Key guide to understanding ‘business process outsourcing’ in a nutshell

In today’s age of connections and highly digitized processes, the difference between a successful business and one that is not in the presence of innovative processes accompanied by suitable and deft management to complement it. From small concerns to large establishments, many businesses are choosing to outsource processes as innovative and advanced services have become increasingly accessible in the current competitive and ever-evolving business climate. 

Sure, BPO sounds very familiar but what exactly does it mean?
The textbook definition of Business Process Outsourcing would be that it is the process of subcontracting or externalizing multiple business-centric operations and functions to third-party service providers. That means that it is a business practice in which an organization contracts with a third-party vendor or external service provider to perform a specific business task or function. The third-party service provider is therefore solely responsible for carrying out all the tasks pertaining to that business function. 

Understanding the need for Business Process Outsourcing
Businesses of all sizes, starting from nascent startups to massive enterprises outsource services and processes as innovative services and processes are introduced to stay ahead of the competition and as the demand continues to grow and develop. Typically a company identifies a function or a process that is an essential part of its operations but not exactly a part of its core value proposition in the business market. Processes such as , payroll processes, sales etc are performed more or less the same way in customer services each company and are not the factor of differentiation from one company to another.

 Companies prefer outsourcing such specialised processes as these services could deliver better results. To add to the boast of BPO’s usability, in addition to commercial businesses even non-profit organizations and government agencies sign up with third-party services or BPO providers to perform various services and processes. According to a study conducted by Investopedia, in the year 2017 business process outsourcing was on a massive climb as the estimated global market size of outsourced processes and services was 88.9 billion dollars, 12 billion dollars more than the previous year. 

Source: AFI Solutions 

Broadly speaking, organizations engage with BPO or business process outsourcing for two key areas of operations. They include 

  1. Front office functions and services that pertain to customer-related services such as sales, marketing, support etc.
  2. Back office functions and services that pertain to core internal business operations such as payment processing, quality assurance, information technology services, accounting, regulatory compliance, human resources etc. 

In many cases, companies may outsource more than one function or process. For example, in the place of outsourcing all of the functions of Human Resources, the company may choose to outsource just the recruitment process. 

The BPO industry is further divided into three categories based on their geographical location of service provision.

BPO is deemed as domestic sourcing or onshore outsourcing if it is contracted within the same country as the contractor; even if the vendor partners are located in a different state or city.

Nearshore outsourcing is when the organization hires a service party vendor from a neighbouring country. 

Offshore outsourcing occurs when the organization hires a service provider or contracts with a third-party vendor from another country where there is lower labour costs, tax savings, reduced operational costs etc. 

Predominantly outsourced processes and services that outsourcing parties support include:

  • Customer interaction services
    Here the outsourcing service provider may cover the company’s email services, voicemail services, telemarketing, telesales, appointment scheduling, payment and order processing, warranty administration, surveys, customer feedback and support and other types of services. 
  • Software and IT services 
    Here the outsourcing service provider may offer to provide technical support functions like implementation services, IT helpdesk support, development and testing of application and data, among other services.
  • Back-office operations
    Here the outsourcing service party provides a wide range of services. Some of which may include data entry, data extraction, data conversion, warehouse management, transportation administration, cheque processing, logistics and distribution etc. 
  • Knowledge-based services 
    Here the outsourcing services may include high-level processes like data analytics, data processing and management, data mining, research etc. 
  • Accounting and Finance services 
    Here the outsourcing functions include auditing, receivables, regulatory compliance, accounts payables, billing services etc. 
  • Human resource services 
    Here the outsourcing service provider can help to address challenges in the workforce by covering employee management, time and attendance, payroll, insurance processing, training, hiring and recruitment etc

To go BPO or not
Transferring or switching internal or in-house work to an external third party or outsourcing company requires change management as it impacts the workflow processes, employees and the business operations as a whole. Company executives arrive at the decision to outsource a business process by weighing and considering various factors and reasons depending on the age, type and size of the organization in addition to being mindful of the economic conditions and market forces. 

By strategically identifying the pros and cons of BPO, established businesses may shift the work from in-house to outsourced after an in-depth analysis that determines that the service provider could perform the task better at reduced costs. Whereas in the case of startups, they may need to outsource back-office and/or front office operations as they may not have adequate resources to perform certain functions in-house. 

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