What Is Business Process Outsourcing (BPO)? The Ultimate BPO Guide

What is Business Process Outsourcing (BPO)?

Business Process Outsourcing (BPO) is a method of subcontracting some business operations to an external third party. Typically, the outsourced work is a supporting – rather than core – business process. Supporting processes include human resources processes, customer support processes, and certain finance processes. Learn more about the different types of business processes.

When it first emerged as an alternative to handling all processes in-house, outsourcing was mainly applicable to the manufacturing industry. Today, outsourced services are used in virtually every industry.

How does BPO work? 

The reason why companies adopt BPO varies, but some common motives for outsourcing include quality control, speed, cost, or the need to scale. Depending on the need or investment required or the final output, some companies will opt for a permanent or temporary BPO strategy.

This process will also vary from company to company, but here’s a brief summary of how BPO typically works:

• Company identifies area of concern or need
• Company creates a detailed scope of work
• Company defines goals, and determines whether they want a single vendor or multiple 
• Company calculates the expected impact of BPO
• Company identifies and shops for vendors 
• Company requests vendor proposals
• Company selects vendor or vendors and negotiates agreement
• Company prepares handoff between in-house team and provider

3 types of BPO

Types of outsourcing are based on where the vendors are located. There are three types of business process outsourcing types:

• Offshore (company operates in a foreign country).
• Onshore, or domestic (company operates in the same country as the hiring company).
• Nearshore (company based in a neighboring country).

Additional types of outsourcing

In addition to BPO, there are three other types of process outsourcing: knowledge (KPO), legal (LPO), and research (RPO).

• Knowledge process outsourcing (KPO): Service provider is hired for their expertise
• Legal process outsourcing (LPO): Service provider hired to handle legal services
• Research process outsourcing (RPO): Service provider hired for research and analysis

These types of process outsourcing are focused on the type of service provided, rather than simply the function of executing a process.

Examples of BPO

Business processes that are commonly outsourced include back-office, front-office, and customer care processes. That includes work like:

• Payroll
• Accounting
• Administration 
• Customer support/call centers
• IT management
• Marketing 
• Social media management 
• Lead qualification
• Background checks for employees
• Shipping/logistics

What are the benefits of Business Process Outsourcing?

BPO is a great option for companies seeking agility, flexibility, efficiency, and cost savings.

Less time and money spent

One of the most important reasons why companies choose to outsource their processes is because of the flexibility it gives them (in terms of cost and time).

When it comes to cost flexibility, outsourced processes allow companies to have pay-as-you-go subcontractors for specific processes instead of having an internal employee responsible for said processes. This is especially useful when it comes to seasonal processes that have a varied demand throughout time.

Adopting this variable cost structure companies became able to respond quickly when changes in capacity are needed as well as reduce the need for investing in assets.

More time to focus on core activities

Another very important reason why companies choose to outsource certain processes is that, by hiring someone else to take care of these parallel processes, they’re able to focus on their core competencies. It’s not uncommon to see key employees wasting time performing administrative processes that could easily be outsourced.

Through business process outsourcing, these employees become free to invest all their time and energy into building the company’s core business and making the product/service more competitive.

Increase speed and improve quality

Outsourcing is also very useful for increasing the speed of business processes – by subcontracting third-party service providers, companies are able to increase the speed of several business processes.

BPO makes it possible for companies to grow more and faster by removing the contraints that come with having a big team (and consequently spending a lot in people and equipment).

How to choose the best Business Process Outsourcing service

While pricing is an important aspect of choosing a BPO service provider, it’s not everything. Whether you’re interested in saving money, saving time, or improving efficiency, here are some questions to consider as you choose the BPO service provider:

Familiarity

• Does the potential service provider have an adequate understanding of your company’s industry and needs?

Scalability

• Does the potential service provider demonstrate a capacity to effectively meet current requirements and demands?
• Do they showcase a capacity or ability to scale and meet future needs?

Security

• Do they meet your company’s security and privacy standards?
• Have they ever experienced a security breach? If so, how did they respond and improve afterward?
• Do they have an understanding of compliance and regulatory requirements? If so, do they meet them?
• Do they have any security certifications or accreditations?
• the geographical locations to meet business needs and regulatory requirements.

Capabilities

Something else to consider as you shop for vendors is how they measure success and deliver on contractual standards. Look for a service provider that is data-driven, sets KPIs for your company, and tracks metrics that are relevant to your company.

Don’t let pricing get in the way of your decision. A provider that is slightly more expensive, is focused on your success, and has a positive track record is better than a provider that is cheaper but unwilling or unable to meet your needs. While a cheaper option may save you some money in the short term, it may cost you more in the long term.

BPO vs. in-house management

Outsourcing makes the most sense when the process being outsourced needs to scale. But outsourcing can be complicated and it may create other problems if the outsourcing leads to company layoffs or a decline in customer or employee satisfaction.

One alternative to BPO is business process automation (BPA). BPA allows companies to optimize, automate, and scale processes and request management quickly, using a low-code platform that keeps business teams agile without adding to the IT backlog. BPA is adaptable and can be applied to any process or workflow, and it integrates with existing systems and apps to create seamless user experiences.