In today’s connected world, a successful business is often an efficient one, and the difference can come down to smart, innovative processes, with suitably proficient management to match. Innovative, modern process management techniques can take your business from good to great.
Global competition, emerging new technologies and innovation are the constant driving forces behind growth and expansion in the global business process outsourcing industry. Companies are often engaged into BPO because it provides more operation flexibility. By outsourcing non-core and administrative functions, companies can distribute time and resources to key competencies like customer relations and product leadership, which ultimately results in advantages over competing businesses in its industry.
From the fortune 500 companies, businesses of all sizes outsource processes, and knowingly the demand continues to grow, as new and innovative services are introduced and businesses seek advantages to get ahead of the competition. This way can also be an alternative to labor migration, allowing the labor force to remain in their home country while contributing their skills abroad.
What is Business Process Outsourcing?
Business process outsourcing, or BPO, is a business practice in which one organization hires another company to perform a task (i.e., process) that the hiring organization requires for its own business to successfully operate. This is the practice of contracting a specific work process or processes to an external service provider.
BPO is often divided into two main types of services: back office and front office. Back-office services include internal business processes, such as billing or purchasing. Front-office services pertain to the contracting company’s customers, such as marketing and tech support. BPOs can combine these services so that they work together, not independently.
Why would a business outsource a department or process?
Businesses choose to outsource for many reasons. Some people believe that businesses are only after the tax break associated with outsourcing jobs, or “shipping jobs overseas” as some political ads claim. In a study concerning the US business, American corporations income tax is one of the highest in the developed world (39.1 percent). This only goes to show that, U.S. companies could benefit from outsourcing operations to countries with a lower income tax because businesses pay the rate of their host country.
Many industries outsource part of their (customer-facing) processes. For example, Insurance companies outsource their claim handling processes, banks outsource part of their mortgage requests, and telecom companies outsource their customer care and other back-office functions.Bigger corporations such as multi-national companies outsource their pay-rolling. A lot of consumers (and employees) in Europe and the US often don’t even realize that the company they are dealing with, is not the same that handles their claims, mortgages, phone connections or pay-roll sheet.
In addition, businesses cite many other reasons to engage in outsourcing:
- Decreased Costs: Outsourcing cuts down on costs for in-house labor, particularly for staffing and training, tools and equipment as well as the work space to accommodate local employees. An outsourcing company physically located in a developing country provides lower-cost labor markets. Finally, outsourcing enables businesses to use variable-cost models, like customizable monthly retainer service plans, instead of fixed-cost models that are required when retaining local employees.
- To concentrate on key functions: Outsourcing allows businesses to hone in on their main offerings instead of company functions that aren’t directly tied to their core processes. For example, when outsourcing, the company won’t have to monitor the payroll accountant’s performance. Rather, it can focus its energies on highlighting its business differentiators and maximizing overall growth. In turn, these actions can boost a company’s competitive advantage and enhance its interactions with the value chain. Ultimately, the company can enjoy improved customer satisfaction and increased profits.
- Better Results for non-core functions: Outsourcing companies specialize in what are considered non-core functions of other businesses, delivering world-class capabilities for its clients. In fact, an outsourcing company that invests in specialized processes and technologies can deliver cutting-edge breakthroughs to its clients. For example, a gaming design company may not want to pay for the latest payroll program on the market, but an outsourcing business that offers payroll services would likely make that investment to benefit its own performance, as well as that of its clients.
- Expanding Global Presence: The growth of outsourcing companies made way to varying employees from different countries thus allowing them to serve customers in multiple languages, around the clock, which relieves the local company of the responsibility. Outsourcing companies can leverage their presence in multiple countries and keep the local company’s redundant divisions to a minimum.
- Enabling flexibility: Companies that outsource their noncritical functions can act more quickly and more efficiently when managing the risks associated with introducing new products or services. They can also reassign their internal resources to more critical functions to help ensure better coverage and allocate responsibility.
- More Efficient: Companies that outsource processes are opting to let specialists handle those tasks, thus saving time, improving accuracy, and increasing their capacity. For example, a BPO that specializes in records management can automatically index documents, making them available for retrieval and keeping a company in compliance with legal requirements. This replaces manual data entry and storage.
What are the most commonly outsourced services?
The ideal tasks to outsource are back office functions, as these tasks don’t usually require an employee to be physically present to deal with clients. They can also be handled efficiently by an outsourced individual or team who have the right skill set and resources. Outsourcing back office functions can significantly improve your business operations and its strategic scalability as well.
Many outsourcing companies offer virtually any service that can be outsourced, but to give you an overview, the most outsourced back office functions include:
- Customer Support
One of the first and most common back office functions that are outsourced is customer support. Customer support is a popular function to outsource as outsourced call center agents are specially trained for this line of work. Customer support outsourcing makes sure that all your customers’ concerns are addressed in real time.
- IT Support
With IT support outsourcing, you can also outsource a wide range of functions or even your entire IT facility. The most outsourced IT functions include network management, software development, hardware support, and help desk operations, among others. Aside from outsourcing IT support for your internal operations, you can also outsource tech support to handle your customers’ concerns regarding tech products and telecommunication services.
- PR and Marketing
Small businesses make do with promoting their own brand to save on costs, but they don’t realize that they are wasting a lot of money in DIY marketing but not getting significant results. Outsourcing PR and marketing tasks to experts will ensure that your brand, products, and services, are marketed in a strategic way across a variety of platforms. This way, you can effectively boost your presence without breaking the bank.
- Data Entry
More than copy-pasting data from the source to the destination data entry interface, data entry requires someone who has a keen eye for details and researching and analytical skills. This function is often outsourced to help you and your in-house team focus on the core functions of your business and leave the more mundane yet laborious and time-consuming tasks, such as data entry, to an experienced outsourced team to save you time and money.
- Human Resources
For human resources, you can outsource the entire department or just a function of it, such as recruitment, employee retention, employee engagement, compensation, and performance management, to name a few. This way, small- and medium-sized businesses can have access to organized and streamlined HR operations and can take care of their employees without having to spend large amounts of money on creating your own HR department.
- Payroll and Accounting
Startups and small businesses take advantage of outsourcing their payroll and accounting functions to qualified and experienced professionals to free their in-house staff from worrying about committing costly miscalculations and errors. Payroll and accounting tasks are critical functions and time-sensitive and should be focused on by a specialized team of payroll and accounting professionals.
Transcribing audio or recorded files into written formats is a time-consuming task and is best outsourced so that you can have the option of hiring a part-time or full-time transcriptionist for only a certain period when you need them. This saves you from recruitment and overhead expenses.
- Virtual Assistant
Busy business professionals and small companies save on costs and overhead by outsourcing a virtual assistant instead of hiring an in-house secretary to handle administrative functions. Some of the tasks that a virtual assistant can do include managing your calendar, booking travel arrangements, managing your emails, and online researching.
Is BPO right for your company?
There are both pros and cons to creating an outsourcing process for your business. The obvious pros are that it saves you time and effort, which likely saves you money. There are only so many hours in a day, so you will want to focus the limited time you have on the work that makes you the greatest ROI (return on investment) on your best work.
There are considerable pros to BPO, but it’s not without its disadvantages, says Techtarget:
Advantages of BPO
- It Can Save Costs
Sometimes it’s just not cost-effective to expand operations internally. This can apply to equipment or your location.
Example: If the growth of your business has resulted in an increased need for office space, outsource some simple operations such as telemarketing or data entry to reduce the need for space. It might cost far less than expanding your base in a pricey location if that’s even possible, and it would be more efficient and less expensive than relocating.
- It Can Promote Efficiency
Outsourcing can be a good option when the functions of your back office are complicated in nature and the size of your company prevents you from accomplishing them at a consistent and reasonable cost. The overhead costs of performing a particular back office function can be extremely high. Consider outsourcing those functions that can be easily moved.
Example: A small doctor’s office wants to accept a variety of insurance plans. One part-time person can’t keep up with all the different providers and rules so the task is outsourced to a firm that specializes in medical billing, often at a cost that’s less than what it would have required hiring additional, skilled personnel or train existing personnel.
- You Can Keep Operational Control
Operations that is spiraling out of control and is incurring more cost should be considered for outsourcing. Departments that might have evolved over time into uncontrolled and poorly managed areas are good candidates. An outsourcing company can often bring better management skills to your company than what would otherwise be available to you.
Example: An information technology department might have too many projects, not enough people, and a budget that far exceeds its contribution to your organization. A contracted outsourcing agreement will force management to prioritize their requests and bring control back to that area.
- It Offers Staffing Flexibility
Outsourcing allows operations that have seasonal or cyclical demands to bring in additional resources when they’re necessary. The outsourcing company can then be released when things slow down again.
Example: You might have an accounting department that is shorthanded during tax season and auditing periods. Outsourcing these functions can provide the additional resources you need for a fixed period of time at a consistent cost.
- It Provides Continuity and Risk Management
Periods of high employee turnover can add uncertainty and inconsistency to a business. Outsourcing provides a level of continuity to the company while reducing the risk that a substandard level of operation could bring to the company.
- It Lets You Develop Internal Staff
A large project can require skills that your staff simply does not possess. On-site outsourcing of the project, where you effectively bring in contractors to help and operate along with your employees, which can provide you with the people who possess the skills you need. Meanwhile, your people can work with them to acquire the new skill set.
Disadvantages of BPO
- Data privacy breaches
In this age of data protection, it’s essential that you exercise caution whenever using customer data. If you plan to outsource processes that require personal data, you could be placing the privacy of others or security of your business at risk by passing that data on to other people.
- Underestimating running costs of services
Although outsourcing work is generally considered cheaper, yo must also beware of getting ripped off. Outsourcing companies or big agencies will typically ask small business owners to sign lengthy contractual agreements, and they’ll include plenty of fine print. If you don’t read the terms carefully, you could get hit with unexpected costs.
- Loss of Control
As you might expect, when you farm work out to external agencies or freelancers, you’re losing control of how those tasks are being monitored and performed. So long as you know and trust who you’ve hired, that shouldn’t be a huge issue – but you’ve got to tread carefully.
- Communication issues that delay project completion
One major disadvantage of outsourcing particular tasks is the risk that your freelancers or partner agency may be marching to the beat of a different drum due to communication mishaps. As a result, it might be difficult to synchronize outcome expectations and delivery time in order to ensure your customers receive what’s promised to them on a reliable timeline.
In the right context and deployed shrewdly, outsourcing can be a fantastic way for small business owners to improve efficiencies and bolster their company’s bottom line. But that doesn’t mean the practice isn’t without its own disadvantages, too. Outsourcing isn’t right for every situation, and so you’ve got to think long and hard before investing time and energy in farming out work.