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Business Process Outsourcing Meaning
Business process outsourcing (BPO) is a business practice in which one organization hires another company to perform a process task that the hiring organization needs in order for its own company to be successful.
BPO has its roots in the manufacturing industry. Manufacturers contract with other companies to handle certain processes, such as: B. Parts of their supply chains that are not related to the core competencies needed to make their end products.
Types of BPO
Since companies around the world provide BPO services to other organizations, BPO can be divided into several types based on the location of the service provider:
- Outsourcing on land: when an organization hires a service provider that is located in the same country. It is also known as national outsourcing.
- Nearshore Outsourcing: when an organization hires a service provider in a neighboring country.
- Offshore outsourcing: when an organization hires a service provider in another country. Also called offshoring.
How does BPO work?
Organizational executives make the decision to outsource a business process in a number of ways. For example, startups often have to outsource back office and front office functions because they do not have the resources to develop the workforce and the support functions to carry them out internally. On the other hand, an established company may choose to outsource a task that it has been doing all the time after analysis shows that an outsourced provider can do the job better and at a lower cost.
Management experts recommend that corporate executives identify functions that can be outsourced and then weigh that function against the pros and cons of outsourcing to determine if it makes strategic sense for the company to move that function to an outsourced provider.
In this case, the organization not only needs to identify the best supplier to do the job, but it must also move the work itself from the internal supplier to the external one.
This requires a significant amount of change management, as switching to an outsourced vendor generally has an impact on people, established processes, and existing workflows.
The relocation also affects the finances of the company, not only in terms of shifting the costs of the internal function to the outsourced providers, but also in terms of taxes and reporting requirements.
The organization may also need to invest in a technology solution to enable a smooth flow of work from the organization itself to the outsourcing provider. The scope and costs of this technology solution depend on the scope of the outsourced function and the maturity of the solution. The technology infrastructure is available at both companies.
What is BPO used for?
Companies contract with BPO providers for two main areas:
- Back-office Operations: This includes payment processing, information technology services, quality assurance, etc.
- Front Desk Operations: This includes marketing, sales, customer relations, and complaint procedures.
In many cases, organizations outsource one or more functions. For example, instead of outsourcing all human resources functions, the company only outsources accounting processes.
Over the years, the BPO industry has grown significantly, offering a wide range of services and functions to businesses.
Types of BPO Services
BPO services are generally divided into horizontal and vertical services. These are explained below:
Horizontal BPO includes role-focused outsourcing. The provider specializes in performing certain functions in various industries. Examples of horizontal BPO are outsourcing in the areas of procurement, payroll, human resources, facilities management, and similar functions. getix focuses on providing services in horizontal functions such as payroll, human resources, benefits administration, tax solutions, etc. However, Gartner says that companies should focus on providing vertical services as the market matures.
A vertical BPO focuses on demonstrating various functional services in a limited number of industry sectors. Healthcare, financial services, manufacturing, and retail are examples of vertical BPO domains.
Types of BPO jobs done from home
One of the most common business processes outsourced in the US is call center work. While most call center jobs are actually done in stationary call centers, more and more BPOs are using in-house call center agents. These can be freelance jobs or contracts.
Data entry and transcription
Data entry is another common job type that BPOs offer their clients, and many of the jobs in this area are from home. Typically, work-from-home data entry jobs are intended for independent contractors. They often pay by the piece, which can mean less than minimum wage. Many data entry companies use crowdsourcing to distribute available work among a large remote workforce. The transcription is more slick and generally more worthwhile than entering data.
Hospitals, doctor’s offices, and insurance companies often hire BPOs who specialize in medical business processes such as medical coding, billing, and transcription.
Accounting / bookkeeping
Accounting and bookkeeping functions are often outsourced to BPOs. However, relatively few BPOs use home-based workers for this type of work. However, there are a few on this list for accounting jobs from home.
Below are top BPO Companies
- EXL Service
- SunTec India
- Unity Communications
- Plaxonic Technologies
- Octopus Tech
Benefits of BPO
- Lower cost
One of the main reasons for business outsourcing is cost reduction. Instead of buying IT equipment and hiring more employees for different tasks, they can outsource the tasks to a service provider and thus reduce or even eliminate overhead costs.
- Greater efficiency
BPO companies have experience in various areas and work at the highest level. They also adopt best practices and use the latest technology. This, of course, leads to greater efficiency and productivity.
- Focus on core business functions
Many businesses, usually startups, struggle with difficult business activities. By transferring secondary processes to a BPO company, the company has more time to focus on its core business activities.
- Worldwide expansion
When an organization decides to enter a foreign market, some activities that require local market knowledge, national legal knowledge or fluency in foreign languages can be assigned to a BPO company. Helps increase efficiency and expand faster.
- Economic benefits
Organizations often find that an outsourced provider can run a business process at a lower cost, or they find that hiring an outsourced provider can save them money in other ways because of the relationship; B. in tax savings.
With BPO contracts, companies can more flexibly adapt how the outsourced business process is completed, and thus better react to changing market dynamics.
- Competitive advantage
With BPO, companies can outsource processes that are not at the core of their business or mission, allowing companies to focus more resources on what sets them apart from the market.
- Higher quality and better performance
Since the core business of BPO providers is to run the specific processes for which they are mandated, they can theoretically focus on delivering those processes at the highest level, often with greater precision, efficiency, and speed.
Cons of BPO
- Security issues
There is a potential for a security breach when working with a BPO company, as sensitive data must be shared and processed.
- Excessive reliance on the BPO company
When work is outsourced to a BPO company for an extended period of time, an organization can get used to the way it works and tend to rely too heavily on it. This results in the organization paying higher costs than usual when necessary.
- Communication problems
When working with a BPO company abroad, the language barrier can be an obstacle to efficiency. Outsourcing jobs such as development or IT services, involving many people, can lead to errors due to misunderstandings. Sometimes it can be very expensive.
- Unexpected or hidden costs
Since work is not always hard and fast, the organization may underestimate the amount of work and generate higher costs than expected. Working with a BPO company can incur legal costs in the event of a dispute or disagreement. Delays in the delivery of work can also result in indirect costs.