The business process outsourcing market is valued at $187.91 billion in 2018 and is expected to reach up to $314.81 billion by 2025. Its growth is caused by factors such as the rise in corporate profit through a low-cost talent pool, and technological transformations in e-commerce verticals. These numbers show that the BPO industry is a growing sector in today’s connected world, and for good reasons. It plays a vital role in global economies because it involves smart and innovative processes that take businesses from good to great.
This article will give you the essentials about BPO: what it is, its types, how it works, and the benefits of business process outsourcing for businesses.
Business process outsourcing (BPO) is a method of outsourcing or subcontracting various business-related operations to third-party partners. The third-party will then be responsible for carrying out activities and systems related to specific business functions.
Although business process outsourcing began with large manufacturing companies to help with the management of supply chains, today it has grown and now includes various sectors and service companies. From small startups to large corporations, many companies opt to outsource processes because of new and innovative services that BPO companies make available in a highly competitive business environment.
A BPO service provider usually administers back-office functions and front-end functions.
The great thing about business process outsourcing is that it’s not limited to one specific location. BPO is a worldwide service dealing with businesses across the globe, helping them achieve process optimization. To make BPO services more inclusive to any location, BPO is divided into three main categories:
Offshore outsourcing is done when a company hires a BPO company in a different country. This is also called offshoring. When a company opts to offshore, this indicates that the outsourcing partner offers something that isn’t available domestically, like lower labor costs.
Years ago, this option was only available for large companies that could afford to travel and do business with other cultures. Today, offshore outsourcing is no longer a luxury of large companies. Most markets today welcome foreign business.
This type of outsourcing is done when a company hires a BPO service provider in their own country or domestically. This is also called domestic outsourcing. Companies can expect the same labor costs and regulations.
Nearshore outsourcing, or nearshoring, happens when a company hires or contracts with neighboring countries. The U.S., for example, can outsource in Mexico or Canada. Nearshore partners are similar to local partners when it comes to labor costs, culture, and tax regulations. The main benefits of nearshore outsourcing include specialization and flexibility.
Executives will opt to outsource business processes for different reasons. These reasons will vary depending on the type, size, and age of the business or organization, as well as the economic conditions and market forces.
Once an organization identifies the functions that need to be outsourced, executives will go through the process of identifying the best partner or BPO service provider for the job. The next thing to do is to shift the work from in-house to the external provider. This shift requires change management as the company moves to the chosen BPO service provider, generally affecting established processes, workflows, and staff. To ensure the smooth flow of work from the organization to the outsource provider, the organization may need to invest in new technology.
This transition is necessary but temporary. Once systems are in place, companies will begin to experience the benefits of business process outsourcing.
In the biennial survey for outsourcing marketing research, 2020 Global Outsourcing Survey, Deloitte found that companies opt for BPO service providers to meet the following objectives:
Further, Deloitte’s survey also revealed that the benefits of business process outsourcing include:
BPO service providers perform business processes at lower costs, so the company saves money in other ways like in tax savings. Outsourcing cuts down costs for in-house labor, especially in staffing and training. If an outsourcing company is physically located in a developing country, then this leverages lower-cost labor markets. In addition, BPO enables businesses to use variable-cost models instead of fixed-cost models, which is one of the requirements in retaining local employees.
When companies outsource their noncritical functions, they can act more efficiently and quickly when they need to manage risks related to new products or services. Hiring a BPO company will also allow the company to modify a certain outsourced business process and react more nimbly when market dynamics change.
BPO service providers enable a company to focus resources on operations that distinguish itself in the marketplace. BPO companies handle non-core functions while delivering world-class services for partners through specialized technologies and processes.
Since business processes are the core business of BPO service providers, BPO companies are in the best position to complete the work with efficiency, speed, and greater accuracy. When companies outsource their processes, they are opting to let specialists handle those specific tasks. This saves time, improves accuracy, and increases the company’s capacity.
BPO service providers know about the latest trends and advancements in process areas they specialize in. This means they are more likely to invest in the latest technologies such as automation.
BPO companies can serve customers in various languages, 24/7. So if a business needs around-the-clock customer service operations, they can get this easily through a BPO provider with multiple geographical locations and 24-hour capabilities. In addition, when a company opts to outsource, they leverage their presence in multiple countries.
The practice of business process outsourcing spans many types of services, purposes, and industries. Companies that embrace BPO are opting to invest more time and resources into their core businesses and, at the same time, maximizing the potential for success through BPO service providers. The key is to choose the right BPO company and foster a partnership that is based on mutual trust, understanding, and respect.
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