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Companies of all sizes use third-party resources to reduce spending on non-core functions. Business process outsourcing (BPO) provides them access to flexible workers and scalable technologies at competitive pricing.
However, some might find it challenging to grasp the idea of delegating processes to an external team to streamline operations and optimize costs. This is especially true when BPO’s impact on financial performance is unclear.
If you are considering outsourcing and want to understand this correlation, then this article is for you. Continue reading to learn how BPO influences company profitability.
BPO and financial performance correlation
Does outsourcing increase or reduce company spending? Entrusting non-core business functions to a service provider can cut labor and infrastructure costs. Outsourcing allows you to reallocate resources to growth-driven activities and primary competencies.
However, working with a third-party provider might also result in higher expenses. Acquiring more specialized skills, managing fluctuating demands, and mitigating cyber threats can increase BPO costs.
For instance, hiring a senior software engineer from a Philippine-based information technology (IT) support provider can cost you ₱518 or approximately $9 per hour, while the junior counterpart requires you to pay ₱75 or over $1 per hour. Hence, the difference in BPO rates depends on the level of experience.
BPO and financial performance have an interesting correlation that hinges on several factors. Depending on your implementation, outsourcing can positively or negatively impact your profitability. Check the table below to see what BPO’s influence on your finances is.
| Effects of outsourcing | Impact on clients’ financial performance |
|---|---|
| Decreased labor costs for back- and front-office functions |
|
| Reduced technology, real estate, and utility expenses |
|
| Limited control over the quality of delivered products and services |
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| Potential exposure to data security threats due to the remote nature of transactions |
|
The ROI of BPO projects
Achieve returns on investment (ROI) from outsourcing by planning your budget carefully and developing a strategic approach. You also need to understand these essential metrics to evaluate BPO’s impact on your finances accurately, ensuring benefits outweigh costs:
- Direct cost savings: the reduction in labor and operational expenses
- Indirect cost savings: the decrease in infrastructure, tech, and maintenance costs
- Process efficiency: the enhancement of process speed and accuracy
- Cycle time reduction: the shortened period for completing specific tasks
- Productivity increase: the improved efficiency measured by output per worker or hour
- Error rates: the percentage of minimized errors or defects in business functions
- Customer satisfaction: the increase or decrease in customer satisfaction scores
- Capacity to scale: the ability to handle increased volumes of work cost-effectively
- Flexibility: adaptability to changing market demands and conditions
- Revenue growth: the direct or indirect contribution to increased revenue streams
- Market expansion: the capacity to broaden reach or enter new markets
- Time to market: the speed of launching new products and services with outsourcing
- Innovation acceleration: the rapid development and deployment of innovative solutions
- Core focus: the capability to reallot internal resources to primary functions
- Talent utilization: the improved optimization of in-house skills for strategic initiatives
- Regulatory compliance: the level of adherence to legal and industry requirements
- Risk mitigation: the capacity to minimize operational risks with BPO
- Employee morale: the impact of BPO on employee satisfaction and morale
- Turnover Rate: the change in employee turnover rates as a result of outsourcing
These factors are necessary when doing a cost-benefit analysis of outsourcing. Quantifying the potential expenditures and benefits helps you make data-driven decisions about hiring a BPO company.
Monitoring those metrics throughout the service-level agreement (SLA) also specifies where the BPO project performs well and where it needs improvement. If the results show stable cost savings but decreased customer satisfaction ratings, the metrics can guide you in identifying the root cause of the issue and developing corrective strategies.
For example, a low customer satisfaction score shows consumers’ discontent with your BPO call center’s service. Analyzing the mark per communication channel helps pinpoint problematic areas (e.g., response time and resolution effectiveness). The results inform your strategy development, such as if you need to invest more in chatbots for faster replies and solutions.
Companies that secure the ROI of outsourcing
By properly assessing and implementing BPO projects, many businesses have achieved ROI from working with third-party teams. Below are examples of companies that outsource their functions and successfully gain a competitive advantage:
- Nike works with third-party manufacturers from the Philippines, Vietnam, Indonesia, China, and Taiwan to accelerate production and ensure the quality of its footwear products. This results in significant cost reduction and revenue generation.
- WhatsApp acquired development resources from Russia at a lower price than the United States. BPO helps the messaging platform provider decrease its spending and ensure continued growth.
- Apple has partnered with an Indian manufacturer to save production expenses and import tariffs. The tech giant aims to diversify its global iPhone production away from China after supply-chain issues and delays brought on by the COVID-19 epidemic.
- The Coca-Cola Company has tapped into outsourcing to decrease manufacturing, storage, and bottling expenses. BPO lets the beverage business establish local distribution networks, driving competition that enhances operating margins.
The bottom line
Outsourcing brings considerable savings to your business because of lower labor and infrastructure costs. However, higher cybersecurity risks and shoddy quality can also result in a million-dollar loss.
Maximize your BPO investment and financial performance by understanding their correlation, analyzing the costs and benefits of outsourcing, and monitoring essential metrics.
Most of all, work with a reliable BPO partner with a proven track record in cost-effectiveness, operational efficiency, compliance, and quality. The ideal provider should have diverse, skilled professionals and modern solutions to help streamline your daily operations.
Let’s connect today to learn more about the financial benefits of outsourcing with Unity Communications!
