Written by Joyce Ann Danieles
Companies often encounter project delays due to work backlogs that are not related to their core business. To ease their workloads and help with these non-core tasks, many of these companies hire third-party service providers.
But some businesses hesitate to outsource because they don’t know where to start. Misconceptions about costs, security, and the quality of company outsourcing services also drive their reluctance. Although these concerns can be real, they can also be dealt with by looking into outsourcing. Company executives shouldn’t ignore the benefits of outsourcing tasks.
Read on if you plan to jump-start your outsourcing investment. In this article, you’ll understand what business process outsourcing (BPO) is and why it benefits your business. You’ll also know what steps and trends to follow when outsourcing.
Understanding Company Outsourcing Services
Business process outsourcing (BPO) means delegating non-core tasks to an external service provider.
Business processes involve large datasets and endless requirement submissions. Organizations describe these processes as time-consuming and labor-intensive activities. Despite the repetitive nature of these day-to-day tasks, they provide necessary insights to C-suite members and company boards that can drive expansion.
Outsourcing routine work has become a growing business strategy for small, medium-sized, and Fortune 500 companies. Assigning non-value-added activities to BPO providers helps organizations redirect their resources to strategic programs and profit-centered activities. Outsourced contractors also help streamline daily processes while enhancing a firm’s core capabilities.
For example, third-party call centers can handle customer support, while the companies that hired them to improve product features and specs. External service providers can handle manufacturing, inventory management, and order fulfillment while clients improve product design and formulation.
Outsourcing tasks and services enable your business to thrive in the face of stiff market competition. But before diving deeper into how BPO brings you a competitive advantage, take a look at the different types of services you can outsource.
Types of BPO per Function
BPO companies offer outsourcing support in two main areas of work.
This business center houses administrative and non-client-facing support personnel. Back-end employees handle all tasks related to internal business operations. They mainly prepare and submit necessary documents and requirements. The aim is to support front-office and core functions.
The back-office team doesn’t directly help companies generate profits. Instead, it develops and provides financial information, action plans, recommendations, and best practices, guiding front-office and core teams. Back-end processes include data management, records management, regulatory compliance, accounting, and information technology (IT) services.
Front office tasks are all client-facing tasks. Front-office workers are responsible for responding to customer needs and demands. They provide technical and non-technical product and service solutions.
The front-end team helps businesses generate revenue because they directly deal with customers. It depends on the back-office staff for IT, human resources, accounting, data handling, and administrative support. Marketing, sales, customer service, and help desks are a few front-office activities.
Types of BPO per Region
Company outsourcing contractors offer services based on operating locations.
This is a local approach to outsourcing front-end and back-end tasks. It involves hiring a BPO provider operating within a company’s home country. For instance, a Los Angeles, California-based firm outsources non-core tasks to a BPO company in Atlanta, Georgia.
Some businesses prefer onshore outsourcing because they can avoid paying miscellaneous and hidden fees. They also avoid potential increases when a currency conversion rate kicks in for providers located in other countries, charges often overlooked when hiring a non-U.S. provider.
Similar time zones and cultural expectations also influence companies’ decisions to select an onshore vendor. These factors allow them to experience rapid project turnaround time and smooth communication.
Nearshoring involves cross-border outsourcing of routine business processes. It involves delegating non-core tasks to a contractor based in a neighboring country. For example, a U.S. company works with a BPO provider in Canada or Mexico.
Like onshore BPO, nearshore outsourcing boosts communication and turnaround time. Time zone and language alignment make these benefits a reality.
Cultural familiarity also serves as a reason businesses outsource to nearby nations. Nearshore BPO vendors also have greater exposure to and understanding of US culture, which can benefit customers of US companies.
Offshoring is a global strategy of outsourcing time-consuming and labor-intensive jobs. It involves contracting with a BPO vendor far from a company’s home country, usually in developing nations. For instance, an American firm might hire a BPO contractor headquartered in the Philippines.
Offshore outsourcing offers the lowest service costs because wages in developing countries are generally low. Some nations also have tax exemptions and other incentives for the BPO industry.
Large labor pools not only mean lower labor costs but deep wells of workers with specialized skills and training certifications. This factor enables businesses to generate more savings while accessing a large talent pool.
Types of BPO per Service
In addition to workplace and regional setups, providers differ in the types of outsourcing services they offer to companies.
Data has a critical part in supporting and organizing business matters. Proper data collection, management, and analysis validate successful corporate decisions and project outcomes.
Daily operations include handling large datasets, which is time-consuming. Data entry tasks can prevent in-house teams from prioritizing core business capabilities. This work also requires more expense to retain well-trained data specialists and maintain advanced systems.
External service vendors provide resources and infrastructure to reduce your data management costs. They also employ highly trained and certified data entry staff.
The technological advances of the last few years, as well as the international pandemic, pushed people to shop online. It’s routine for online businesses to offer convenient delivery, fast service, and cheap products.
As millions of customers flock to online shops for these advantages, e-commerce businesses encounter increasing order requests, backlogs, and shipment lineups. These companies need more teams and resources to improve and speed up their processes.
BPO companies help streamline e-commerce operations at affordable costs. They provide skilled professionals who deal with order fulfillment, store and refund management, invoice and payment processing, customer assistance, and logistics support. They also bring up-to-date technology and infrastructure to simplify task accomplishments.
Documenting and organizing daily financial transactions are crucial for businesses’ financial health. Financial statements and status reports support business decision-making and strategy.
General bookkeeping and accounting programs require certified public accountants (CPAs) and upgraded systems. These repetitive tasks are important for organizing financial information and making informed financial decisions. However, they don’t contribute to business growth.
Outsourcing finance and accounting services help keep financial documents structured without investing extra money. BPO providers with talented CPAs and advanced systems can efficiently handle bookkeeping and accounting. They offer company outsourcing services at fixed prices that match client budgets.
Companies optimize a wide range of high-tech solutions to enhance their day-to-day operations. These technologies allow them to increase productivity by automating repetitive processes. They also help stabilize network connectivity and communications.
Maintaining these platforms poses significant corporate challenges. They require constant updates, repairs, and maintenance activities to prolong their usage. These efforts mean extra costs for businesses because they need an IT team to execute the job proficiently.
To avoid the high expenses of forming an in-house team, BPO vendors can deliver services to address IT gaps. They hire experts to perform technical tasks such as life cycle management, help desk support, and telecom consulting. They offer a complete turn-key experience at affordable costs.
Customer reviews can impact how well your products or services are perceived. Customers can influence others to buy or ignore these offerings based on their experiences.
According to Salesforce’s State of the Connected Customer report, 88% of 13,000 consumers say that customer experience is as important as the products and services themselves. As a result, companies explore ways to improve customer service while enhancing product and service quality.
Outsourcing helps businesses enhance and personalize customer support. BPO contractors deliver 24/7 live chat, email replies, and call responses to address varied customer inquiries. Their excellent support services also enable companies to satisfy and retain customers.
Tens of thousands of patients visit health centers, clinics, and hospitals every day across the US for regular checkups or emergencies. Medical institutions encounter enormous workloads relating to billing, insurance verification, coding, and claims processing.
These organizations need a dedicated team to handle such back-office tasks. This team must be highly skilled and trained to avoid mistakes in handling patient medical and financial records. However, this necessity means additional costs for medical providers because they also need sophisticated technology to streamline the work.
Outsourcing these repetitive healthcare services allows medical institutions to focus on improving patient care. External providers deliver the best talent and tech solutions to rapidly and precisely accomplish back-end processes.
Knowing these different types of company outsourcing services can help you in your effort to grow your business further while generating savings. You can align your outsourcing investment with your functional needs and business goals.
To understand how BPO providers give you a competitive advantage, read below about why companies outsource tasks.
Identifying Reasons for Outsourcing
Every business owner lists and analyzes significant factors before making a new investment. The same is true when a company assesses whether they should hire outsourcing services. Organizations ultimately hire a BPO provider because they understand the benefits outsourcing brings.
Explore the most common reasons companies outsource their front-office and back-office tasks below.
Managing day-to-day operations requires a dedicated team. Businesses need skilled employees and advanced systems to handle non-core tasks efficiently. These requirements, however, mean extra expenses.
Companies turn to BPO providers to save on costs while ensuring the smooth execution of essential business tasks. In Deloitte’s 2021 Global Shared Services and Outsourcing Survey Report, 88% of 600 polled business leaders worldwide noted that they had achieved cost reductions from outsourcing.
Outsourcing processes and tasks to third-party vendors helps eliminate the need to hire and train in-house employees because companies already have the best talent for the job. Third-party vendors also use up-to-the-minute technology and infrastructure to ensure efficient workflows. They deliver these services at affordable, fixed costs.
Restructuring Business Organization
Reorganization is important to keep up with tightening industry competition. Companies perform occasional restructuring to improve their business strategies and increase revenue. They constantly enhance their core competencies as industry demands grow.
Companies also reshuffle their existing personnel positions to meet reorganization needs. However, they need more workers and systems to streamline their routine tasks while working on critical growth initiatives.
Adopting company outsourcing services is an effective, low-cost option to support business restructuring. BPO contractors help reduce related administrative costs by providing readily available resources and technical solutions. They also bring experts to handle repetitive tasks amid reorganization efforts.
Enhancing Productivity and Efficiency
Organizations want to avoid project delays, as delays are costly and reduce competitiveness. But back-office and front-office tasks can impede their progress toward meeting those goals. These often repetitive tasks can also hinder expansion.
BPO teams help businesses manage their repetitive tasks. They are trained to handle these processes efficiently. They can also use high-tech solutions to accelerate their work.
Companies increase their productivity as a result of using company outsourcing services–and they save time that can be better spent on enhancing their main product offerings.
Prioritizing Core Functions
Core functions drive the growth of small, medium, and large enterprises. These functions usually involve operating teams responsible for producing goods or delivering services. These units thus serve as the primary source of business income.
Companies often struggle to focus on their core capabilities due to increasing day-to-day tasks. Hence, they tap into outsourcing firms to support and manage their non-core functions.
Outsourcing bottle production and distribution enables The Coca-Cola Company to prioritize its syrup production. BPO has also helped the beverage company establish a wide network of bottling franchises and distributors competing against each other to offer the lowest possible manufacturing fees. These factors make Coke products inexpensive and sought-after.
Accessing Modernized Systems
Buying niche technology solely for occasional use might be a waste of money for businesses. Using such IT systems for non-revenue-generating functions means an investment without returns. Hardware also consumes office space and resources for safekeeping and maintenance.
Businesses avoid these high costs by hiring reliable BPO providers. High-quality third-party vendors typically offer the latest tech alongside their varied company outsourcing services. They use advanced niche platforms to efficiently and quickly accomplish non-core tasks.
As BPO clients, companies can access these advanced systems. They can also benefit from accelerated project turnaround time while reducing costs.
Working With Experts
Enterprises employ various types of workers to match their operating needs. They emphasize filling important positions and training selected applicants to handle their core business functions. However, establishing in-house teams to manage non-core activities increases expenses.
BPO providers allow companies to save on costs for recruiting, training, and retaining back-office and front-office personnel. They already have certified specialists who can perform time-consuming and repetitive tasks.
Outsourcing firms regularly train their agents to operate state-of-the-art IT systems for increased productivity. They also ensure that their workforce can juggle multiple routine tasks. Acquiring company outsourcing services enables businesses to maximize these talented workers while paying reasonable, fixed rates.
Different threats from hackers, malicious actors, and cybercriminals challenge daily business operations. If IT security falters, companies can lose large sums of money in paying for mitigation efforts, investigations, or even dealing with ransomware attacks.
Compromised sensitive enterprise and customer data could be the worst-case scenario of these incidents. IBM reported that theft of customer personally identifiable information was the most common and costliest type of record loss, amounting to $180 per record of stolen data.
Companies seek help from third-party service providers to reduce such expenses when addressing cyber threats. BPO vendors implement strict security policies and strategies to protect confidential data. They also use sophisticated software to strengthen the security of IT systems.
Driving Scalability and Flexibility
Changing customer and industry demands push companies to revamp their products and services constantly. Technological advancements also make the market competition tougher. Some businesses struggle to keep up with these challenges because of non-core tasks that accumulate.
BPO contractors help ease these workloads using their scalable workforce and infrastructure. They can especially support companies during off and peak seasons. They allow their clients to focus on producing high-quality offerings while increasing efficiency.
Third-party teams can also make necessary adjustments to meet enterprise goals, consumer needs, and industry expectations. They continuously change their operating strategies to streamline time-consuming tasks. This flexibility enables businesses to generate more profits.
Satisfying Compliance Requirements
Adhering to policies, standards, and procedures helps companies ensure that they are in compliance with their industry’s regulations. Compliance also maintains market reputation and enhances brand image. But because of product improvement priorities, companies may lack the time to monitor their compliance status closely.
BPO providers can take up that task for them and track and improve their in-house, industry, and government compliance. These contractors perform regular compliance audits to identify areas needing attention or enhancement.
Audit results help businesses know the strengths and weaknesses of their compliance programs. The findings also allow them to reassess their security policies and user access controls.
In our BPO learning center, you’ll find additional, focused information on using BPOs for your task and processing needs. And you’ll see how outsourcing can help align your outsourcing investment with your operating budget.
However, to make the best use of company outsourcing services, it helps to understand current trends in the BPO market.
Exploring 2023 Outsourcing Trends
The BPO industry has changed significantly due to global challenges, innovations, and growing needs. Businesses aiming to save money and increase productivity through outsourcing must learn the latest market trends, which will help them refine their corporate strategies while ensuring return on BPO investment. Check out the following company outsourcing service trends that will shape the industry in 2023.
Transparency plays an essential role in building trust between two parties. It serves as a key to lasting strategic partnerships and effective collaborations. This practice also urges a straightforward approach to addressing conflicts of interest.
Organizations now see third-party service providers as long-term partners instead of just cost-efficient labor sources. By retaining these outsourcing contractors and partnering with them, they expect to generate more savings and enhance productivity from this action.
When a working partnership has been established, parties can enter a company outsourcing service agreement that permits simplified corporate data and technology sharing.
Growing Investments in Cloud Computing
Small and medium-sized enterprises (SMEs) often have insufficient data centers, hardware, and software because of limited budgets, office space, and infrastructure. BPO companies address this inadequacy by providing SMEs with virtual storage and tools. They use cloud computing to easily and securely store, manage, and analyze vital enterprise data.
Both outsourcing providers and SMEs have experienced cost reductions since adopting cloud computing. They no longer have to buy and maintain on-premises information hubs because they can quickly access their data online. The technology has also reduced the need to hire more personnel for data center operations and maintenance.
Cloud computing is a standard collaboration platform between third-party vendors and their clients. The new tech allows for accelerated project turnaround time and prevents significant delays. Most importantly, the solution drives more informed corporate decisions and positive business process outsourcing results.
Simplifying Multitasking for Companies
Accomplishing daily tasks and reaching output targets simultaneously is a significant milestone for companies. However, achieving this milestone is difficult if they only have in-house teams with narrow specializations.
BPO contractors have a large pool of multidisciplinary professionals that simplifies multitasking for companies. Third-party teams are trained to handle data entry jobs while supporting customers. Some agents can even manage inventory and fulfill orders at the same time.
Businesses, in turn, can prioritize their core capabilities. Companies focus on developing or upgrading revenue-generating programs as BPO agents work on their routine processes. These efforts also allow for continued expansion while keeping back-office and front-office functions structured.
Startups Becoming BPO Customers
According to the latest U.S. Census Bureau data, nearly 5.4 million applications were submitted to register startups in 2021. The Covid-19 pandemic and the great resignation have been driving factors for establishing these new businesses.
But startup owners face enormous pressure to keep their startups running when they have limited resources. But even with a small budget, startups can find outstanding talent.
Company outsourcing services can provide truly affordable and talented contract employees through BPOs. BPOs also see the startup and small business markets as arenas where they can enhance their existing offerings or develop new ones. This means that truly low-cost experts are available to startups and smaller businesses through BPOs.
Reducing Staff Burden via Automation
Robotic process automation (RPA) refers to automated user interface systems powered by artificial intelligence (AI) and bots. RPA has become a means for companies to clear backlogs without increasing expenses. This tech facilitates accomplishing tasks very rapidly and at low rates.
BPO vendors use RPA to ease workloads for their employees. AI-equipped solutions help streamline operations and accelerate project outcomes. They also use RPA to help their workers organize data accurately and quickly.
Similarly, BPO clients can reduce their in-house staff burden by delegating time-consuming tasks to their third-party partners. Through automation and outsourcing, companies can achieve satisfactory outputs at low costs.
As technology and processes constantly evolve, businesses need to boost their core competencies and systems to keep up with the stiff competition. But some companies encounter modernization challenges because of budget and resource constraints. Their workers also struggle to stay updated because of their limited skills.
BPO providers close these gaps by hosting regular training and certification programs to help upskill their workforce. These initiatives enable their employees to expand their fields of specialization and learn to adapt to the latest technologies and approaches.
BPO providers can provide you with enhanced outsourcing services, which enables you to improve your own personnel’s capability and also streamline workflows, creating greater efficiencies in your company.
Expanding Remote Work Setting
The global health crisis has forced companies to adapt to the work-from-home needs of their employees. Despite the sudden shift, telecommuting has helped businesses reduce infrastructure costs and increase flexibility.
The remote work setup also allows for enhanced productivity and efficiency. According to the Owl Labs 2021 State of Remote Work report, 90% of employees said they were more productive working from home than at the office. The study added that 84% of these workers agreed that expanded post-pandemic telework would make them happier.
BPO vendors are cognizant of this, too, ensuring that they continue their remote work setup for their employees even as the pandemic subsides. This ability means improved collaboration among their employees and better workers to address your company’s needs too.
Nowadays, most tasks are shared and done online amid increased telework adoption. This method makes sensitive data more prone to breaches and hacking incidents. In a Tenable report, 74% of organizations attribute the latest cyberattacks to vulnerabilities in remote work technology, such as cloud solutions and collaborative tools.
To ensure efficient company outsourcing services amid telecommuting, third-party providers use advanced cybersecurity measures. They implement enhanced multifactor authentication and encryption to ensure that only authorized personnel can access confidential data.
BPO providers also install sophisticated antivirus software on their systems to safeguard networks, configurations, dashboards, and online portals. Moreover, they continuously perform IT security checkups and update protocols to increase protection. They execute these steps to meet their clients’ security needs and changing demands.
Focusing on Social Media Management
Billions of people use social media to create and share content worldwide. These online platforms also facilitate real-time communication globally, and many businesses use social media’s popularity to reach out to their customers.
BPO providers, especially call centers, continuously invest in social media to deliver multichannel communications to support consumers. In addition to answering customer inquiries via phone calls, vendors now use online chats and email to provide real-time, 24/7 support.
BPO providers also improve their company outsourcing services by expanding their social media management activities, including customer engagement monitoring and business intelligence. They establish social media management teams to work closely with customer representatives. This collaboration allows for companies’ customers to have a better customer experience which creates greater customer satisfaction.
Establishing Strategic Partnerships
Companies considered BPO only as the cheapest labor source for non-core tasks. But the BPO market has grown just as company competition has become tighter. Businesses now treat outsourcing as an effective strategy to boost core capabilities and achieve their business goals.
Once perceived as mere service providers, BPO companies now serve as corporate partners in innovation and growth. They employ the best talent and use advanced systems to help enterprises meet digital transformation demands and customer expectations. They also help businesses produce high-quality products and services by dealing with repetitive tasks.
In addition to these advantages, contractor teams provide insights to help companies improve their decision-making process, strategic planning, and risk assessment. As they constantly reap BPO benefits, organizations commit to maintaining a long-term relationship with their providers.
Selecting a Company Outsourcing Service Provider
After knowing the factors and trends influencing your decision to outsource a business process, you need a guide to choosing the right BPO provider. These recommendations can help you make the right outsourcing investment decisions while you also prioritize your core functions.
Follow these tips on how to pick the best BPO vendor:
Set Outsourcing Goals
Clearly define your goals for hiring a BPO provider. List specific back-office and front-office tasks to outsource. Identify which non-core tasks need improvement and how the vendor should handle them.
Remember to align outsourcing investments with your operating necessities so that you can focus on your core functions and growth-driven initiatives. You can also reduce costs while increasing productivity.
Study Industry Background
Perform a thorough background check of your potential outsourcing partner. Check its history and experience and study its market reputation, project management approach, and problem-solving capability.
Seek referrals and reviews from the vendor’s former and current clients. Know its strengths and weaknesses in coordination, engagement, and collaboration. These measures will help finalize your concrete outsourcing plan.
Compare Service Packages
Weigh varied service packages from at least three BPO bidders. Assess how they can perform tasks effectively and quickly. Compare their pricing for the outsourcing services they offer.
Making such comparisons will allow you to match your outsourcing budget with your operational needs and limitations. Note that you’re outsourcing because you want to obtain high-quality outputs at low costs.
Analyze Work Culture
Carefully evaluate an outsourcing company’s work culture. Examine its work ethics, leadership, and team management to understand how it can accomplish your tasks efficiently and accurately.
Ensure that your potential BPO partner promotes workforce diversity, inclusivity, and equality. These factors help maintain a good business relationship in the long run.
Identify Security Policies
Review a third-party service provider’s security rules and regulations. Determine its strategies for mitigating IT system threats and cyberattacks. Also, identify how it protects enterprise and customer data privacy.
Most importantly, know how the contractor adheres to in-house, industry, and government standards. This approach avoids the high costs of sanctions and breaches.
Conducting Outsourcing Cost Analysis
Beyond the detailed tips for choosing a BPO provider, you must learn one crucial step in outsourcing—incremental analysis.
What is incremental analysis in BPO?
Incremental analysis also called marginal or differential cost analysis, is a problem-solving strategy using accounting data to inform outsourcing investment decisions. It helps determine the possible outcomes of hiring a BPO provider.
This analysis suggests four key steps calculate your outsourcing cost:
- Specify a Process to Outsource. Indicate which non-core tasks to assign to an external service provider. Detail the quality and quantity of the business function considered for outsourcing. This factor is essential for comparing achievable in-house and outsourcing targets.
- Estimate In-house Costs Saved By Outsourcing. Enumerate all expenses associated with the task to be outsourced. Include direct and indirect costs except for incurred and non-recoverable ones. Then identify all the in-house costs saved by outsourcing the function.
- Calculate Total Outsourcing Costs. Compute the overall costs of outsourcing a routine task. BPO expenses include the vendor’s bid price, contract administration fees, and transition charges. Don’t add any new revenue generated from the sale of unnecessary equipment, supplies, and furniture.
- Derive Savings From In-house and Outsourcing Cost Differences. Subtract the costs saved from those spent on outsourcing. The difference will show whether hiring a BPO provider can generate savings. If the results reflect significant cost reduction, proceed to invest in outsourcing a business function.
If you want to include BPO in the long-term planning of your business growth, you must learn how to perform the differential cost analysis. This approach will help you identify the actual cost of getting BPO services.
The Bottom Line
The back-end and front-end backlogs often obstruct businesses’ efforts to enhance their core functions. BPO providers offer various solutions to address these challenges. However, some companies remain hesitant about outsourcing investments due to insufficient knowledge of industry processes and benefits.
This comprehensive guide helps you understand key BPO concepts, advantages, and the latest trends. Learning about these factors clarifies both your outsourcing and enterprise objectives. This guide also allows you to appropriately choose your long-term outsourcing partner based on practical tips and cost analysis results.