10 minutes to understand business process outsourcing

10 minutes to understand business process outsourcing

In today’s vibrant and fiercely competitive business environment, many companies—from large corporations to small startups—decide to outsource the process as new and creative services become more widely available. Business process outsourcing (BPO) was originally applied in the industrial sector to improve supply chain management. Since then, it has been used by a number of sectors due to its efficiency and potential cost savings. So, what is business process outsourcing? 

What Is Business Process Outsourcing (BPO)

When an organization understands a process is necessary for its operations but does not contribute to its core value proposition, it frequently contracts with another company to supply those services. This level requires a solid awareness of organizational processes as well as proficient business process management.

BPO now encompasses the outsourcing of a wide range of goods and services, as opposed to the past, when it only applied to manufacturing firms, like soft drink producers, who outsourced sizable portions of their supply chains. BPO is becoming more frequently employed by for-profit businesses, nonprofit organizations, and even government organizations who contract out a range of tasks to service providers throughout the world.

What Is Business Process Outsourcing (BPO)

3 types of BPO

The following types of BPO are usually divided into categories based on the location of the service provider:

  • Offshore outsourcing occurs when a business agrees to an agreement with a company in another country to get services
  • Onshore outsourcing, sometimes referred to as domestic outsourcing, is when an organization hires a company that conducts business in the same nation as the hiring entity.
  • Nearshore outsourcing when a company contracts with companies in close-by countries to provide services

Additionally, businesses also employ BPO strategies in their front and back offices, which together make up their two main divisions. Back office BPO refers to a practice where a company hires outside professionals to handle key business support operations to ensure that the operation runs smoothly. Included in these duties are accounting, payment processing, IT services, human resources, regulatory compliance, and quality control. On the other hand, front office BPO tasks usually entail client-facing tasks like tech assistance, sales, and marketing.

How does business process outsourcing work?

Corporate executives may choose to outsource a business operation for a variety of reasons. These variables include market forces, financial circumstances, and the organization’s kind, age, and size.

Due to a shortage of internal resources, startup businesses, for instance, frequently have to outsource back-office and front-office services.

An established company may elect to outsource an operation if it learns that a third-party service provider might do it more efficiently or more reasonably than it could. Management gurus advise business executives to identify work that can be outsourced and then determine whether doing so makes sense. The size and cost of that technology depend on the function being outsourced and the sophistication of the technology infrastructure in place at both firms.

Enterprise executives frequently decide which specific jobs or business processes to outsource in order to save costs, improve flexibility, improve performance, and reallocate personnel to their core company skills before beginning the business process outsourcing process.

The following dilemma facing business owners is whether to outsource everything to a single provider or whether it is best to use many service providers for various tasks. For instance, a company may decide to contract with two different suppliers, one for payroll and the other for benefits administration, or it may choose to outsource the majority of its HR responsibilities.

These elements should lead to a detailed scope of work and a list of requirements for outsourcing. Organizations use these to develop a request for bids (RFP), which they then distribute to suppliers to determine whether they can meet the requirements, how much it will cost, and what value-adds they will offer.

A company must choose the type of contract after choosing the provider or providers it intends to hire. These agreements typically fall into one of the following groups:

  • Time and materials agreements, in which the customer pays the service provider according to the time spent and the materials used
  • Fixed-price agreements, in which the customer accepts a fixed fee up front for the job to be done

The standard of the services provided and the performance criteria must be outlined in a service-level agreement that organizations develop with their providers. Some businesses also haggle with vendors on whether to have the following:

  • specialized workers on teams dedicated to their outsourcing task;
  • solely onshore workers or, alternatively, internationally spread workers;
  • 24/7 workers or workers only available during fixed hours

The requirements and characteristics of the outsourced task will determine this choice.

BPO is becoming a trend of IT services industry

Businesses usually choose BPO because it affords them more operational flexibility. By outsourcing non-essential and administrative chores, businesses can reallocate time and resources to core competencies like customer interactions and product leadership, giving them a competitive advantage over other enterprises in their market.

Businesses that employ BPO have access to state-of-the-art technological resources that they might not otherwise have. Businesses and BPO partners constantly strive to improve their operations by putting the most recent technology and techniques into practice. Businesses can also benefit from BPO’s swift resource reassignment when needed, increased productivity, and prompt and accurate reporting.

The market for the global business process outsourcing industry will grow during the following ten years. For instance, Grand View Research predicted that the global BPO business will increase at a 9.1% compound annual growth rate (CAGR) from 2022 to 2021, or $245.9 billion, to reach $525.2 billion in 2030.

Analysis from the study “Global Business Process Outsourcing BPO Industry, By Regions, 2022 to 2029″ by Data Bridge Market Research predicts that the market will grow at a CAGR of 7.9% from 2022 to 2029 and reach $422.6 billion in that year. It identified the primary forces behind this expansion as business demands for more efficiency and agility.

Business process outsourcing services: Advantages and Disadvantages

Advantages Disadvantages
Financial advantages

BPO providers frequently conduct corporate processes for less money or find other ways to save the company money, including tax breaks.

Breaches of security

As enterprises frequently need to exchange sensitive and regulated data with their service providers, the technology connection between the hiring company and the BPO provider presents another point of entry for criminal actors.

Enhanced coverage

Businesses that need 24/7 call center operations can frequently easily obtain this capability by collaborating with a BPO provider with several geographic locations and round-the-clock capabilities, enabling a follow-the-sun business model.

Greater likelihood of disturbance. 

A company must be alert to issues that can end or otherwise disturb its relationship with an outsourced provider. These can be problems with the outsourced provider’s finances or staff, turbulence in international politics, natural disasters, or changes in the economy. The complexity of a company’s business continuity and disaster recovery plans rises as a result of the need to consider these risks and create coping strategies.

Increased adaptability

BPO contracts may allow for the modification of an outsourced business process, allowing businesses to respond more quickly to shifting market conditions.

Excessive reliance on outside providers

The partner that completes the work is tied to the entity that outsources a task or service. The corporation must manage such connection to ensure that important objectives are met at the agreed-upon cost. If not, the business may encounter difficulties relocating the operation in-house or even moving the contract to a different outsourced supplier.

Availability of business process innovations

It is more likely that BPO providers are aware of developments in the process areas in which they are most proficient. This suggests that they are more likely to invest in cutting-edge technology that can raise the productivity, efficiency, and standard of the business, such as automation.

Additional or unforeseen expenses

Organizations may underestimate the quantity of work required, which results in higher expenditures than planned.

Greater advantage in the marketplace

An organization can concentrate more of its resources thanks to BPO on activities that set it apart from competitors.

Relationship difficulties

Organizations may experience communication issues with their contracted service providers or discover that there are cultural differences.

Superior performance and higher quality

BPO providers are in a good position to finish the work more quickly, accurately, and efficiently because business processes are their primary focus.

Standards for regulatory compliance

An organization’s regulatory obligations also apply to its outsourced work, so it must ensure that the vendors it hires abide with the laws and regulations that are relevant to both the outsourced work and the organization’s regulatory requirements.

Best practices of business process outsourcing

Both front- and back-office operations are the two main types of work that businesses outsource. Back-office activities, commonly known as internal business activities, include clerical jobs like bookkeeping, IT services, payroll processing, quality assurance, and human resources. Marketing, sales, and customer service are examples of front-office tasks and corporate operations that benefit or are connected to present and potential customers.

A whole department, such as the HR division, may be contracted out by a firm to a single vendor. While managing all other HR-related operations internally, other organizations merely outsource a portion of the tasks related to a functional area, such as payroll processing.

Examples of routinely contracted out procedures include the following:

  • payroll and accounting
  • administration
  • customer support
  • IT management and services
  • manufacturing
  • marketing
  • research
  • sales
  • shipping and logistics

In addition, several companies outsource vital tasks like data mining and data analytics, which are now essential elements of maintaining a competitive advantage in the digital economy.

Best practices of business process outsourcing


According to the types of services provided, business process outsourcers are typically categorized into the following three groups:

  • Knowledge process outsourcing (KPO) refers to the practice of hiring an external service provider not only to carry out a certain business function or process but also to give expertise in that area.
  • Legal process outsourcing (LPO) is a sort of KPO devoted specifically to the provision of legal services.This includes everything from the preparation of legal papers and doing legal research to providing advice.
  • Research process outsourcing (RPO) refers to research and analysis tasks. Examples of enterprises that use RPO services include biotech companies, investment companies, and marketing enterprises.

What do you need to know before adopting BPO?

So, what exactly is the outsourcing business process and how do you choose the right partner to meet your needs? Selecting a compatible spouse and finding the appropriate BPO vendor are comparable tasks. Actually, the best way to understand BPO is as a long-term relationship with all the obligations, cooperation, and trust that requires.

Prior to starting your BPO project, it’s critical to determine whether business process outsourcing is the best course of action for your company. Then, thoroughly consider your options for service providers before making a choice.

Consider following these 4 steps to choose the best BPO for your business:

Examine your operational procedures

Spend some time determining which corporate functions your company will benefit from outsourcing and which should be handled internally. You should be very precise about the type of work that is required, how long it should take, how much it will cost, and the success criteria. The more specific your requirements are, the easier it will be to reduce the list of potential providers.

Shortlist Your Partner Candidates

As soon as you have a good understanding of your requirements, the following step should be selecting the finest business process outsourcing partner. Following are the three primary factors that should be taken into account while choosing an outsourcing service provider:

  • Pricing
  • Services
  • Reputation

Even while it is an important consideration, you shouldn’t base your decision just on the service’s cost. Like a lot of other things in life, the cheapest option frequently proves to be the most expensive in the long run.

After you’ve created a more manageable list of potential service providers for the company function you want to outsource, you should look into their background and previous experience dealing with businesses in a similar industry to your own. You can read case studies on their website and get in touch with them if you know of any current clients.

Consideration should also be given to the service provider’s ability to scale the process as your company grows. A capable outsourced service provider has to have the ability to provide you with additional services and support in order to satisfy your changing business needs.

Establish a Contract

After choosing your BPO business process outsourcing provider, you must develop, negotiate, and conclude a contract to specify specific terms, KPIs, and service level agreements. It’s critical to establish that the contract’s requirements can be fulfilled, are reasonable, and benefit your company rather than just increasing workload for your staff.

Be Prepared to Go Live

Once the paperwork has been signed, the transfer process and project “Go-Live” date can be initiated. A variable amount of time may be required to finish your business process outsourcing project and effectively surrender control, depending on the size and complexity of the business functions being outsourced.

What do you need to know before adopting BPO?

How to choose a business process outsourcing (BPO) provider

Enterprise executives should select BPO companies that can help them reach their objectives while also enhancing their ability to be inventive, adaptable, and competitive. As a result, businesses should consider more than simply the contract’s price when choosing a provider. They must also consider how well the supplier can meet those other requirements, evaluating each provider to see if it has the following qualities:

  • adequate knowledge of the organization’s operations and industry;
  • the capacity to expand to meet both present and future requirements;
  • awareness of and ability to meet compliance, regulatory, and data privacy obligations;
  • reporting metrics to demonstrate compliance with contractual standards;
  • the physical location to provide the services;
  • the ability to grow to meet future requirements as well.

How to choose a business process outsourcing (BPO) provider

Therefore, business process outsourcing services have the potential to completely transform any small- to medium-sized corporation when properly researched, planned, implemented, and managed. BPO has the inherent capacity to propel your company to higher levels of success more quickly.

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