Business process outsourcing, or BPO in simple meaning, is using a third-party company or service provider to perform a range of business processes.
These (non-core or non-primary) business processes could otherwise be done in-house, but most businesses prefer hiring BPO companies to do the job, as it is more cost effective and takes up less capital.
Some examples of commonly outsourced services include (but are not exhaustive):
- Human resources
- Content moderation
- Supply chain management
- Customer support
- IT support
- Marketing
- Content writing
- Sales
- Shipping and logistics
- Payroll
- Data gathering
- Front-line services
1. Why Do Companies Hire Business Process Outsourcing Providers?
Businesses will usually partner with another BPO company to avail of such services after determining that, although they’re necessary for day-to-day operations, they do not comprise core business functions.
Identifying which business processes to outsource is vital for organisations and requires a strong understanding of business process management.
Typically, organisations consider redundant and administrative tasks, which are done the same in every company, as good candidates to be outsourced.
This is because these repetitive processes don’t generally differ from one organisation to another.
Managers and executives know there’s little value to performing these processes in-house for their business operations.
They determine that outsourcing is the better and more economical choice, not to mention that it can provide potentially better results.
2. How Does Business Process Outsourcing Work?
There are several reasons why business executives hire an external service provider. These reasons may be cost or demand-related – everything depends on the business size, type, economic factors, and other market conditions.
For example, startups often need front-office and back-office BPO services, as they don’t have adequate resources to perform them in-house.
Another reason an organisation may outsource is that they determine an external provider can do a better job for much cheaper.
Analysts, consultants, and experts often offer managers and executives advice on which tasks to outsource and if outsourcing them makes for a sound business choice.
Once they determine that outsourcing can give them better outcomes, the organisation will find a third-party BPO vendor and make the necessary adjustments to transfer the workload to the provider.
All of the above need proper change management. This is because shifting work to a third-party vendor impacts the staff, already-established operations, and business workflows.
Contracting a BPO provider also dramatically affects the organisation’s finances. If they’ve previously been doing these tasks in-house, they need to shift the costs internally to externally. In addition, they also need to manage corporate taxes and other financial reporting matters.
Organisations must invest in new equipment and software to ensure a smooth transition to the third-party service provider. The type and cost of technology will depend on the operations they’ve chosen to outsource.
The process above usually starts with identifying which business functions to outsource to meet peak customer demands, improve flexibility, save money, etc.
Contrary to popular belief, companies don’t always contract a single BPO provider. They may consider contracting multiple providers simultaneously, depending on which option will bring greater value.
For instance, your business may consider outsourcing all HR and payroll functions to a single provider rather than hiring multiple ones. Or, they could contract two separate BPO companies for payroll and administrative tasks.
Once an organisation identifies these requirements, they will consult with different BPO providers to determine whether they can meet such demands at what price and figure out the value they can offer.
BPO contracts may fall under these categories:
- Fixed-Price Contracts – BPO providers are paid a fixed price for specific functions.
- Time and Materials Contracts – BPO providers are paid for the number of hours worked and materials used.
Some organisations also agree upon a customised contract. For instance, they may hire only a specific team to work on a short-term project.
Another arrangement is onshore outsourcing, where the business only works with employees in the same country.
Other business requirements may necessitate the 24/7 availability of BPO employees or only during specified times.
3. Types Of BPO (Depending On Location)
Business process outsourcing is commonly divided into the following types based on the location of the provider:
- Offshore Outsourcing – Occurs when a business recruits a BPO company to perform services outside the country.
- Onshore Outsourcing – Occurs when a business outsources some of its functions to a BPO company located in the same country.
- Nearshore Outsourcing – Occurs when a business outsources some of its functions to a nearby or neighbouring country.
Other business requirements may necessitate the 24/7 availability of BPO employees or only during specified times.
4. Types Of BPO (Depending On Services)
Business process outsourcing can also be classified according to the type of outsourced services:
Front-Office BPO
The Front-Office BPO represents the customer-facing function of a company, for example, customer service, tech support, and ticket handling.
Back-Office BPO
This is the part of an organisation responsible for providing business functions related to administration consisting of support personnel who are not client-facing.
Back-office functions include inbound & outbound call centres, payroll services, accounting support, quality assurance, data entry, data processing, data management, AI training, and software development.
Recently, content moderation and social media management have come to the fore.
Conclusion About The Meaning Of Business Process Outsourcing
Business process outsourcing is slowly emerging as a cost-effective way of performing repeat business activities, such as payroll, email support, live chat, etc.
Compared to in-housing, outsourcing is scalable, agile, and can easily be customised to a business’s needs and requirements.Leap Steam is a BPO vendor offering a range of services. We provide services, including customer service outsourcing, content moderation, data labeling, and many more.
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Frequently Asked Questions About The Meaning Of BPO
BPO is an acronym referring to “business process outsourcing”. It’s the practice of hiring a third-party service provider to conduct non-core business activities for your organisation.
A BPO worker or call centre agent handles incoming and outgoing customer calls and provides email support and other support services for other clients.
IT outsourcing refers to hiring an external service provider to provide IT-enabled services, business processes, infrastructure solutions, and software.
Companies may outsource work for several reasons, such as to cut costs, reduce resources, become scalable, and stay competitive in their industries.
Business Process Outsourcing (BPO) is essentially about using a third-party company to handle various business tasks that could be managed internally but are often outsourced for efficiency. While these tasks could be performed in-house, many businesses find it more cost-effective and less capital-intensive to hire BPO providers. This approach not only saves money but also frees up resources, allowing companies to focus on their core activities and strategic goals. In a nutshell, BPO helps streamline operations and reduce overhead, making it a popular choice for businesses looking to optimize their processes.