What is Business Process Outsourcing?
What is Business Process Outsourcing – How does a BPO Work?
Business process outsourcing is the version of outsourcing where a company employs a third-party service provider to perform one or more business functions in a company. Business process outsourcing is the most profound form of outsourcing that needs close interaction between the customer and the provider.
It is different from task outsourcing, where individual projects are assigned with limited time and budget. However, business process outsourcing may not have a fixed budget or time limits. Within the BPO, the organization outsources a closed functional area of a business, not only individual tasks.
The abbreviation BPO involves outsourcing of high-level processes such as the management of finances, bookkeeping & accounting outsourcing, marketing support, personnel, or legal support of organizations.
How Does a BPO Work?
Organizations hire BPO vendors for two major areas:
Front Office Operations
They involve sales, marketing, grievance redressal, and customer relations.
Back Office Operations
They involve payment processing, quality assurance, technology services, etc.
Most of the time, organizations outsource one or more functions to third-party vendors. For instance, instead of outsourcing all HR responsibilities, companies can just outsource their payroll processes.
The BPO industry has seen significant growth over the years and offers a wide range of functions and services to organizations.
Types of BPO
BPO companies can be divided into various types according to their location:
Onshore outsourcing is when an organization hires a service provided within the country. It is also known as domestic outsourcing.
Nearshore outsourcing is when an organization hires a service provider from a neighboring country.
Offshore outsourcing is when an organization hires a service provided from a different country. It is also known as offshoring.
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Making the BPO Decision
Transferring in-house work to a BPO company needs change management as it influences workflow practices, employees, and business operations of an organization as a whole. The decision-making process for outsourcing involves the following:
- Executives of a company have decided to outsource their business process or a part of it.
- They consider the advantages and disadvantages of the decision and decide if it makes strategic sense for the organization.
- They find the best BPO for their work and shift the work from the in-house team to the external service provider.
Benefits of BPO
One of the primary reasons organizations opt for outsourcing is cost reduction. Instead of hiring new employees and buying IT equipment to carry out different tasks, organizations can outsource the tasks to a third party. It helps reduce or eliminate overhead costs.
BPO companies offer expertise in different fields, and they can perform at the highest level. They also use the latest technology and adopt best practices. It naturally helps to provide higher efficiency and increased productivity.
Focus on Core Business Functions
Many companies, mostly start-ups, face difficulties while dealing with additional business activities. Transferring non-core processes to a BPO company is helpful for the organizations to get more time to focus on the core business activities.
Suppose an organization wants to expand its business in an overseas market. In that case, some activities that need national law expertise, fluency in a local language, or national law expertise can be transferred to a BPO company. It is helpful to boost efficiency and makes expansion easier.
Why is Outsourcing Important?
Outsourcing is essential due to following reasons:
- It helps to reduce operating costs and increase profits.
- Transferring certain functions helps to save time and enable development.
- Getting high-quality and relatively inexpensive personnel.
- Transferring tasks to reduce the dependence of the company on individual employees.
- It helps to reduce risks.
- Outsourcing certain areas can help to reduce management risks.
- Outsourcing is helpful for companies to stay compact.
Thus, outsourcing is useful in 90% of cases. It offers various benefits:
- Get a higher level of quality.
- Contractors are responsible for the tasks without a needless headache for the customer.
- Unconditional economic benefit.
However, it is not easy to introduce an outsourcing system in a business model; it involves a serious initial analysis while choosing a contractor and a careful calculation of costs and comparing them with the expected economic effect.
Transferring business processes is helpful to get maximum benefits, but you need to choose a contractor carefully according to your needs and interests.