Business Process Outsourcing (BPO) is type of business procedure where an organisation contracts with third party service provider to carry out essential business assignment.
The typical contract for such services is with an outside company for these services once it has identified process though important to operation of its business however does not form core business.. This is process that requires thorough knowledge of process inside business and solid processes administration..
There are many organizations that look at processes that are carried out similar or identically across companies for example payroll and accounting as perfect potential candidates to BPO..
BPO generally provides flexibility and efficiency for companies that use it.. companies calculate outsourcing their operations to service that is skilled in them can yield superior outcomes..
BPO is product of manufacturing.. manufacturing industry hired third party vendors to manage supply chain when they realized that they could provide greater speed expertise and cost efficiency to procedures than team in house could provide.. In time companies from other industries also adopted this process..
Nowadays usage of BPO is growing with non profits for profit companies and even governments outsourcing variety of duties to service companies situated within U..S.. throughout North America and around world..
Many companies outsource complete task to one supplier while other firms contract out only certain processes within their functional areas.
Purpose of Business Process Outsourcing
Companies are engaged in outsourcing business processes in two major fields of operation Back and front office functions..
Back office operations also known as internal business processes consist of support activities which include accounting process IT services Human resources (HR) quality assurance and payments processing..
The functions of front office are operational activities that are related to current and prospective customers.. This includes marketing customer relations and sales..
Certain companies outsource complete process like HR for example.. HR department to one vendor.. Some companies contract out only certain procedures within specific functional area like HR processing.. They also have their own staff handle all other HR functions..
Most commonly outsourced processes consist of these:
- Payroll and bookkeeping..
- Administration..
- Customer support..
- IT services and management..
- Manufacturing..
- Marketing..
- Research..
- Sales..
- Logistics and shipping..
Many companies contract out strategic jobs for example data mining or data analytics.. Both are essential to keeping competitive advantages in world of digital..
Business Process Outsourcing Function
Executives at large choose to outsource procedure due to range of motives.. These reasons differ based upon type size and size of company and also on economic and market conditions..
For example startups frequently require outsourcing front and back office functions since they lack resources in house to handle these tasks..
A reputable company might decide to outsource an activity was previously performed by it following decision that third party service provider can do more efficiently or for less money.. Business experts recommend enterprise managers to determine which functions can be outsourced.. They should then decide appropriateness of outsourcing that job to an outsourcer is good idea..
If yes then business should go through steps that involves not just identifying most suitable vendor to complete task as well as shifting task from within to outside provider.. It requires an extensive amount of managing change since shift to an outsourcing service generally impacts employees established processes and workflows that are already in place..
Transitioning to an external provider additionally can impact businesss financials and not only by transfer of expenses away from internal functions to external providers but also in sense of tax and reporting obligations for corporations..
It is also possible for company to acquire new technology in order to facilitate process of work for outsourcing provider.. cost and extent of this technology will depend on size of job being outsourced as well as level of maturity of infrastructure for technology in respective companies..
The process usually begins with leaders of an enterprise identifying certain functions or processes that they wish to outsource to cut costs gain more flexibility increase performance and move resources back to key business competencies..
They should also consider whether same vendor is able to handle all of tasks contracted out or if contracting several service providers to handle different functions will yield highest price.. In this case business might decide to outsource majority of its HR processes or contract with one company to manage every outsourced process or contract with payroll provider and another for benefit administration..
These considerations will lead to an outline of requirements along with complete plan of work to be used for outsourcing.. organizations use these to formulate request for proposals ( RFP) to communicate with companies that decide if they meet requirements in terms of price and using what value added..
An RFP is among many documents that buyer can utilize to purchase products or services..
When an organisation has chosen company or companies they wish to work with and select kind of contract.. These contracts typically fall under one of below categories:
- Contracts for time and materials where businesses pay service provider for time spent and for use of materials..
- Fixed price contracts with fixed prices that establish an initial cost for work being performed..
In addition companies must along with their vendor partners create service level agreements that outlines standard of services provided and measures used to determine their success..
In accordance with demands and type of tasks some companies also discuss with providers whether they should have these:
- Specialized workers in teams committed to work they outsource..
- People who work only inshore or located..
- The workers are available 24 hours day or for set time..
Advantages of Outsourcing
The advantages of BPO often cited by advocates are as follows:
- The financial benefits.. BPO providers can frequently complete business task with lower cost or even make business money through other methods for example taxes savings..
- Increased flexibility.. BPO contracts can allow for modification of way in which an outsourcing business process can be carried out which allows businesses to respond more quickly to market changes..
- Achieved greater competitive advantage.. BPO enables an business to focus its resources into activities that make it stand out from competitors..
- Better quality and higher speed.. Because business processes are core of their operation BPO providers are well in position to accomplish task faster with more accuracy and speed..
- Access to latest innovations in your business processes.. BPO providers are more likely to be aware of developments in processes they are experts in.. They are also more likely to invest in technology like automation that could improve efficiency speed and efficiency of process..
- Extended area of coverage.. Organizations that need 24 hour call center support will often be able to gain this ability by contracting with an BPO firm that has 24/7 capabilities with multiple geographical locations which allows following sun model of business..
Risks of Outsourcing
BPO Risks include:
- Security security breaches.. technology connection between company hiring and BPO service provider is further source of entry point for criminals because companies frequently require sharing sensitive regulated information with service suppliers..
- Requirements for regulatory compliance.. An organizations compliance rules extend to work that is outsourced therefore it is essential to ensure that suppliers it choose to hire are in compliance to rules business has to adhere to.. Additionally company must make sure that these vendors are adhering to those rules that govern an companys outsourcing work..
- Unanticipated or higher costs.. Organizations can underestimate amount of work that needs to be done which can lead to higher than anticipated costs..
- Problems with relationships.. Organizations can face difficulties communicating with their external service providers or discover that they have obstacles in way of culture..
- Dependence on an external supplier.. An organization that outsourcing service or function is tied to provider who performs task.. company must control this relationship to ensure that important objectives are achieved in time frame agreed upon.. If they dont business could find it difficult get process back into its internal operations or move project to different outsourcing supplier..
- The potential for disruption is increased.. An organization must look out for any problems that may cause disruption or even end contract with an outsourcing service.. They could be related to workplace issues with supplier geopolitical instability natural catastrophes or shifts in economy.. Businesses must take into consideration dangers and come up with strategies on how they can manage them which can add more complexity to their resilience to business and recovery from disasters..
- Backlash from public.. public perception of an institution could alter if people believe organization as sacrificing local jobs to increase its profit..
Various Kinds of BPO
BPO can be separated into three kinds based on service companys geographical location:
- Offshore outsourcing is when an organisation is contracted to provide services with an entity in foreign country..
- Offshore outsourcing also known as local outsourcing occurs when company contracts services from firm operating within same country of company hiring them..
- Nearshore outsourcing is when business hires services from businesses based in countries that are neighboring..
Research company Gartner classified BPO as either horizontal or vertical specific services.. Horizontal offerings encompass processes that can be used in different industries.. Vertical specific products are specific to an industry..
KPO LPO and RPO
Business process outsourcing is sometimes classified by type of services offered; three types of types are often used:
knowledge process outsourcing (KPO) is when service provider is selected not just for its ability to execute an specific business process or job as well but to be able to assist with it.. KPO can be perfect option to receive quality work which is fast and effective..
Legal Process Outsourcing (LPO) is KPO type that is particular to legal services.. they range from writing legal documents and conducting legal research to providing guidance..
The term “research process outsourcing” (RPO) an additional kind of KPOis outsourcing of analysis and research functions.. Investment firms biotech companies and marketing firms are among kinds of companies which are engaged in RPO to provide services..
RPO could also mean outsourcing of recruitment processes outsourcing process of recruiting for an organization which includes sourcing screening interviews and making final offers..
Business Process Outsourcing Examples
An example of company that uses BPO could be having trouble maintaining HR division.. In this case there could be need for higher quality HR professionals to handle essential business task.. It could partner with help of BPO service that has specialization in HR.. company can then concentrate on core tasks of its business and let outsourcing company handle HR related duties like administration of benefits payroll and recruitment administration..
A different example would be company which employs services of BPO service provider to provide service calls.. Smaller businesses may lack time and resources required to invest in an in house call center.. Instead choose an BPO service that has specialization in facilitating business processes..
What is best way to select right business process outsourcing service?
Executives from enterprises should choose BPO companies that will help them achieve goals of their businesses and help to be more flexible creative and more competitive.. Therefore companies must consider more than cost of an BPO contract when selecting an option.. Also they should be aware of whether service will meet other aspects and then evaluate providers performance to see if it meets following criteria:
- A thorough understanding of business of your organization and its industry..
- Capacity to satisfy needs of today as being able to grow to accommodate future demands..
- The ability and understanding to satisfy compliance and regulatory demands in addition to security demands..
- The reporting of metrics will show that that it has met contractual requirements..
- Geographical locations for meeting demands of business as well as regulations..
The business should conduct needs analysis to determine areas of business that can be better off outsourcing.. Then they should make contact with various BPO suppliers to find out one that best meets needs of their business and creates most efficient RFP.. Once it has decided on one and accepts terms of RFP company should start process of transitioning by changing agreed upon process..
Business Process Outsourcing Market Size
The research firms have predicted that global outsourcing for business processes market is expected to continue growing throughout next decade..
As an example in 2021 Grand View Research valued worldwide BPO market as $245..9 billion.. Another report released by GlobalData estimated BPO market as $329..9 billion by 2022.. This GlobalData report predicts that BPO to grow at growth at rate of 2..8 per cent from 2023 through 2026..
The expansion of BPO market is fueled by growing need for outsourcing of different business tasks including HR customer support information entry and many various other fundamental capabilities..
Future Trends of BPO Sector
Executives are constantly identifying and change order in which they want and expect from vendors that they choose to manage business process..
Service provider CGS has conducted survey of over 200 business executives and decision makers on criteria they considered when assessing their BPO suppliers in 2021 identified following findings:
- Six percent of them rated protection and compliance as top concern..
- 9percent want their service providers to be thought leaders equipped with latest technologies..
- 3..3% of customers examine BPO service providers based on their technology platforms capabilities..
- 33% of respondents want BPO firms with deep expertise in their own sector..
The current trends BPO are currently undergoing changes.. BPO can be seen in following ways:
- Cloud based BPO solutions.. BPO vendors are increasing offering cloud based services which can lower costs in comparison to conventional BPO models.. model can also provide advantages like increased versatility real time data as well as reporting..
- Hybrid models of working.. BPO vendors that offer traditionally outsourced business functions for example call centers are capable of working from remote location..
- Nearshoring services are becoming well known.. Technology such as video conferencing AI enabled devices as well as robot process automation ( RPA) can help reduce prices and allowing companies who are nearshore to make their business processes more efficient in their costs..
BPO companies however have to contend with disruption also because their outsourcing of business processes may be displaced at minimum by technology in future years by technological advancements.