Customer Service Glossary

What Is a BPO? 

Business process outsourcing, or BPO, is a method of outsourcing business tasks to a third-party organization. The service provider then performs administrative or financial functions like accounting, payroll processing, or data entry, based on the contractual terms. 

Traditionally, the term “BPO” applied to manufacturing companies that outsourced aspects of their production processes. However, BPO now applies to outsourced services as well. 

What Does a BPO Company Do? 

Business process outsourcing services typically take over a company’s non-core functions. Many BPO services feature specialized departments set up for customer support requests, payroll management, or IT assistance. As a result, they can quickly, cheaply, and efficiently manage day-to-day tasks, freeing in-house employees from administrative work and helping an organization refocus its resources. 

Some of the most common BPO services include back-office functions and front-office operations.

Back-Office Functions

Back-office BPO services perform the operational support tasks that businesses rely on while growing. These tasks vary based on the organization but often include: 

  • Human resource management
  • Regulatory requirement compliance
  • Risk management
  • Accounting
  • Payroll and invoice processing
  • Quality control 
  • Information technology services

Front-Office Operations

On the other hand, front-office BPO operations focus on client-facing and administrative tasks, such as: 

  • Phone support
  • Client assistance
  • Technology support
  • Sales
  • Marketing

Types of BPO Companies 

Business process outsourcing companies typically fall within one of three categories, based on their location and proximity to the contracting company. The three outsourcing categories include: 

  • Onshore: When a company pursues onshore outsourcing, it shifts function to a BPO located in a less expensive market in its home country. For example, a United States-based company may contract a BPO service in another city or state where labor costs are lower.
  • Nearshore: Nearshore outsourcing relocates jobs to a BPO service in a neighboring country, such as a United States-based company hiring a Canadian BPO to manage customer service requests.
  • Offshore: Finally, offshore outsourcing transitions roles from the United States to developing countries overseas, such as India or Malaysia. 

Why Do Businesses Use BPOs? 

Both small start-ups and rapidly scaling, global organizations transition to BPOs for a variety of reasons. That said, businesses often choose BPOs as a strategic way to:

1. Reduce Costs

A Harvard Business Review study found that business process outsourcing can cut the hourly price of labor by as much as 30%. The low cost of skilled labor is arguably the most common reason businesses choose BPOs. While offshore outsourcing yields the most savings, both onshore and nearshore outsourcing can improve a company’s bottom line. 

2. Redirect Resources

When businesses transfer their customer service departments to BPOs, they free up financial and human capital. They can then shift the additional resources to priority tasks and operations that give them a competitive advantage over other businesses in their industry. 

3. Enhance Efficiency 

Typically, BPOs have the training, setup, and staff needed to perform customer service tasks more efficiently and cost-effectively than in-house departments. By shifting to an outsourced model, in-house employees can focus on their tasks while BPO agents manage high-volume customer service accounts. 

4. Increase Flexibility 

By outsourcing non-core functions to a BPO, businesses can enjoy improved flexibility, quality control, and operational capacity.

5. Focus on Core Competencies

Finally, businesses can reduce the mental and time burden of non-core functions through outsourcing. Employees can then focus on achieving organizational goals, introducing new products, or improving market position without worrying about answering customer service emails. 

How BPOs Impact Customer Support

While once relegated to the manufacturing industry, BPO providers have become essential services for companies who want to outsource their non-essential tasks. 

Business process outsourcing service providers ensure that their outsourced agents have the training and expertise needed to answer questions, solve technical problems, or address sales concerns in a wide range of industries. Further, BPO employees work on a rotating schedule, providing customers with access to an expert agent at any time of the day or night.

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