Business process outsourcing (BPO) is a type of outsourcing wherein a third-party service provider is employed to carry out one or more business functions in a company. The third party is responsible for carrying out all operations related to the business function.
BPO is also known as subcontracting or externalization. It was originally used in the manufacturing industry but is now used for numerous business processes.
Organizations contract with BPO vendors for two main areas:
In many cases, organizations outsource one or more functions. For example, instead of outsourcing all HR functions, the company will outsource just the payroll processes.
Over the years, the BPO industry’s expanded considerably and offers a wide range of services and functions to organizations.
BPO companies can be divided into several types based on their location:
Transferring in-house work to a BPO company requires change management as it impacts employees, workflow practices, and business operations as a whole. The outsourcing decision-making process involves the following:
One of the main reasons organizations outsource is cost reduction. Instead of buying IT equipment and hiring more employees to do different tasks, they can outsource the tasks to a service provider, reducing or even eliminating overhead costs.
BPO companies are experienced in different fields and perform at the highest level. They also adopt best practices and use the latest technology. It naturally results in higher efficiency and greater productivity.
Many companies, usually start-ups, encounter a difficult time with ancillary business activities. Transferring non-core processes to a BPO company gives the organization more time to focus on its main business activities.
If an organization decides to enter an overseas market, some activities that require local market knowledge, national law expertise, or fluency in a foreign language can be assigned to a BPO company. It helps in boosting efficiency and quicker expansion.
There is the possibility of a security breach while working with a BPO company as sensitive data needs to be shared and processed.
When work is outsourced to a BPO company for a long period, an organization can become accustomed to the way they work and tend to get overdependent on them. It leads to the organization paying higher than the usual costs if demanded.
When working with an offshore BPO company, the language barrier may turn out to be a hindrance to efficiency. Outsourcing work such as development or IT services, where a lot of people are involved, can lead to mistakes due to miscommunication. It can be extremely costly sometimes.
As work is not always hard and fast, the organization may underestimate the quantity of work, and it can lead to costs that are higher than expected. Working with a BPO company can lead to legal expenses in case of a dispute or disagreement. Delay in delivery of work can also result in indirect costs.