Yes, outsourcing provides flexibility based on business needs and fluctuations with the right BPO agency or partner. BPOs offer high flexibility by training and hiring temporary staff to absorb fluctuations.
What is Business Process Outsourcing (BPO)?
Learn What is Business Process Outsourcing, its Importance, Types, Advantages and Disadvantages Here. Read More to Learn How BPO can Improve your Business.
Most of us associate business process outsourcing or BPO with call centres, but BPO has a farther reach. So, what is business process outsourcing? It involves outsourcing or subcontracting different operations of a company or organization to a third party. India has become the top choice for outsourcing in the UK and US. Besides customer support, which we are most familiar with, BPO services include data processing, insurance procession, telemarketing, technical support, web design, content creation, content curation, market research, healthcare, etc.
The Business Process Outsourcing sector is rapidly growing, with a global market share of 245.9 billion USD in 2021, which is expected to increase from 2022 to 2030. Have you ever wondered why business process outsourcing is so popular that developed nations like the UK and USA opt for it? This blog entails answering this question by going into the types, importance, pros, and cons of business process outsourcing.
Let's dive in and begin with the importance of business process outsourcing.
Importance and Objectives of Business Process Outsourcing
The significance of business process outsourcing is increasing because outsourcing certain operations-
1) To decrease costs
In most cases, outsourcing operations becomes cost-effective for most parent companies. For example, Amazon has a procurement solution for its inventory management that ensures less working capital and also ensures restocking products takes place correctly to save inventory space. Minimizing cost and increasing efficiency is what business process outsourcing does. In short, strategic procurement is an important factor to decrease costs.
2) To concentrate on key functions
Business process outsourcing also enables companies, enterprises, or organizations to focus on their core functions and business goals. For instance, by outsourcing the customer service and web design, Amazon will have more time to focus on its key business strategy and improve it.
3) To achieve better results in non-core functions
Sometimes outsourcing becomes a better option if your company or organization does not excel at a specific function. Suppose Myntra needs to design a webpage for the end-of-season sale, beyond Myntra's expertise. Thus, it is better to outsource this task to either a freelancer or a web page designing agency to expect better results.
4) To expand their global presence
Business process outsourcing also comes in handy when a company needs to expand its global reach. By outsourcing different operations to different nations, the global reach of the company or organization is expanded. Suppose you have
5) To improve speed and efficiency
Business process operations are a good idea to improve speed and efficiency. A living proof is Amazon's effortless delivery system and inventory management. Most deliveries are done by third-party sellers, and the inventory is restocked as per the demand to boost efficiency and speed.
6) For the level of quality
Business process outsourcing can also improve the quality level. At times outsourcing companies have better technology, expertise, and skillset, ensuring and uplifting the quality of the service.
7) For the unconditional economic benefit
Business process operations have an enormous economic benefit. With the cross-nation and offshore outsourcing increasing, the economic development of the outsourcing companies by boosting human capital also increases. BPO provides a lot of job opportunities with its global market presence aiding the economy.
Types of BPO
The business process operations could be categorized into three types based on the vendor's location.
1) Offshore Outsourcing
In offshore business process outsourcing, the services are available overseas to save on labor cost, resource availability, tax savings, and geographic or political stability. For instance, the call center services are mostly offshore outsourcing, like India or the Philippines, for lower service and overhead costs.
2) Nearshore Outsourcing
In nearshore business processes outsourcing vendors from geographically closer locations are preferred, unlike offshore outsourcing. For instance, some pharma companies in the US nearshore their manufacturing process with similar time zones to save on the manufacturing cost.
3)Onshore Outsourcing
Onshore business process outsourcing supports outsourcing services within the territorial boundaries of a country. The vendors or service providers from different cities, states, or regions are availed for contracts due to resource availability, better expertise, cost, or labor power.
Categories of Business Process Outsourcing
Business process outsourcing could also be categorized into two types based on the supply chain management and services. Let's understand back-office and front office outsourcing.
1) Back-office outsourcing
The back-office business process outsourcing includes outsourcing core services like IT, HR, quality assurance, compliance, accounting, business process automation, etc., that are not customer-facing. Outsourcing core operation strengthens the business by boosting the quality.
2) Front office outsourcing
Front office business process outsourcing includes customer-centric services like sales, marketing, technical support, or customer service. Outsourcing these services enables the company or organization to focus on its core activities or operations.
What Types of Services Do Outsourcing Companies Support?
Business process outsourcing is inclusive of diverse services. The outsourcing companies provide the following support or services:
1) Information technology-enabled services (ITES) BPO
a) Desk Analyst
b) Production Support Analyst
c) IT Analyst
2) Knowledge process outsourcing (KPO)
a) Research and Development
b) Data analysis and interpretation
c) Financial consulting
d) Medical and healthcare
3) Legal process outsourcing (LPO)
a) Contract management and review
b) Service of risk and compliance, litigation support, due diligence
c) IPR related services
d) E-discoveries
4) Research process outsourcing (RPO)
a) Business research
b) Legal research
c) Financial research and analysis
5) Travel
Goals of Business Process Outsourcing
Now that you know what is business process outsourcing and the types of BPO, the next question is, why companies or organizations prefer it? What objectives or goals does it fulfill? Let's find out.
The main goals accomplished by business process outsourcing are:
How does a BPO work?
Depending on the kind of operation or service outsources, the nature of business process outsourcing may change. However, there is a common pattern observed in most BPO work, as pointed below:
- 1) Primarily recognize the business needs and discuss them with the management team. Then identify the right BPO service provider.
- 2) Entering a partnership with the BPO company and negotiating the contract specifications.
- 3) Delegating the operations rights. The extent of these rights and information sharing would vary from process to process. Outsourcing manufacturing operations will be different from insurance operations.
- 4) Most importantly, keeping in touch with the BPO company is relevant to making your presence known. The channel of communication should be open.
- 5) Evaluating the performance of the BPO company and providing any feedback if needed.
Functions that are most commonly outsourced
The most common functions outsourced to business process outsourcing companies include:
How to Choose a BPO Service Provider
Choosing the right business process operations services is crucial for any business. We are certain tips to keep in mind while identifying the BPO service provider:
- 1) Know your requirements
Having a clear vision of your business requirement is very important. Which services, operations, or processes do you wish to outsource. Once you know your requirements, move on to the next step.
- 2) Refine your selection criteria
Before choosing the BPO service provider, crafting a selection criterion is essential, considering the geographic placement, experience, quality assurance, technology, cost, referrals, turnaround time (TAT), scalability, security, domain expertise, and infrastructure of the service provider.
- 3) Shortlist outsourcing agencies
Based on the selection criteria, shortlist outsourcing agencies if they check off the requirements. Contact and negotiate with these outsourcing agencies and find the most suitable once fulfilling your business requirements.
- 4) Assign a small project
Begin with assigning a small project/ task to the outsourcing agency to assess their quality, work, TAT, delivery process, skillset, etc. This will help to gauge whether they are equipped to handle big projects. Also, you can avoid the risk of losing money on a big project.
- 5) Evaluate BPO agencies
Evaluating the BPO agency is essential to check whether their claims are true. Assess the BPO agency to cross-check the reporting time, delivery process/ time, project/ service handling, communication, domain expertise, task fulfillment, etc.
- 6) Monitor project performance
Continuous monitoring of the project performance through report submission, weekly/ monthly updates, meetings, deliveries, etc., is relevant to ensure the project is implemented smoothly.
Advantages of Business Process Outsourcing
The most attractive thing about the business process outsourcing is its advantages, pulling most businesses, nations, or organizations towards it. These include:
- 1) Cost-saving
The cost-saving benefit of business process outsourcing cannot be emphasized enough. Outsourcing enables the companies to save on various aspects like employee training, personnel hiring, labor cost, manufacturing cost, service cost, infrastructure cost, etc. If you pick your outsourcing or vendor correctly, you could save more.
- 2) Improved speed and efficiency
Outsourcing core or non-core services or processes could also enhance the speed and efficiency of a company or business. For instance, outsourcing medicine manufacturing speeds up production rates and saves the cost of in-house manufacturing.
- 3) High flexibility
Another plus point of business process outsourcing is that it offers high flexibility. You have enough agencies or vendors to choose from, making it easier to switch service providers, opt for better ones, and select cost-efficient service providers in a virtual space. Geographical boundaries and physical proximities are not relevant for outsourcing.
- 4) Gaining competitive advantage
You have access to the global market space through business process outsourcing, enabling you to pick the best from the lot. Picking a service provider with the best tech, skilled laborers, infrastructure, and domain expertise could set you apart from your competition and gain you an upper hand in the market. Even if you lack the technology, hiring the right business process outsourcing company would do the trick.
- 5) Advantages of time zone
Business process outsourcing gives you the advantage of time zones. Offshore and nearshore outsourcing allows picking the right service provider aligning with your time zone. For instance, the 24/7 customer services outsourced to India, Philippines, Mexico, etc., by the US or UK-based companies prove beneficial for their customer base.
- 6) Global expansion
Many business process outsourcing companies are MNCs with branches spread across the globe. By entering a partnership with such companies, you can tap into the diverse market and aspire for a global expansion. Having a good hold on the local market is one of the attractions of BPOs.
Disadvantages of BPO
- 1) Security issues
You may run the risk of a security breach while working with BPOs because of the access to sensitive and project-specific data.
- 2) Overdependence on the BPO company
Outsourcing could also increase the dependency on business process operations companies. You may lose the skills, expertise, and knowledge of running in-house operations and processes because of a better and cheaper alternative.
- 3) Communication problems
The language barrier could pose a concern with offshore business process outsourcing. And different time zones could make communication difficult. Check out the Amazon Business blog on team building and development to improve communications.
- 4) Hidden cost
In some cases, you may also face hidden costs from BPO companies. You may also spend more if the service providers lack the required quality and work ethic.
Common Misconceptions about Outsourcing
Even with the increasing popularity of outsourcing, some businesses, companies, or organizations shy away from utilizing it due to some common misconceptions. These misconceptions include the following:
- a) Outsourcing is costlier and time-consuming
- b) Training outsourced employees are difficult
- c) It's better to do in-house operations as outsourcing could let lose control over the business
- d) Cultural differences pose a serious threat, and it hinders outsourcing
- e) Outsourcing is only for big businesses and not for everyone
- f) Outsourcing companies cannot be trusted and poses a security threat
- g) Outsourcing leads to a low-quality product
- h) Outsourcing workforce are not skilled
Successful Business Process Outsourcing Companies
Some of the successful business process outsourcing companies in India include:
- Accenture
- Tata Consultancy Services (TCS)
- Genpact
- Wipro
- IBM
- WNS Global
- Infosys BPM
- Firstsource Solutions
- EXL Service
Business Process Outsourcing Examples
One of the best business process outsourcing examples is Amazon's inventory management. Amazon is known for its impeccable and efficient delivery service, yet this is a result of a major outsourcing decision. Amazon has outsourced its inventory management with in-house logistics. More than 50% of the deliveries and sales generated come from their part sellers. By outsourcing, the product holds in high demand. Amazon uses distributors to ship these items/ products through sellers and avoid keeping high-demand items in its inventory. Not just that, Amazon uses Appath Cloud software to seamlessly run and manage inventory.
What Questions to Ask Before Choosing an Outsourcing Partner?
Deciding on an outsourcing partner is extremely important for any business. But choosing the right patterner is difficult if you don't ask the correct questions. Here are some questions you should ask before choosing an outsourcing partner:
- 1) Could you share the track record of the services you've provided?
- 2) How are you going to execute the business planning process for any project?
- 3) What is the satisfaction rate of your services as per your previous clients?
- 4) What is the level of quality you assure?
- 5) How secure is the information we share while opting for your service?
- 6) How vast are your skills and expertise?
- 7) What is the level of flexibility you offer for my requirements?
- 8) Do you possess enough finance and infrastructure for my service needs?
Conclusion
This blog offers an expansive insight to answer the question: what is business process outsourcing? Covering its importance, benefits, common misconceptions, types, categories, pros, and cons to highlight different aspects of BPO. It is one of the vastly growing industries, and most companies make the most of it. Running a business is a complex and massive responsibility. Seeking help for non-essential tasks adds to your productivity and spares time to craft future plans. With the exposure to global market space, skilled workforce, and specialized domain expertise, outsourcing is here to stay.
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