BPO (Business Process Outsourcing): Meaning and Definition
BPO, or Business Process Outsourcing, refers to delegating whole business functions to an external company – a BPO service provider responsible for managing, administering, and optimizing the selected processes based on defined performance metrics.
How does business process outsourcing (BPO) work?
The process of how BPO works can vary depending on the type of service and the service provider. However, in general, the basic process involves the following steps:
1. Define The Process To Be Outsourced
The organization identifies the specific business process or operation they wish to outsource.
2. Select A Service Provider
The organization selects a service provider based on expertise and experience in the chosen process or industry.
3. Negotiate a Contract
The organization and service provider negotiate a contract that outlines the scope of work, pricing, service level agreements, and other terms and conditions.
4. Transition the Process
The service provider sets up the necessary infrastructure, processes, and systems required to perform the outsourced process, including hiring and training staff, setting up technology and communication systems, and establishing workflows and procedures.
5. Deliver the Service
Once the process is transitioned, the service provider begins to deliver the service as outlined in the contract. They manage and optimize the process to meet the agreed-upon service level agreements.
6. Monitor and Evaluate Performance
The organization monitors the service provider’s key performance metrics and provides feedback as needed. The service provider delivers regular reports and updates on the process’s performance.
BPO: Benefits and Pitfalls
While outsourcing can offer several benefits, there are also potential pitfalls. Here’s a breakdown to carefully evaluate outsourcing needs, plan and execute outsourcing strategies effectively, and avoid common pitfalls to realize the benefits of BPO fully.
Benefits
Pitfalls
Outsourcing for Efficiency
Focus on core competencies while saving on operation costs
Loss of Control
Leads to a need for more transparency, increased risk, and potential legal issues.
Expertise without Infrastructure
Access talent and tools to grow quickly without investing in costly infrastructure
Communication Problems
Language, time zone, and cultural differences lead to delays and mistakes
Agile Scaling Support
Ramp-up operations in response to new opportunities
Hidden Costs
Setup fees, training costs, and additional fees for services not included in the contract
Flexibility for Adaptation
Adapt to new markets, regulatory environments, or customer demands fast
Lack of Flexibility
Changes may require renegotiation of the contract, delays and additional costs
Remote Workforce Support
24/7 assistance for companies with customers in different time zones
Data Security Risks
Risk of sensitive data shared with third-party vendors, data breaches, theft, or loss
Operational Resiliency
Navigate disruptions and emergencies to maintain business continuity
Quality Issues
Lead to customer dissatisfaction, reputational damage and financial losses.
Examples of BPO
BPO services can be classified into two categories: horizontal and vertical-specific services. Horizontal services, like back-office work for example, can be applied across various industries, whereas vertical-specific services require specialized knowledge of specific industry verticals. Many other types of BPO services fall into these categories. Below are just a few examples –
Horizontal BPO Services
Vertical BPO Services
Customer Service and Support
Data Entry and Management
Finance and Accounting
Human Resources Management
IT and Technical Support
Marketing and Sales Support
Insurance Claims Processing
Legal Process Outsourcing
Banking and Mortgage Processing
Supply Chain Management
Delivery and Logistics
Manufacturing and Production
Global companies that outsource back-office functions in HR, finance and IT support to horizontal BPO service providers ( Accenture, IBM, Infosys, Wipro )
IBM
General Electric
Procter & Gamble (P&G)
Global companies that outsource logistics, manufacturing and production to vertical BPO service providers (Forbes, The Verge, CNBC )
Apple
Nike
Amazon
Conclusion
The effectiveness of BPO may surprise you, as almost every sphere can benefit from the services of BPO providers. Whether you need to outsource banking, communication, transportation, retail, insurance, education, or IT, you can easily find a company with great BPO potential. This strategy applies to healthcare services, process manufacturing, consumer and recreational services, resource industries, state and local government, and many more. Even if your industry is not listed, you can still optimize your workflow by contacting the right BPO company.
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