Business Process Outsourcing (BPO) is when a company outsources an in-house business function to an external provider. The benefits of business process outsourcing include lower labor costs, tax savings, and improved competitive advantage.
Digital adoption through outsourcing is growing as companies look to reduce costs, improve efficiency and enhance customer experiences. Outsourcing can also help increase focus on core competencies, reduce time to market, and improve quality.
In digital transformation, BPO helps organizations integrate automation, streamline processes and improve customer service. It can also help companies leverage various technologies, such as artificial intelligence, automation, and the Internet of Things, to increase efficiency.
BPO has been on the rise for years. Emerging digital technologies enable and empower global collaboration and further drive the value of outsourcing to a third-party service provider.
But what exactly is this $90 billion industry? And how can it have a positive impact on digital transformation?
In this article, we’re going to define and explain Business Process Outsourcing. We’ll also explore the relationship between BPO and digital transformation and provide some practical advice for working with BPO providers.
What is BPO?
Business Process Outsourcing (BPO) is a cost-effective business strategy that enables you to outsource specific processes, such as customer service functions or data entry, to external BPO companies.
It began with manufacturing companies who needed help with supply chain management, but it’s since grown into a much bigger industry.
Businesses can work with BPO vendors to reduce costs, maintain high levels of service quality, and stay updated with the latest technology trends. The uptake of BPO has increased over time, but events like the Covid-19 pandemic have certainly sped up the adoption process.
By outsourcing non-core operations to BPO companies, businesses can benefit from improved efficiency, access to better technology, and expertise from specialist BPO companies.
A BPO provider takes care of non-core activities, allowing companies to focus their resources on their core activities and explore new technology trends like cloud computing and artificial intelligence. In a sense, BPO companies free you up to focus on what you do best.
Let’s take a more in-depth look at the benefits of BPO.
What are the Benefits of BPO on Digital Transformation?
Businesses that have adopted Business Process Outsourcing see significant increases in process automation, one of the most impactful and popular forms of digital transformation.
This, in turn, allows businesses to drive better customer experience, reduce costs, and create an agile business model with relatively little internal effort.
And it doesn’t stop there. BPO drives digital transformation in many ways, including:
- Cost Saving
One of the biggest challenges of any digital transformation initiative is the time-to-value of new technologies.
New digital transformation initiatives are often costly, and it can take time to realize their value.
By outsourcing a process, you significantly reduce the time-to-value than if you tried to internally overhaul the process.
Offshore outsourcing is especially useful in reducing the costs of non-core processes. Companies will often make use of this strategy during global expansion efforts.
- Less Employee Training
Businesses can outsource their processes to specialized providers with access to the latest technologies and expertise.
This means you don’t need human resources to spend time and money training your own employees; instead, you can rely on your BPO service provider to use the most up-to-date technology.
- Access to New Skills
Often with digital transformation initiatives, you’ll find that you require a specific skill for a specific amount of time.
Businesses are faced with two bad options here.
- Hire someone with that particular skill.
- Train someone internally.
Both of these are timely and costly for human resources. The BPO industry presents another option. Concrete skill sets are more efficiently utilized in a BPO Provider with multiple clients. By outsourcing, you gain access to new and innovative services.
- Focus on core business drivers
Outsourcing to a third-party vendor allows you to focus your resources on core business operations and key objectives that drive growth, like digital marketing, product development, and strategy.
With BPO, you can dedicate more of your attention and effort towards these areas without being distracted by non-core activities such as data entry or payroll management.
What are the Challenges of Outsourcing Business Processes?
We’ve covered the benefits, but of course, Business Process Outsourcing is not without its challenges.
If you’re considering outsourcing, you should be aware of some critical issues that may arise when implementing a BPO strategy.
- Low-Quality Service
One of the most significant risks with Business Process Outsourcing is poor quality service delivery from your BPO provider.
Business processes are often complex and require expertise to execute efficiently and accurately. If you don’t do your due diligence in selecting a reputable provider with proven experience in the outsourcing process, it could result in substandard output.
- Less Control
When you outsource a business process, you relinquish control over how that process is managed and executed. This could lead to a lack of visibility into the process and its results.
Too much control over a process can make it difficult for your service provider to do their job. Too little, and you could lose sight of growing issues.
It takes time to realize the business value of outsourcing.
Businesses may run into issues such as lengthy onboarding processes, lack of integration with existing systems, or poor communication between provider and client.
This can lead to delays in realizing any cost savings or efficiency gains anticipated upon signing the BPO contract.
- Cultural Assimilation
Organizational culture is vital in how effective Business Process Outsourcing is for your business.
Different countries have different cultures and laws around labor, which could result in a clash of corporate values between client and provider if not managed properly upfront.
As a side note, you must also consider the feelings of your existing employees who may be having processes and responsibilities taken away from them.
- Political Climate
The geopolitical climate can also have an impact on Business Process Outsourcing.
You should be prepared for the potential risks of outsourcing to a foreign country, such as currency fluctuations, export/import restrictions, or political instability.
Businesses should constantly monitor the political climate in the countries they outsource to and adjust their strategies as necessary.
What are the Different Types of Business Process Outsourcing?
Business process outsourcing comes in many forms, from Information Technology Enabled Services (ITES) to Legal Process Outsourcing (LPO), to Knowledge Process Outsourcing (LPO).
It would be easy to drown in all the different sub-types and acronyms, so we’ve simplified it to two supertypes— back-office BPO and front-office BPO.
- Back Office BPO
Back-office Business Process Outsourcing (BPO) involves outsourcing non-customer-facing activities such as:
- Human resources
- Administrative duties
- Finance and Accounting
- Extensive research and analysis functions (like data analytics)
- IT Infrastructure
- Legal research
- Quality assurance
- Payment processing
- Front Office BPO
Front-office services are customer-facing. Front-office business-related operations that are frequently outsourced include:
- Customer relations
- Digital Marketing
- Tech support
The main difference between these two types of BPO is that back-office services are typically more cost-effective. In contrast, front-office activities require a greater level of expertise to maintain quality.
It’s also worth knowing the differences between onshore outsourcing (also known as domestic outsourcing), nearshore outsourcing, and offshore outsourcing. These refer to whether your outsourcing company is in the same country as you, a bordering country, or a country further away (respectively).
The correct choice for services you should outsource depends heavily on your business’s strengths and weaknesses.
How to Choose the Right Type of BPO Service for Your Business
If you’re unsure where to begin, here are some practical steps you can take to outsource your business services.
These steps take you from the beginning to the end of the process. We could elaborate on each step in great detail— there’s much to know. Instead, we’re just going to give you a quick summary.
Conduct a Needs Assessment
The first step to finding the exemplary BPO service for your business is to conduct a needs assessment.
It’s important to clearly define what processes you are looking to outsource and ask yourself whether these processes fit within the scope of Business Process Outsourcing.
Your needs assessment should include an analysis of the functions you want to outsource and a review of existing internal procedures and processes.
This will help you identify areas that need improvement or require additional investment. You should also consider any potential risks or challenges associated with outsourcing specific processes.
A needs assessment is a valuable document to have for various reasons, not just BPO.
Create a Request for Proposal (RFP)
Once you have identified the tasks that can be outsourced, you’re ready to create a request for proposal (RFP).
An RFP is a document that details the scope of work and outlines your expectations for the BPO service provider. It should include clear timelines, deliverables, and payment terms.
You would then send your RFP out to potential vendors, and they would have a chance to send you a proposal in return.
Evaluate RFP Responses
Once you have received a response from an external service provider, you should assess it.
You should consider factors such as:
- Quality of services
- Delivery timescales
- Their experience in Business Process Outsourcing
- Feedback from existing clients.
If you narrow it down to a few good matches, consider reaching out to speak with the vendor and get a feel for the cultural fit.
Agree to Terms With a BPO Company
When you have selected a vendor that meets your needs, it’s important to agree on terms before proceeding with the transition process.
Make sure you are clear on the terms of the contract and that they are agreeable to both parties.
Begin the Transition Process
Finally, you’re ready to begin the Business Process Outsourcing transition process.
This can take some time, and there may be a few hiccups. It’s important to remain patient during this period and communicate clearly between yourself and your BPO service provider.
Choosing the right Business Process Outsourcing vendor for your business isn’t easy – but with a bit of planning, research, and evaluation, you can make sure that you get the best value for your investment.
The impact of BPO on the Global Economy
A 2021 Deloitte survey showed that BPO has a worldwide effect, and not just in the ways you’d expect.
We often assume that BPO is only worthwhile if your business operates in a country where the costs are high and you can “offshore” processes by outsourcing to countries where prices are lower.
However, the survey had responses from business leaders in 45 countries, with Shared Services Centre (SSC) locations across ~75 different countries.
This reflects the idea that BPO isn’t just about cost reduction. It’s often worth considering, even if it would cost your business more, because of the other benefits.
That said, some global trends emerged as a result of the survey:
- India is the top location to outsource to across most industries.
- Portugal, Lisbon, and Hungary are rising in popularity.
- Colombia, which used to be a popular location to outsource to, is declining in popularity.
Examples of Successful Knowledge Process Outsourcing
Though it’s growing in popularity, BPO has been a popular tactic among some of the most giant corporations in the world for many years.
For example, in 2016, Google outsourced development and customer support functions to India, following the lead of Apple.
A few years later, Meta began outsourcing content moderation functions to the Philippines.
These titans of industry lead the way to optimization and efficiency in business. You can be sure they carried out comprehensive needs analyses and concluded that Business Process Outsourcing was the way to go.
How Can Businesses Protect Data and Confidential Information During a BPO Arrangement?
Data and confidentiality concerns are significant sources of friction for businesses considering BPO.
It can be disconcerting to give a completely different company you don’t know access to all your sensitive data.
Such concerns are valid. You can take certain measures to ensure your data is secure during a Business Process Outsourcing arrangement.
Establish Security Protocols
The first step is for businesses to establish security protocols and procedures to safeguard data. Any service provider will fall to the level of your own security protocols, so make sure they’re up to scratch.
You should create policies that outline the type of data that can be shared and how it should be handled. Data lifecycle management is a great way to achieve this.
You can also create a framework that governs data security in transit, including encryption methods and authentication protocols. Speaking of which:
Use Data Encryption
Ensure that all confidential data is encrypted using industry-standard encryption technologies.
You should create a policy outlining the type of encryption to be used and any other security measures to ensure data protection.
This is especially important when working with an offshore BPO vendor because different countries have different laws around data protection, and you need to ensure your BPO provider adheres to your requirements.
Monitor Your Business Process Outsourcing Provider
A reputable BPO service provider will understand these concerns and make it as easy as possible for you to monitor outsourcing operations to ensure the contracting company is adhering to the security protocols that you’ve agreed to.
You should regularly audit your provider to ensure they follow the prescribed procedures and take proper measures to protect your data. You might also consider using external auditors to do this.
Your service provider should collaborate with you on this.
The future of BPO Services
In the future, Business Process Outsourcing will only become more popular as businesses embrace cloud computing and other digital transformation trends.
Referring back to Deloitte’s outsourcing survey, it’s thought that the future of BPO will be focused on:
- Building analytics and reporting capabilities to drive higher value.
- Better customer experience, user-centric design, and self-service capabilities.
- Achieving further savings through Robotic Process Automation (RPA).
- Shifting workplace and workforce strategies to more hybrid delivery models, developing remote work strategies, and leveraging location-agnostic hiring.
Ready to Reach Out to a BPO Company?
It’s clear that Business Process Outsourcing can be a powerful tool for businesses looking to drive digital transformation. The growth of the BPO market in recent years proves it.
It provides cost savings, access to new skills, and boosts efficiency. Organizations outsource processes so they can focus on core business functions while relying on BPO providers to keep up with the latest technology trends.
Business Process Outsourcing is an increasingly popular choice for businesses looking to drive digital transformation initiatives, and it’s easy to see why.
Following the advice, we’ve shared an excellent starting point. You should now be ready to research process outsourcing solutions for your own business.