Business process outsourcing (BPO) is a business strategy that sees companies outsourcing non-core roles to a service provider. Typical business functions outsourced would be accounting and payroll. Companies that outsource will typically see a cost reduction while still maintaining the quality of service. In this article, we will look at various aspects of this strategy.
What processes are suitable for BPO?
Many companies use BPO for front-office and back-office processes. Front-office would include:
- Customer relations
Back-end services would encompass:
- Human resources (HR)
- Information Technology (IT)
Some companies will choose to outsource a whole department, like HR, while others will outsource one process within the department, like payroll.
Small businesses will often take the opportunity to outsource the more complex admin roles, such as:
- Accounting – 37%
- IT services – 37%
- Digital marketing – 34%
How does BPO work in practice?
Startup companies will often use BPO because they cannot efficiently carry out functions in house. Established companies typically opt for outsourcing when a comparison between BPO and in-house takes place. This review may show that BPO would reduce costs or improve service levels.
If BPO seems the best option, the company searches for suitable service providers for that particular task. Then comes the act of moving the role to the service provider. This move will involve change management as they redeploy staff and adapt business practices. The change will also possibly have financial implications regarding redeploying funds from an internal cost to an external one. There may also be tax implications.
What do companies say about moving to BPO?
Deloitte did some research and found out that the following objectives were the aim of companies that introduced BPO practices:
- 70% – Cost savings
- 40% Flexibility
- 20% – Speed
- 15% – Access to tools
- 15% – Agility
The same research (2020 Global Outsourcing Survey) showed these benefits:
- BPO providers can typically perform a service at a lower cost and often save tax.
- BPO providers can be more flexible and adapt to changing business environments.
- Organizations can focus on operations that distinguish them within the marketplace.
- BPO providers are typically better at carrying out the tasks since it is their core business.
- Because it is their core business, the BPO provider can invest in better technology.
- BPOs offering 24/7 call centres can extend the services of the contracting company.
The risks of BPO
So far, we have focused on the advantages of Business process outsourcing. In this section, we will look at some of the negative possibilities related to using BPO providers.
In 2017 the estimated amount of work outsourced from the USA was $88.9 billion. The figure will reach $140.3 billion (according to current estimates) by 2022. The most common destinations for US companies are India and the Philippines, mainly due to English language abilities. Both India and the Philippines have cost advantages, and India has a highly educated workforce. However, these countries have different cultures from the US, which may be a risk factor for the client company.
It would also be fair to say that in sectors where there are significant staff shortages, there is a risk when employing any BPO provider.
Security is another area where companies may face communication and privacy risks. Security can be a significant problem where your BPO provider is in a different country to your business. Both countries may have additional regulatory requirements. The very nature of transmitting data over the Internet can present its unique security risks.
The BPO Industry
Across the globe, the BPO sector is worth $300 billion. Contractors employ 3 million people in India, together with a further 1 million in the Philippines. Other locations in Europe and around the globe use millions more. Before 2000 contractors provided mostly call centre facilities. In recent years the range of services offered has become much broader.
The future of BPO
Automation will play a significant part in the changes ahead. Automation will reduce the need for much data entry work. It is also possible for clients to automate image recognition. Automation presents a threat to current BPOP employment levels. With the likelihood of significant losses in the workforce, governments will make great efforts to upskill their workers to take them beyond simple call centre work.
If we look at the Philippines, there is significant growth and call centre work is still one of the top economic sectors. The Philippines, nicknamed the World’s Call Centre Capital, is likely to be the worst hit when automation comes in eventually.
How to succeed in BPO?
With such a gloomy long term future on the horizon, BPOs need to alleviate the difficulties. Here are the top 5 recommended tips for improving chances of survival:
Companies need to hire and train high-quality staff. They need to provide further training to become more valuable employees, which can help extend the company’s capabilities.
BPO companies should try to gain a more profound knowledge of a specific industry. Ensuring that clients know and understand your company’s capabilities. This skill is essential and obtainable only to highly experienced BPO providers like Oworkers.
Demonstrate to clients and other companies within your area of specialization confidence and ability to deliver business outcomes
Be an innovator
Lead the market and establish the capability to use deep technology and continually innovate. Become the go-to company in your market.
Ensure that your company invests in areas that make your company highly visible in your market.
India is rapidly becoming more expensive and is losing out to lower-cost rivals such as the Philippines, who are starting to lose some business to even lower-cost Vietnam. There will always be a movement towards lower-cost destinations. Still, with automation on the horizon, it may be that the trend starts to reverse. The higher trained staff in India and the Philippines begin to have more usefulness to the clients. The Government in the Philippines needs to invest much more in training to ensure they have the required trained staff.
The coming two decades will be an exciting time in the world of BPO, with major shifts and changes taking place.