Business Process Outsourcing (BPO): Everything You Need To Know

The word outsourcing originated in the 1970s when manufacturing corporations looking to improve efficiency began employing outside firms to manage non-essential procedures. In 1989, it was first recognized as a business strategy, and later, in the 1990s, it became a fundamental part of the business.

One of the oldest yet popular mainstream business practices that allows companies to profit more from the global supply chain is outsourcing. 

Business process outsourcing (BPO) was booming then. And, even now. 

Well, curious to learn more about the BPO process mining? 

Do not worry! 

Learn more about it with this comprehensive guide.

Table of Contents: 

• What is business process outsourcing?
• The evolution of business process outsourcing
• Types of BPO
• Major BPO services
• Key Considerations When Choosing a BPO Provider
• Benefits and Drawbacks of Business Process Outsourcing (BPO)
• How does automation improve BPO?
• BPO Future trends and culture
• Bottom Line

What is Business Process Outsourcing?

“Outsourcing is a business agreement, either domestic and international (known as offshoring), and strategic management initiative for gaining competitive advantage of a firm by contracting out their existing internal and external non-value added functions, or value-added functions, or core competencies to the competent supplier(s) to produce products or services efficiently and effectively for the outsourcing firm. – Ishizaka

BPO, or Business Process Outsourcing, revolutionizes business operations by delegating tasks to external specialists. It’s akin to enlisting an expert to handle non-core functions, allowing companies to focus on their core strengths. 

In true business language, it is a strategic partnership model that optimizes efficiency and unlocks new avenues for growth and innovation.

Many companies outsource tasks to external providers. For instance, they hire freelancers for video editing or outsource entire functions like marketing or accounting. 

Thus, business process outsourcing optimizes efficiency and allows businesses to focus on core activities, fostering growth and innovation.

According to Deloitte’s 2021 Global Shared Services and Outsourcing Survey Report, IT, finance and payroll are the most commonly outsourced roles. 

The primary reason why businesses outsource tasks is to reduce expenses and bring industry experience onto the team. By outsourcing, businesses can manage their time and resources more efficiently.

The Evolution of Business Process Outsourcing (BPO)

BPO has become a crucial service across various industries, such as healthcare, asset management, energy, pharmaceuticals, and e-commerce. 

Companies now leverage BPO to enhance customer experience and gain a competitive edge through innovation. According to Grandview Research (2021), the BPO market was estimated at $245.9 billion worldwide in 2021 and to increase at a 9.1% compound annual growth rate (CAGR) from 2022 to 2030.

Moreover, the BPO industry is transforming alongside the advancement of robotic process automation, artificial intelligence, and machine learning. Companies are increasingly seeking providers capable of integrating analytics, AI, ML, and automation to drive efficiency, standardization, and scalability.

McKinsey’s analysis of BPO from 2016 to 2020 reveals a doubling number of deals incorporating digital components like analytics, automation, and cloud capabilities. This trend aligns with the industry’s single-digit growth during the same period.

Notwithstanding, the pandemic and its subsequent disruptions impacting various businesses from finance and supply chain to healthcare and banking.

 The BPO industry is pacing up real quick. 

Types of BPO

Offshore BPO: Offshore BPO involves contracting a third-party company in a different country to handle business processes. 

Offshore outsourcing often offers cost savings due to lower labor costs in the outsourcing destination, but it may also present challenges such as time zone differences and cultural barriers. 

For example, a company based in the United States might outsource customer support services to a BPO company in the Philippines.

Nearshore BPO: Similar to offshore outsourcing, nearshore outsourcing involves contracting a third-party company in a neighbouring country. 

This proximity can offer advantages such as similar time zones, cultural alignment, and easier communication while providing potential cost savings compared to domestic outsourcing.

For instance, a Canadian company might outsource software development tasks to a BPO company in the United States.

Domestic or Onshore BPO: Domestic or onshore outsourcing involves contracting a third-party company within the same country as the client company. 

Onshore outsourcing may differ in cost savings from offshore or nearshore outsourcing. However, it can provide advantages such as closer proximity, easier regulatory compliance, and better alignment with local business practices and regulations. 

An example of a domestic BPO would be a company in the United States outsourcing its payroll processing to a BPO firm located elsewhere in the same country.

Categorization of BPOs 

 That BPO provides

The primary BPO services industries are;

• Intelligent Finance Operations
• Sourcing and Procurement
• Supply Chain
• Compliance as a Service
• Intelligent Global Business Services
• Sales & Customer Operations
• Digital Marketing
• Talent and HR
• Health

Facts: The five most outsourced business processes are legal functions (64%), tax (61%), HR (57%), finance (51%), and manufacturing and supply chain procurement (48%). (Deloitte, 2022).

(PROVIDE LINK TO TOP 21 BPO COMPANIES IN THE WORLD)

Beyond Price: Key Considerations When Choosing a BPO Provider

While cost is a significant factor, it shouldn’t overshadow the true value a BPO provider can bring. Here are key qualities to consider beyond the price tag:

Alignment with Business Objectives:

• Shared vision: Choose a provider who understands your goals and can demonstrate how their services will help you achieve them. Look for case studies and examples of similar projects they’ve completed
• Future-proof solutions: Consider a provider who can adapt and scale with your evolving needs. Are they equipped to support your long-term growth and strategic initiatives?

Expertise and Compliance:

• Industry knowledge: Deep industry expertise ensures they understand your specific challenges and regulatory landscape. Can they provide tailored solutions that comply with relevant data and privacy laws?
• Performance measurement: Opt for a provider who uses clear metrics and reports to track progress towards agreed-upon goals and service level agreements (SLAs). Transparency ensures trust and accountability.

Additional Considerations:

• Security and data protection: Prioritize providers with robust security measures and proven track records in safeguarding your sensitive information. Look for certifications and compliance with industry standards.
• Cultural fit and communication: A strong cultural fit fosters seamless collaboration and effective communication. Evaluate communication styles to align with your team and ensure clear and timely information exchange.

Benefits and Drawbacks of Business Process Outsourcing (BPO) 

Every industry has its advantages and challenges. Weighing the advantages and disadvantages beforehand is always essential to measure business goals and strategies. 

Benefits:

• Cost Reduction: BPO providers often operate in locations with lower labor costs, leading to significant cost savings compared to in-house operations.
• Improved Efficiency: BPO providers specialize in specific processes, allowing them to achieve higher efficiency and productivity than an internal team.
• Focus on Core Competencies: Outsourcing non-core tasks frees internal resources to focus on the company’s core competencies and strategic initiatives.
• Access to Expertise: BPO providers can offer specialized knowledge and skills that may be unavailable or expensive to acquire internally.
• Global Expansion: BPO facilitates easier access to global markets and talent, supporting international expansion efforts.
• Scalability: BPO companies easily scale their services up or down to meet fluctuating business needs.

Drawbacks:

• Loss of Control: Outsourcing tasks can lead to losing control over processes and data security.
• Communication Challenges: Time zones and cultural and language discrepancies can create communication challenges.
• Hidden Costs: Initial cost savings can be overshadowed by hidden fees, contract terms, and unexpected challenges.
• Job Displacement: BPO can lead to job losses in the original company, raising ethical concerns and potential backlash.
• Security Risks: Data breaches and other security risks are a concern when entrusting sensitive information to a third-party provider.
• Overdependence: Overreliance on a BPO provider can make it difficult to switch providers or manage changes in the relationship.

Note: The BPO industry must adapt and embrace new strategies to thrive in this era of growth and change. By achieving resilience and agility, companies can strategically align with evolving market dynamics. 

Role of Automation in BPO Industry

BPO automation involves leveraging technology—particularly software and artificial intelligence (AI)—to streamline various business activities typically outsourced to BPO service providers.

The core objective of BPO automation is to enhance operational efficiency, minimize errors, and reduce overall operating expenses by automating tasks previously performed manually.

Let’s delve into the ways  it adds value:

1. Efficiency Enhancement: Automation streamlines repetitive tasks, allowing teams to focus on more value-added activities. 

By automating manual business processes (such as data entry, approvals, and record-keeping), BPO operations become more streamlined and consistent.

2. Cost Reduction: Automation significantly reduces operational costs by relieving employees of repetitive tasks. 

It goes beyond labor arbitrage (outsourcing to low-cost locations) and provides sustainable savings.

3. Staff Management Improvement: BPO companies can allocate their human resources more effectively by automating tasks. Employees can focus on other aspects like well-being, satisfaction and productivity.
4. Streamlined Reporting: Automation helps generate accurate and timely reports, enhancing decision-making. It also allows enterprises to predict and respond to trends and threats.
5. Higher Accuracy: AI or Robotic Process Automation (RPA) bots consistently outperform humans in accuracy. 

If BPOs leverage AI, data analytics, metrics, and automation to create efficiencies, it will improve data quality and make organizations more agile and competitive. 

Future of the Outsourcing: Trend and its Cultural Impact

In the context of outsourcing trends and their cultural effect, the impact on company culture and decisions is becoming more relevant.

In the age of outsourcing, it’s imperative to recognize the potential ramifications for employee morale, workflow dynamics, and productivity. This includes employee engagement and retention, which are also paramount. And overlooking the human aspect of outsourcing can have profound consequences. 

Employees may perceive outsourcing initiatives as threatening organizational value, decreasing morale and commitment. Further, a lack of transparency and communication surrounding outsourcing decisions can create confusion, disrupt daily workflows, and hinder collaboration.

Well, these challenges can be tactfully mitigated. 

Businesses must prioritize a culture of transparency and inclusivity, ensuring employee engagement and experience. And proactively addressing their concerns and fostering a collaborative environment. They can effectively integrate;

Digital Transformation: Emphasizing how digital technologies like AI, machine learning, and automation reshape BPO services. 

Focus on Customer Experience: The shift towards enhancing customer experience through innovative outsourcing strategies.

In order to safeguard their company culture for future growth and success. 

Mainly because the market volume is already projected to reach US$0.45 trillion by 2027, with revenue predicted to expand at a 6.48% annual rate as per se, Statista, 2023.

Well, the bar has already been set high. 

Bottom Line:

The BPO (Business Process Outsourcing) industry has witnessed significant growth and transformation over the decades. 

Because businesses can navigate competition, foster global collaboration, and maintain agility through BPO. Hence, it is pivotal in strategic business management. As it allows companies to delegate non-core tasks, focusing on core strengths, enhancing productivity, and driving innovation.

CTA: In the ever-evolving BPO industry, integrating AI and data analytics drives evolution. Tools like Flowace enhance employee productivity amidst global expansion and remote working challenges. It’s time you take a call and schedule a demo!