Business process outsourcing (BPO) is essential for any business in a growth cycle.
Many people are a little unclear about business process outsourcing (BPO). And even more, they aren’t quite sure how Business Process Outsourcing could add value to their business.
Every successful business can adapt, problem-solve, and find more efficient ways of conducting its daily operations.
However, it’s not enough to fix problems when they come up it is also important that businesses work to improve business processes before problems develop.
I was walking around a brand-new manufacturing facility. They produce parts for medical devices. It’s under strict compliance and governance policy by the FDA.
As we approached this new vertically stacked conveyor, he pointed out that they did not use the machine and system, which was a $3 million mistake. So my question was, where did the $3 million go? She said, my boss, told me that was my education fund and don’t make that mistake again.
The moral of the story is that you do all the risk access you want, but not everything works out. But set out gates and jump off ramps to limit your risk.
Be able to see trends and either mitigate or capitalize on the trend. Companies want growth and improvement within their company, not just to maintain the status quo.
Adopting a Business Process Outsourcing Model for select functions is one of the most popular and effective methods of streamlining a business.
It is not surprising to come across several start-ups and firms that start with much promise and run out of steam in a few years. In most cases, they run out of cash or have inconsistent revenue.
Many businesses attempt to do everything at once in their initial years. Even before a company has reached profitability, it could have swanky offices swarming with dozens of people to manage functions like human resources, marketing, bookkeeping, sales, and customer support.
What is BPO used for?
Business Process Outsourcing (BPO) is used to outsource front-office administrative tasks like property listing and back-office tasks like research, accounting, and marketing.
BPO allows business people the freedom to spend their productive time with the work for which they’re specialized rather than being constrained by administrative duties.
Benefits of BPO
- Lower costs. One of the main reasons organizations outsource is cost reduction.
- Higher efficiency.
- Focus on core business functions.
- Global expansion.
- Security issues.
- Over-dependence on the Business Process Outsourcing company.
- Communication problems.
- Unforeseen or hidden costs.
Challenges in Building Expertise In-house
Rapidly developing expertise in multiple areas is a challenge for any growing business. Small businesses and start-ups typically lack the experience and budget to build knowledgeable teams.
Let’s take the example of building an in-house customer support team. While the task may seem rather simple, all you need to do is bring on a few hires to answer phone calls and emails; it can become unending if not handled properly.
As a start-up, you are unlikely to have a training manager to help the customer support team with etiquette and best practices.
Add to that. You would have to explain all your products and services to the team and build up different test cases and answer templates.
Even after doing so, you will have to monitor them closely or deploy senior resources.
Now imagine you are a Consumer Products Company with seasonal variance in sales.
During the holiday season, your orders may peak by several folds, and you will need to hire additional customer support executives to handle the overload.
You might even need to extend office space to house the new resources. However, you remain stuck with extra resources and associated costs when the lean season comes.
In contrast, if you had hired a Business Process Outsourcing firm to manage your customer support, you could avoid costs associated with insurance and other benefits, save on office space, and scale up and down whenever you need.
Key Advantage of Outsourcing for Small and Midsize Businesses
It is a common misconception amongst several owners of small businesses that outsourcing is best suited for enterprises.
Of course, enterprises have been taking advantage of outsourcing for ages and reaping rich rewards. However, technological advancement has made it possible for small businesses to approach outsourcing with equal fervor.
Add to that. It is now possible to come across specialized firms offering outsourcing services tailored toward small businesses. Let’s look at some of the key advantages of choosing to work with BPO firms.
How does BPO work?
Tap into Existing Expertise
When you are looking to build a successful business, it is critical to gain a competitive advantage over your peers. You are unlikely to achieve the same with a second-rate team.
However, building a team of experts in every field is impossible for most small firms. Working with an outsourcing partner allows you to immediately secure the services of an expert team in their domain. For example, suppose you choose to work with online bookkeeping services.
In that case, you will immediately gain access to consultants adept at negotiating complex tax compliance issues and even take advice from financial planners and IRS experts who are typically part of such teams.
Most reputed BPO firms specializing in any vertical would have a significant talent pool. They would also have the training and managerial staff to ensure optimum service delivery.
If you secure the services of a reputed Business Process Outsourcing firm, you can instantly benefit from the technology prowess built up by the firm over time.
They would also use the latest in communication and data management technologies. They are also likely to have several tools related to their specialization readily available to them.
For example, a customer support Business Process Outsourcing would have call routing, recording, compliance, and feedback tools readily available, which can be deployed for your business.
Similarly, reputed bookkeeping services can quickly set up an online accounting platform suited for your needs, which can generate payslips, invoices, and a host of related stuff.
Enter New Markets with Ease
With outsourced teams at your disposal, you can quickly enter new markets without going through a tiring setup process.
For example, suppose you are selling your products in Texas and wish to open a new outlet in California. In that case, an outsourced business team can take care of market surveys, discovering rental properties, etc.
Simultaneously, an online bookkeeping service can immediately help you meet local compliance requirements, say issues related to double taxation in California, without bothering to read through several pages of the local tax code.
Significant Cost Savings
One of the biggest advantages of building a business foundation that exploits the power of business process outsourcing is the significant cost savings you can make.
Outsourcing comes across as a boon for small businesses, from saving costs on costly office space to drastically reducing costs associated with insurance and other benefits.
There are several costs associated with setting up a new office that many entrepreneurs take time to figure out.
For example, if you want to set up a ten-member in-house team, you must shell out hardware and software costs.
Some software, such as commercial graphic packages and accounting software, can set you back by significant amounts.
Maintenance and power cost too can prove quite a handful for small businesses employing several people and occupying large office spaces. In contrast, outsourcing can save you from expending precious finances on such costs.
BPOs allow you to scale up or down your business at will without bothering about associated costs and related issues.
There are costs associated with hiring, including charges you pay to recruitment firms, job portals, etc. Even more critical is the time you will expend on getting an in-house team up and running.
For functions such as sales and marketing, building effective teams can turn into weeks of ongoing interviews and evaluations.
In the case of slack in business performance, the decision to fire employees can come with associated challenges.
These may include absorbing costs associated with the notice period, which can be steep if you are covered under the WARN Act in the USA, to dealing with possible frivolous lawsuits filed by disgruntled employees.
Types of BPO (Business Process Outsourcing)
Because companies around the world provide BPO services to other organizations, Business Process Outsourcing can be divided into different types based on the service provider’s location:
- Offshore outsourcing occurs when an organization contracts for services provided by a company in a foreign country.
- Onshore outsourcing happens when an organization contracts for services provided by a company that operates in the same country as the hiring organization.
- Nearshore outsourcing is when an organization contracts for services provided by companies based in neighboring countries.
Popular Business Functions That Can be Easily Outsourced
A host of business functions are immensely suitable for outsourcing. While customer service and tech support are often the default functions that most firms outsource at the first opportunity, increasingly more crucial business functions are getting outsourced. Let’s look at some popular outsourced functions. Why do companies outsource marketing?
Typically, most firms manage marketing functions in-house if they can afford it. However, with digital marketing overshadowing traditional forms of marketing, much technical expertise is needed today.
Firms are increasingly looking to outsource marketing tasks like Content Marketing, Lead Generation, Digital PR, Social Media management, etc., to specialized teams or completely outsource the marketing function to agencies offering end-to-end marketing solutions.
Outsourced marketing teams can quickly build up the scale of your marketing efforts and produce content elements like e-books, video collaterals, etc., which are difficult to produce in-house.
Outsourcing your marketing or part of it will allow you to bring in experts that do it day in and day out across many industries.
Organizations can completely outsource their bookkeeping services, including payroll process, tax compliance, financial planning, and other elements.
Outsourced virtual bookkeeping services offer the best mix of technology and experts. Such firms are exceptionally good at handling tax intricacies, especially for entities planning to undertake business across different states or frequently engage in international transactions.
Some companies are actively engaged in outsourcing their project development tasks.
Especially in digital products and platforms, it is quite easy to engage an IT development team to develop products at a fraction of the cost of what one would expend in developing the product in-house.
Small businesses are warming up to the idea of engaging the services of BPO firms specializing in Lead Generation tools and techniques, sales support, and even closing sales.
In many cases, outsourced sales teams can complement the business development efforts of founders or in-house sales teams.
Building a Business Foundation Based on Outsourcing
Just deciding to outsource several business functions is unlikely to help you build a competitive advantage unless you plan it out properly.
A proper outsourcing blueprint that considers salient aspects of your business can set you up on a path of success. Let’s look at some key steps you should take.
Segregate Core and Non-Core Functions
At the very outset, you should segregate your core and non-core functions based on your business idea and value proposition.
For example, if you plan to develop a cutting-edge app with unique IP, you are better off keeping product development in-house.
In such a case, you can outsource non-core items like bookkeeping, customer services, and even marketing functions at the very outset.
In contrast, if you are planning to launch a niche variation of an established product or service model, it would make sense for you to outsource product development and even service delivery through third-party BPO players.
For example, someone looking to launch an e-commerce store for bespoke winter jackets can outsource everything from product development, marketing, customer service, and accounting and focus on achieving sales in their local area.
Depending on your business requirements and cost-benefit analysis, you may choose to outsource most of your non-core business functions.
Decide When you Wish to Outsource
Once you have figured out the business functions you plan to outsource, you need to decide when to outsource specific functions.
The timing will most likely be linked to the business stage and how individual functions pan out.
For example, if you have just a couple of customers, securing the services of a customer support team may not be ideal. It is better to handle a few customers yourself to understand the queries and challenges your product solution is throwing up.
As your sales function ramps up, you can immediately sign up with a customer service BPO firm. In contrast, signing up with an online bookkeeping firm may be something you wish to explore when registering your business entity.
For small businesses that have already been in operation for some time, the opportune time to outsource business functions may be when they expect sharp growth or when planning to enter a new territory.
Prepare your Ideal Service Level Agreements (SLAs)
When you engage a BPO partner, you typically need to sign a service-level agreement that lays down your expectations and commitments from the Business Process Outsourcing provider.
For example, a customer support Business Process Outsourcing firm may agree to a 95 percent uptime for a 24 X 7 operation.
Preparing a service level agreement beforehand is advisable based on your exact requirements and business expectations.
It would give you a starting point to convey what you expect from the BPO provider and allow negotiations to be structured.
BPO Market Size
According to the BPO Services Global Industry Almanac 2013-2022, released in May 2018 and the most recent almanac available, the overall BPO services sector generated $144.9 billion in 2017. That represents a compound annual growth rate (CAGR) of 3.3% between 2013 and 2017. The market is expected to reach $140.3 billion by 2022.
According to the report, the BPO services counted include the customer relationship management (CRM) function, KPO, finance and accounting, HR, procurement, and vertical-specific processes.
The Risks of Business Process Outsourcing
The global market size of services outsourced from the United States was $88.9 billion in 2017 and is expected to hit $140.3 billion by 2022, as Statista and The BPO Services Global Industry Almanac 2017 Company Report reported.
For U.S. companies, India and the Philippines perform a large portion of the outsourcing services. India, in particular, is a leader in Business Process Outsourcing for the United States because its labor force is highly skilled, educated, English-speaking, and economical.
Final Thoughts on Business Process Outsourcing (BPO)
Increasingly small businesses are harnessing the power of Business Process Outsourcing to build key structures for their businesses.
With remote work becoming the new normal, the impetus for outsourcing is gaining credence.
As most customer interactions have moved to digital touchpoints, it’s probably the best time to explore new opportunities in outsourcing and develop a competitive advantage.