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Pros and Cons of Business Process Outsourcing (BPO)
Many organizations hold IT helpdesk, customer support and other processes exclusively in-house, however there are times when leadership may want to see if it makes sense to outsourcing non-core processes and tasks to a third party contracting company. BPOs, or business process outsourcers, are one of the most common models and today we are going to deep dive into them and review their pros and cons.
BPOs can be beneficial for the right company allowing for more energy to be focused on core competencies. Offloading some work to a BPO isn't always easy to accomplish though, even if there's a cost-savings measure over the long run. There are plenty of companies abroad and in the United States that offer support in IT, legal, CS and human resources and many other areas. Let's take a look at what may or may not make these BPOs a good fit for your organization.
What Is Business Process Outsourcing (BPO) and How Does It Work?
The meaning of BPO, or business process outsourcing, is the practice of contracting and outsourcing a particular work process or multiple processes to an external provider. The services can include customer support, tech support, payment processing, telemarketing, accounting, IT support, data recording, legal work, data entry, data analytics, web design, and more. In most cases, BPO fills a supplementary business function rather than a core process. These services could be technical or nontechnical.
BPO is a flexible form of outsourcing that may or may not involve a close relationship between customers and the outsourcing provider. Unlike piecemeal outsourcing of individual projects with specific budgets and deadlines, BPO may have more flexible budgets or time restrictions depending on the nature of the work.
How Does Business Process Outsourcing (BPO) Work?
Executives may decide to outsource a business process through a BPO, such as customer support, for various reasons. For example, many startup companies simply don't have the resources or energy to worry about front office or even back office operations when they're focused on building their minimum viable product. This isn't because these companies lack competent staff for these operations or somehow can't perform basic front office duties, it's just they they have more important things to worry about.
A large, established business, in contrast, may decide to outsource a business process through BPO that they had already been performing for many years. Analyses of running costs can show that an outsourced service provider, such as a contact center, could perform the job better and at a considerably lower cost since their organization is specifically geared up for it. Depending on your organization, business process outsourcing can be a practical approach. The key then is training and making sure the company and product is understood, but we'll get to that in a minute.
Management consultants like to advise enterprise executives to identify business operations they can easily start outsourcing to an external provider through BPO.
Internal IT services is a very common one. Part of evaluating the pros and cons of BPO in this case is to decide if shifting that business task to an outsourced, third party service provider is strategically sensible for the company given the downsides. For example, IT helpdesk tickets such as employee login lockouts and new computer and network printer additions are very straightforward, however researching products for hardware upgrades and maintaining in-house ERP systems are much more complex tasks that a vendor would need significant investment in training.
If it does make sense to go BPO, a company has to of course go through the process of not just qualifying the most suitable provider for the work, but also shifting that work itself from in-house to that external provider which can take months or even years.
Most Common Example of Business Process Outsourcing (BPO)
Some common examples of BPO is outsourcing your information technology, human resources operations, or customer relationship management processes.
Outsourcing inbound and outbound phone calls to dedicated contact centers or call centers is also one that most everyone is familiar with, and many businesses in the United States use these kind of BPOs to cut costs. The downside of course is these customers service agents represent multiple companies usually, and won't be as familiar with your product or company as a dedicated rep.
With business process outsourcing, you can theoretically put someone in charge of a complete functional area of your business, and fledgling startups to Fortune 500 companies have outsourced various business processes and services through BPOs.
What Are The Benefits Of Business Process Outsourcing (BPO)?
Business Process Outsourcing (BPO) Decreases Costs and Saves Time
BPO cuts down considerably on costs on in-house labor, especially for hiring, staffing, and training, as well as for the workspace or office to accommodate local employees, such as customer support agents. Contact centers can take this burden off your shoulders, as it is their main job to hire, manage, and train personnel. Many outsourcing firms are physically located in developing countries and leverage lower-cost labor markets. ITES, or IT-enabled services make this possible along with increasing bandwidth speeds.
Process automation is one of the big benefits of BPO. They're simply more experienced with fielding dozens or hundreds of calls at a time and have more information technology infrastructure to support it. Outsourcing customer support to a service provider through a BPO can of course save a companies time, allowing them to better focus on operations such as developing an amazing product and making sure their in-house people are regularly in communication with members of the supply chain instead of dealing with customers asking simple questions.
You will need to make some sacrifices if you decide to work with a BPO, but if the end result is considerably more cost efficient than having full-time staff members (especially at scale), and it can be worth the trade-of in company culture and training. Leading BPO firms work to improve and streamline methods by eliminating or reducing wasteful measures and may even help you raise the overall quality of work.
Finally, it is important to note that business process outsourcing enables your company to use variable-cost models, such as fee-for-services plans, rather than fixed-cost models that you have to adopt when retaining local employees or service reps. In a post-COVID world, that can be huge.
Business Process Outsourcing (BPO) Lets You Focus On Your Core Operations
Non-core business tasks often remain in company backlogs. By outsourcing to a third party, your business can now clear those items. For example, by outsourcing tier one customer support to a contact center, you can offload a significant chunk of your in-house team's work and have them only deal with escalated tickets that require more experience.
By outsourcing through a BPO your organization will have more time to concentrate on core competencies, deriving better ROI for your business.
Business Process Outsourcing (BPO) Can Improve Inconvenient Tasks
BPO implementation should carry various considerations, such as what roles are involved, who the business process impacts, and the way a business process is currently completed. For example, unless an e-commerce company can offer around-the-clock customer support and service, outsourcing their live chat to a BPO provider is likely the best option for capitalizing on those late-night purchases.
Once inconvenient business operations (such as staffing night shift) are outsourced, the overall reputation of your company can improve. Just ensure that the process is streamlined and stakeholders are held accountable.
This is but one example, but outsourcing contact center functions allows organizations to offer 24/7 customer support at a price point that will not break the bank and there are many business process outsourcing companies that support this industry.
Business Process Outsourcing (BPO) Allows Cheaper Access to Technology
Purchasing a licensed version of the most recent tech, such as a contact center stack that integrates with your CRM and ERP, can be quite expensive both in acquisition and in setup. It can also be financially risky, especially if you can't accurately forecast demand for your services. The great thing about BPO is that someone has probably already figured it out and done the heavy lifting for you.
Outsourcing to firms that already have access to the technology and the relevant expertise that you need is vital, and also one of the biggest benefits of this approach.
Business Process Outsourcing (BPO) Grants Flexibility and better seasonal support
On-boarding and laying off customer support reps before and after the holiday season isn't fun for e-commerce companies. However, outsourced contact centers are already well prepared to handle customer support and service during these peak periods with high call volumes, and the agents simply switch to a different project and don't need to be let go.
Outsourcing customer support activities to a contact center provider allow one to quickly scale up customer support and service needs in peak times without investing in additional employees or infrastructure.
Businesses that outsource can act more efficiently when managing or mitigating the various risks associated with introducing new services or products. The squeaky wheel needs the grease, and being able to easily reallocate internal resources to more pressing business functions can be critical at times.
What Are the Downsides of Business Process Outsourcing (BPO)?
Business Process Outsourcing (BPO) Comes with Security Risks
When a company strikes a deal with a BPO service provider, they establish important technological connections with that provider. Sharing sensitive company and customer data exposes your business to security risks. Data theft and a security breach of sensitive information can be a major issue for organizations without a comprehensive information security policy in place (which is common practice in the BPO industry however).
There is always the risk of a third party stealing confidential information, like customer lists and personal information, but that's a risk that can be mitigated to some degree. At any rate, certain guarantees pertaining to security issues and data protection must be in writing when it comes to signing the contracts with a business process outsourcing company.
Business Process Outsourcing (BPO) Can Mean Lack of Company and Product Knowledge On Part of the Provider
Outsourced contact center agents and reps will often be much less familiar with company culture, products, practices, and values. Therefore, they will not be as dedicated to your company, devoted or committed to your customers, and they may not offer a level of service that is in line with your company standards.
Outsourced customer service companies do not usually specialize in a specific niche, however most specialize in broader industries such as banking or retail support. If your reps require specialized knowledge and experience to serve the customers, it is important to train them and have a dedicated team built for you. These agents must be fully equipped with the skill sets necessary to offer the level of customer support required of and expected by the customers.
Business Process Outsourcing (BPO) May Come with Hidden and Unforeseen Costs
With most business process outsourcing situations, you should take extra care to identify any hidden costs such as legal expenses and fees, and understand how exactly pricing structures, overage and down-scaling works before moving ahead. In the BPO business, lengthy terms and complex contracts are the norm, so it pays to do the required due dilligance.
Even RFPs can require lengthy agreements in the BPO contracting process, so make sure that before signing you actually have your counsel review all the fine print and ask as many questions as you need regarding the terms and conditions and SLAs.
It is important to spell everything out clearly in the business process outsourcing agreement so that there aren't any financial surprises for either partys. Outsourcing processes can sometimes involve costs that might be tricky to model, especially if they occur months or years down the line. You may, for example, underestimate the amount of services required and what the contract holds you to if you need to expand or contract at a certain time.
Business Process Outsourcing (BPO) May Mean a Loss of Quality
You can imagine that agents in call centers are not as directly accessible (or held as accountable) as your in-house employees. This makes it more difficult to maintain a high level of quality assurance for most types of business processes, and you will likely not have as much control over the way these people perform and monitor their tasks. This is a common issue in the BPO industry, especially in legal, and communication-related work.
It is important to research the service providers you are looking into to make sure they fully trustworthy and up to the task of customer satisfaction. Talk to them, play golf with them and let them wine and dine you. Don't rely on your email address or Zoom account to stand in for all your communications! Ask to see as many case studies and recorded phone calls and other proofs of execution before you move forward.
Business Process Outsourcing (BPO) May Come with Communication Difficulties
There is also the risk of language (and culture) barriers when it comes to offshore outsourcing. Is this a big deal for your industry? In banking, for instance, it's probably less of an issue and most customers are already expecting it, whereas if you were a high-end US-based bicycle manufacturer it would not be a good look for the company to have a chat support agent on the other side of the globe.
Cultural differences that would not otherwise happen in your home country are also a negative. Agents located overseas might lack the pop culture knowledge, communication skills, and fluency necessary to offer truly outstanding support. Choosing an outsourcing BPO vendor or call center that's nearshore (or in the US proper) is the easiest choice, but a company that already has an upstanding global presence may work too.
Should You Outsource Some Operations through BPO's?
Letting go of your company's procedures (even if they're non-core process) can be a daunting business decision and you may not be ready for business process outsourcing and all that's required of it.
However, if done right, business process outsourcing can allow your company to focus on core competencies and essential functions instead of being caught up in secondary services such as call support. BPO also gives you access to the latest technology, decreases business costs, saves time, and grants greater flexibility.
On the other end, BPO can be a risky move (and a curse word down the line) if you aren't fully aware of potential hidden costs and security breaches. A loss of quality for your customers is also very possible if the provider can't communicate well enough or solve the problems that your customers have.
Before deciding if a BPO is right for your organization, it is necessary to do your research and talk with proven and reliable partners and really get to know them and how they will be able to help you. A partner you want to work with will be forthcoming on their benefits as well as potential shortcomings.