation does this company currently maintain?

  • Awards: The companies with awards and accolades most likely provide above-par services.
  • Certifications and Accreditations are an indication that independent bodies have vetted the organization.
  • Industry ranking: Companies that deliver high-performing solutions often rank well in industry surveys.

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Technology

BPO companies must keep up with the latest technology in the ever-changing business world. Without cutting-edge technologies in your office or submitting bids on outdated software that won’t suit current needs, you could be missing out big time.

For the best outsourcing experience, ensure your partner has access to cutting-edge technology and relevant processes for their functions.

Scalability

The ability to respond quickly and efficiently will ensure high service levels for your end-users no matter what the economy brings.

A BPO provider must have enough resources to expand or shrink along with changing demands while demonstrating scalability. It is essential, especially if there are increased volumes due to seasonality patterns within specific industries. Only organizations that meet these criteria should provide reliable outsourcing options that consistently exceed expectations.

Infrastructure

The importance of infrastructure for a BPO service provider is immense. For example, without high-speed internet, phone connectivity, and hardware/software to run their workflow smoothly, they will be unable to deliver any professional call center experience, leading to revenue losses and customer satisfaction.

Therefore, selecting a provider that assures you of a robust infrastructure including high-speed internet connection, phone connectivity, UPS, data storage devices, Interactive Voice Response System (IVR), predictive dialler, CRM software, and so on.

Quality Assurance

Data is the most important asset that any company has. This means you should be looking at how much they cost and what quality assurance procedures they have to ensure your data stays safe and secure with them?

Picking an outsourcing partner who shares high standards for protecting sensitive details will help us maintain control over its integrity during every step of their process, from pulling information to processing it into something useful or providing peace of mind when making critical decisions based on this valuable resource.

Cost-Effectiveness

The cost of a BPO company should not be your only criteria when choosing one. You need to compare their prices with other companies and assess how well each provides services to decide which is best suited based on what matters most – quality or price?

It may seem like there would always come down between them, but sometimes low-priced providers have poor services while high-priced ones can’t provide everything needed, so take care of choices wisely.

Referrals

Referrals are a powerful tool in any industry. They work for marketing and sales, BPO services like customer relationship management (CRM) software systems, or help desks, even if you’re looking to hire someone who can do consulting work on-site at your location!

The best way is by using referrals from people we know and trust to get what you need to be done right away without wasting time going through endless resumes that will never lead us anywhere productive…

Turnaround Time

Turnaround time is one of the most crucial considerations when choosing a business process outsourcing partner. It would help if you had someone with experience in delivering on their promises within set deadlines, so you can go ahead without worrying about delays or other complications arising from the poor quality craft by your temporary staff members.

The importance of meeting specific turnaround standards should not be underestimated. If these are met, managing projects becomes much more accessible.

Additional tips that can help you choose the right BPO:

  • Finding an outsourcing company that can help you decide which parts of your business need in-house management is crucial. If they try squeezing core processes out from under their clients, beware!
  • When an outsourcing company values employees’ work, it can help increase productivity and connection between your organization.
  • An organization’s objective is to help your business boost sales without consuming too much money.
  • Look for evidence that a company can ensure they will complete the task on time and within scope.
  • To ensure a successful BPO experience, you should research beforehand and ensure that both parties’ expectations are clear. Delivery points also need to be established in advance, so there’s no scope for confusion or disagreement later downstream.

Find out more»

BPO market size forecasts for the period 2022 – 2030

According to a recent report by Grand View Research, the global business process outsourcing (BPO) market is expected to reach USD 525.2 billion by 2030. The market is anticipated to register a CAGR of 9.1% over the forecast period (2022-2030).

The growing demand for cost-effective and efficient services is one of the key factors driving the market’s growth. In addition, the need for improved quality of services and increased operational efficiency contributes to market growth. Moreover, the rising trend of digitalization and automation across various industries boosts the market.

However, the high initial investment required for setting up BPO operations is expected to restrain market growth to a certain extent.

The business process outsourcing (BPO) industry is forecast to grow significantly in the coming years, driven by technological advancements and business continued globalization.

The industry is expected to benefit from the continued adoption of cloud-based technologies, which will enable businesses to outsource their back-office operations to specialized service providers. In addition, the increasing availability of high-speed internet and mobile connectivity is expected to make it easier for businesses to connect with BPO service providers in different parts of the world.

The growing trend of Big Data analytics is also expected to drive demand for BPO services as businesses seek to gain insights from large data sets. And as more companies expand their operations into new markets, they are likely to outsource specific processes to specialist providers to focus on their core competencies.

5 ongoing trends will create the future of the BPO Industry:

  1. Strategic Partnerships in BPO become significant
  2. Increasing needs for Cloud-based BPO Services
  3. Automation has become the most effective to solving massive amounts of data
  4. Outsourcing is still the most cost-effective strategy for businesses
  5. Data Security is the most concerning issue in BPO decision

Overall, the BPO industry is forecast to grow healthy in the coming years, providing ample opportunities for businesses looking to tap into this booming sector.

Find out more» Top 5 BPO trends that will dominate the industry in 2022 and the following years

Controversies around BPO

There are several controversies around the business process outsourcing (BPO) industry. One of the most controversial issues is the impact that BPO can have on job security in developed countries. There is a fear that BPO will lead to a loss of jobs as companies outsource work to cheaper labor markets.

Another controversial issue is the working conditions of employees in BPO companies. There have been reports of long hours, low pay, and poor working conditions in some BPO call centers.

Finally, there is the concern that BPO can lead to a brain drain from developing countries. This is because talented workers may be lured away from their home countries by the promise of better salaries and working conditions elsewhere.

Despite these controversies, Business Process Outsourcing (BPO) remains a popular option for businesses looking to cut costs and improve efficiency. It is essential to weigh the pros and cons of BPO before deciding whether it is the right option for your business.