Are you asking yourself a lot of questions about business process outsourcing? What is BPO? What’s the hype all about? Outsourcing business processes is growing more popular as our modern-day work culture shifts. If you don’t know about it now, you’ll need to know about it soon.
This complete guide covers all the must-know information about business process outsourcing. Keep reading to learn BPO basics- like benefits, risks, types, and market stats- plus some.
Read until the end for a bonus tidbit about the future of BPO and what it may look like for your company in the coming months.
What Is Business Process Outsourcing?
To keep it short and simple, business process outsourcing (BPO) is the act of hiring another company, contractor, or service provider to handle specific tasks (aka processes) for your business.
The provider or contractor you hire is always external (third party) and is not considered a permanent employee. If you ever hired a freelancer or paid someone a one-off fee to do something for you, then you’ve outsourced.
Current Market Size for BPO Industry
Business process outsourcing (BPO) is a multi-billion-dollar industry, thanks to a shift in work culture and the need for workplace adaptation. To put an actual number on it, the global BPO market size was about $232 billion in 2020.
That number is expected to grow tremendously from 2021 and beyond. Those figures don’t even take into account data from freelancing platforms like Fiverr or Upwork.
It is actually quite interesting. The concept of business process as a service (BPaaS) seems to be one culprit driving the market growth. Customer service activities, IT, and telecommunication made up the bulk of the BPO market share in 2020.
How Does BPO Work?
So, you know what process outsourcing is, but how does BPO work?
As an example, let’s say Company A needs help with data entry. Company B is a BPO service provider that specializes in data entry.
Company A will reach out to Company B and make arrangements to purchase their services for a set period of time. It could be just for the duration of one project, or it could be an ongoing commitment.
Company B is now responsible for meeting all predetermined requirements and carrying out all operations that are related to the outsourced task(s).
Of course, you will be in contact with the vendor throughout the whole process and guide any major decision-making.
Business process outsourcing really is that simple. But before you start, it’s important to audit and make a long-term plan for your business operations to determine the best functions to start outsourcing.
You’ll need to have a clear, carved, defined plan when approaching a potential vendor.
If not, we recommend hiring someone to audit your business operations. The audit should include cost analysis, potential bottlenecks, and areas that could either be automated or hired out. This is so you can plan what business functions to outsource and how you can strategically outsource those processes.
Difference Between BPO and Call Center
There is a common perception that BPO and call centers are the same thing. When someone says the word outsourcing, many people often jump to conclusions and assume they are talking about call centers.
In reality, a BPO provider and a dedicated call center are drastically different.
All call centers are BPO providers, but not all BPO providers are call centers. A call center is simply one type of BPO. Business process outsourcing is not limited to only customer support functions.
For example, a retail store might outsource its customer service to a dedicated call center. They might also outsource their payroll and marketing to another BPO company that specializes in accounting and digital media.
However, many outsourcing service providers have a dedicated call center “department” and then also specialize in other skillsets.
Types of Business Process Outsourcing Provider
The BPO industry can be categorized by location. And there are three types of business process outsourcing- offshore, onshore, and nearshore.
Note that many service providers have locations spread across multiple continents. For example, one company might be based in the USA with locations in the Philippines and South America.
As the name suggests, offshore business process outsourcing means working with a company overseas. For example, you might be located in the USA and working with a contractor who is based in India.
Nearshore outsourcing lies somewhere in the middle. These companies are not in your home country, but they are not overseas either. This type of BPO provider is located in a neighboring country. For example, you might be in the USA outsourcing work to a company in Canada or Mexico.
This type of BPO company is located within your own country. They might be based in another part of the country (East vs West Coast, for example). But as long as they operate within the same borders, you’re engaging in onshore outsourcing.
There is a common perception that outsourcing means taking jobs overseas and that doing so is the only way to reduce costs on business processes. While there is some truth in that, you can easily save money and (most importantly) time by going the onshore or nearshore route.
What Is BPO Used For?
Now, you know that BPO is categorized by location. But did you know it’s also categorized by function? Business process outsourcing can be separated into two primary areas of work: the back office and the front office.
The back office involves everything that happens behind the scenes. You might hear it referred to as “internal business functions” because it includes all the tasks that are unseen by customers.
Accounting, IT, human resources, payroll processing, marketing research, and record maintenance are all back-office functions.
In contrast, the front-office functions involve everything the customer sees or interacts with. You might hear it referred to as the “customer-facing” part of your business.
Customer support, customer outreach, answering phone calls, direct marketing, and sales are all front-office functions.
To make things simple, your company can outsource an entire functional area to one vendor. Think of it as delegating a department, like accounting, to a third-party vendor. On the flip side, you could just outsource a specific process within the accounting department and handle the rest in-house.
Types of BPO Services
Here is a closer look at some of the most popular types of BPO services you can outsource for your firm. Of course, your company can benefit from hiring out more than one of these processes.
Also, please note that this is not a complete list. Every business is unique and may have very specific functions that require outsourcing.
Tech and IT
A 2019 survey by Clutch found that small businesses typically outsource technical tasks the most, with 37% being IT or tech-related services.
And this comes as no surprise. Most business owners are not 100% tech-savvy unless they are in the technology field themselves. So, you’ll need help setting up data storage, managing your website, building the website, handling errors, installing software, and the list goes on and on.
You could even hire someone to set up automated processes for the office or automated online data capture for your website.
While data entry might be simple, it is the perfect type of BPO service to outsource. Data entry is an umbrella term that covers lots of number or information-based tasks, from spreadsheet work to adding or removing inventory SKUs.
The processes are usually repetitive, tedious, and based on a strict system that leaves little room for imagination. Instead of using your employee’s time, consider automating or outsourcing.
If your company is small, data entry will be a small task at first. But these tasks can get quite complex as your company grows.
Another popular type of BPO service is customer support. The great thing about customer support is that your customer service team can be based anywhere in the world. All they need is a stable internet connection, a good headset, adequate software, and the skills to provide great service.
Having an online CS team can also help soothe customer concerns during the buying process to boost revenue. For example, when a potential customer needs real-time information about a product before purchasing.
Payroll and Accounting
No matter the size of your company, finance and accounting are a must, which means they are a very popular process to outsource. You might consider hiring someone who can create a budget for your business, do an accounting audit, and forecast future sales or expenses.
Payroll management is another BPO service that falls into the finance category. Hiring a professional payroll processor can help mitigate errors and ensure you’re doing things legally, such as submitting payments to employees and the IRS on time.
Marketing is another type of BPO service that is heavily outsourced. It includes everything from SEO (search engine optimization) to social media management, email campaigns, market research, marketing strategy creation, and more.
While traditional marketing methods can be outsourced (non-digital), their digital counterpart is the primary focus since we live in a digital age.
Experienced service providers can even help you with the graphic design aspect of marketing. We’re talking about brochures, logos, and any visual media associated with your brand.
Human Resources (HR)
Business process outsourcing can help your firm address workforce challenges. Perhaps you don’t have the time or manpower to screen and recruit a team of new hires. Or you might not even have a formal HR department if you are in the startup phase.
Either way, the right BPO service provider can take over the entire process for you, from finding potential candidates to holding the interviews.
They can also handle payroll, workforce training, and hashing out your employee’s insurance or retirement benefits.
If you don’t produce your products in-house yourself, then the most logical thing to do is outsource manufacturing. This is the process of hiring manufacturers to create individual parts of your product. They might even build the whole thing for you.
Companies choose to outsource this type of BPO service to cut labor and overhead costs. You won’t have to store as much product on-site, and the third-party production line can create everything at a cheaper cost.
It only makes sense to hire out product production if it positively impacts your bottom line.
What Is LPO?
One segment of business process outsourcing is called LPO- legal process outsourcing. As the name suggests, this service type is specific to legal activities like drafting contracts, performing legal research, or offering legal counsel when needed.
LPO service providers will hire lawyers and other legal professionals to work on high-level tasks for you. And that’s all they do. Their focus is purely on legal matters. The “outsourcing” part comes into play because you are the one hiring their third-party company.
Even a lot of innovative private law firms these days are using outsourcing to hire contract lawyers.
The market size for LPO is expected to reach $35.9B by the year 2025. This projection is attributed to alternative law services and virtual law firms popping up to meet the needs of people seeking online legal help.
We also believe those numbers are so large because growing companies realize how convenient and flexible it is to have legal counsel at their fingertips. Unless your company is in a sensitive niche, you won’t need a lawyer every day. LPO makes it so easy to get help on demand.
Recruitment Process Outsourcing (RPO)
This segment of business process outsourcing is called RPO. It stands for recruitment process outsourcing and is used when companies need to outsource the recruiting side of hiring.
It is only a portion of the HR department, so you wouldn’t be handing over your entire HR operations to the third-party agency. You’d be transferring a small part or all of your firm’s talent recruitment.
The individuals responsible for talent acquisition will act as an extension of your HR department. They will provide a full hiring solution that meets your needs. In addition, they will usually bring their own resources, ranging from staff members to technology implementations or hiring methodology.
Trying to find the right candidate can take a lot of time and energy away from your managers and execs. That’s why RPO is a very popular alternative to traditional in-house recruiting.
PS You might also hear RPO referred to as research process outsourcing, which is in relation to research and data analysis functions. Companies that are data-driven rely heavily on research outsourcing.
Benefits of Business Process Outsourcing
Business process outsourcing is quite attractive to business owners for several reasons. Take a look at the top three benefits of BPO that keep companies entranced.
Reducing your overall business process costs is arguably the primary reason why business owners choose to outsource. Actually, 70% of the reason is due to cost reduction. So, why is saving extra cash such a strong driver for going the BPO route? Well, think of it this way.
Whatever physical materials you do not have to keep in-house is a cost reducer. That means no more purchasing extra equipment, spending on onboarding or training new employees, and reducing your overall payroll taxes too.
Cost reduction can also come in the form of tax savings when it comes time to pay Uncle Sam.
Another prominent benefit of BPO is staffing flexibility. Handing over non-core or repetitive tasks allows your in-house staff to maintain a flexible working environment. In other words, they can focus more on what matters.
Also, working with an outsourcing company means having the ability to bring in additional resources when your team is overwhelmed. This is somewhat of a “hire-on-demand” strategy used during peak times of the year.
For example, you can hire extra accounting help during tax season and then release the help once things slow down. Hiring for fixed periods (contract hiring) means ultimate flexibility for your business.
Every growing, small business struggles to match big companies that are already well-established. This is especially true for startups and solopreneurs who have a minimal resource pool.
When you outsource tasks, you’re able to utilize the resources of your contractor. Your vendor will be able to use their tools and expertise, which might not be readily available for you otherwise.
And the best part of this is that BPO companies are always striving to improve their own technology and meet best practice standards- if only to keep a competitive advantage over other BPO providers.
This can help your small organization gain competitive leverage against companies with more resources. You’ll always have access to recent technology, tools you don’t have to pay for, and simultaneously learn all the knowledge they have to offer.
Risks of Business Process Outsourcing
While BPO does have very notable benefits, it also comes with its share of challenges. Before jumping into the deep end, familiarize yourself with the risks of business process outsourcing first.
When outsourcing to a third party, data security is obviously a top concern. This is especially true when information systems are involved. The last thing you want is for a data breach to strike the BPO company and all of your company information and communications are exposed.
The same technology that makes it possible to hire someone offshore or nearshore is also an entry point for hackers. So, needless to say, security is a heavy consideration when deciding to outsource.
Data security is more difficult to maintain when the company you are working with is located in another country. That country may have different security practices and be exposed to different online threats.
Issues with communication and experiencing language barriers are definitely a BPO risk. This might not be the case if you work with someone who speaks your native tongue and lives in the same country.
When a language barrier exists, even a small one, communication efficiency is decreased. This may result in progress delays, improper results due to a lack of understanding of your requirements, or even magnifying current operational issues. That last one is a worst-case scenario, though.
Customer-facing challenges may also arise if your customer service department has trouble understanding the language of your primary customer.
Overdependence on Business Process Outsourcing Provider
Once your firm delegates operation tasks to a third party, that company or individual becomes a part of your daily workflow. That creates an external tether to a company you cannot really control.
So, what happens when you start to rely too heavily on your outsourcing provider? Well, you could find it difficult to move the tasks back in-house if something were to happen. This is a BPO risk because it impacts flexibility and agility.
It’s important to remain flexible and able to perform such activities in case your vendor increases their pricing or drops in quality.
Take care to manage the professional relationship you have with your BPO partner.
Unanticipated External Factors
Life is full of unexpected circumstances. When using business process outsourcing for your firm, there is always a risk of disruption.
It’s easier to manage external factors from within your firm, but you cannot control what someone outside the company does or how the disaster is handled.
So, always monitor for potential issues that may arise. Naturally, you cannot predict natural disasters, political uprisings, or changes in world economics. But each one could put a halt on your operations and impact your company under the right circumstances.
Just take the 2020 COVID pandemic as an example. No one could have predicted it, and it sent businesses across the globe into a whirlwind.
While there are a few notable risks of outsourcing business processes, strict procedures and monitoring can solve most of those issues. Stay connected and remain aware.
BPO vs. KPO
Business process outsourcing and KPO (knowledge process outsourcing) are related to business conduct activities.
They are similar, but the two are not the same. If you consider BPO to be the overarching umbrella, then KPO is a branch that falls under it.
It’s important to know what it is and how knowledge process outsourcing differs from its counterpart.
Defining What KPO Is
KPO services are specialized and rooted in a knowledge base- compared to BPO, which is only about carrying out specific tasks. The service provider will not only carry out the tasks but also provide expertise and value-based information about the task.
So, KPO is about hiring someone for what they know- not just what they do.
Companies usually hire KPO services because they know it will increase their firm’s value over time. You’d be partnering with subject-matter experts who think analytically and have highly technical skills, which adds great depth to your operations.
Industries That Use Knowledge Process Outsourcing
Due to the highly advanced nature of KPO services, only specific industries make the most of what it has to offer. The list below is not comprehensive, but you get a general idea.
If it deals with data, it deals with KPO. This includes data management, customer analysis, supply chain management, data search, and market analysis. Information is a top priority.
Many KPO agencies perform design work for engineering companies, such as CAD renderings or simulations. However, those in the production and engineering maintenance fields may also benefit from KPO services.
Banking and Insurance
Investment research, banking, insurance, and securities firms heavily rely on data and deep insight to drive their growth. A KPO service might perform research to prepare a financial model, valuations, track stocks or predict financial outcomes.
Thanks to the internet, marketing research is at an all-time high. Data collection, data mining, and consumer research are highly sought after. Even competitive intelligence on other competing firms is valuable. Statistical tools and thorough research techniques merge to gather what’s needed.
Major Differences Between BPO and KPO
As we mentioned, the differences between BPO and KPO are apparent in what the service involves.
Business process outsourcing is more about getting the job done efficiently, whereas knowledge process outsourcing is about providing experience and a depth of information.
Employee qualifications are on the advanced end for KPO. And the cost is usually more expensive because of the high complexity and high coordination between firms and KPO providers.
BPO relies on a rules-based, pre-defined process approach and is mostly driven by volume and execution. KPO relies on a judgment-based, unique understanding of business, and it is mostly driven by insights and information.
Domestic vs International BPO
So, you decided it’s time to hire out-of-office. Now, do you choose nearshore, offshore, or onshore?
There is a never-ending debate between outsourcing domestically vs internationally. Ultimately, the decision is up to you and should be based on several different factors.
Consider It Carefully
Obviously, you’ll need to consider language barriers. The best nearshore or offshore companies will have employees who speak your language since they will be dedicated to serving an international clientele. Do your research.
Another thing to consider is familiarity with your country’s policies, government regulations, and overall inner workings. Top-tier international companies generally stay on top of this. But it definitely makes things easier when partnering up with a domestic service provider.
In the end, it all comes down to how much money you want to spend, what risks you’re willing to take, and who will be the best BPO company to satisfy your needs.
Above all things, always make an informed decision and do NOT just pick the company that offers you the lowest price.
Bonus: The Future of Business Process Outsourcing
BPO is a modern way to streamline your workflow and make the most of your time and resources. It’s growing into a multi-billion dollar industry, so there is no way it will be going away anytime soon.
In fact, with the boom of digital nomad culture and WFH (work from home), outsourcing to independent contractors will likely accelerate the BPO push ever further.
We also predict that BPO and KPO will merge into an indistinguishable service. Being connected with experts in the field is something that every business wants and needs. So, it’s likely that KPO will simply evolve into an industry standard that all outsourcing companies must adapt to in order to remain competitive.
From a technological standpoint, there is a strong chance AI and RPA (robotic process automation) will fill the gaps and pick up tasks that are currently being outsourced.
And it makes sense. Automation cuts cost even lower, builds a comprehensive system, and can execute tasks at ultra-fast speeds.
Do you want to join the future and start outsourcing your business processes? Don’t forget the next paragraph.
Unity Communications – Global Award Winner for BPO
US-based companies are amazing at R&D, creative endeavors, product development, sales, and other professional crafts. But when it comes to repetitive, entry-level, and detailed tasks, sometimes it is better to outsource the work to keep wages and job satisfaction high.
Unity Communications was awarded as a Clutch Top 1000 Global Service Provider for 2020 and 2021. If you want to get a taste of high-quality outsourcing and how it can benefit your company, take a look at our website and schedule a meeting to get started