Written by Dion Jay Tality
Business process outsourcing (BPO) has long gained traction as a feasible strategy for optimizing operations and reducing expenditures. Whether you run a small and mid-sized enterprise (SME) or a big company, understanding the different BPO models will help you make informed outsourcing decisions.
This handy outsourcing guide answers the following questions:
- What is a BPO model?
- What are the different types of BPO models?
- How can your business benefit from these models?
Let us dive right in!
What Is a BPO Model?
A BPO model refers to a specific method of outsourcing processes. Specifically, it describes how a BPO firm handles your functions and runs its operations. Usually, you choose a model based on your business goals, needs, budget, and location.
To understand what BPO is, think of it as delegating processes to a third-party provider instead of your in-house team. Outsourcing allows you to fill talent, technology, and resource gaps to improve operations, increase profits, and reduce expenditures.
Choosing the BPO model best suited for your business is crucial. Learn about the different types in the next section.
Different Types of BPO Models
Different businesses across various industries have unique preferences and needs. As such, no one-size-fits-all solutions exist when outsourcing. Several BPO models have emerged to cater to diverse business needs.
Gaining insights into these distinct models helps you select the appropriate model for your operational requirements. Explore the different types below to learn what a BPO model is.
The provider’s location is a determining factor in outsourcing. The location-based models are as follows:
- Onshore outsourcing means outsourcing business processes to a service provider in the same country as your headquarters. For example, you outsource your e-commerce business’s warehouse management to a fulfillment center in the same city since you need its facility to stock goods.
- Nearshore outsourcing entails outsourcing to service providers in neighboring countries, often with similar time zones. For example, you need Spanish-speaking agents for your customer service operations in the U.S., so you hire a BPO partner in Latin America.
- Offshore outsourcing involves outsourcing to a service provider in a distant country. For example, your U.S. bank partners with a call center provider in the Philippines to handle customer service, billing, and collections.
You can categorize BPO models according to the following service types:
- Knowledge process outsourcing (KPO) refers to outsourcing knowledge-based and specialized processes. They require skills and expertise in accounting, medical coding, niche content creation, web development, and market research.
- IT-enabled services (ITES) outsourcing entails delegating technical tasks to a third-party provider. These functions are related to information technology (IT), such as troubleshooting, software installation, hardware maintenance, network management, and IT security and compliance.
- Research process outsourcing (RPO) involves outsourcing data-focused, research-related activities to an external vendor. RPO covers research and development (R&D) services such as market research, data analysis, investment research, and competitive intelligence.
The outsourcing structure helps you understand what a BPO model is.
- The captive model refers to establishing a subsidiary in a different location to handle your processes. This model gives you full ownership and control over your business operations.
- The build-operate-transfer (BOT) model involves partnering with an outsourcing provider to operate a dedicated center for a particular time. As the name suggests, the entire operation and ownership get transferred to your organization after a gradual transition. This move allows you to establish your presence in an offshore location.
- The joint venture (JV) model entails forming a business partnership with an outsourcing provider, meaning you share resources, expertise, and risk with your BPO partner. Both parties collaborate and mutually benefit from the joint venture.
BPO models vary based on different outsourcing strategies, as follows:
- The global BPO model involves outsourcing processes to different service providers from multiple locations worldwide. For example, a financial institution outsources customer service to the Philippines, IT support to India, and collections and billing to Ukraine. The global BPO market is projected to hit $422.61 billion by 2029.
- The offshoring model focuses on moving specific business processes to a foreign country, often with lower labor costs. The goal is to reduce operating costs while ensuring operational efficiency and quality. For example, an e-commerce business establishes its call center operations in the Philippines to handle customer support.
- The project-based outsourcing model involves outsourcing specific processes to a third-party service provider for a short-term or one-time project. This model offers flexibility, allowing you to access expertise, manage peak and off-seasons, and complete timeline-based projects.
Learn what BPO models are based on outsourcing costs and pricing structures below.
- The fixed price (FP) model includes an agreed-upon standard rate for outsourcing services. It involves a fixed monthly or annual payment.
- Time and materials (T&M) pricing is based on the time and resources invested in the outsourcing project. You pay for the billed hours and resources your BPO provider consumed.
- The staffing pricing (SP) model entails contracting a BPO workforce to handle your processes for a particular period. Not only does it cover the staffing, but the payment also includes the infrastructure, technology, and resources used.
Key Benefits of Choosing the Right BPO Model
Choosing the most common BPO model may not be the best strategy; going for the most suitable one helps your project succeed in the long term. To dig deeper into what a BPO model is, let us look at its key benefits. Here are a few ways certain models can benefit your business:
1. Cost Savings: Reducing Labor and Operating Expenses
In the UK, 63% of organizations plan to outsource to save on expenses. The same is true for companies in other countries looking to outsource. Offshore outsourcing allows you to reduce operating expenses and cut labor costs by up to 70%. So if you prioritize cost, choose an offshore model.
2. Accessible Resources: Accessing Talent, Technology, and Tools
Clutch reported that 90% of small businesses planned to outsource last year. Over 25% hoped to work with experts, while about 33% sought to access flexible resources. Almost 20% aimed to achieve business growth. If you employ the BOT or JV model, you can tap experts and technologies that will help scale and grow your business.
3. Improved Services: Increasing Efficiency, Quality, and Customer Satisfaction
To understand a BPO model, consider it a business strategy for maximizing the BPO industry’s potential. Companies resort to strategic outsourcing by choosing a suitable model to help them improve performance. You can leverage technology to boost efficiency, establish a quality assurance (QA) team for business compliance, and hire a customer-centric provider for customer satisfaction.
4. Increased Profits: Boosting the Bottom Line
Choosing the right BPO model helps manage finances and maintain cash flow. Not only does it help reduce your operating expenditures, but outsourcing can go as far as increasing your profits. Whether FP, SP, or T&M pricing, the proper pricing structure can help you generate more revenue or earn high returns on investment (ROIs).
5. Business Growth: Optimizing Operations and Growing a Business
To understand a BPO model, think of it as a business strategy that optimizes operations. As mentioned, outsourcing gives you access to expertise, technology, and resources. This access helps improve your business processes and overall performance, streamlining your operations and growing your business.
According to the Boston Consulting Group’s (BCG) report on post-pandemic outsourcing trends in 2021, about 62% of businesses sought to renegotiate their outsourcing contracts. Approximately 56% of companies wanted to renegotiate the pricing structure, while 48% hoped to redefine their service delivery model.
To reap the potential benefits of BPO models, consider our top tips below during your implementation.
Top Tips for a Successful BPO Implementation
Understanding a BPO model and choosing the right one for your business is not enough. You must also implement best practices to maximize outsourcing and minimize your risks. Here are practical tips to consider:
- Hire the right BPO service provider. You should first identify your business needs and set your outsourcing requirements. Search for potential providers and screen your prospects based on reputation, credentials, workforce, technology, resources, and pricing. Pick a BPO vendor that meets your requirements and needs.
- Create a service-level agreement (SLA). An SLA is a legally binding contract that defines your business relationships with your hired BPO partner. Include your business goals, key metrics, work scope, duties and responsibilities, processes and policies, and contract breach consequences. An SLA guides you and your provider throughout the outsourcing engagement.
- Set key performance indicators (KPIs). The KPIs should revolve around critical metrics such as efficiency, quality control, and customer satisfaction. Monitor your BPO team and measure its performance against the metrics. Check customer service BPO reviews to see where your current customer service operation stands.
- Establish constant communication protocols. Open communication with your hired BPO partner is crucial to ensuring healthy collaboration. Set up regular check-ins and meetings for performance reviews and reporting. Both parties should work together toward common business goals.
The Bottom Line
Understanding a BPO model helps you make informed decisions and achieve business success. Consider the different types outlined above and choose the best models for your business to reap the key benefits of BPO, from cost savings to business growth.
Ready to outsource your business processes? Contact us, and let’s connect! Unity Communications offers various front- and back-office outsourcing services. We’ll help you find the best BPO model for your business.