What Is Business Process Outsourcing (BPO)?
Business Process Outsourcing (BPO) refers to the act of a business contracting a business operation via subcontracting these activities to third parties. Business process outsourcing was originally used as a strategy to minimise manufacturing and maintenance costs. Due to globalisation, digitalisation and lower costs, BPO has evolved into a strategy used by businesses to subcontract larger tasks. This article will explore everything you need to know about business process outsourcing.
Business Process Outsourcing: Things to Consider
Defining Business Objectives and Needs
The first step in the business outsourcing process is to define the objectives and needs of the business. Outsourcing is a strategy employed by businesses when they believe it will benefit the company. In doing so, business owners must define the key objectives and needs and question if outsourcing is the most effective strategy to progress towards these needs. Using a SWOT analysis (strengths, weaknesses, opportunities and threats) or creating an operational plan is a great first step in defining these objects and needs.
Selecting the Process to Outsource
Once business objectives and needs have been identified, it is time to select the process which will be outsourced. The objectives and needs that have been previously identified work independently in determining which process will be outsourced. For example, if your business objective is to minimise costs, a process which is expensive and capable of being outsourced, likely will be. However, if the business needs and objectives are skills specialisation, businesses are more inclined to outsource a process which has the capacity to access the latest skills, technology and expertise.
Financial and Legal Budgeting
Whilst outsourcing is often utilised by businesses to minimise costs, it is still necessary to consider the broader financial and legal implications of outsourcing a process. Creating a budget to determine the costs of transitioning is vital to ensuring the business outsourcing process is successful in meeting the objectives and needs initially determined. Seeking legal advice is highly recommended when outsourcing a business process. Whether you are outsourcing onshore or offshore, there will always be regulations upon business processes and the maintenance of staff who work in the outsourced process.
Get on demand legal advice for one low monthly fee.
Sign up to our Legal Advice Plan and access professional legal advice whenever you need it.
Identifying and Choosing BPO Providers
Conducting research via online resources, industry directories and associations, online reviews or a professional associate are methods businesses can use to determine their BPO provider. Researching into case studies is also a great way to determine the success of BPO providers. Businesses should create a detailed Request for Proposal (RFP) and distribute these to potential BPO providers.
Planning, Transitioning, Maintaining
Business process outsourcing requires in-depth planning, transitioning and maintaining. Once you have planned the outsourcing process, it is integral to transition effectively and through eradicating potential risks. A smooth transition requires, at the least, ensuring all documentation has been completed, staff have been informed and a risk management plan has been constructed. Once the transition has been completed, maintaining contact with BPO providers through regular meetings, assessing key performance indicators (KPI) against actual business success and setting future benchmarks are key to maintaining a beneficial outsourcing relationship.
Offshoring v Onshoring
Offshore outsourcing refers to when a business contracts a third party to perform a business function in a country outside of the business’s country of operation. This is often done through contracting business processes out to regions of the world with lower costs of labour.
Onshore outsourcing refers to when a business contracts a third party to perform a business function within the country the business is located.
The fundamental difference between offshoring and onshoring is the geographical location of the BPO provider. Whilst both offshoring and onshoring lead to the execution of a business process, there are repercussions businesses must weigh, including proximity and time difference, quality of service, and financial and legal considerations.
Advantages of Business Process Outsourcing
- Cost saving: BPO saves business costs through lower wages, economies of scale and reduction of overhead costs.
- Access to Specialised Skills: BPO gives businesses access to global talent and a pool of specialists whose it job is to focus solely on the process the business is outsourcing.
- Focus on Core Competencies: BPO grants businesses the ability to delegate non-core tasks to providers. In doing so, businesses are able to focus on core tasks within the business.
- Customer Satisfaction and Retention: When done properly, customer satisfaction is a consequence of business process outsourcing. Customer retention rates are also likely to increase in response to the improved services the BPO provider will offer.
- Access to Global Markets: Business process outsourcing which is done via offshore BPO providers enables businesses to access new markets and industries within the international realm.
Disadvantages of Business Process Outsourcing
- Loss of Control: Business process outsourcing to a BPO provider will always lead to the business having less control over a function. In response, businesses must put in more effort when it comes to monitoring business performance and achieving KPIs.
- Legal and Compliance Issues: International business process outsourcing comes with the consequence of ensuring legal compliance with jurisdictions foreign to the business. This can lead to extra time and costs associated with ensuring legal compliance.
- Vendor Lock-In: Entering long-term contracts with BPO providers can limit flexibility and hinder the ability to adapt to changing business needs.
- Communication Barriers: Language and timezone barriers can lead to issues of communication between the business and BPO provider.
Measuring BPO Success
Periodically measuring the effectiveness of using BPO is recommended as it will indicate whether or not the business should continue using a BPO provider.
Below are a few ways that businesses can measure the success of BPO.
KPIs and Quality/Quantity Metrics
KPIs are a set of standard metrics used by most businesses. By measuring the extent to which benchmarks and KPIs have been met, businesses are then able to assess if BPO has assisted or hindered achieving business objectives.
Using measurements such as customer satisfaction scores, error rates, and costs of labour are measurements businesses can use to determine if the BPO provider has helped the business or caused detriment. If there has been an increase or decrease in efficiency within areas of the business that the provider is responsible for, businesses can decide if they will continue outsourcing or not.
Service Level Agreements (SLAs)
A service level agreement is a contract between two parties that define the service that will be provided by one party to another. In doing so, both parties are informed of the quality that must be given or received. Businesses can compare business performance post BPO against the success that was defined in the SLA and assess whether outsourcing has been beneficial to the business.
Future Trends in Business Process Outsourcing
Business process outsourcing is consistently evolving across all industries. The rise of automation and continuous evolution of technology has favoured BPO providers that use technology to streamline work. The rise of artificial intelligence has also led to less human interaction when outsourcing specific processes.
Additionally, businesses are being held increasingly accountable within the framework of ESG (Environmental, Social and Governance outcomes) for the outcomes of their business upon the societies of less developed countries. Consequently, BPO is increasingly responding to ethical demands.
Overall, business process outsourcing can be an effective strategy businesses may use to their advantage. There is however, an extent to which BPO can cause detriment to the businesses if they fail to consider the importance of communicating or cultural barriers. There are a variety of aspects to consider when a businesses uses BPO such as determining the process to outsource and whether to do so domestically or internationally. Conclusively, it is also vital businesses consider how they measure the success of BPO and to consider what the future of outsourcing may look like.
Don't know where to start?
Contact us on 1800 529 728 to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 600+ expert lawyers or to get answers to your legal questions.