Outsourcing Business Process (BPO) | 5 types | Pros & Cons
Outsourcing business processes is a familiar concept to many organizations. With improved IT capabilities and reduced international trade barriers, businesses can interlink with each other to promote growth. However, cost reduction is often the primary focus while accessing global resources to meet the demands of the industry. The concept of Business Process Outsourcing (BPO) leads organizations to increase the scope of business as a whole by generating avenues on a global scale.
Every successful organization understands that in order to stay afloat, they must be able to adapt to the ever-changing landscape, solve problems efficiently, and find ways to streamline their business operations. However, simply fixing problems as they arise is not enough, adopting a BPO business model for selective work functions can lead to even more effective and efficient businesses.
What is Business Process Outsourcing (bpo)
BPO involves delegating one or more business processes to another company. The most commonly outsourced business functions include customer support, back-office, payroll, HR activities, data entry services, market research, etc.
The concept of BPO has undergone evolution in recent years. The modern concept of BPO services also encompass domains that necessitate specialized skills such as social media analytics, software development, and search engine optimization, amongst others. These areas are commonly referred to as Knowledge Process Outsourcing (KPO).
Organizations of all sizes outsource processes for a variety of reasons, including accessing innovative services, reducing costs, and gaining a competitive advantage. BPOs commonly offer a range of services, including customer support, advertising, financial, accounting and supply chain management services.The business process outsourcing (BPO) industry is growing rapidly. In 2017, over 1.1 million people were employed in the Indian BPO industry. According to an estimate, the industry will be worth $52 billion globally by 2023. This rapid growth is amazing.
Categories of Business Process Outsourcing
BPO services are generally divided into two categories:
Horizontal BPO is a type of outsourcing that focuses on a particular function. The vendor specializes in carrying out that function for different companies in different industries. Examples of horizontal BPO services include payroll processing, accounts receivable/accounts payable, and customer relationship management.
Vertical BPO involves outsourcing processes that are specific to a particular industry. In this case, the vendor has extensive knowledge and experience in the relevant industry. For example, vertical BPO could include insurance claim processing, which would require specialized knowledge of the insurance industry.
Types of BPO
There are three types of Business Process Outsourcing (BPO) based on the geographical location of the vendor: onshore, nearshore, and offshore. By combining these three categories, companies can achieve absolute process optimization.
1. Offshore Outsourcing:
Offshore outsourcing is the practice of hiring a service provider located in a different country to fulfill certain work requirements. For instance, a US-based agency may outsource its business functions to a company in Pakistan.
2. Nearshore Outsourcing:
Nearshore outsourcing refers to the practice of contracting with a company in a neighboring country to provide specific business functions. An example of this would be a Canadian company outsourcing selected business functions to a US company.
3. Onshore Outsourcing:
Onshore outsourcing occurs when a business contracts with a company located in the same country to provide services that are not core to the business’ operations. For example, a US-based company might hire an outsourcing firm located in the USA to handle customer service or accounting tasks.
Organizations that outsource business functions to BPO companies often focus on the type of work they need to be done. Here are two other types of BPO depending on the company’s specific needs:
4. Back Office Outsourcing:
Back office outsourcing is a specialized form of outsourcing that focuses on business activities that are typically handled internally, such as data entry, internet research, data collection, data analysis, order processing, payment processing, quality assurance, information technology services, and billing. By outsourcing these back office functions, businesses can focus on their core competencies and save money on operational costs.
5. Front Office Outsourcing:
BPO services that focus on customer-facing tasks such as marketing, sales, tech support, customer services, and grievances redressal are typically referred to as front office BPO services.
Advantages of Business Process outsourcing
By outsourcing certain processes, agencies can gain a competitive advantage over their rivals.In some cases, it is more efficient for agencies to outsource particular processes, as they are more sensitive and require more expertise. Outsourcing can also help agencies to save money in the long run. Below are a few benefits that firms experience when they outsource their processes:
BPO services offer organizations significant cost savings. A large portion of business expenses are related to manpower. However, it is not possible or efficient for businesses to handle all operations internally. BPO services provide an efficient and cost-effective solution for businesses to outsource certain operations.
Outsourcing to a third-party vendor can be an efficient way to allocate resources, especially when it comes to employees and business processes. Since the vendor is offsite, there is no need to worry about manpower, office space, or materials.
Enhances Speed and Efficiency:
Outsourcing your non-critical business processes to a partner organization can help improve your speed and efficiency. This is because organizations tend to stay in their wheel tracks for a longer time when they are outsourcing these processes. As a result, they can more effectively manage their business criticalities and have to pay less attention to complicated functions.
To be more successful in the overseas market, it is crucial for businesses to focus on and constantly improve their skills and expertise in the services and products they offer. By outsourcing non-essential processes to partners, organizations can free up time and resources to focus on their strengths.
Outsourcing can help businesses be more flexible with their resources. When a company outsources its business functions to vendors, the vendor can allocate their resources more efficiently while still delivering the project on time. This can help organizations focus their resources on core business activities and employees, leading to improved performance.
The advantage of Time Zone
The time zone difference can be a big advantage for businesses that are expanding into new markets. Having a presence in multiple time zones allows companies to offer their products and services around the clock. This can be a big competitive advantage, especially in markets where customer service is a key differentiator.
If a company is based in Sunnyvale, it may be difficult to expand their businesses to different countries in Asia and Australia, as they would not have employees available in each of those time zones. It is more efficient and economical to open one office in a central location, rather than opening offices in various countries.
Outsourcing to firms specializing in financial services and processes can help improve security and protect against cyber theft and cybercrime. For a small-medium-sized business, it can be difficult to hire a security team to monitor for security threats and implement measures to protect against them.
When a company plans to expand into a new country, it may need expert legal advice on national laws, knowledge of the local market, and an understanding of its target audience. In this case, working with a BPO company can help speed up expansion and improve efficiency. A local partner can provide native manpower and knowledge of the market, which can help a US-based company expand its business in France.
Disadvantages of Business Process outsourcing
There are some drawbacks to BPO services, including
Time differences, misinterpretation, and language barriers can all impede communication between the BPO and the company. Language can especially be an issue when the BPO services are located offshore. Additionally, communication delays can lead to frustration and misunderstandings.
Security Related Issues:
There are risks associated with sharing technological information, including the possibility of piracy and data theft. It is important to verify the security provisions in any contract related to data sharing. Companies should exercise caution before sharing any sensitive data or information.
Loss of Control
Losing control over tasks can be a big problem for companies. If a company does not trust its employees, it can be difficult to monitor their work constantly. Without proper instruction from the company, employees may not be able to complete their work properly.
Outsourcing companies may charge more than expected for small businesses that are unaware of contractual obligations.
These hidden costs can come as a surprise to the client company and may not be immediately apparent.
Before selecting an outsourcing agency, it is important to consider various alternatives and plan carefully. Once an agency has been selected, it is essential to follow up regularly. Collecting data and making decisions takes time, so it is important to be patient throughout the process.
Disturbance in Work Life Balance
The importance of maintaining a healthy work-life balance is widely recognized in today’s business world. However, it can be difficult to achieve this balance when working in a 24/7 environment, such as the BPO industry. Night shifts, long hours, and constant use of computers and headphones can lead to eye and ear diseases and reduce the minimum sleeping hours. Health of a BPO agency worker is also at risk. It is important to be mindful of these risks and take steps to protect your health.
How to Choose a BPO Service Provider
It is crucial for companies to choose the right outsourcing partner. BPO companies require change management when transferring in-house non-core business activities that can impact employees, business operations, and workflow practices. If you make a mistake here, it will be both costly and time-consuming to find a new company. The decision to outsource involves the following process:
Define your Company’s Requirements:
It is crucial to have a precise understanding of the business processes that need to be outsourced. Without well-defined specifications, it will be challenging to find the ideal outsourcing partner.
Furthermore, the partner company should comprehend the precise job requirements and the anticipated project outcomes.
Narrow down selection criteria for your company:
Selecting the right vendor is crucial to the success of your business. To ensure you make the best decision, it is important to narrow down your selection criteria and evaluate potential providers based on these criteria. The following factors should be considered when selecting a Business Process Outsourcing (BPO) service provider:
- Identify the key areas of expertise that the BPO company should possess.
- Evaluate the services offered by the company and determine if they meet your needs.
- Consider the employee strength of the firm and whether they have the capacity to handle your project.
- Factor in the cost of the company’s services to ensure that they are within your budget.
- Review the list of the company’s clientele to get an idea of their experience and success rates.
Shortlist Few Outsourcing Agencies for your company:
Start by evaluating your outsourcing needs and criteria. Based on that criteria, shortlist a few agencies that fit your requirements. Try to limit your selection to three to five service providers, so you can narrow down your options further.
Assigning Pilot projects to the firms:
After the shortlisting process is complete, it is time to assign pilot projects to each of the candidates.
This will help in assessing the ability of the firm to execute the tasks that will be given to them if they are hired.
Evaluation of the BPO agencies on set criteria:
The evaluation of business process outsourcing (BPO) agencies is a critical step in selecting the right partner for your organization. There are a number of factors to consider when evaluating BPO agencies, including:
The quality of the delivered output –
The agency’s ability to adapt to sudden changes in the project
The project turnaround time
Ost of the service offered by BPO agencies
Starting and Monitoring the Project Performance:
The first step then is to start the project with the outsource partner.
It is important to monitor the project closely and ensure that the firm you have outsourced to can deliver the project on time.
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