With technology developing at breakneck speed, it’s been getting significantly to communicate and work with teams across the other end of the world. Accordingly, business process outsourcing has been growing in popularity. In fact, according to research by CreditDonkey, over 300,000 of jobs are outsourced from the US annually. Which makes sense – the benefits of process outsourcing are really hard to pass on, since it can result in lowering company expenses by 15% on average.
What is Business Process Outsourcing (BPO)?
Business Process Outsourcing (BPO) is the contracting of a specific business function, such as customer support, marketing, etc. It should not be confused with the concept of outsourcing as a whole, though. The difference is that with BPO, you outsource an entire business function (all of lead generation, for example), rather a single job (think, hiring a VA from a developing country).
The processes outsourced, however, are rarely the core ones. After all, if it’s something critical to company success, you really wouldn’t trust a contractor doing it. You’re more likely to benefit from outsourcing support roles, such as customer relations. This way, your team back home can focus more on your core functions, rather than trying to learn new skills. This is, at the end of the day, a win-win. Instead of having to start a customer support team from scratch, you’re giving the job to a company that specializes in it – and you’ll end up spending less, to boot.
In terms of outsourcing functions, there’s back office and front office. Back office includes internal company processes – accounting, purchasing, etc. The front office, on the other hand, is anything that deals with customers: sales, customer support, and so on.
There are 3 different types of outsourcing:
Offshore– Outsourcing in a distant country. Think, USA to China. This usually means very significant cost-cutting, since the salaries in developing countries can be 8x cheaper than in the US.
Nearshore– For countries that are located close to the contracting company. Think, USA to Mexico.
Onshore– Outsourcing within the same country but a different city or location. The main value here is still cutting costs, while maintaining the added benefit of your employees being native, cutting out chances for miscommunication. Lyft, for example, is moving its support team from San Francisco to Nashville, where living costs (and accordingly, salaries) are 3-4x times cheaper.
Business Process Outsourcing Benefits
There are a lot of benefits for business process outsourcing, given that you manage to find the right partner company.
Some of the benefits include…
Lowered Costs
The most popular and talked-about benefit for outsourcing is the significantly lower expenses.
Depending on where you’re sourcing, prices can be slightly lower (Think, San Francisco to Nashville), or significantly (development from San Francisco to India). Other than the lower salaries, there’s the added benefit of getting a “tax break.” While the government doesn’t straight-off give you a tax break, you get the option to defer paying income tax on profits made abroad.
Focus on Core Functions & Improved Support
If you’re an up-and-coming software startup, you really can’t be bothered with starting a huge customer support team from scratch. While doing it right is important, chances are, in-house isn’t the best place for that. If your founding team has a technical background, they won’t be as good in training a support team. So, by outsourcing to a company that specializes in support, you end up with better processes at the same price.
This, in turn, allows your team to focus on what’s important for the company – the core processes that make the company stand out.
Global Expansion
If you decide to enter the French market, for example, you’d be having a very difficult time getting started. First of all, you can’t just import your American sales team because of the language barrier. So, you’d have to send someone from company management to start a regional department. This, in turn, leads to some other issues – even if the company official is fluent in the language, they’re unlikely to know how the market in that specific country works.
So, instead, it’s easier to find a local partner company with a native workforce. They’re already aware of how the market works, as well as having the knowledge of the language and culture on their side. And, of course, you can manage the 3rd party company as much as needed.
Business Process Outsourcing Risks
At a glance, outsourcing might seem to be hard to pass on. After all, you end up getting higher quality service in exchange for lower costs. The thing with outsourcing is, though, that you really have to get it right. Otherwise, you’re opening yourself up to significant risks.
Outsourcing a specific job function is pretty simple – you find a capable enough employee online and get them to work. If it doesn’t work out, you can always just replace them.
When outsourcing business processes, though, it’s not always that simple. You become highly dependant on a local company on a lot of your operations, and if you’re not careful with choosing the right partner, you might have some problems:
Dependance on a Foreign Company
Unlike a single employee, it’s significantly harder to cut ties with a company. Once you’ve outsourced your processes, the other company becomes an integral part of your operations. Meaning, if they start underperforming, there wouldn’t be a lot you could do. If you fire them, you’d have to invest a lot in switching companies – you’d have to re-orient the employees in the new company.
Hidden Expenses & Time Waste
Selecting a vendor isn’t a simple matter – it can take a lot of effort on your end for due diligence, and up to a year of your time to actually get the initiative started. You can also end up wrapping yourself up in unwanted expenses – while a developer in India can be 10x cheaper than one in the US, it doesn’t mean that you’ll be saving nearly as much.
To get a proper estimation of the real cost, you’d need to consider the cost of your management team’s time spent on picking the right vendor, as well as anyone else involved in the process. This can be a while, taking up t0 500 hours. Then there’s a whole chunk of other misc. expenses – legalities, vendor-search, outside BPO consultant, etc.
Security Risks
While you might have state-of-the-art security back home, with an unpenetrable office building, your partner company might not be nearly as good. While in the western world, security is a very major factor, it is less so in the developing countries. Hence, you’d have to be careful about what system privileges you’re giving to the outsourced company, or invest more money in exchange for a more expensive company.
Communication Issues
If you’re outsourcing some business-critical function, the language barrier might turn out to be a problem. With support services, this is rarely the case, since you interact with company management, specifically. If you’re outsourcing development, on the other hand, your CTO might have to work with five developers with sub-par English. The developers might be highly skilled, but mistakes due to miscommunication can turn out to be very costly.
How to do Business Process Outsourcing: Picking the Right Partner
As we’ve already mentioned, picking the right business process outsourcing partner is crucial – if you mess up here, finding a new one will be both expensive and time-consume. So, we’ve put together a step-by-step guide on how to do it right…
- Define your requirements – It’s important to have a clear understanding of what processes, exactly, you’ll be outsourcing. Without the specifications, you’ll have trouble finding a partner perfect for the job. Make it as specific as possible, to ensure that the partner company understands what, exactly, the job entails.
- Draft a request for proposal (RFP) and start looking for partners – According to your company requirements, develop an RFP that includes all the details about the project. Then, start sending it out to potential partner companies.
- Evaluate proposals & select the partner – Go through all the proposals and find the one that’s the best for you. Don’t just go for the lowest-cost partner, though. Chances are, the lowest bidder isn’t the best in terms of service offerings. A sub-par partner might lead to even more expenses since if they don’t work out, you’ll end up spending even more on switching partners.
- Draft & negotiate the contract – Establish all the minor details about the project – how will you communicate with the company, in what time periods? What is expected of them, for what cost? Costs and details for ending the contract prematurely? How do you negotiate disagreements?
- Set the project in motion – Once you’ve got all the details figured out, it’s time to kick off the project. By now, you should already have an action plan established on your end.
- Monitor your partner company performance – Starting the project is only the first step. You’ll have to monitor the company’s performance, ensuring that it doesn’t degrade in quality over time.
Managing the BPO Initiative
Depending on what process you’re outsourcing, you might need to have some control over the partner company’s operations. With customer support, for example, your oversight might be minimal – communicating through reports on a monthly basis. If you’re outsourcing software development, though, you’d need to actively manage the company. While they have the technical skills, your team knows the industry, what problems the software should solve, etc.
Without the right software, though, managing a remote company can be hard. Tallyfy is a business process management software that helps you track, manage and automate processes. It allows you to seamlessly collaborate with partner companies from around the world, making BPO easier than ever before.
Do you have any experience with outsourcing business processes? Was it as good as it’s made out to be? Let us know down in the comments!
Related Questions
What is business process outsourcing used for?
Companies use business process outsourcing to get help with everyday tasks from outside experts. Think of it like hiring a cleaning service for your house – instead of doing everything yourself, you let specialists handle specific jobs. Companies often outsource things like answering customer calls, processing payroll, or managing their IT systems. This helps them save money and time while getting expert help.
What are the different types of BPO?
There are two main flavors of BPO: back office and front office. Back office is like the kitchen of a restaurant – where all the behind-the-scenes work happens, like accounting and data entry. Front office is like the dining room – where direct customer interaction happens, such as customer service and sales calls.
How much money can companies save through BPO?
Companies typically save 30-50% on their operational costs through outsourcing. This happens because they can hire skilled workers in countries with lower living costs, reduce office space needs, and avoid spending money on training and benefits for full-time employees.
Which countries are popular for BPO services?
India leads the pack for BPO services, followed by the Philippines, which is especially known for its English-speaking workforce. Other rising stars include Mexico, Poland, and Vietnam. Each country brings its own strengths – some excel at technical work, while others are great at customer service.
How do you choose a good BPO provider?
Picking the right BPO partner is like choosing a roommate – you need someone reliable who matches your style. Look at their track record, talk to their other clients, check their security practices, and make sure they understand your business needs. It’s worth spending time on this decision since you’ll be working closely together.
What’s the future of business process outsourcing?
BPO is getting smarter with artificial intelligence and automation joining the mix. Instead of just handling basic tasks, BPO providers are now offering more sophisticated services like data analytics and digital marketing. The future looks like a blend of human expertise and smart technology working together.
How long does it take to set up a BPO arrangement?
Setting up a BPO partnership usually takes 3-6 months. This includes finding the right partner, agreeing on terms, training their team, and smoothly transferring work to them. It’s like moving to a new house – you need time to pack, plan, and settle in properly.
What industries use BPO the most?
While almost every industry uses some form of BPO, healthcare, banking, retail, and technology companies are the biggest users. These industries have lots of repetitive tasks and customer interactions that can be handled efficiently by outside experts.
How does BPO affect company culture?
Outsourcing can change how a company works day-to-day. In-house teams might focus more on creative or strategic work while routine tasks go to BPO partners. It’s important to keep everyone informed and maintain strong connections between internal and external teams to keep company culture healthy.
