From Origins to Outsourcing: Unveiling the Story of BPO Companies

Business process outsourcing (BPO) streamlines operations, enhances efficiency, and optimizes cost. Companies of all sizes across various industries increasingly rely on the strategy to maintain a competitive edge and ensure long-term growth.

This article explains what BPO is and explores its evolution to become a popular strategy for success. It also highlights the strategy’s core functions and profound impact on today’s business landscape.

Keep reading to learn how outsourcing works, what factors to consider when outsourcing, and more.

History of BPO in the United States

A company considering outsourcing some of its services may be asking what BPO is. BPO is a business practice in which the client company delegates non-core functions, such as customer support, payroll, and data entry, to a service provider so it can focus on revenue-generating activities.

In the United States, BPO dates back to the 1980s when companies outsourced basic tasks to reduce operating costs. Domestic firms initially handled these services. However, as global communications evolved and international labor costs stabilized, businesses started to look overseas for more affordable options.

Throughout the 1990s and early 2000s, the BPO industry expanded rapidly. Companies began outsourcing more complex functions, such as information technology (IT) support and financial processes. This period saw the rise of significant outsourcing destinations, such as India and the Philippines, where skilled labor was available at a fraction of the cost compared to the U.S.

Significant milestones in the U.S. outsourcing industry

The U.S. outsourcing industry has undergone significant transformations over the decades. These key milestones reflect shifts in business strategies, technological advancements, and economic imperatives:

• During the Industrial Revolution, companies sought competitive advantage by investing in technological innovations and achieving economies of scale to increase production efficiency and reduce costs.
• In the early 20th century, large integrated companies “owned, managed, and directly controlled” their assets to maintain a competitive edge.
• From the 1950s to the 1960s, companies started diversifying to broaden corporate bases and take advantage of economies of scale, adding layers of management.
• From the 1970s to the 1980s, global competition led to bloated management structures. Companies focused on core business to increase flexibility and creativity.
• Outsourcing became a business strategy in 1989. Organizations started outsourcing non-core functions for efficiency.
• In 1989, Eastman Kodak’s decision to outsource IT systems marked a shift toward strategic partnerships and catalyzed a rethinking of business needs.
• In the 1990s, companies outsourced support services (e.g., accounting, human resources or HR, and data processing) to reduce costs and improve efficiency.
• In the 1990s, outsourcing extended to core functions (e.g., customer service) to enhance strategic advantage.
• Currently, outsourcing helps develop strategic partnerships to deliver effective results for core and non-core functions.

These milestones showcase how companies have shifted from tightly controlling all their operations to forming strategic partnerships, adapting their strategies to stay competitive and efficient in an ever-changing global market.

How technology transformed BPO processes

Technology has revolutionized BPO processes by integrating advanced tools such as artificial intelligence (AI)-powered chatbots, which reduce the workload of human agents. Chatbots efficiently handle routine customer inquiries and transactions, freeing human resources to focus on more complex tasks.

Additionally, automation through machine learning (ML) algorithms has streamlined data processing and analytics, enhancing accuracy and speeding up operational workflows. Overall, technological advancements in BPO improved efficiency and customer service and enabled BPO firms to offer more scalable and cost-effective solutions.

Understanding BPO companies

The demand for BPO services in the U.S. has steadily increased as BPO companies simplify business tasks and cut expenses. Understanding how they work is essential for clients aiming to make their operations more efficient and focused.

What is a BPO company?

Businesses unfamiliar with outsourcing may ask, “What is a BPO firm, and what does it do?” A BPO company helps businesses manage non-core functions, allowing them to concentrate on their primary functions. 

Additionally, BPO vendors provide access to specialized skills and resources that might be too costly or time-consuming for client companies to develop in-house. For example, customer service, human resources (HR), and payroll management require certain expertise and infrastructure. BPO providers offer these services at a higher quality and lower cost.

By partnering with a BPO provider, clients can reduce operational costs and invest resources in core activities that drive growth and innovation. Thus, BPO companies can transform business, drive efficiency and cost-effectiveness, and enable their clients to pursue higher-value activities and strategic priorities.

Core functions of BPO companies

Part of learning what a BPO company is is understanding its core functions. Below are five core functions typically offered by BPO companies:

• Customer support. BPO companies handle customer inquiries and complaints and provide assistance via various channels, such as phone, email, and live chat.
• Data entry and management. BPO firms input, organize, and manage data accurately and efficiently to support business processes.
• IT support. Service providers help build, troubleshoot, and maintain hardware, software, and network systems.
• Finance and accounting. Third-party vendors also manage financial transactions, including bookkeeping, invoicing, payroll processing, and financial reporting.
• Back-office operations. BPO companies also perform administrative tasks such as document processing, order fulfillment, inventory management, and logistics support.

BPO offers remarkable benefits, but adopting the practice is not simple. Clients must carefully assess their business and recognize the signs it’s time to outsource. Understanding how BPO works and how to choose a reliable outsourcing partner is also recommended.

How BPO companies boost client organization

Hiring a BPO company such as Unity Communications enhances client operations by efficiently managing administrative, marketing, and customer service tasks. For example, the vendor streamlined operations, including invoicing and customer interaction, for an arts and crafts e-commerce enterprise.

Unity Communications provided a dedicated manager to ensure the precise execution of all tasks. It also boosted call center productivity by training a virtual assistant in essential business processes. Additionally, its management of social media and e-commerce platforms expanded the client’s online presence, ensuring 5-star reviews and global reach.

What is the difference between BPO companies and call centers?

Many people use “BPO” and “call center companies” interchangeably due to their shared focus on customer interaction and support services. BPO companies offer a broader range of outsourcing services; meanwhile, call center companies primarily provide comprehensive customer support services. 

Call centers typically manage inbound and outbound communications through phone, email, chat, or social media. Within these interactions, call center agents address customer inquiries and complaints, provide technical support, process orders, and conduct sales activities such as lead generation and upselling.

Additionally, call centers engage in market research initiatives by conducting surveys, gathering customer feedback, and collecting relevant market data. These services are crucial for businesses to ensure good communication and support, maintain customer relationships, boost loyalty, and drive sales growth.

BPO vs. call center companies: Similarities and differences

BPO companies and call centers both manage outsourced business operations on behalf of client companies and aim to reduce operational costs by offering specialized services that leverage trained personnel and the latest technology.

However, they differ in the key areas illustrated in the table below.

What is a BPO firm’s advantage over freelancers and direct hiring services?

Businesses now have diverse options for accessing talent, filling roles, and accomplishing tasks. Engaging in any of these strategies requires careful planning. The table shows the pros and cons of outsourcing through a BPO firm, freelancing platform, and direct hiring service.

To summarize, BPO firms offer specialized, cost-effective, scalable services but involve less control and potential communication and security issues. Freelancing provides flexibility and cost savings for short-term projects but requires careful vetting. Meanwhile, direct hiring ensures greater control and alignment with company values but is more costly and less flexible. 

Factors to consider when choosing between BPO, freelancing, and direct hiring

Deciding what outsourcing’s role is in business success and whether to partner with a BPO company, tap freelancers, or hire permanent workers depends on a company’s needs and strategic objectives. 

Below are the primary factors to consider:

• Scope and complexity of tasks. Assess whether tasks are ongoing and large-scale (BPO provider), specific and short-term (freelancing), or require continuous supervision and collaboration (direct hiring).
• Budget and cost. One of the reasons why outsourcing works is that BPO can save costs on specific tasks. Meanwhile, freelancing offers budget flexibility for projects, while direct hiring involves higher upfront costs but long-term stability.
• Level of control and oversight. BPO offers specialized expertise with less oversight. Hiring freelancers allows flexibility with closer management of contractors. Direct hiring provides complete control.
• Skill and talent. BPO provides specialized teams, freelancing offers diverse talent pools, and direct hiring allows alignment with company culture and values.
• Flexibility and scalability. BPO services can scale quickly, freelancing offers project-based flexibility, and direct hiring ensures long-term stability but less adaptability to changing demands.
• Risk management and security. BPO and freelancing pose data security risks and need strong management, while direct hiring involves vetting employees to safeguard sensitive information.

By carefully considering these factors, companies can make informed decisions that align with their business objectives, resources, and preferences.

The bottom line

Outsourcing has evolved from a promising strategy to a critical business decision. Understanding what BPO is and its inner workings helps businesses decide if this strategy fits their needs and objectives. Leveraging BPO is a strategic move for many companies, but weighing its advantages and disadvantages is crucial to ensuring success.

Let’s connect if you want to learn more about outsourcing and how it can help your business succeed.