Business Process Outsourcing (BPO)
What is Business Process Outsourcing?
Business Process Outsourcing (BPO) is a procedure of using a third-party service provider company to deliver operations and responsibilities which otherwise can be done in-house. Typically, in the organisations "non-primary" activities and services are outsourced on a contract basis.
Data gathering, Payroll, customer relations such functions are outsourced, which allows the companies to focus on the core areas of business. Outsourcing can be foreign or domestic contracting.
Types of Outsourcing
- Onshore – outsourcing within the same country but different city or location
- Nearshoring – the country where services are outsourced is located nearby to the contracting country
- Offshoring – Contracting country outsources its functions in a distant country
The services which are outsourced are primarily operational business functions. Also known as subcontracting, outsourcing was once commonly used in the manufacturing industry, slowly the technology companies started to outsource the manpower from other countries, and now BPO services are used in various businesses. BPO vendors provide both back office and front office operation support.
The third-party service provider is employed on a contract or project basis to carry out the business functions in a company.
Outsourcing has several benefits; hence many companies in the world opt for it. Rather than employing a whole team, companies hire one professional who manages the outsourced vendors. It not just reduces operational cost but also allows a global footprint for the company. While BPO has been efficient for many, there are also drawbacks of overdependence on the vendor and security issues, but with technology in place, these issues are no more hindrance.
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What are the common benefits of Business process outsourcing (BPO)?
- Lower cost: One of the biggest benefits BPO provides to the business is cost control, and this is one of the most acknowledged objectives why organisations outsource services. The third-party services are usually cheaper than having the entire system in-house, such as setting up IT equipment, hiring employees.
Most of the time, BPO services are outsourced to the countries offering less currency rate and lower international tax. Many Business Process Outsourcing (BPO) firms are located in developing nations.
Developing countries allows businesses to take advantage of low-cost labour markets.
- Focus on essential business functions: Many technology companies outsource their IT staff from other countries, or even the cybersecurity companies hire specialists from other countries. It is a widespread practice. While setting up a startup, the focus is on core processes, and the non-core functions are outsourced to BPO firms.
For instance, if a seed-stage technology startup is striving to get the hold of the market, it will not be bothered with building a customer support system in-house. While having a customer service function is essential, in-house isn't the best place. The startup instead could hire a Business Process Outsourcing (BPO) firm specialised in customer service. The startup will receive the efficient end result in a cost-reduced manner.
Businesses can save time and energy for the functions, which are their main business activities that make the brand stand out.
- Improve speed and efficiency: Another important benefit BPO firms provide is that because they are specialised and experienced in the services they provide; it indeed saves time and efforts of your core team members. When the employees can focus on the core functions effectively, it will improve the overall service delivery.
BPO firms also keep improving their own delivery quality to keep up with the competition in the market. They encourage best practices and use the latest technology to provide services. Naturally, the end result is better compared to the in-house setup.
- Expanding global footprint: If the organisation decides to enter overseas markets such as the French market, the company in the US or Australia will not have the required resources to provide customer service in the French language. Even if they do, it will not be at a reduced cost of the level BPO can provide. In such scenarios, the companies send their representative to set up a regional office in the country.
Many companies find it better to hire a local partner company with the local workforce and give them the project on a contract basis. As the native workforce is aware of the local market and has a stronghold on language, it helps them produce better results. The local partner company can help you expand your company's footprints on the international stage at a faster pace and low budget.
What are the disadvantages of Business process outsourcing (BPO)?
Though outsourcing produces many benefits and the Business Process Outsourcing (BPO) firms, have been a reliable support system for various organisations but if the BPO vendor is not up to the mark, the company may be facing significant risk. You don't want to compromise on the valuable data or become highly dependable on the local partner for operations.
- Overdependence on the BPO firm: It is more difficult to cut ties with a company than firing an unproductive employee. When the work is outsourced to a BPO company for a very long time, they become an integral part of the operations. They know the company in and out.
If the BPO firm is underperforming, it's a vast process to fire them and hire another firm. Therefore, organisations get accustomed to their work processes, and it impacts on the quality of the services.
- Hidden expenses: The vendor selection process isn't simplistic; It requires time and efforts to search and initiate the procedures to get them on board. The miscellaneous costs, additional consultation fees, legal fees etc. are some of the add on costs which may appear in the last stage of the process.
- Security risk: Though the Business Process Outsourcing (BPO) companies are under the legal contract, but depending upon the nature of the outsourcing work, the security risk such as sensitive data leak is always possible. These companies not just hold the classified company data but also customer data.
Customer data is one of the most expensive assets in today's time.