Business process outsourcing (BPO) is the act of contracting work processes to external service providers as auxiliary – as opposed to core – business functions that can be either technical or non-technical.
All businesses outsource services, from fledgling startups to Fortune 500 companies, and as more companies seek to get ahead of the competition, the demand for BPO has increased dramatically. Often used as alternative labor migration, BPO is an excellent way of harnessing the skills of international talent while allowing them to remain in their home countries.
Different BPO Categories
Often divided into two main types of services, BPO can be rendered for back and front-office applications. Internal business processes like purchasing fall under back-office services, while front-office services include marketing and technical support. Thanks to BPO, it’s easy to consolidate these services, so they function as one unit instead of two separate service departments.
BPO can also fall into one of three categories, and depending on where the vendor is located, the process can be offshore, nearshore, or onshore.
Offshore vendors are located outside of the organization’s home country. An excellent example of an offshore vendor is a Spanish company using an offshore BPO vendor in South Africa.
Nearshore refers to BPO vendors that are in the contracting company’s neighboring country. For example, a BPO in the United States is a nearshore option in Canada.
Onshore BPO vendors are in the same country as the contracting company, albeit they might be in another geographical area. A contractor in Seattle (U.S) might use an onshore vendor located in Texas.
The Benefits of BPO
There are various reasons why organizations choose to outsource services. In addition to reduced taxes when dealing with offshore BPO vendors, U.S. companies also choose to outsource to reduce operating costs, expand their global presence, and increase the speed and efficacy of their operations. Here’s a deeper look at the benefits of BPO.
Business Process Outsourcing Reduces Operating Costs
There’s a substantial cost-saving factor that comes into play when businesses choose to outsource services instead of hiring full-time in-house labor. Companies can also use variable-cost models when they outsource instead of deploying fixed-cost models that must be used to retain local employees.
It Allows Businesses to Focus on Key Functions
Many businesses choose to outsource services that aren’t directly related to their core functions and processes. For example, a U.S.-based brand won’t have to monitor localization projects as closely when they choose to use a Language Service Provider that is highly experienced in the matter. Instead, the company can focus on business growth, and together with its BPO services, the company will gain a competitive advantage, increase profits, and enhance its customer satisfaction ratings.
Enables Businesses to Expand Their Global Reach
Some outsourcing companies can service customers in many languages 365 days a year, relieving the contracting company of those responsibilities. Companies that outsource can strengthen their presence in multiple countries without risking having local divisions going redundant.
Business Process Outsourcing Enhances Flexibility
Businesses that outsource services are often better equipped to react to risks involved with launching new products and services. By outsourcing, the business can also realign its internal resources to ensure core business functions are placed on the top tier of the priority list. Since the contracting company turns to specialists for certain services, they’ll save time, improve accuracy, and increase their capacity simultaneously.
What Types of Services Can Businesses Outsource?
There are several services that BPO providers now offer in an attempt to help fills gaps within organizations. Some industries that participate in BPO initiatives include business services, language services, retail and e-commerce, healthcare, pharmaceuticals, energy, automotive, telecom, banking, supply chain, capacity solutions, and asset management, to name but a few. Thanks to the rising popularity of BPO, many subspecialties have emerged. These include:
ITES – or information technology-enabled services – BPO delivers IT services through the internet. These services typically include the likes of IT analysts and service desk analyst roles.
Knowledge process outsourcing (KPO) BPO focuses on research, analysis, and data processing services. In many instances, KPO services form part of core business functions, enabling them to sometimes make low-level business decisions. These services are often also linked to the vendor’s value chain since the sourcing business hires talent experienced in specific fields.
LPO (legal process outsourcing) also forms part of KPO, a subset comprising higher-level legal work that goes above legal transcription. Research process outsourcing (RPO) also forms part of KPOs and mainly focuses on research and analysis that supports marketing, biotech, investment, and business firms.
As the name implies, this type of BPO pertains to all operations a business relies on for its travel logistics, such as car rentals and hotel reservations. Many airline companies engage in BPO to help streamline front- or back-office processes.
In general, BPOs specialize in specific services. They fall into following major sectors:
- Customer Interaction Services
- Back-Office Transactions
- IT and Software Services
- Finance and Accounting Services
- Human Resources
- Knowledge Services
Ready to Thrive with a Business Process Outsourcing Strategy?
Due to recent shifts in consumer behavior and a higher demand for multichannel communication, the BPO industry has grown exponentially over the last few years. With more companies relying on cloud technologies, technical services like HR, web design, and accounting are at the forefront of the BPO industry’s focus.
Business transformation outsourcing (BTO) has also been on the rise as it gives organizations access to consulting services that offer traditional supportive functions and the capability to revamp their processes to increase overall business growth.