Everything You Need to Know about Business Process Outsourcing
Smartsheet Contributor Kate Eby
January 17, 2017
In today’s connected world, a successful business is often an efficient one, and the difference can come down to smart, innovative processes, with suitably adept management to match. Novel, modern process management techniques can take your business from good to great. One outgrowth of BPM, business process outsourcing (BPO), can enable just such a change if enacted in a careful, conscientious manner and with a quality vendor.
This article has everything you need to know about business process outsourcing: what it is, what types of processes and functions BPO vendors support, the current state and future outlook of the industry, and how to choose a vendor that’s right for your company. Along the way, BPO experts weigh in, and we even provide a vendor scorecard template to make that decision easier for you.
What Is Business Process Outsourcing?
Business process outsourcing (BPO) is the practice of contracting a work process or processes to an external service provider. BPO fills supplementary business functions like payroll, accounting, telemarketing, data recording, social media, customer support, and more.
From fledgling startups to massive Fortune 500 companies, businesses of all sizes outsource processes, and the demand continues to grow, as new and innovative services are introduced and businesses seek advantages to get ahead of the competition. BPO can be an alternative to labor migration, allowing the labor force to remain in their home country while contributing their skills abroad.
BPO is often divided into two main types of services: back office and front office. Back-office services include internal business processes, such as billing or purchasing. Front-office services pertain to the contracting company’s customers, such as marketing and tech support. BPOs can combine these services so that they work together, not independently.
The BPO industry is divided into three categories, based on the location of the vendor. A business can achieve total process optimization by combining the three categories:
Offshore vendors are located outside of the company’s own country. For example, a U.S. company may use an offshore BPO vendor in the Philippines.
Nearshore vendors are located in countries that neighbor the contracting company’s country. For example, in the United States, a BPO in Mexico is considered a nearshore vendor.
Onshore vendors operate within the same country as the contractor, although they may be located in a different city or state. For example, a company in Seattle, Washington, could use an onshore outsourcing vendor located in Seattle, Washington, or in Huntsville, Alabama.
Why Do Businesses Outsource Processes?
Outsourcing is a part of many successful business models, especially for companies who do not have the resources and services they need available internally. Businesses often outsource to decrease costs, expand their presence, or increase flexibility.
Some people believe that businesses are only after the tax break associated with outsourcing jobs, or “shipping jobs overseas” as some political ads claim. According to PolitiFact , this is a flawed notion. PolitiFact concedes that there are tax breaks for a company when it relocates, whether out of country or to a different state, but there is no specific tax break or loophole in the U.S. tax code related to outsourcing.
What is relevant to this argument, however, is that the U.S. corporate income tax is one of the highest in the developed world (39.1 percent). Therefore, U.S. companies benefit from outsourcing operations to countries with a lower income tax because businesses pay the rate of their host country. In addition, businesses cite many other reasons to engage in outsourcing:
To decrease costs : Outsourcing cuts down on costs for in-house labor, particularly for staffing and training, and for the work space to accommodate local employees. An outsourcing company physically located in a developing country leverages lower-cost labor markets. Finally, outsourcing enables businesses to use variable-cost models, like fee-for-service plans, instead of fixed-cost models that are required when retaining local employees.
To concentrate on key functions : Outsourcing allows businesses to hone in on their main offerings instead of company functions that aren’t directly tied to their core processes. For example, when outsourcing, the company won’t have to monitor the payroll accountant’s performance. Rather, it can focus its energies on highlighting its business differentiators and maximizing overall growth. In turn, these actions can boost a company’s competitive advantage and enhance its interactions with the value chain. Ultimately, the company can enjoy improved customer satisfaction and increased profits.
To achieve better results in noncore functions : Outsourcing companies specialize in what are considered noncore functions of other businesses, delivering world-class capabilities for its clients. In fact, an outsourcing company that invests in specialized processes and technologies can deliver cutting-edge breakthroughs to its clients. For example, a gaming design company may not want to pay for the latest payroll program on the market, but an outsourcing business that offers payroll services would likely make that investment to benefit its own performance, as well as that of its clients.
To expand their global presence : Some outsourcing companies can serve customers in multiple languages, around the clock, thus relieving the local company of the responsibility. Outsourcing companies can leverage their presence in multiple countries and keep the local company’s redundant divisions to a minimum. For example, WNS Global has 37 “delivery centers” across the world and specializes in business process management.
To enable flexibility : Companies that outsource their noncritical functions can act more quickly and more efficiently when managing the risks associated with introducing new products or services. They can also reassign their internal resources to more critical functions to help ensure better coverage and allocate responsibility.
To improve speed and efficiency : Companies that outsource processes are opting to let specialists handle those tasks, thus saving time, improving accuracy, and increasing their capacity. For example, a BPO that specializes in records management can automatically index documents, making them available for retrieval and keeping a company in compliance with legal requirements. This replaces manual data entry and storage.
Ryan Fitzgerald, owner of and realtor at Raleigh Realty , has extensive experience with BPOs. He says, “There are both pros and cons to creating an outsourcing process for your business. The obvious pros are that it saves you time and effort, which likely saves you money. There are only so many hours in a day, so you will want to focus the limited time you have on the work that makes you the greatest ROI (return on investment) on your best work.
“Another pro is that there is a good chance the person you're outsourcing your projects to is armed with a better skill set for the specific goal you're trying to accomplish. By outsourcing your work, you allow yourself the opportunity to be more productive and grow your business faster.
“One of the biggest cons is that you leave yourself exposed if you don't do the work yourself. What happens if the person you're outsourcing to moves away? What if they take your ideas and give them to other businesses you're competing against? We had an instance where we bought a lot of video marketing equipment and decided to outsource our projects to a video professional. That video professional is now reaching out to our competitors to ask if they would like the same work done. That means one of our competitive advantages is potentially lost if other real estate companies see the value.
“There are a lot of benefits to business process outsourcing, but make sure you keep an eye on how it could come back to hurt you as well.”
What Types of Services Do Outsourcing Companies Support?
BPO providers support a number of services to help fill gaps within companies. Some of the participating industries include healthcare, pharmaceuticals, energy, business services, retail and e-commerce, telecom, automotive, utility companies, banking, supply chain, capacity solutions, and asset management.
In fact, the growth in BPOs has resulted in the emergence of subspecialties, including everything from information technology-enabled services (ITES) to travel:
Information technology-enabled services (ITES) BPO : This form of BPO leverages information technology (IT) over the internet or data network to deliver services. Some examples of ITES BPO jobs are service desk analyst, production support analyst, and IT analyst.
Knowledge process outsourcing (KPO) : KPO has changed BPO a bit. Some KPO vendors support functions that are considered core in business, although they may not be core functions in the particular business that hires them. KPO firms offer more than process expertise; they may also provide business and domain-based expertise. Some examples of KPO services include research, analysis, or Microsoft Word and Excel work. KPOs may be capable of making low-level business decisions if they do not conflict with higher-level business policies, but those decisions may be undone easily. KPO vendors are usually linked to the business’s value chain, and they hire people who are competent in a specific field.
Legal process outsourcing (LPO) : LPO is a subset of KPO and encompasses a huge range of higher-level legal work, not merely lower-level legal transcription. LPO firms can draft patent applications and legal agreements, as well as perform legal research. Some LPO firms even advise clients. In-house legal departments usually retain LPOs. Experienced paralegals using industry-standard databases do the work.
Research process outsourcing (RPO) : A subset of KPO, RPO specializes in research and analysis functions. RPO companies perform research and analysis work that supports business, investment, biotech, and marketing firms.
Travel : This pertains to all the operations a business needs to support its travel logistics, from reservations to hotel and vehicle bookings. Travel BPO saves money for the company because it cuts costs while increasing customer satisfaction. Airline and travel companies also engage in BPO for either front- or back-office process streamlining. For example, an airline could outsource its ticketing process.
Each BPO company will specialize in specific services. They may be grouped as follows:
Customer interaction services : The BPO company would cover a business’s voicemail services, appointment schedules, email services, marketing program, telemarketing, surveys, payment processing, order processing, quality assurance, customer support, warranty administration, and other customer feedback.
Back-office transactions : This includes check, credit, and debit card processing; collection; receivables; direct and indirect procurement; transportation administration; logistics and dispatch; and warehouse management.
IT and software operations : These technical support functions include application development and testing, implementation services, and IT helpdesk. For example, manual data entry can be replaced with automated data capture, increasing data intake and reducing cycle time.
Finance and accounting services : These functions include billing services, accounts payable, receivables, general accounting, auditing, and regulatory compliance.
Human resource services : BPOs can help address workforce challenges. They can also cover payroll services, healthcare administration, hiring and recruitment, workforce training, insurance processing, and retirement benefits.
Knowledge services : These higher-level processes may include data analytics, data mining, data and knowledge management, and internet and web research, as well as developing an information governance program and providing the voice of customer feedback.
The Risks of Business Process Outsourcing
The global market size of services outsourced from the United States was $88.9 billion in 2017 and is expected to hit $140.3 billion by 2022, as reported by Statista and The BPO Services Global Industry Almanac 2017 Company Report . This was after steady growth of 4.4 percent compounded annually from $45.6 billion in 2000. For U.S. companies, India and the Philippines perform a large portion of the outsourcing services. India in particular is a leader in BPO for the United States because its labor force is highly skilled, educated, English-speaking, and economical.
Not only are these countries geographically disparate, they are different cultural entities as well, which may constitute a risk for the contracting company. In fact, hiring any outside vendor to perform business processes for your company comes with inherent question of efficiency and quality. This is especially concerning because the industry has seen reported shortages in skilled workers, increased trade protectionism, and gridlocks due to political issues. Other risks include the following:
Security : In outsourcing, especially when information systems (IS) are involved, companies face communication and privacy risks. Security is more difficult to maintain when the business taking care of your IS is not in the same country, especially one with different security requirements. Potential data privacy breaches and vulnerability disclosures are a real threat, particularly with the current prevalence of hacking. The internet, which makes BPO for IT feasible, also may offer a portal through which hackers enter.
Underestimating the costs of services : Companies that employ BPO vendors often underestimate the running costs, especially in upgrades and contract renegotiation. Other hidden costs include vendor selection, currency fluctuations, hardware and software upgrades, internal transitions, layoffs, and the potential decrease in individual worker productivity.
Overdependence on service providers : Once a company designates a vendor for specific processes, the vendor becomes a part of the workflow. The company can incur extraneous costs and decreased productivity when the vendor encounters problems or lapses in its work — for example, when the cost of hiring workers increases. Vendors often replace veteran employees with less experienced workers to keep costs down, and quality suffers as a result.
Communication issues : Language barriers can limit activities when your company hires individual service providers spread across the globe. This can result in delays in new processes and curbs on feedback from different departments, and it can potentially magnify current problems in your business operations. Further, customer-facing services may present language barriers to third-party vendors.
When outsourcing your processes and parts of your business, you face significant risks, depending on the type and structure of your company. For example, in very large segmented companies, outsourcing only the back data entry can carry a low risk. But for a small business that is reliant on BPO as part of its manufacturing, the risk increases. Other possible risks associated with outsourcing include:
Data breaches
Quality control
Operation restoration
Nonlocal employees
Maintenance of strategic alignment
Political instability
Changes in technology and exposure to hacking
Specialization to the point that the niche demand is no longer necessary
On the other side of the equation, BPO companies face risks as well. These include:
Robotic process automation (RPA) : RPA uses bots or artificial intelligence (AI), a form of cognitive computing. These robots operate on a user interface in the same way a human worker would. Due to the demand for increased cost efficiency and innovation, robots are becoming more widespread. According to the Institute for Robotic Process Automation , RPA creates 25-50 percent cost savings. Robots cost between one-fifth to one-ninth of a full-time equivalent (FTE) worker in the United States, and about one-half of an FTE in a developing country. Some experts postulate that BPOs may adopt RPA in limited use or that BPOs will still have contracts, but their role will change to become more of a consultant.
The Business Process Outsourcing Industry
Globally, the BPO sector is worth over $300 billion. BPO vendors employ more than 3 million people in India, and more than 1 million people in the Philippines. Millions more are employed by BPO companies in Europe and the United States. BPO vendors are located all over the world, especially in developing nations with low income tax. South Africa has shown recent dominance in the BPO market, notably in call centers.
In the past five years, the BPO industry has exploded due to shifts in social media use and the concurrent demand for multichannel communication. Consumer behavior has changed too. Browsing social media is now the third most popular online activity, and 81 percent of the U.S. population has at least one social media account.
Before 2000, companies provided customer service through websites and by transferring calls via interactive voice response, and the BPO industry was primarily composed of call centers. But with the growth of social media and, according to Rightscale , the majority (95 percent) of small to medium-sized businesses’ dependence on cloud technologies, BPOs now provide more professional and technical services such as web design, human resources, and accounting services. This has led to increased investment in BPO, with $462 million poured in by startups in 2014.
Another iteration of the BPO industry is business transformation outsourcing (BTO). BTO offers strategy consulting services, not only in-the-box, traditional supportive business functions. BTO consultants help businesses revamp their processes through outsourcing. In other words, BTO consultants review your business as part of their services and find the opportunities to implement BPO where it makes sense and is most beneficial for the company.
The Future of Business Process Outsourcing
The future of BPO is similar to that of many industries in that automation will be key. Many experts point to RPA as the main avenue through which BPO will change. For example, data entry work and image recognition can be automated easily. However, experts report that certain functions, like handwritten data and telemarketing, will resist automation.
All industries, including BPO, will likely leverage emerging technologies, such as cloud services, social media, and machine learning, to reduce costs and accelerate growth. One business model, the productized service, combines software and an outsourced staff member. An example of productized services is a package that bundles cutting-edge accounting software and accounting services, with both services billed to the contracting company monthly. Startups in particular are becoming more dependent on this type of service, so there is mutual dependence with BPOs.
The trend of providing and supporting improvements in social media management tools is expected to continue. Investments in cloud computing will also persist, as it becomes a more mature platform. In addition, BPOs will invest in diversifying their workforce. As BPOs get more competitive and are forced to lower their prices, they will move to lower-cost alternatives such as software automation and AI. With the threat of losing workers to AI and automation, governments and business leaders are educating them so they can meet the newer demand for highly skilled positions.
With businesses expecting BPOs to fill their gaps or even becoming dependent on them, BPOs are required to be more transparent so that they may build and maintain trust. In the 2016 U.S. presidential election, BPO providers were concerned that they would lose their ability to work for U.S. companies if the new administration changed policies on trade, tax laws, and visas. However, experts do not believe that changing political tides will negatively affect BPO or KPO. Because KPO in particular requires higher-level skill sets or higher education, experts believe that individual country politics will be less apt to disrupt the businesses.
Our experts weigh in and provide their opinions of the future of BPO, and some have recommendations for hiring BPO vendors:
According to SEO expert and business advisor Alex Genadinik, Founder and CEO of Problemio.com , “Moving forward, I fear that there will be a decline of quality as the market saturates with more and more companies and freelancers that do essentially the same relatively low-quality work. The challenge is that if you hire high-quality companies, they typically do great work, but are costly. As a business owner, this means that you must either get to the point where you can hire costly companies on a long-term basis or allocate resources to SEO in-house. If done intelligently, it doesn't have to require many resources, but at least you will have control and transparency of what the SEO work is being done. This ensures that your employees are not cutting corners or doing something that will get your website penalized by Google.
“I have experience outsourcing to a BPO for my business Problemio.com, and I have been hired by SEO marketing agencies to train their staff. What I can say is that if you are hiring on a budget, you will get very low-quality work. Only the top tier of the BPO companies actually do good work that I as an SEO expert would deem acceptable. So for the long term: Hire high quality or don't hire at all.”
Thomas Wooldridge, who specializes in web design, social media, and PR at Relamark Web Design & Marketing, advises, “BPO is something that will never go away. It's like saying you want to bring back encyclopedia books or Blockbuster videos. Our world has never gone backward from technology. The internet has made it much easier to bring the whole world together.
“There will always be a need for low-skill and low-wage workers who would be difficult to hire in the West, although many countries such as India, the Philippines, or China will gladly do it on your behalf. On the other hand, the same country you used to hire the low-wage workers will eventually get smarter. The local economies and workers’ skills will improve to where they are demanding higher pay. So then you have to look into another third-world-type country to attract.
“For example in the 1990s, India was the prime location for BPO services. Because of this, education and middle-class incomes rose to the point that they have nearly surpassed that of workers in the United States. Now U.S. companies have to nearly import those same workers to take the jobs that Americans couldn't fill. That is why there is a tremendous growth in Indian medical doctors and IT people in the United States.”
Pete Abilla, Lean Six Sigma expert turned entrepreneur and owner of FindATutorNearMe , a tutoring marketplace with over 100,000 private tutors, says, “During my career, I've spent a lot of time improving the processes of clients. One trend I'm seeing is that organizations are more interested in training their own employees in the techniques of Lean manufacturing and Six Sigma. However, for some processes, such as call centers and primarily back-office operations, it might be more cost effective to outsource those to a BPO entity. Another trend I'm seeing is that BPO organizations are best to use for departments that are primarily cost centers and not revenue generators for the company.”
Ben Walker, the CEO of Transcription Outsourcing , LLC, says, “We work with all kinds of companies, small, medium, large, public, private, and many different government agencies, on a daily basis. They use my company because they don’t have the internal personnel to do what we do for them. Transcription is not something a lot of people do any more, so by utilizing us and our teams of transcriptionists we can help them get what they need much faster and cheaper than they could do it themselves. I don’t think companies like mine will be going anywhere any time soon because we do highly specialized work that you can’t replace at the drop of a hat and start filling cubicles next week.”
Derric Haynie , CEO of Vulpine Interactive , says, “By the end of 2017 or early 2018, I'm planning on opening up my own counterpart agency in Asia (Bali or the Philippines are front-runners right now). The reason I'm doing this is because my business relies heavily on systems and processes, things that technology can't quite do, but doesn't require significant strategy or high-level employees either. By opening up our own business, we can ensure quality and continuity while simultaneously keeping costs very low.
“While I don't think all companies will move toward this model, I do see it as highly viable and would expect more ‘outsourcing’ to actually be done in-house as even small companies like mine can open up their own in-sourced shop in another country.
“In the short term, I see BPO being easier to access and utilize by all companies, but I also see AI and technology eliminating many BPO jobs in the short- and long-term future. It's the same venture, not a new venture. We will just be opening an office in Asia to handle all of our low-level processes. I imagine there will be many problems starting a business in another country. I have yet to assess all of them properly. I’m not looking forward to that.”
FInally, the new BPO destinations expected to emerge in 2018 include Bulgaria, Romania, Egypt, Mexico, and Columbia. Due to fierce BPO competition, oversaturation, and reduced business growth, these five countries may become alternate low-cost locations.
Business Process Outsourcing Commercial Providers
Below you’ll find links to lists of BPO companies throughout India, Asia, the U.S., the U.K., Australia, and Europe. A BPO company usually specializes in one service or group of services, such as back-office support or, in the case of RPOs, biotech research. These lists are not comprehensive, as new companies crop up weekly, and companies frequently merge.
You can also try service companies that can help you find the right BPO vendor for your needs. Through the contracting process, these service companies can help ensure that all of your needs are covered. Many also use e-procurement services (supplier exchange) to keep the costs constant. E-procurement is a system that allows business-to-business management of services. Here are some useful resources:
eBook directory through the IT and Business Process Association of the Philippines
A commercial company lists of BPO contact information
BPO service providers listed by region and functional area through 123outsource
How to Choose a Business Process Outsourcing Vendor
It’s no easy task choosing a vendor to support your outsourcing needs, but you’ll need to review many details prior to settling on one company and getting an appropriate agreement in place. Experts recommend a formal, extensive process to choose a vendor that has the best outsourcing experience and can meet your company’s goals. The following is a list of tasks to perform in sequential order for companies considering hiring a BPO vendor:
Define your requirements and review potential vendors : Start by defining your key stakeholders, and engage them in the process from the beginning. Set all key stakeholder expectations early and engage them often. During this step, your company must also figure out the key objectives, risks, and scope for BPO. This is your business case scenario, so this step should take the longest and include a full review of your company processes, not only those initially considered for outsourcing. During this step, you should start to source potential vendors and develop a scorecard to determine the most important criteria. You can find a template for developing a scorecard here.
Open Vendor Selection Scorecard Template - Google Sheet
Put together a request for proposal (RFP), and source vendors : In concert with your company stakeholders, determine the most crucial elements of a BPO provider. Develop and send out an RFP from your market research. At this stage, define what service management model your company will use.
Choose the right vendor for your company : Evaluate the proposals. Start analyzing the change that will result from contracting with a third-party vendor. What are the risks and benefits determined from the shortlist of potential vendors?
Negotiate the contract : This is the most important step in the process of acquiring a third-party service provider. Both parties must reach an agreement not only on the service parameters, but also on the contract schedule. It’s critical to ensure buy-in and agreement by all stakeholders.
Transition the work and processes to your chosen vendor : This is the actual “go” step. Develop and put in place a plan for transitioning to the new model. Ensure that your business has open communication internally and with the service provider.
Manage your relationship : Verify proper governance during the life of the contract with your service provider. Performance monitoring is key for ensuring that your company reaps the expected benefits of outsourcing. Expect a collaborative relationship and plan to renegotiate your contract and its scope at the end of its term.
Additional tips that can help you choose the right BPO:
A good outsourcing company should help you decide which parts of your business you need to keep in-house. Beware of a company that tries squeezing core processes out of you.
A good outsourcing company values the work of every employee. This enables a better connection between their company and your organization and can help increase productivity.
A good BPO company’s objective is to help your organization boost sales without consuming too much money.
Choose your BPO company carefully. Look for evidence that it can deliver the task well and on time.
Ask two questions when looking for a BPO service provider: (1) How can I find the right candidate? and (2) How do I manage the outsourcer after I settle their contract?
The key to a successful BPO experience is to do your research beforehand, lay out clear expectations and deliverables with your selected vendor, and stick to what both parties agreed upon.
Overall, the company should choose a BPO vendor carefully and conscientiously. The relationship should be defined formally, and managed and considered regularly.
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Home » Business Plans » B2B Sector
How to Write a BPO Company Business Plan [Sample Template]
Are you about starting a BPO company? If YES, here is a complete sample BPO business plan template & feasibility report you can use for FREE . Okay, so we have considered all the requirements for starting a BPO company. We also took it further by analyzing and drafting a sample BPO service marketing plan template backed up by actionable guerrilla marketing ideas for BPO companies. So let’s proceed to the business planning section .
Table of Content
Why Start a BPO Company?
1. industry overview, 3. our products and services, 4. our mission and vision statement, 5. job roles and responsibilities, 6. swot analysis, 8. our target market, 9. sales and marketing strategy, 10. sales forecast, 11. publicity and advertising strategy, 12. our pricing strategy, 14. sustainability and expansion strategy.
One of the most lucrative businesses for an entrepreneur to start up today is a Business Process Outsourcing (BPO). A new BPO company might not be so easy to start up especially as there are already established BPO companies making waves and dominating the scene, however, as a new start-up, one can effectively compete by providing services that would readily fill in the gap.
A BPO company usually handles certain aspects that relates to a business operation such as call centers, finance, human resources, cleaning services or accounting. BPO companies sprung up due to the fact that businesses needed to outsource their non-core functions in order to be able to concentrate on the core functions of their company, sustain themselves and expand. Using the services of a BPO company is far cheaper for businesses which make BPO companies to be a highly lucrative business.
Another important aspect that you would need to consider before starting your business, is a business plan. It is for this reason that a sample BPO business plan is made available for you below;
A Sample BPO Startup Business Plan Template
The Business Process Outsourcing (BPO) industry has no dominant company with a large share of the market. The industry is valued at $136 billion and has grown at a 4% per annum between the periods of 2010 to 2015. There are more than 162,000 such businesses in the united states of America, employing more than 900,000 people.
The industry fared well from 2010 to 2015 and this is due to the fact that the US economy vastly improved due to the rising revenue especially in the finance and accounting sectors, human resources industries as well as credit card services and insurance sectors. Also, employers in the above named sectors outsourced to BPOs in order to control rising costs due to wage increases and rising health insurance.
According to analysis, the industry will continue to experience a fair percent of growth till the year 2022, especially as companies in the affected sectors will be pressured to increase wages for their employees as well as healthcare insurance costs.
According to IBISWorld, the BPO industry is in its growth stage and will grow at a rate of 3.9% over the next 10 years to 2022. In comparison, the economy of the United States will not grow that high as it will grow at 2.5%. This therefore depicts that the industry is a growing one.
Globally, the market for BPOs will reach $220 billion by 2022, which will be due to the fact that companies will be pressured to increase customer satisfaction and improve operational efficiency whilst reducing costs to a reasonable level. Te industry’ growth is due to the fact that businesses have realized how important BPOs are and how they help reduce business risks and increase efficiency.
The United States leads the BPO market globally; however, the Asia-Pacific has the fastest growing market with a CAGR of 10%. While the Philippines are seen as a strong competitor for BPOs globally, India remains the most lucrative destination for BPOs due to its financial attractiveness, availability of people and skills as well as an appropriate business environment.
Globally, the BPO market revenue declined by $15 billion in 2015 compared to the previous year. The revenue globally for the BPO industry therefore stood at $63.5 billion. Europe, Middle East and Africa generated the largest share of revenue for the BPO industry globally.
2. Executive Summary
Citotech BPO LLC is a standard company that will be located in Houston – Texas to serve all our clients here in the United States and abroad. We intend to provide traditional customer care operations and internal business functions to our various clients as a way to help them handle the non-core aspects of their business.
We are in business to generate revenue and make profit here in the United States of America and our vision is to offer high valued service to our clients and ensure that we not only met up with our clients’ expectations but exceed them as well. We also intend to be amongst the top three BPO companies here in the United States of America by 2023.
We are strategically located in Houston – Texas as it will be very easy for our clients to get to us, whilst easily accessible to our employees. Our location also allows us to have low overheads as well as running costs.
Procuring the best equipment with which to handle our business is a must for us so that we could provide our clients with best service. We also intend to build a business structure that will run smoothly and allow us to achieve our desired goals and objectives.
We will hire the right number of employees who are qualified and competent and who have aligned with our vision as a company and are committed to ensuring that we attain the height we intend for our business.
We will ensure that we provide a conducive and work friendly environment for our employees so that they will be able to focus on work. We will also ensure that they get the right training that will not only enhance their skills but boost productivity for us as well.
We will ensure that our employees are well paid and have the best welfare structure across similar start-ups such as ours in the industry. We know how this can boost their work output and so are willing to ensure that they remain motivated.
Finally, our owner Mr. Steve McMahon is a prominent business man and property developer, who has several businesses both here in Texas and all around the United States of America. He has several years of business experience and all his companies are successful in their own right. He has ensured that only the best are brought to work at Citotech BPO LLC.
Citotech BPO LLC intends to offer traditional customer care operations and internal business functions as its core functions here in Houston – Texas.
However, we also intend to boost our revenues as well by offering other services that are related to our core functions such as trainings and consultancy services. This is so as to make profit, re-invest part of the profits back into our company and boost our bottom line as well.
Below are some of the services we intend to offer our various clients;
- Provision of customer care services to our clients
- Provision of other outsourcing services such as accounting and finance
- Consultancy services
- Our vision is to offer high valued service to our clients and ensure that we not only met up with our clients’ expectations but exceed them as well. We also intend to be amongst the top three BPO companies here in the United States of America by 2023.
- In order to achieve our vision, we intend to ensure that we build a business structure that has committed; professional and highly dedicated employees to allow us attain our goals and objectives. We will also ensure that we get the right equipment that will allow us carry out our job to the highest standard
Our Business Structure
Building the best business structure is very important for us as a business that takes its affairs very seriously and due to this we are willing to go the extra mile to ensure that we hire the best hands that are not only highly qualified but also have the experience to ensure that we are able to attain our desired goals and objectives here at Citotech BPO LLC.
We will be sourcing for highly intelligent individuals who understand what it means to work with a start-up such as ours and ensure that we get to be the preferred BPO company or our clients here in Texas as well as around all the United States of America.
Due to this fact we are going to ensure that the employees we get understand and are aligned with our goals as a company and that our management staff will ensure that our business ethics and standard remains high at all times.
Because we would not be running a conventional BPO company due to the various services that we would be offering, we will be hiring more employees than the average BPO company, to handle all the various responsibilities and tasks so that all the different aspects of the company will run smoothly as one unit, with everyone knowing and understanding their responsibilities.
Below is the business structure we intend to build at Citotech BPO LLC;
Chief Executive Officer
Human Resources and Administrative Manager
Business Development Manager
Infrastructure Manager
Systems Administrator
Frontline Responders
Marketing Executives
Maintenance Department
Security Guard
- Drafts and formulates the company’s core policies
- Drafts the budget and sources for capital for the company
- Reviews policies and removes or modify ineffective ones
- Sources for and hires competent and qualified employees to work for the company
- Ensures that all the administrative functions of the company are effectively coordinated
- In charge of employee welfare package, orientation, induction, performance appraisals and dismissal
- Carries out research on new businesses ideas in order to generate more source of revenue for the company
- Reviews company’s services and looks for ways to upgrade the services
- Works with the marketing executives to determine how corporate sales goals can be achieved
- In charge of all the IT and security systems in the company
- Helps to implement updated solutions across all the company’s infrastructure
- Ensures that company’s data is secure and runs efficiently
- Responsible for the implementation of a network security plan for the organization
- Keep up-to-date with changing network technology and how it is likely to affect the company
- Review software and hardware and recommend upgrades when necessary
- In charge of preparing all the financial information, statement and budget on behalf of the company
- Ensures that the company’s tax records are up-to-date and that it is submitted to the tax authorities on time
- Ensures that the company’s budget is effectively implemented
- In charge of attending to client’s customers’ inquiries, complaints and feedbacks on behalf of the organization
- Keeps up-to-date with industry trends of clients and company policies so as to pass accurate information to the client’s customers
- Ensures that clients are well attended to as well as keep an accurate database of logbooks on behalf of the organization
- Drafts the right marketing strategies on behalf of the organization
- Meets with high level clients and conducts direct marketing on behalf of the organization
- Identify new markets for the company
- Ensures that the equipment bought are genuine
- Carries out light repairs on the equipment in the company
- Installs new equipment and ensures that it works well
- Patrols the premises at night to ensure that no intruder enters
- Monitors the surveillance cameras to ensure that the building is secured at all times
- Carries out any other duties as determined by the management
- Keeps the premises and convenience clean at all times
- Ensures that cleaning supplies are always in stock
- Carries out any other duties as directed by the Human Resources Manager
Our intention of starting our own BPO Company is so that we would run a standard business and in order to achieve this, we hired the services of a reputable business consultant here in Texas to look at our business concept and determine if starting this company was the best thing especially as regards the location we are in. the business consultant was also to help determine if we were going to thrive and compete favorably against our competitors all around the United States of America.
In respect to our request, the business consultant took stock of our strengths, weaknesses, opportunities and threats and used this to determine if we were likely to survive in the BPO industry. Below is the SWOT analysis that was conducted on behalf of Citotech BPO LLC;
We have a strong client relationship management which has allowed us to retain a high number of our clients who outsource several aspects of their business to us and allow us also boost revenue for our company. Part of our strength is the fact that we offer standardized services and deliver processes, resources and tools in an efficient and effective manner.
Our employees are highly competent and qualified and know what it takes to achieve organizational goals. We also have publicity strategies in place that will allow increase awareness for our BPO Company. The various services we offer has also given us an edge over our competitors.
Since we are relatively a new company, we have limited brand presence outside of Texas and this is due to the fact that we are running on a tight budget, which has not allowed us to promote our company as we would have liked. There is also a perceived complexity which has affected our vertical concentration.
- Opportunities
There are several opportunities in this market and they include the fact that there are enough customer bases to be developed and cultivated. There is also an opportunity for us to gain more markets as we expand our business.
The threats that we are likely to face are; declining or slow revenue growth due to a slow economy or the arrival of a major competitor. Every business faces threats and ours is no different, but we have laid down strategies to overcome any challenges we might face.
7. MARKET ANALYSIS
- Market Trends
The BPO industry is very vital to the growth of certain businesses and as such most have developed comfortable relationships that have gone on for decades with their clients. As this relationship grows, these BPO companies are offering their clients consultancy services due to the familiarity with the client’s core business and culture. This is leading to the evolvement of the industry.
A niche of BPOs has started evolving and is known as impact sourcing which is built on the foundation of social responsibility. The aim of impact sourcing is to deliver quality service at low cost while employing those that were socioeconomically disadvantaged. This is gaining traction as corporations are looking to meet their diversity and social responsibility goals.
Another niche is the knowledge process outsourcing (KPO) where businesses have started to outsource core business services to third parties. This field dwells on tasks that require high research and analytic skills.
There are a huge number of companies (clients) that demand the services of a BPO Company for various reasons. However, in order for us to truly determine our target market, we intend to conduct a thorough market research that will allow us map the necessary strategies in order to attract them to our company.
The aim of the market research we intend to conduct will allow us understand the characteristics of our target market and what to expect from them. In regards to this, we are going to offer our services to the following people;
- Market operators
- Consultancy firms
- Training organizations
- Telecom and IT companies
- Cloud providers
- National regulatory authorities
- Government and public sector
- Financial institutions
- Small and medium enterprises
Our competitive advantage
Our BPO Company is a business that has been established with the intention of offering outsourcing services that are value-added to all our customers. We will offer our services in such a way as to allow us compete favorably against our competitors. We have therefore drafted strategies that would allow us have an edge over our competitors.
We are located in a strategic location that is not only conspicuous but also allow all our employees and clients to easily access us. Our location is one that is also quite cheap enabling us have low overheads that will have an impact on our rates.
We have a highly qualified management team that is not only highly experienced but is also aligned with our core values and objectives. Our management team are highly committed and dedicated and have the capability of bringing our business to the level we intend for it nationally. All our core objectives are always being communicated and projected positively internally and externally.
We intend to source for and hire employees that are competent and qualified to handle all the responsibilities in our BPO Company. Our employees understand the industry that we are in and use the trends to ensure that we are able to achieve all our goals and objectives.
Finally, we will ensure that our employees are well paid and have the best welfare packages as compared to others in similar start-ups in the same industry. We will ensure that our employees work in a safe and conducive environment. Our employees will also undergo continuous trainings that will further enhance their skills and also boost productivity for our company and boost the bottom line of our business and allow us grow.
- Sources of Income
Citotech BPO LLC is established with the sole intention of generating revenue and maximizing profit here in the United States of America. We intend to offer all our clients various services that will bring in this revenue to ensure the sustainability of our business.
We therefore intend to generate revenue for our BPO Company via offering the following services;
The BPO industry is one that is regarded as saturated but regardless of this fact the industry is still has several services that has kept the industry stable and can allow for the influx of more businesses.
We are located in a strategic location here in Houston – Texas which has made it quite possible for us to be optimistic about the revenue we will generate from our BPO Company. We are quite sure that the profits that we will generate from our business will sustain and allow us grow our business within a year of starting and running our operations.
We conducted a thorough evaluation of the BPO industry here in the United States of America that would allow us carry out an accurate sales projection. The analysis of the sales projections we conducted were gotten from data and information from similar start-ups that were not only based here in Houston – Texas but all over the United States of America as well.
Below is the sales projections that was conducted for Citotech BPO LLC;
- First Fiscal Year-: $350,000
- Second Fiscal Year-: $700,000
- Third Fiscal Year-: $1,400,000
N.B : We conducted the above sales projections based on several assumptions and information that were gotten from start-ups here in Texas and the United States of America. Some of the assumptions we used were that the economy would be stable enough and that there would not be an arrival of a major competitor. It should however be noted that should there be a change in any of the assumptions, it would have a negative or positive impact on the projected figures.
- Marketing Strategy and Sales Strategy
Every business no matter its level requires marketing in order to thrive and this is why we have set aside a budget for marketing our company. Marketing is vital for the growth of any business because not only does it generate revenue and boost a company’s growth, it also allows the companies generate interest and increase awareness amongst its target market. The marketing strategies we would draft for our BPO Company are ones that would allow us penetrate the target market and gain a huge share.
Before drafting our marketing strategies, we will conduct a thorough marketing survey using accurate data that will allow us understand our target market and create effective marketing strategies. We will leverage on conventional and unconventional means of marketing our brand to all our existing and potential customers. These marketing strategies we will create will allow us have a marketing budget that we will channel to the right use.
We intend to hire the services of a reputable marketing consultancy firm here in Texas who has the experience that would be needed to move our BPO Company to the level that we want it to be and also allow us effectively compete with our competitors. The marketing consultancy firm we have engaged will help us draft the right strategies that would be of great benefit to our business and allow us generate the revenue that would boost our business.
We have also empowered our marketing executives to also draft the right strategies that should be in line with our corporate policies and goals. They will modify or remove ineffective strategies so that we don’t waste money using the wrong channels to market our BPO Company.
Therefore, the marketing strategies that we would adopt in generating revenue for Citotech BPO Company are;
- Ensure that we place adverts in local and national newspapers, magazines as well as on radio and television stations
- Empower our marketing executives to engage in direct marketing
- Formally introduce our BPO Company to organizations and other stakeholders in the industry as well as in the United States of America
- Throw an opening party that will generate interest and create awareness for our BPO Company
- Ensure that our business is listed in online and offline directories
- Use social media platforms such as Facebook, Twitter and Google Plus in order to market our BPO Company
Once a business has been set up, it is important that the business is promoted vigorously. Promoting a business is very important as this is the way that not only awareness is created for the business but also revenue is generated from the exposure as well. The BPO industry which is already termed as a saturated market, will require intense publicity if it intends to stand out from others and generate revenue.
To ensure that we create the right strategies for our BPO Company, we intend to hire the services of a reputable brand consulting company who have had several years of experience in branding companies in this industry and who would know what strategies would be right for our business and promote us positively to our clients.
We will ensure that the crafted strategies will be one that will not only communicate our brand but will also allow our brand stand out. Below are some of the publicity and advertising strategies we intend to use in promoting Citotech BPO LLC;
- Create a website that is professional and explains what we will be offering our clients
- Use social media platforms such as Facebook, Twitter and Google Plus to our advantage by posting updates with special information weekly
- Throw quarterly contests and special offers an use hash tags to make sure our brand trends
- Attend trade shows and events in order to network, know about new technologies and participate I workshops and presentations that would bring new ideas
- Join relevant associations in order to have valuable information on industry trends and allow others know about our progress
- Install billboards in various strategic locations all around Texas
Due to the fact that we would be offering a service, it might not be so easy to determine how to rightly charge our clients especially as we would be offering various other services in addition to our core service. We however will deploy the following strategy that will allow us determine what factors we would use in determining the right rates for our clients. Some of the factors we would use are cost of leasing the facility, power costs, property taxes and what our nearby competitors are offering.
However, since we are relatively new to the market, we intend to start off with lowering our rates for at least two months in order to increase awareness about our business and also attract the needed clients to our business. Lowering our rates for the first two months will also allow us gain a sizeable share of our target market.
After a careful study of our proposed discounted rates, we have found that even though our revenue might be low during this period, we would not be running at a loss in any way.
- Payment Options
Due to the various services that we will offer at Citotech BPO LLC, we will offer different payment services that will suit the different business preferences of our customers. Our payment options will be made to be convenient for our various clients.
Therefore, the payment options that we will make available to our different clients are;
- Payment via check
- Payment via online payment portal
- Payment by bank transfer
The above payment options which were carefully chosen by us will work without any sort of hitches for our clients and will also be very convenient for our business as well.
13. Startup Expenditure (Budget)
In order to set-up and run a standard business process outsourcing company, one would require all the equipment that will used to be genuine and be of a high quality so as to be able to withstand the heavy workload that they would be required to carry out.
The bulk of the things that the generated capital would be used on asides from procuring equipment are, leasing and renovation of a facility, paying the salaries of employees and utility bills for at least six months, and ensuring that there is sufficient power.
Therefore the key areas where we intend to spend our start-up capital on are;
- Total fee for registering Citotech BPO LLC in the United States of America – $750
- Obtaining of licenses, local permits, legal services as well as accounting and browser-based call center software – $1,250
- Insurance policy (general liability, equipment insurance, property insurance and workers’ compensation) – $3,000
- Cost of hiring a business consultant – $2,000
- Leasing and renovating a 20-seater facility for use for at least a year – $20,000
- Operational cost for the first 6 months (salaries of employees and payment of utility bills) – $200,000
- Other start-up expenses which includes (workstations, computers, telephone, office furniture, ventilation, lighting, secure internet) – $25,000
- Cost of purchasing office supplies (staplers, folders, paperclips, pens, paper, ink and pencils) – $5,000
- Marketing promotion expenses (general marketing expenses and promotion activities for grand opening ceremony) – $5,000
- Cost of purchasing an official vehicle – $30,000
- Cost of launching a website – $1,000
- Cost of throwing a grand opening party – $5,000
- Miscellaneous – $12,000
From the above analysis, we would need an estimate of $310,000 to be able to start and successfully set up a BPO company here in Houston – Texas. It should be noted that the above capital stated will be used to pay the salaries of employees and utility bills such as electricity and water for at most 6 months. We will also use part of the capital to lease and renovate a 20-seater facility as well as procure the equipment that will be used.
Generating Funding / Startup Capital for Citotech BPO Business
Citotech BPO LLC, is a business outsourcing company that is owned by Steve McMahon, a prominent business man and property developer, who has several businesses both here in Texas and all around the United States of America. Steve will not be seeking for external investors for his business and so will likely limit his sourcing of income to just two avenues;
The two different areas where Steve McMahon intends to generate capital from are;
- Generate 40% of capital from sale of some his stock
- Approach the bank to loan 60% of the capital
N.B : Steve sold some of his personal stock for $124,000 in order to generate the first capital for his business. He approached the bank in request for the sum of $186,000 so as to be able to kick-start his business. The loan will be repaid in 7 years at the rate of 3% per annum and has already been approved by the management of the bank. All necessary papers have been signed and the Citotech BPO LLC’s account will be credited by the end of the week.
In order to ensure that we grow our business to an enviable level, we intend to focus on several strategies that would allow us not only thrive but also excel as well. Some of the factors that we intend to focus on are; building a strong business structure, retaining a high rate of our loyal customers and also reinvesting in our business in order to ensure that we remain for as long as we should.
Building a business structure is very vital because not only will it allow us to start and run our BPO company with as few hitches as possible, it also enable us to be able to focus on our core service and achieve our goals more quickly. We will hire qualified and highly competent employees that do not only have the necessary experience but also are aligned to our core values and are committed to ensuring that we are able to grow from a start-up to becoming a national force that is able to compete favorably with our competitors.
We will ensure that our employees are well trained so that their skills will not only be enhanced but will also ensure that the productivity of our company are enhanced. We will also ensure that our employees are well paid and have a great welfare package that is better than their counterparts in similar start-ups such as ours. We will also ensure that the environment we will use for our employees is conducive.
We will ensure that we retain a high level of our clients because we know how valuable our clients are to us. Our aim is to ensure that we not only meet with our clients’ expectations but also surpassing them as well. We will offer our customers high quality service that is commensurate with our core policies.
We will ensure that all our loyal customers are rewarded with incentives every once in a while. We also intend to offer contests and other attractive programs in a bid to attract new customers to patronizing our services.
For our business to grow to an enviable standard, we will re-invest 25% of our profits back into the business. This is to ensure that we have a solid bottom line and that our BPO Company is able to run itself without having to sources for funding externally all the time. We intend to focus on these three factors as we believe that we would be able to suitably sustain and grow our business.
Check List / Milestone
- Business Name Availability Check: Completed
- Business Registration: Completed
- Opening of Corporate Bank Accounts: Completed
- Securing Point of Sales (POS) Machines: Completed
- Opening Mobile Money Accounts: Completed
- Opening Online Payment Platforms: Completed
- Application and Obtaining Tax Payer’s ID: In Progress
- Application for business license and permit: Completed
- Purchase of Insurance for the Business: Completed
- Conducting feasibility studies: Completed
- Generating capital from family members: Completed
- Applications for Loan from the bank: In Progress
- Writing of Business Plan: Completed
- Drafting of Employee’s Handbook: Completed
- Drafting of Contract Documents and other relevant Legal Documents: In Progress
- Design of The Company’s Logo: Completed
- Graphic Designs and Printing of Packaging Marketing / Promotional Materials: In Progress
- Recruitment of employees: In Progress
- Creating Official Website for the Company: In Progress
- Creating Awareness for the business both online and around the community: In Progress
- Health and Safety and Fire Safety Arrangement (License): Secured
- Opening party / launching party planning: In Progress
- Establishing business relationship with vendors – wholesale suppliers / merchants: In Progress
- Purchase of trucks: Completed
More on B2B Sector
Business Process Outsourcing (BPO)
Type of outsourcing wherein a third-party service provider is employed to carry out one or more business functions in a company
What is Business Process Outsourcing (BPO)?
Business process outsourcing (BPO) is a type of outsourcing wherein a third-party service provider is employed to carry out one or more business functions in a company. The third party is responsible for carrying out all operations related to the business function.
BPO is also known as subcontracting or externalization. It was originally used in the manufacturing industry but is now used for numerous business processes.
- Business process outsourcing (BPO) is a type of outsourcing wherein a third-party service provider is employed to carry out one or more business functions in a company.
- Organizations contract with BPO vendors for back office and front office operations.
- BPO offers several benefits, such as lower costs, global expansion, and higher efficiency, while some of the drawbacks include security issues, hidden costs, and overdependence.
What is BPO Used For?
Organizations contract with BPO vendors for two main areas:
- Back office operations : They include payment processing, information technology services, quality assurance, etc.
- Front office operations : They include marketing , sales, customer relations, and grievance redressal.
In many cases, organizations outsource one or more functions. For example, instead of outsourcing all HR functions, the company will outsource just the payroll processes.
Over the years, the BPO industry’s expanded considerably and offers a wide range of services and functions to organizations.
Types of BPO
BPO companies can be divided into several types based on their location:
- Onshore outsourcing : When an organization hires a service provider that is located in the same country. It is also called domestic outsourcing.
- Nearshore outsourcing : When an organization hires a service provider in a neighboring country.
- Offshore outsourcing : When an organization hires a service provider in a different country. It is also called offshoring.
Making the BPO Decision
Transferring in-house work to a BPO company requires change management as it impacts employees, workflow practices, and business operations as a whole. The outsourcing decision-making process involves the following:
- Company executives arrive at the decision to outsource a business process or a part of it.
- They weigh the pros and cons of the decision and decide whether it makes strategic sense to the organization.
- They identify the best BPO for the work and shift the work from in-house to the external services provider.
Benefits of BPO
1. lower costs.
One of the main reasons organizations outsource is cost reduction. Instead of buying IT equipment and hiring more employees to do different tasks, they can outsource the tasks to a service provider, reducing or even eliminating overhead costs .
2. Higher efficiency
BPO companies are experienced in different fields and perform at the highest level. They also adopt best practices and use the latest technology. It naturally results in higher efficiency and greater productivity.
3. Focus on core business functions
Many companies, usually start-ups, encounter a difficult time with ancillary business activities. Transferring non-core processes to a BPO company gives the organization more time to focus on its main business activities.
4. Global expansion
If an organization decides to enter an overseas market, some activities that require local market knowledge, national law expertise, or fluency in a foreign language can be assigned to a BPO company. It helps in boosting efficiency and quicker expansion.
Drawbacks of BPO
1. security issues.
There is the possibility of a security breach while working with a BPO company as sensitive data needs to be shared and processed.
2. Overdependence on the BPO company
When work is outsourced to a BPO company for a long period, an organization can become accustomed to the way they work and tend to get overdependent on them. It leads to the organization paying higher than the usual costs if demanded.
3. Communication problems
When working with an offshore BPO company, the language barrier may turn out to be a hindrance to efficiency. Outsourcing work such as development or IT services, where a lot of people are involved, can lead to mistakes due to miscommunication. It can be extremely costly sometimes.
4. Unforeseen or hidden costs
As work is not always hard and fast, the organization may underestimate the quantity of work, and it can lead to costs that are higher than expected. Working with a BPO company can lead to legal expenses in case of a dispute or disagreement. Delay in delivery of work can also result in indirect costs.
Related Readings
Thank you for reading CFI’s guide to Business Process Outsourcing (BPO). To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:
- Outsourcing
- Business Operations
- Capitalized Cost
- Cost Structure
- See all management & strategy resources
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Outsourcing
7 Steps to Successful Outsourcing for Your Business
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So you’ve decided to outsource some work to a third party, but how do you make sure you get the results you’re after? You need to find the perfect partner, someone who can follow your design but has the autonomy to work independently. How well they perform will have a direct effect on your business, so this is a decision that you need to get right.
If you’re new to the outsourcing approach then this is the article that you need. We’re going to go over everything you need to know to create an effective outsourcing strategy. We’ll talk about the steps involved in outsourcing and how you can make sure your partner delivers the goods.
We’ll go over things such as how to transfer key information to a third party and how to build new processes to help facilitate an outsourcing relationship. You’ll also learn how to handle ending a contract whether it comes to a natural stopping point or the work isn’t up to standard.
1. Finding the right partner
The most important step of an outsourcing approach is finding the right company or person to partner with. Someone without the necessary experience is going to hold your company back. You want to choose a partner who has proven experience working to deadlines, meeting and exceeding expectations, and providing good value for the work.
As part of your outsourcing implementation plan, you’ll need to decide the scope of the project you are handing off. This will help to inform what kind of company you partner with, whether it is something small like logo design or something grander like creating assets for a video game.
A logo can be handled by a single person or a design firm. There are plenty of websites that can help you find a freelancer including Upwork, Fiverr, and 99Designs. On these websites, you’ll be able to review someone’s portfolio and professional feedback before approaching someone.
Sometimes it makes financial sense to outsource entire departments. Small businesses may need an accountant but lack the resources to bring someone in full-time. A great option is to contract an outside firm that can handle this for you. In these instances, you want to look at firms with outsourcing experiences that can deliver great results at cheap rates.
2. Finalizing the deliverables
Once you’ve found the right partner, you’ll need to decide on the deliverables before a contract can be drawn up and signed. An effective outsourcing strategy will include a detailed contract that leaves no room for error on what is expected. A key part of early conversations should be about locking down expectations and making sure everyone is on the same page.
Here is where an outsource implementation plan is going to make the biggest difference. It may seem like a lot of work to make but it’s useful to have this document for both parties to refer back to. Include details about the goals of the partnership and how your business will support the third party.
One key thing to do is create systems and processes that are uniform between both businesses. Using a project management tool like Teamly means everyone can follow the same tasking system and be able to communicate effectively between teams. Each deliverable and every step involved can be included in Kanban boards on Teamly for quick reference.
Lastly, a dry run at this stage is going to be beneficial for both your business and your outsourcing partner. Set aside a few hours where both teams can pretend it is the first day of work together. Go about the day as you would expect things to progress and make note of any inefficiencies. A rehearsal helps to ensure everything works smoothly and there are no roadblocks between the two companies.
3. Partner Relations
Once the deliverables have been agreed and the contract is signed you should appoint someone to be the contact person. By having a single point of contact between your business and the third-party vendor, any issues or questions can be addressed quickly and coherently. An effective outsourcing strategy will avoid emails to and from multiple people as this can slow down progress.
You’ll likely have set a timeframe for the deliverables in the contract and if your freelancer or agency doesn’t know who to contact they may not be able to keep to it. Treat this as a relationship instead of a transaction and nurture it as you would your own employees. You may elect yourself as the point person, or a trusted member of staff. The key is to select someone who can take ownership and seek out information on behalf of the partner company.
This will create a closer working relationship and will help to grow a long-lasting partnership between the two companies. If your project is large in scope it may be worth assigning a project manager or team that can facilitate relations with the third party. As long as you can avoid communication breakdowns, the project should run smoothly, on time, and on budget.
4. Knowledge transfer
One of the key steps involved in outsourcing is the transfer of knowledge from your business to the partner company. They need to be trained in how your business operates and how to meet your expectations. Other companies may not use the same software, so it will be important to get them up to speed if they need to use in-house software such as your CRM.
Sharing your tech stack with a third party can ensure that you’re working in tandem with each other. This will also help your in-house team to assist the outsourced team where it is appropriate. They may already be using the same tech you use but if they don’t it’s worth getting everyone on the same software.
They may also need access to design documents and knowledge of company tone and attitude. Knowledge transfer is a collaborative process that can be shared through a series of informal and formal discussions. Early in the project, you should arrange a meeting to discuss the brand as well as the deliverables.
Consider if it is worth creating templates and best practices (such as naming conventions, support, and codifying) that can be shared with the outsourced vendor which they can share with their new hires. Following Agile methodology can help to facilitate knowledge transfer by breaking the project down into short 2 week sprints. There will be ample opportunities to share knowledge during meetings and roadblocks can be addressed before the next sprint.
5. Implement transition plan
Here is the part of your outsourcing implementation plan that covers the transition to the third-party vendor. This will be a highly collaborative process and should be led by the in-house project manager if one has been assigned. Involved in this process are the various internal stakeholders as well as the important people at the new company.
You should make sure that the dry run has been completed successfully, the tech stack has been agreed upon, and the transfer of knowledge has everyone on the same page.
Now you’ll need to decide on the timeline for the deliverables and each component of the project. Send over the important assets that the third party needs to complete their work. This could include login information for certain software, or shipping necessary hardware to their address.
Once everything is in place, it’s time to take your hands off the wheel and entrust the developer to deliver the goods. Any third-party vendor will want to retain their autonomy during this process. Micromanagement is likely to rub them the wrong way and if you are unable to let go, it may be better to do this in-house.
Let your point person be there to answer any questions but allow the vendor to work away on the deliverables. They will use your design document and best practices to ensure the work fits your brand identity.
6. Assessing the deliverables
Before you sign off on the deliverables you’ll want to ensure they meet your expectations. Depending on the type of work being done you should try to build revisions into the contracts. For example, if you are commissioning a logo design from a freelancer or agency, make sure to add one or two revision requests. This protects you if the initial design misses the mark.
Other types of contracts may stipulate work will continue until the final product is signed off on. The important thing is to ensure you’re not paying for work that you can’t use or limit the amount of money spent on goods you aren’t happy with.
In a perfect world, the end result will be ideal and the project can be signed off. At which point you can look at commissioning a new project or ending your relationship there, with both parties happy with the result.
Sometimes, however, there will be issues with quality or deadlines missed which can sour the relationship. At this point, you’ll need to decide whether to cut your losses and find a new vendor, bring development in-house, or swallow your pride and accept the project as-is. In order to make this decision, you’ll need to look at the costs, resources, and time available for the project.
7. Ending the contract
Ending a contract with a third-party vendor can happen for a number of reasons and not all of them are within your control. The most obvious reason pertains to quality but sometimes you’ll need to end a contract early if there are financial issues. If you are hit by an economic downturn, one of the first things a company will do is look to end outsourcing to save money.
An exit plan is a great idea in these instances to ensure you can end the relationship on good terms. While it is impossible to plan for every natural or economic disaster that may come into play, you can plan ahead for changes in the market and budget constraints. The exit plan should contain the steps you’ll take if your partner fails to meet expectations or other factors that mean you need to terminate the account.
In the plan, you should cover the steps involved with bringing the project in-house or transitioning the assets from your partner to a new vendor. Consider how to facilitate these changes without running into interruptions in your day-to-day business.
An outsource implementation plan is crucial to start working with outside partners. You’ll need to know how to set deliverables and timeframes in order to work effectively together. When selecting a partner you need to pick someone with proven experience of working with an outsourced approach.
Allow them the autonomy to work on the project the way they see fit while adhering to your tech stack and brand identity. Share design documents and culture with them through formal and informal discussions. If you are unhappy with the work they have provided, look at implementing your exit plan and choose a new provider or look at bringing the work in-house.
Ultimately, outsourcing should save you time and money for projects you can’t work on in-house. Creating a good working relationship with other businesses will be beneficial for your company’s growth in the long term.
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Project Management
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Outsourcing Business Plan
If you are seeking to start an outsourcing company, a business plan will be required to better understand the unique aspects of the operations and how your company can overcome its competition. These factors are not only important for internal planning purposes, but especially critical if you are seeking third-party financing. Generic business plan software produces a dull report and other companies use under qualified writers. Pro Business Plans works with you one-on-one to understand the unique aspects of your business with its team of professional investment bankers to produce your outsourcing business plan.
The success of an outsourcing company depends upon several factors including the quality of work, nature of the industry, marketing, and operations structure. A custom business plan supports your company’s unique approach to the market for its outsourcing business. The professional team at Pro Business Plans works with your company to analyze every dimension of the business model and outline a clear plan of action and profitability forecasts for your internal analysis and financing acquisition. Investors have an interest in outsourcing companies, but are particularly interested in those that have a unique approach to the market or are designed to be more efficient that the competition.
Business Model
Every successful outsourcing business has achieved success by its ability to be more efficient than its competition or acquire some strategic market positioning. The business model portion of an outsourcing business plan is how the company functions as a whole to create value and translate that value into profits. Every outsourcing company is unique depending upon where it falls on the spectrum of price and quality, along with the industry that it operates within. A highly price sensitive outsourcing business model based in India would be strikingly different than one sourcing top talent in Silicon Valley .
- Marketing Plan
The marketing section of an outsourcing business plan outlines exactly how your company will acquire clients. The market for outsourcing services is highly competitive, but increasingly in demand. Pro Business Plans has worked with many companies in the outsourcing industry to prepare a strategy to win new clients and retain them. In some cases, this may consist of traditional B2B selling, whereas others will be more innovative such as co-promotion and strategic partnerships acquired through the Pro Business Plans network. The strategies are derived from what has worked for clients in the past, but adapted to meet the unique business model, industry, and location of every customer.
Financial Projections
A professional outsourcing business plan will always have financial projections that are reasonable and achievable. A robust financial model can help your management team to make decisions more efficiently, in addition to appearing more organized and well prepared for any third-party financiers. Pro Business Plans takes an investment banking approach by comparing the financials of similar companies and forming reasonable assumptions to adjust them to your company’s unique market approach and operational structure. Custom financial modeling work may also be provided within the outsourcing business plan, such as scenario analysis to help you better forecast the pricing schedule or understand how a adding a new service line will increase overall sales metrics.
What is Included in Our Custom Outsourcing Business Plan?
- SWOT Analysis
- Competitive Analysis
- Profitability Analysis
- Personnel Plan
- Organizational Chart
- Company Valuation
- Executive Summary
- Company Description
- Keys to Success
- Three Year Objectives
- Product or Service Description
- Market Research
- Fundraising Support
- 12 Month & 3 Year Profit & Loss
- 3 Year Balance Sheet
- 12 Month & 3 Year Sales Forecast
- 12 Month & 3 Year Cash Flows
- Break-Even Analysis
- Financial Ratio Analysis
- Management Team
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What Is Outsourcing?
Understanding outsourcing, special considerations.
- Outsourcing FAQs
The Bottom Line
Business Essentials
Outsourcing: How It Works in Business, With Examples
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Outsourcing is the business practice of hiring a party outside a company to perform services or create goods that were traditionally performed in-house by the company's own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. As such, it can affect a wide range of jobs, ranging from customer support to manufacturing to the back office.
Outsourcing was first recognized as a business strategy in 1989 and became an integral part of business economics throughout the 1990s. The practice of outsourcing is subject to considerable controversy in many countries. Those opposed argue that it has caused the loss of domestic jobs, particularly in the manufacturing sector. Supporters say it creates an incentive for businesses and companies to allocate resources where they are most effective, and that outsourcing helps maintain the nature of free-market economies on a global scale.
Key Takeaways
- Companies use outsourcing to cut labor costs, including salaries for their personnel, overhead, equipment, and technology.
- Outsourcing is also used by companies to dial down and focus on the core aspects of the business, spinning off the less critical operations to outside organizations.
- On the downside , communication between the company and outside providers can be hard, and security threats can amp up when multiple parties can access sensitive data.
- Some companies will outsource as a way to move things around on the balance sheet.
- Outsourcing employees, such as with 1099 contract workers, can benefit the company when it comes to paying taxes.
Outsourcing
Outsourcing can help businesses reduce labor costs significantly. When a company uses outsourcing, it enlists the help of outside organizations not affiliated with the company to complete certain tasks. The outside organizations typically set up different compensation structures with their employees than the outsourcing company, enabling them to complete the work for less money. This ultimately enables the company that chose to outsource to lower its labor costs.
Businesses can also avoid expenses associated with overhead , equipment, and technology.
In addition to cost savings, companies can employ an outsourcing strategy to better focus on the core aspects of the business. Outsourcing non-core activities can improve efficiency and productivity because another entity performs these smaller tasks better than the firm itself. This strategy may also lead to faster turnaround times, increased competitiveness within an industry, and the cutting of overall operational costs.
Companies use outsourcing to cut labor costs and business expenses, but also to enable them to focus on the core aspects of the business.
Examples of Outsourcing
Outsourcing's biggest advantages are time and cost savings. A manufacturer of personal computers might buy internal components for its machines from other companies to save on production costs. A law firm might store and back up its files using a cloud-computing service provider, thus giving it access to digital technology without investing large amounts of money to actually own the technology.
A small company may decide to outsource bookkeeping duties to an accounting firm, as doing so may be cheaper than retaining an in-house accountant. Other companies find outsourcing the functions of human resource departments, such as payroll and health insurance, as beneficial. When used properly, outsourcing is an effective strategy to reduce expenses, and can even provide a business with a competitive advantage over rivals.
Criticism of Outsourcing
Outsourcing does have disadvantages. Signing contracts with other companies may take time and extra effort from a firm's legal team. Security threats occur if another party has access to a company's confidential information and then that party suffers a data breach. A lack of communication between the company and the outsourced provider may occur, which could delay the completion of projects.
Outsourcing internationally can help companies benefit from the differences in labor and production costs among countries. Price dispersion in another country may entice a business to relocate some or all of its operations to the cheaper country in order to increase profitability and stay competitive within an industry. Many large corporations have eliminated their entire in-house customer service call centers, outsourcing that function to third-party outfits located in lower-cost locations.
First seen as a formal business strategy in 1989, outsourcing is the process of hiring third parties to conduct services that were typically performed by the company. Often, outsourcing is used so that a company can focus on its core operations. It is also used to cut costs on labor, among others. While privacy has been a recent area of controversy for outsourcing contractors, it has also drawn criticism for its impact on the labor market in domestic economies.
What Is an Example of Outsourcing?
Consider a bank that outsources its customer service operations. Here, all customer-facing inquiries or complaints with concern to its online banking service would be handled by a third party. While choosing to outsource some business operations is often a complex decision, the bank determined that it would prove to be the most effective allocation of capital, given both consumer demand, the specialty of the third-party, and cost-saving attributes.
What Are the Disadvantages of Outsourcing?
The disadvantages of outsourcing include communication difficulties, security threats where sensitive data is increasingly at stake, and additional legal duties. On a broader level, outsourcing may have the potential to disrupt a labor force. One example that often comes to mind is the manufacturing industry in America, where now a large extent of production has moved internationally. In turn, higher-skilled manufacturing jobs, such as robotics or precision machines, have emerged at a greater scale.
While outsourcing can be advantageous to an organization that values time over money, some downsides can materialize if the organization needs to retain control. Outsourcing manufacturing of a simple item like clothing will carry much less risk than outsourcing something complex like rocket fuel or financial modeling. Businesses looking to outsource need to adequately compare the benefits and risks before moving forward.
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Home » Articles » Everything you need to know about procurement outsourcing
Everything you need to know about procurement outsourcing
Vilma Estrellado
Last updated: March 13, 2023
Nowadays, global companies become competent when they make their operations more efficient. E-commerce stores and product-based businesses mostly leverage their strengths by delegating some of the complex work to service providers.
Procurement is the key to the success of manufacturers and e-commerce businesses around today. Creating a product is never easy with the materials and equipment needed to manufacture one.
Handling procurement in-house, meanwhile, won’t always solve the problems in sourcing materials.
Small and large companies prefer procurement outsourcing for the convenience and expertise they can get out of their teams. Learn how this helps businesses maintain their operations in this article.
What is procurement outsourcing
Procurement outsourcing refers to the process of delegating procurement-related functions to a service provider offshore. The third-party vendor will be responsible for either the entire process or a portion of it, from sourcing goods to supplier management .
Product-based companies rely on procurement the most. With the towering costs and limited resources in a local area, they have to find the most cost-efficient way to create their products. Startups, meanwhile, don’t have enough knowledge and expertise to manage procurement at first.
Procurement outsourcing fills the gap in terms of process management and expertise.
Types of procurement services to outsource
Companies can delegate two types of procurement outsourcing services.
Direct procurement
Direct procurement deals with the purchase of materials to be used in a company’s core activity. This includes raw materials to create a product as well as tools and equipment for a certain service.
The materials procured directly will eventually reach customers in another form. For instance, in making appliances, the company procures motors, wires, steel, and other materials to be assembled. The end product will then reach the customers once it is released in stores.
Indirect procurement
Meanwhile, indirect procurement deals with the purchase of items for non-core activities. This includes office supplies, workspaces, and equipment for repairs and maintenance.
Unlike direct procurement , materials purchased using indirect procurement do not affect core business production. However, indirect expenses are still crucial in keeping the daily operations of the business running efficiently to support production.
Why companies choose procurement outsourcing
Time will come when you cannot always handle procurement in-house. While a small core team can help you establish your processes at first, they would need support in case you expand your offerings.
Small and large companies use procurement outsourcing for the following reasons.
Cost advantages
Sticking to few available suppliers will only limit your capabilities to create better products cost-effectively. By outsourcing procurement services, you get to find suppliers offering cheaper yet high-quality alternatives for your materials.
At the same time, some products would require you to get resources from other countries. Procurement outsourcing providers help you connect with more suppliers globally when needed.
Better operational efficiency
Your in-house team won’t have a divided focus with procurement outsourcing. You can delegate this to a service provider that can concentrate on transacting with your suppliers and buying the material and tools you need.
Compliance tracking
Oftentimes, you lose track of spending allocation and compliance in a certain project when doing in-house procurement. You could end up spending more on your materials that do not fit your standards, sacrificing your product quality in return.
Procurement outsourcing helps companies track and keep their materials at par with their standards. This is crucial, especially when dealing with products following the local and international standards.
More chances for innovation
Lastly, procurement outsourcing opens better chances for innovation , specifically in your products and processes. You can access the latest technology used by your procurement team through your service provider.
At the same time, this helps you update your procurement processes according to new regulations and standards set by global institutions.
The procurement outsourcing market
The global procurement outsourcing market was projected to grow up to US$7.3 billion in 2021. With the pandemic accelerating businesses and technologies forward, the industry expects that outsourcing procurement and other services will continue to rise over time.
A lot of procurement outsourcing companies offer comprehensive services to global companies. This includes IBM, Accenture, and other large-scale firms that cater to top businesses.
However, procurement outsourcing poses several operational risks, including the following.
- Reduced control . Since you’ll share responsibilities with your service providers, your operational control could also be reduced. You could lose track of the daily purchases and spending when you rely solely on your provider.
- Integration of operations . Procurement outsourcing means you and your in-house employees should be in the loop with your outsourced team . This could mean adjustments on your part since you have to be in sync with your service provider.
- Ensuring service continuity . You should ensure continuity of your services, especially during the transition to service providers. Lack of preparation for this could affect the delivery of your products to your customers.
Proper planning and strategizing prevent these risks from happening. Aside from this, hiring a suitable procurement outsourcing provider could even improve your company’s performance in terms of offerings and operations.
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Derek Gallimore has been in business for 20 years, outsourcing for over eight years, and has been living in Manila (the heart of global outsourcing) since 2014. Derek is the founder and CEO of Outsource Accelerator, and is regarded as a leading expert on all things outsourcing.
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A guide to Set up a Business Process Outsourcing firm
- by Sejal Jain
- November 19, 2021
Business Process Outsourcing firm is a growing industry, and for good reason. The majority of companies outsource something, even if they don’t think of it as outsourcing. Before getting started, companies should be aware of what business process outsourcing is and how it works, as well as what benefits they hope to receive and what services are core to their business.
Business Process Outsourcing firm: What Is It?
An external party performs non-core business functions for an organization. This is called business process outsourcing. Businesses traditionally outsource this work to BPO companies.
Many American companies outsource their customer service to small BPO companies in India, for example.
However, with the rise of the gig economy, companies are now also hiring freelancers to do their jobs for them.
Depending on the location of the vendor, the BPO industry is divided into three categories. By combining the three categories, businesses can achieve total process optimization:
- Offshore vendors are located outside of the country where a company is based. The Philippines is an offshore BPO provider that may be used by a U.S. company.
- Nearshore vendors are located in countries that border the contracting company’s nation. A BPO in Mexico is classified as a nearshore vendor in the United States, for example.
- Onshore vendors are based in the same country as the contractor, though they might be in another city or state. In Seattle, Washington, a company could use an onshore outsourcing vendor located there or in Huntsville, Alabama.
What is the purpose of companies doing this?
Companies can focus exclusively on their core business operations when they outsource non-core activities like data entry and customer service. This allows them to allocate resources only to what matters most.
A guide to starting a BPO
Indian BPOs handle call centers, IT, web development, and other business processes for many companies. You can start your own Business Process Outsourcing company by following these steps.
1. Decide what kind of BPO you want to start
In the BPO industry, you need strong business acumen and some expertise in your field. You can approach this in a couple of ways:
- Become an expert in a specific service that you provide across multiple industries (known as horizontal BPO).
- Provide BPO services tailored to specific verticals like healthcare, financial services, manufacturing, retail, and utilities and energy.
Among the most common BPO services are:
- Professionals handle inbound and outbound calls.
- Transcribing services.
- SEO and website design services.
- Paying medical bills and processing claims.
- Services for data entry.
It is wise to focus on niche markets when starting a BPO business. In the same breath, it is important to be flexible and open to local and global workforce demands.
2. Plan a new business strategy
The next step is to develop a business plan for your company.
A well-researched and comprehensive plan is ideal. Taking a close look at your competitors’ activities and analyzing the intricacies of your chosen niche is imperative.
As part of your business plan, you should:
- Determine the long-term direction of your company.
- Establish clear business objectives, goals, and milestones.
- Determine your business structure.
- Make sure lenders and investors understand your business idea.
You should review and update your plan regularly, even if you develop a good plan. As a result, you can always adapt to changes in the market.
3. Fill out the paperwork
In order to establish a business process outsourcing firm in India, you must register your business under the Companies Act 2013. Private Limited Companies should be registered for call centers and other IT-related services.
If you wish to start small, two directors and two shareholders are required; both can be the same person. Director and shareholder requirements include:
- The Aadhaar card.
- Statement from the bank.
- Email and mobile number.
- Proof of address and NOC form.
After the company has been registered, its directors or promoters should open a bank account in its name.
The Department of Telecommunications requires BPOs using telecom resources to obtain Other Service Provider (OSP) Licences.
After receiving the OSP Registration Certificate, GST registration is required.
4. Invest in the equipment you need
The operators of call centers are going to need good computers, reliable telephone lines, and a high-speed internet connection. Your business will require office space, even if it is in a small rented facility or your garage.
In addition to regular office supplies, you will also need:
- Business tools that integrate with call center software.
- Software for call conferencing and monitoring.
- Call recording software.
- A pop-up screen with automatic caller information.
- A good headset.
Recent advancements in business process outsourcing have enabled the industry to reduce costs and accelerate growth by utilizing emerging technologies such as cloud computing, social media, and automation. It is advisable to deploy technologies in a phased manner in order to maximize ROI.
5. Accept short-term contracts first
A wide network and reputation of established BPOs generate referrals. To begin with, it is best to let clients try you out for a short period. As a result, you will get bigger projects.
A new outsourcing company might make some companies sceptical.
You will win some good long-term contracts and gradually establish yourself as a recognized name in the BPO sector thanks to your commitment and quality service.
6. Getting Clients And Marketing Your Business
![]](https://www.jamesallenonf1.com/wp-content/uploads/2021/05/Business-Marketing01.jpg "business plan for business process outsourcing")
As soon as your business is up and running, you need to market it to gain more clients.
A. Your Company Should Have A Top-Notch Website
Make sure your company’s website is user-friendly. Hire a web designer and copywriter to create your site.
B. The networking aspect
It’s best to use your current network to find clients when you’re just starting out. Since they already know you, they’ll be more than willing to try out your BPO firm. To build your name in the BPO industry, you can even ask them to recommend you to their connections.
C. Creating awareness
For years, BPOs relied solely on sales teams for leads, since they targeted only enterprise clients.
Owning a BPO company isn’t rocket science. Analyze the BPO market in your niche, develop a solid business plan, complete necessary paperwork, and invest in the right tools. When you’ve finished those steps, you’ll have no trouble running your BPO firm and growing it quickly!
Also Read: Top 10 Best Cloud Computing Based Business ideas for 2021
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What Is Business Process Outsourcing and What Are Its Benefits?
Robynn Farrell
Nov 11, 2022 10:49
Introduction
Business Process Outsourcing (BPO), if implemented effectively, can not only boost your bottom line but the company’s productivity and overall efficiency too. By outsourcing non-core tasks to the best professionals globally, you automatically allow highly skilled and qualified employees to focus on what they do best.
But finding the best in the business, so to speak, is often easier said than done, as freelancers often claim to possess skills they don’t have agencies offering process outsourcing services promise incredible results but rarely deliver.
Thousands of companies have, therefore, turned to specialised business process outsourcing companies for these very reasons, along with reducing costs and improving customer experience. But what is business process outsourcing, and does it really benefit your business?
What is Business Process Outsourcing?
Business Process Outsourcing, or BPO, is the process of outsourcing business-related functions to third-party service providers. Although it was initially and primarily used in the manufacturing sector, BPO is now commonly found in almost every industry.
BPO can generally be divided into back-office and front-office business process functions.
Back-office functions include any support functions like information technology (IT), human resources (HR), payroll or Quality Assurance (QA).
Front-office functions relate specifically to customers, for example, marketing and sales or customer support. Below are some of the most common business process outsourcing functions contracted to third-party vendors:
- Administration
- Customer support
- IT management and services
- Manufacturing
- Payroll and accounting
- Shipping and logistics
Types of Business Process Outsourcing (BPO)
BPO is often categorised based on the kinds of services provided:
- Knowledge Process Outsourcing (KPO) — this is where a third-party service provider is hired to perform the business function as well as provide expertise.
- Legal Process Outsourcing (LPO) — this is a KPO relating specifically to the law. BPO examples in the legal sector include drafting legal documents or offering legal advice.
- Research Process Outsourcing (RPO) — this is a KPO relating specifically to companies in the research sector or requiring research services, such as biotech, marketing or investment companies.
How to outsource business processes
It’s important to ensure that the business process outsourcing company you choose meets your expectations and offers competitive services. Make sure that your BPO company of choice:
- Understands your business objectives.
- Has the capacity to meet your current and future business needs (scale-up requirements).
- Is aware of your regulatory and compliance criteria.
- Provides transparency in the form of reports and metrics.
- Is located conveniently so as not to affect business operating requirements, i.e., time zones.
There are three main ways to outsource business process tasks – the first step is choosing the right one:
- Onshoring – hiring service providers locally, usually from the same country.
- Nearshoring – hiring service providers in neighbouring countries.
- Offshoring – hiring service providers located on another continent (in a different time zone).
Each option has various effects on cost, productivity and efficiency. Which one you choose is determined by your business needs, resources and budget.
So what are the benefits of BPO, and how can it help boost your business efforts in an overly competitive market?
What are the benefits of BPO?
1. expand your it capabilities. .
Information technology is one of the most popular outsourcing solutions to date, business process outsource functions such as data analysis or web hosting. 92% of G2000 businesses outsource IT functions, while 27% of small businesses plan on outsourcing IT functions. Why? Because no matter the size of your business, IT is an integral part of any company.
Whether investing in the latest technological advances to streamline your day-to-day functions or enlisting the expertise of an IT professional to improve your website performance, IT outsourcing is the way of the future . So, to stay relevant and ahead of the competition, you may want to look abroad for IT outsourcing solutions — you may be surprised at what you uncover.
2. Expand Your Reach.
By utilising the expertise of experienced digital marketing experts, content creators and search engine optimization (SEO) professionals, you’ll be able to improve your online presence and discoverability among your competitors . It’s not easy to rank on Google these days, and as algorithms change regularly, so will your marketing and SEO strategies.
86% of business-to-business (B2B) companies outsource digital marketing processes, even though they have an in-house marketing team, while 20% of small businesses say they intend to outsource their digital marketing functions. This can range anywhere from pay-per-click (PPC) ad campaigns to web content and design. Whatever your needs, effective digital marketing can offer an impressive return on investment (ROI).
3. Expand Your Bottom Line
BPO allows you to save on costs in more ways than one. Firstly, by outsourcing functions offshore, you’ll have access to some of the most skilled professionals in their fields , often at a fraction of the cost.
Secondly, by alleviating your specialised in-house team of rudimentary tasks, you’ll give them time to focus on more pertinent ones and do what they were hired to do in the first place. After all, It makes no sense to pay a seasoned skilled professional to complete tasks that could easily be outsourced.
4. Improve HR Processes.
Did you know that outsourcing HR functions like recruiting, hiring and compliance can cut a company’s costs by almost 28%? Outsourcing HR or human resources reduces limitations often caused by a lack of resources or budget.
A recent study by Oxford University revealed that happier employees are at least 14% more productive. By outsourcing your HR functions you’ll be able to offer your employees more specialised, extensive HR services, resulting in happier, more productive employees.
The future of Business Process Outsourcing
As market trends change, so will your business objectives and needs, which means you’ll need to be able to move with the times . Being flexible in an ever-changing business landscape could, inevitably, be the deciding factor between success and failure.
Consumers are placing more emphasis on things like data privacy, expertise, quality, value-for-money and customer experience. This lends itself to business process outsourcing, as it allows businesses to provide the absolute best services and products at a competitive price point. So why not get ahead of the competition by leveraging the various benefits of outsourcing?
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Why bpo is integral to your business continuity plan.
The coronavirus pandemic has fundamentally impacted how our economy, and individual businesses, function. Many businesses are responding in a three-pronged approach: react, remodel, return. Companies face new challenges as they continue to do business in what will be the “new normal” and are turning to business process outsourcing, enabling a more adaptive and cost-effective business model in a heightened financially risky environment. Here are some ways companies have been leveraging BPO while adjusting their business continuity and disaster recovery plan:
Leveraging Digital Mailroom Services for Remote Work
In the disaster recovery phase, companies need to be prepared for potential work from home periods, and long-term there’s a growing demand among employees for remote work environments. Using an outsourced mailroom , where mail is sent, received, opened, and scanned at a single, offsite location before electronic distribution to your remote workforce, alleviates the risk of business coming to a halt if your in-house mailroom has to shut down. As companies realize how important mailroom outsourcing is in their business continuity plan, many are contacting outsourced mailroom providers to start the transition.
Cloud Software Is Now Critical to Business Continuity
In the past, many companies have kept documents stored on internal servers that everyone could access only at the office. With advances in cloud security, it’s now preferable to store documents and data in the cloud. Leveraging cloud software minimizes the reliance on your IT staff, eliminates the need for capital expenditures and most importantly allows remote workers to access and share the business critical documents they need as they work from home.
Once your employees have remote access, you can also help them spend more of their time on core business tasks, by taking advantage of workflow automation , which includes using automation software to distribute scanned files, electronic documents, information, and tasks among employees for immediate review and action no matter where they’re working.
Responding to Fluctuations in Business Growth
Cloud software not only allows your employees to access business critical documents from anywhere, but also makes it easier for companies to seamlessly and cost effectively react to changes in staff.
As governments start to contain the virus, companies will rapidly need to rehire their staff to meet market demands, while still factoring in the uncertainty of potential future waves of the pandemic or other global health crises.
Changing Workforce Environment and Demands
As employees adapt to their work from home offices, there’s going to be an increase in requests to work remotely. According to a recent study , half of employed adults are currently working from home because of the pandemic. As they invest in at-home offices and form habits around their remote work, many will likely request to work from home at least part time even after this all ends. And as businesses adapt social distancing safety measures, they won’t be able to fit as many employees into the same office space at the same time.
By using a BPO service for your document management processes, you can access and share critical documents more easily with your remote team, while improving employee satisfaction and productivity.
Go Paperless
Adopting a paperless office strategy can solve the problem of accessing your current files and future incoming documents if you do need to shut down offices or rotate the number of employees in your office at one time to help with social distancing.
As part of your business resilience plan, make a list of the different services you need such as document scanning, cloud document management, workflow automation software, and an outsourced mailroom. You are looking for a long-term partner who will become a core element in your business’s continuity. Instead of working with different vendors, consider finding a partner who provides a variety of services you can use as your business grows and adapts to the current unpredictable economic landscape.
If you’d like one-on-one support to discuss how business process outsourcing could help your business resilience plan, feel free to speak with one of MetaSource’s specialists at (888) 634-7684 or read more about what to look for in a BPO partner .
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Business Process Outsourcing
Comunicarea este vitală pentru întreprinderea secolului XXI pentru că. societatea informaţională a deschis calea comunicării nelimitate. Suportul este oferit de noile tehnologii informaţionale (NTI) iar punctele cheie sunt:
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Five tips for outsourcing business processes effectively in 2021.
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By Alfredo Atanacio, founder UassistME.CO / Inc. 30 Under 30 2012 / AGLN Fellow.
With fast-changing technology, companies are looking for ways through which they can make their business processes efficient. One strategy that can help you save both money and time is outsourcing.
Outsourcing involves handing over your business operations to third-parties with more experience and resources. Some of the most outsourced business processes by our clients are accounting, administrative work, back-office, marketing and customer support among other tasks.
If you are looking to outsource your business operations, you need to ensure that you use the right outsourcing partner that will meet your requirements. Based on our experience with our clients, these are some of the advantages of outsourcing and this is how to ensure that your business process outsourcing is effective.
Advantages of outsourcing business processes.
There are several benefits a company can enjoy from outsourcing some of its business processes. Some of the main advantages of outsourcing your business processes include cost reduction and enhanced speed and efficiency of business processes, especially those that may be too difficult or time-consuming to handle for your staff.
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Since third-party service providers are more experienced, they will use optimized processes and specialized tools to handle your operations. They can then perform tasks faster and in a more efficient way than your company would have. This will give your business an edge over your competitors.
Outsourcing also helps your company enjoy more flexibility in its operation and budget. The company gets time to focus on their business strongholds while they source non-core tasks from their outsourcing partners. Furthermore, it is a good way to expand your global presence and reach international customers.
Here are five tips for outsourcing business processes effectively.
Involve the executive team.
For your outsourcing relationship to be successful, consider involving the management team or the board in your organization. It is essential for management to involve their staff in decision-making and to explain the benefits of outsourcing.
Outsourcing will minimize costs. Also, it will help meet the company’s intended vision and goals. By explaining the benefits of outsourcing to the executives of your company, you will create a successful relationship with your partners.
Let them know how outsourcing can lead to increased productivity at a reduced cost. It is also an effective way of meeting the goals of the company. Once they understand the benefits of outsourcing, the executive team will more likely support the decision to outsource.
Getting everyone involved will also ensure proper documentation enabling greater levels of accountability and responsibility. Proper documentation is also important should there be any legal conflicts regarding the outsourcing process.
Define your goals beforehand.
Before you outsource and bring another company on board, it is necessary to define your goals. Map out both your long-term and financial goals so you know how best to make the outsourcing.
Once you have defined your goals, you will be in a better position to align them with your outsourcing plan. This will help you choose the most viable outsourcing partners who have the requirements your company needs.
Never forego quality.
Outsourcing is beneficial for your company. However, you don’t want to settle for anything less than the quality you need. Always discuss your expected quality upfront before beginning the contract.
Also, before choosing a service provider to contract with, take some time to research various options and do a comparative analysis. Opt for a service provider who has some form of experience in the tasks you are looking to outsource.
While it is an excellent thought to engage a new company and promote it, you don’t want to be a company’s first client to test its effectiveness. Before you make a final decision, be sure to evaluate their experience, previous record, qualifications, reputation and performance.
This is especially important when outsourcing complex tasks that need an experienced service provider. Always do a background check on several potential companies and make your selection based on your requirements. See to it that they have completed other commercial projects that satisfied their customers.
Factor in costs.
A key advantage of outsourcing is cost reduction. As a company owner or director, you might outsource for the main reason of saving money. However, the reality is that it is unusual for the actual savings to meet the estimated savings.
After subcontracting during the first few months, you should aim to save a good proportion of the amount you had hoped to save. There will always be time-loss and adjustments, among other factors, some of which you had not anticipated but in the medium and long run, you’ll be able to see clear rewards in time and money saved.
Nearshoring over offshoring.
Nearshoring can be defined as outsourcing business operations to a nearby country, whereas offshoring is relocating operations to any other country, near or far. I’d recommend choosing nearshoring over offshoring every time you can. Why? With nearshoring, you get many added benefits that make communication smoother, such as time zone compatibility, short flight duration, culture fit, less language barriers and in many cases, the official currency even may be the same. For example, El Salvador is only a 2-hour flight from major U.S. cities and the official currency of the country is the U.S. dollar. It’s easier doing business that way.
Outsourcing is an excellent tool if correctly employed. To ensure successful outsourcing business processes, businesses need to keep various factors in mind. Make sure that you do extensive planning and research to ensure that you land the right service provider for your outsourcing needs.
Whether you are outsourcing to cut costs or make your business lucrative, you want to outsource your operations to the right service provider. With the right outsourcing partner, you can be assured that all your business processes will be handled effectively.
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Transition to Outsourcing: How To Minimize Risk
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Transition is the stage of greatest risk in any outsourcing relationship, as it represents a sustained period where failure is acknowledged by customer and supplier as being possible. However, the precise scope of the transition will become clear only when the preferred supplier is selected and the preferred solution is determined in conjunction with the supplier.
The execution phase normally consists of three main activities:
- Transfer is an event, the action of moving responsibility for assets and people, leases, contracts and licenses from one organization to another.
- Transition is about the physical movement of processes from one organization to another.
- Transformation from the current environment to something better, faster or cheaper is almost always the driver for outsourcing in the first place.
This article deals with the most difficult of the three activities, transition.
The key principle of transition is that you are the party that owns the relationship with the incoming and incumbent service providers. This is true for newly outsourced services and for transition of services between outsourcing suppliers. As such, you must own the transition process, with a dedicated transition management team that controls the scope and deliverables.
Business process outsourcing (BPO) and IT outsourcing (ITO) transitions require full analysis of the services being outsourced. In addition, ITO transitions require careful mapping of the supporting infrastructure for hardware and software agreements. Careful management of the transition process is required to ensure that service-level agreements (SLAs) are met and that the outsourced services continue to support the business.
Irrespective of the long-term goals, transition (in the short term at least) must enable the supplier to assume service delivery responsibilities for services delivered out of the customer’s identified locations. This may involve introducing different procedures, systems management, monitoring, service desk and reporting tools or "simply" preserving the status quo prior to a transformation of the approach to service delivery.
Pre-planning sessions (transition definition workshops) with customer and supplier are advised to establish the transition planning process before the contract is signed and, thereafter, to work with them to develop an agreed plan and identify roles and responsibilities. It is essential that a basis for continuing service excellence is established, and that the perceptions of people are managed to ensure that everyone involved has the right level of expectations with regard to service acceptance and subsequent delivery.
It is essential that perceptions be managed to ensure that everyone has the right level of expectations with regard to service acceptance and subsequent delivery.
In seeking to manage these perceptions (and the expectation framework within which they are formed), it is necessary to recognize that the transition process should start long before a deal is struck, when the transition method and first outline transition plan are laid out in the request for proposal (RFP).
Typical transition activities during the selection phase include:
- Review and check on the supplier’s transition and transformation plan as part of the best and final offer.
- Provide objective judgment on activities and costs.
- Define scope, deliverables, timescale and acceptance criteria.
- Identify risks.
- Establish governance structures.
- Create teams (steering committee, transition and transformation team, communication team).
- Advise on working council activities.
- Create a project and implementation plan or review and enhance any existing plans.
Transition is a multi-lateral project, with the interests of the customer and supplier requiring satisfaction if the project is to succeed, and with all parties playing an active role in the management and execution of the project.
These interests, at a minimum, include:
- Customer (executives, management, retained staff and end-users).
- Suppliers (executives, sales teams, transition teams, delivery teams).
- Transferring staff (if applicable) from customer and perhaps others.
- Third parties (software, hardware and service).
Relationships might be more complex than this, requiring, for example, the integration of many direct and indirect suppliers.
Unless the true complexity of the context is fully identified and understood by the customer and supplier, and unless the transition process, transition plan and conduct of the transition project acknowledges that complexity, only limited success will be attained and the true long-term potential value of the relationships will never be realized.
Transition Aim and Objectives
The sole aim of transition is to ensure that the required business benefits of the outsourcing relationship (for the customer and supplier) can be achieved by implementing the terms of the agreements thoroughly.
To achieve this, the following objectives must be met:
- No disruption for the end users. To ensure that the transfer of services to supplier is transparent to the end user (i.e., the end user suffers little or no disruption, and that service levels are, at a minimum, maintained at the current levels).
- Establishing end-user perception of the suppliers and the services. To ensure that the perception of the end user to the new service arrangements are clear, positive and supportive.
- No disruption for the staff. To ensure that the staff, either being transferred or remaining with the customer (or incumbent supplier), remain focused on delivering—and motivated to deliver—the service. People transferring must be treated with respect and dignity, and it is appropriate for the customer to have significant input to the supplier’s internal communication process to ensure that this is so.
- No disruption to work in progress on projects. To ensure that all projects that are current during transition are identified, the responsibilities for completion defined and signoff parameters agreed between all parties involved.
- Establish working practices and procedures. To ensure that key staff is put in place and to build and implement processes and procedures that enable effective interface and control at all levels (executive, management, users and other suppliers).
- Verify and agree on service levels. To ensure that achievable service levels are defined, that sensible measurement is in place, and that the supplier’s ability to meet these levels is verified.
- Establish a continuous improvement program. To ensure that parameters are defined within which the supplier is to use its service delivery skills and competency to improve the service, and to establish this as an ongoing program with agreed budget and targets.
The supplier will want to:
- Ensure that due diligence is demonstrably complete via meeting pre-agreed criteria (and that any necessary adjustments to the original deal are made).
- Ensure that all agreed assets (if any) and maintenance contracts are transferred.
- Establish and prove their service structure.
- Raise their level of visibility with the end user and business organization.
Ownership and Resources
Effective outsourcing relationships are the result of realizing mutual business benefits and helping each other to do so. The customer and supplier must, therefore, mutually manage the transition process and actively work together to ensure successful transition.
It is certainly true that the supplier will undertake much of the activity during transition, but the precise nature of the customer/supplier split of activities will evolve as the preferred "solution" becomes clear and typically after the transition definition workshop, but the transition project will require cooperation between the supplier and the customer.
The supplier will provide the majority of resources and probably will bring greater experience to the project than will the customer (except of course for the insight into the customer’s precise requirements and processes). This is where engaging with specialist sourcing consultants for the transition lifecycle who solely represent the interests of the customer can reduce risk significantly.
Most customers will look to the supplier to provide an outline transition plan and support them in constructing their part of the project. It is assumed that the supplier will provide such a plan as part of their response to the RFP.
The scope of transition planning should include governance (project board and specific project team) and the use of a structured project methodology approach.
Key requirements to a successful transition (outputs from due diligence and negotiations) include:
- The original business case that will clearly define the required business benefits and timescales for the outsourced services.
- Statement of work defining the scope of the service and responsibilities, detail of assets, if any, and contracts to be transferred plus detail of staff (including terms and conditions) to be transferred.
- Detail of the services to be transferred (together with agreed service improvements and service level improvements).
- Detail of costs (baseline and ongoing budget).
- Framework transition plan .
- A structured project approach agreeable by both parties.
Key deliverables of successful transition include:
- Retained organization in place (demand and supply).
- Employees and assets transferred to supplier.
- Regular service and contract meetings scheduled.
- Formal SLAs and key performance indicators (KPIs) in place.
- Service level reporting.
- Invoice scheme implemented (supplier).
- New procedures documented.
- Formal relationships established (client, supplier, third parties).
- Smooth handover from transformation to operation with the establishment of a future-proof (business) platform to manage the outsourced services.
Transition is the most complex and demanding element of the execution phase of outsourcing. It is often delivered in the glare of unrealistic expectations while at the same time dealing with uncomfortable things such as staff redundancy.
This is often the period where relationships between customer and supplier are strengthened and reinforced or fractured and weakened. To improve the chances of a positive outcome, use the best practice principles with proper planning from both sides using people experienced in transition.
This article is adapted and reposted with permission from Equa Terra, a global outsourcing and insourcing advisory firm. Penny Edwards is a senior consultant at the firm.
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Getting business process outsourcing right in a digital future
As recently as a decade ago, companies outsourced business processes primarily as a cost-saving strategy. While technology was used to optimize processes, it was limited mainly to basic task automation. Today, that approach is giving way to a smarter one, in which companies can outsource to capitalize on more sophisticated provider offerings. These include customized industry solutions and advances in digital technology, such as AI, analytics, and machine learning.
The experiences of pioneering organizations increasingly show that the time has come for the outsourcing industry’s focus to evolve from traditional right-shoring and basic automation to fully digitized operations through business-process management (BPM). These types of outsourcing deals are not yet common, creating an opportunity for both service buyers and providers to leapfrog ahead by generating differentiated advantages in operations and significant bottom-line value. However, the window of opportunity to capitalize on those advantages is closing. In several years, these deals will likely be table stakes. Companies can seize the initiative—starting today.
Digital outsourcing: Growing fast
Worldwide, companies spend an estimated $230 billion on managing business processes. These range from customer-service functions, such as call centers, to back-office processing in applications such as claims, payments, finance, and procurement. To date, outsourcing deals that explicitly call for next-generation technologies account for only a small share of the total spend. But that share is growing quickly.
A detailed analysis of 53 business-process-outsourcing deals that closed between 2016 and 2020—a sample taken from a pool comprising more than 200 such transactions—shows that about one-quarter included at least one digital component (social media, mobile applications, analytics, automation, cloud, or Internet of Things). But the number of such deals almost doubled over the five-year period. That potential opportunity stands in sharp contrast to the overall outsourcing industry’s single-digit growth rates.
An analysis of total contract value (TCV) shows a similar trend. Over the five years from 2016 to 2020, digital services grew from 30 to 70 percent of TCV, and the number of new deals with a digital component has steadily increased to almost 50 percent (exhibit).
Companies report several reasons for such rapid growth of digital in BPM deals. One is that customer demand for digital products and services has grown exponentially. Another is the worldwide adoption of cloud technologies , across industries. In 2020, our analysis shows that cloud-enabled deals peaked at 67 percent of TCV in the private sector and 63 percent in the public sector.
In turn, cloud platforms and services enable the adoption of further digital and data technologies. For example, many BPM providers are leveraging cloud-based systems in specific applications, such as for accounting and credit and cash management—to reduce cycle times for data-intensive processes. Last—and probably most important—is that digital-based outsourcing yields high-quality results. BPM buyers and providers report that incorporating digital into an outsourcing contract can deliver two to three times more impact than under traditional models, while also improving the experience for buyers and their customers.
Overcoming the challenges
Yet digital also poses several clear challenges. The first is achieving executive support. Digital sourcing programs require a heightened level of aspiration from the chief procurement officer and other senior leaders, along with explicit endorsement of the change, oversight during the transition, and focus.
These steps are essential to overcoming the cultural challenges inherent in any change program. Even when times seem relatively calm, organizational inertia, painstakingly built relationships, and an understandable desire for stability can lead procurement teams to stick to current suppliers. Moreover, digital sourcing doesn’t just represent a new provider but a new way to work with all providers. Given the radical changes most organizations now face on multiple fronts, some working teams may argue that they don’t have the bandwidth to support a digital procurement program as well.
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Perhaps the biggest challenge is weak sourcing capabilities. Some organizations may not have the in-house capabilities to source providers for next-generation digital services. Doing so calls for a different kind of business case—based on outcomes and innovation rather than straight cost savings. For instance, some clients are now expecting providers to achieve dramatic improvements in end-user experience metrics, such as faster service and call times, or positive feedback for AI-based digital tools. Other clients want providers to deliver on transformation initiatives, measured by the percentage of automation initiatives delivered on time or the success rate for digitization projects. This evolution also means considering a different set of providers, structuring contracts to foster collaboration and shared accountability, and partnering with the provider in a much more direct, integrated manner. It is not the turnkey outsourcing that companies could apply in the past.
Moreover, sourcing processes themselves increasingly need to incorporate digital and automation—a marked upgrade from the current, and largely manual, processes that remain in place at too many organizations today. In other words, to access digital from external providers more effectively, companies need stronger skills in using digital internally.
Building these capabilities can take up to a year. Yet there is a clear reward for implementing smarter procurement processes. Our analysis has found that using digital and automation in the renewal process for outsourced contracts can unlock three times the financial impact of traditional outsourcing arrangements, while also improving the experience for internal customers.
Four success factors for digital outsourcing
Our analysis of the deal landscape, reinforced with the experiences of major outsourcing providers and buyers, highlights four critical elements to next-gen outsourcing deals.
A focus on transforming operations through digital. The traditional approach to outsourcing was a straightforward transaction aimed at generating marginal efficiencies. Companies handed off a set of well-defined tasks, and providers were paid based on a straight rate for time and materials. That is giving way to a new model: outsourcing to radically transform operations through digitalization with providers taking on more complex processes and being paid based on the outcome they deliver and the range of technology solutions they deploy (such as natural-language processing, robotic process automation, or AI).
Shared incentives aligned to innovation. Because these technologies and applications are still evolving, the potential value they can unlock is in flux as well. As a result, companies can structure deals to incentivize innovation through the full contract term, through arrangements such as gain sharing. For example, if a provider suggests a process change that reduces working-capital requirements or decreases days-sales-outstanding figures by several days, the provider may negotiate to retain some share of that value. Ideally, the innovation agenda aligns with the organization’s overall priorities and covers all dimensions: efficiency, effectiveness, and experience.
Redesigning digital journeys end to end. Because processes are increasingly being redesigned to capitalize on digital, companies can no longer outsource a single, fragmented slice of a process and hope to see much improvement in results. Instead, for the highest impact, the provider usually needs to own—and transform—the entire end-to-end process, through optimization, digitization, automation, and the elimination of manual processes and work. For example, a provider tasked with automating invoice processing could experience initial issues due to nonstandard formats and, as a result, suggest upstream format changes to the invoice submission process for suppliers. Over time, this expanded perspective helps build a broader continuous-improvement mentality, enabling the provider and buyer to collaborate in generating further value as the business and technological landscapes evolve.
Because processes are increasingly being redesigned to capitalize on digital, companies can no longer outsource a single, fragmented slice of a process and hope to see much improvement in results.
Joint accountability for digital transformation and adoption. Rather than the hands-off arrangements of the past, in which a company and provider often worked at arm’s length, digital sourcing calls for a joint governance structure. Dedicated teams with representatives from both organizations develop and monitor a comprehensive set of KPIs, including customer experience. Providers need to be empowered to make some decisions on their own, and they need to coordinate more closely with customers as partners, in areas such as access to the technology stack or allaying data-loss concerns to the chief information-security officer.
Three success stories
To see how this outsourcing approach looks in the real world, consider the following three case studies.
Telecom. A large telecom player that wanted to modernize its business operations and evolve away from highly manual, inefficient processes launched an 18-month digital sourcing program, which ultimately would identify a single external provider that could increase automation and digitization across the company’s operations.
The provider offered a variety of advanced analytics– and AI–related technologies, such as robotic process automation, machine learning, and natural-language processing—together with platforms that could support organization-wide process revamps, from business units to call centers, service assurance, and other functions. But perhaps even more important than the technologies themselves was the way in which the company and provider agreed to deploy them.
Rather than focus on cost cutting alone, the two sides negotiated yearly price reductions and performance improvements, along with incentives through which the provider could share in the value of any promising new ideas it implemented. That created powerful support for continuous improvement. Further reinforcement of the collaborative approach was achieved through a joint governance structure, together with a comprehensive set of KPIs, service-level agreements, and related metrics—including ones focusing on customer experience. These were all agreed to in crafting the contract between the two sides, a process that built trust and helped align long-term interests.
Slashing the number of outsourcing providers the company uses to just one strategic relationship across business units has generated major scale efficiencies—including, for example, giving machine-learning algorithms more data to learn from. And the cost advantage was still substantial: the new outsourcing relationship led to a 60 percent reduction in operational costs.
Industrial. A large industrial manufacturer wanted to partner with a BPM provider to transform its legacy processes and business-support functions using next-generation platforms and solutions. It engaged a global BPM player to help redesign its shared-services operations through a combination of business-process reengineering, robotic and point automation, and lean principles. One of the most effective steps was the automation of billing and invoice payments from end to end; in addition, optical-character-recognition systems eliminated manual effort where possible, and a business-intelligence engine fed insights and executive-level reporting to dashboards.
Overall, the program reduced transport inventory backlogs by more than 80 percent, while productivity increased by about 40 percent, and end-customer satisfaction rose by more than 35 percent. And automating almost all billing processes revealed more than $10 million in duplicate payments.
Managing change: What lies behind G&A spend transformation
Consumer packaged goods. A large food and beverage company had a well-established shared-services function, with consolidated finance and HR to support global operations. But costs were still very high, and integrating new business in the existing setup was becoming tedious. The organization asked a global BPM leader to transform its existing setup to make it scalable and cost competitive.
The provider brought in a proprietary human–machine operating engine that optimizes people, technology, data, and intelligence. Through that tool, the provider redesigned and standardized hundreds of HR and finance processes, implementing automation and analytics along the way. The new capabilities were first rolled out in Europe and expanded to North America, Australia, and New Zealand over the next year.
In finance, half of the company’s journal entry processes were automated, boosting real-time postings from about 90 to 100 percent. In HR, error rates in employee correspondence declined to less than 1 percent, the turnaround time for onboarding letters dropped by two-thirds, and compliance deficiencies fell by 85 percent. Across both finance and HR, the transformation boosted productivity by more than 30 percent and saved more than $5 million.
The COVID-19 pandemic has significantly accelerated digital disruption to the BPM industry, with the potential to unlock sizable financial and operational benefits for well-prepared organizations. Overcoming the internal and external challenges and reimagining each step of the sourcing journey will be challenging, but digital represents the new normal for large outsourcing deals. We believe companies have a choice—they can seize the initiative and capitalize on this shift, or they risk ceding a significant advantage to the competition.
Abhi Bhatnagar is a partner in McKinsey’s Atlanta office, Dany El Khoury is a consultant in the New York office, Stawan Kamani is an alumnus of the Boston office, and Amit Vashisht is a senior knowledge expert in the Waltham, Massachusetts, office.
The authors wish to thank Rahil Jogani, Jibak Sahu, and Monica Vlaicu for their contributions to this article.
This article was edited by Christian Johnson, a senior editor in the Hong Kong office.
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business process outsourcing (BPO)
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What is business process outsourcing (BPO)?
Business process outsourcing (BPO) is a business practice in which an organization contracts with an external service provider to perform an essential business function or task.
An organization typically contracts with another business for such services after it has identified a process that, although necessary for its operations, is not part of its core value proposition. This step requires a good understanding of the processes within the organization and strong business process management .
Many organizations consider processes that are performed the same or similarly from company to company, such as payroll and accounting, good candidates for BPO.
Because these commodity processes do not generally differentiate one organization from another, enterprise executives often determine there is little value in having their own staff perform them. Companies calculate that outsourcing these processes to a provider that specializes in them could deliver better results.
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BPO has its roots in the manufacturing industry. Manufacturers hired third-party vendors to handle parts of their supply chains after determining that the vendors could bring more skills, speed and cost efficiencies to those processes than an in-house team could deliver. Over time, organizations in other industries adopted the practice.
Today, the use of BPO has expanded, with for-profit businesses, nonprofits and even government agencies outsourcing a range of tasks to service providers located in the U. S., throughout North America and across the world.
What is BPO used for?
Organizations engage in business process outsourcing for two main areas of work: back-office functions and front-office functions.
Back-office functions, sometimes called internal business functions , comprise support operations including accounting, information technology (IT) services, human resources (HR), quality assurance and payment processing.
Front-office functions are processes and business operations that serve or relate to existing and potential customers, such as customer relation services, marketing and sales.
Some organizations outsource an entire function, such as the HR department, to a single vendor. Other companies outsource only specific processes within a functional area, such as only payroll processing, while having their own team perform all other HR processes.
Commonly outsourced processes include the following:
- payroll and accounting
- administration
- customer support
- IT management and services
- manufacturing
- shipping and logistics
Some companies also outsource strategic tasks, such as data mining and data analytics, both of which have become essential elements for maintaining a competitive advantage in a digital economy.
According to Deloitte's " 2021 Global Shared Services and Outsourcing Survey Report ," the most frequently outsourced functions are IT, finance and payroll.
How does BPO work?
Enterprise executives opt to outsource a business process for a variety of reasons. Those reasons vary based on the type, age and size of the organization as well as market forces and economic conditions.
Startup companies, for example, often need to outsource back-office and front-office functions because they do not have the in-house resources to perform them.
An established company may opt to outsource a task that it had been performing after determining that a third-party service provider could do the job better or cheaper. Management experts advise enterprise executives to identify functions that can be outsourced and then determine if shifting that task to an outsourcing provider makes sense.
If so, the organization must go through the process of not only identifying the best vendor for the work , but also shifting the work from in-house to the external provider. This requires a significant amount of change management , as the move to an outsourced provider generally affects staff, established processes and existing workflows.
The shift to an outsourced provider also affects the organization's finances -- not only in terms of shifting costs from the internal function to the outsourced providers, but often in terms of corporate taxes and reporting requirements.
The organization may also need to invest in new technology to enable the smooth flow of work to the outsourced provider. The extent and cost of that technology depend on the scope of the function being outsourced and the maturity of the technology infrastructure in place at both enterprises.
This process typically starts with enterprise leaders identifying specific functions or business processes to outsource as a way to save money, gain flexibility, improve performance and redirect resources to its core business capabilities.
Business leaders then consider whether one vendor should handle all the work being outsourced or whether contracting multiple providers for the various tasks would deliver the best value. For example, a company could decide to outsource most of its HR functions and then either contract for a single provider to perform all the outsourced processes or it could hire one for payroll and another for benefits administration.
Those considerations should lead to a list of requirements as well as a detailed scope of work for outsourcing. Organizations use those to shape a request for proposal to share with vendors that determine whether they can meet the requirements, at what price and with what value-adds.
Once an organization has selected the provider or providers it wants to hire, it must determine the type of contract. Such contracts generally fall into one of the following categories:
- time and materials contracts , in which the business pays the provider for the time worked and the materials used; or
- fixed-price contracts , which set an upfront price for the specified work.
Additionally, organizations must draft with their vendors the service-level agreement detailing the quality of the provided services and the metrics for determining success.
Depending on the needs and nature of the outsourced work, some organizations also negotiate with providers on whether to have the following:
- specific workers on teams dedicated to their outsourced work;
- workers located only onshore or, conversely, globally distributed; or
- workers available 24/7 or only during set hours.
What are the benefits of BPO?
In its 2021 report, Deloitte found that organizations seek the following benefits from outsourcing:
- 88% of the respondents cited standardization and efficiency of processes;
- 84% cited cost savings;
- 73% cited driving business value;
- 61% cited digital agenda acceleration;
- 59% cited developing capabilities; and
- 36% cited overall business strategy and plans.
Benefits of BPO typically cited by proponents include the following:
- Financial benefits. BPO providers can often perform a business process at lower costs or save the company money in other ways, such as in tax savings.
- Improved flexibility. BPO contracts can offer the ability to modify how an outsourced business process is done, enabling companies to react more nimbly to changing market dynamics.
- Increased competitive advantage. BPO enables an organization to focus more of its resources on operations that distinguish it in the marketplace.
- Higher quality and better performance. Because business processes are their core business, BPO providers are well-positioned to complete the work with greater accuracy, efficiency and speed .
- Access to innovations in the business process. BPO providers are more likely to know about advances in the process areas they specialize in . That means they are more likely to invest in new technologies, such as automation, that can improve the speed, cost and quality of the work.
- Expanded coverage. Organizations that need 24/7 call center operations can often quickly gain that capability by contracting with a BPO company with around-the-clock capabilities and multiple geographic locations, enabling a follow-the-sun business model .
What are the risks of BPO?
BPO risks include the following:
- Security breaches . The technology connection between the hiring company and the BPO provider creates another point of entry for bad actors , as organizations often need to share sensitive and regulated data with their service providers.
- Regulatory compliance requirements. An organization's regulatory requirements extend even to outsourced work, so it must ensure that the vendors it hires align with the laws the organization must follow and that the vendors adhere to the rules that govern the organization's outsourced work.
- Unanticipated or higher costs. Organizations can underestimate the amount of work that needs to be done, which can lead to higher costs than anticipated.
- Relationship challenges. Organizations can face communication problems with their outsourced providers, or they might find that there are cultural barriers.
- Overdependence on the external provider. An organization that outsources a function or service is tethered to the partner that performs the work. The organization must manage that relationship to ensure key objectives are met at the agreed-upon cost. If not, the organization may find it difficult to bring the operation back in-house or even move the contract to another outsourced provider.
- Increased potential for disruption. An organization must monitor for issues that could interrupt or permanently end the relationship with an outsourced provider. These include financial or workplace problems at the outsourced provider, geopolitical instability, natural disasters or changes in economic circumstances. Organizations must consider such risks and devise strategies on how to cope, which, in turn, adds complexity to their business continuity and disaster recovery .
What are the different types of BPO?
BPO is often divided into the following types based on the service provider's location:
- Offshore outsourcing occurs when an organization contracts for services provided with a company in a foreign country.
- Onshore outsourcing , or domestic outsourcing , happens when an organization contracts for services provided by a company that operates in the same country as the hiring organization.
- Nearshore outsourcing is when an organization contracts for services provided by companies based in neighboring countries.
Research firm Gartner categorizes BPO as either horizontal offerings , meaning those functions that are used across multiple industries, or vertical-specific offerings , meaning those that are industry-specific.
KPO, LPO and RPO
Business process outsourcing is sometimes categorized by the types of services being provided; the following three categories are commonly cited:
- Knowledge process outsourcing ( KPO) is when the outsourced service provider is hired not only for its capacity to perform a particular business process or function , but also to provide expertise around it.
- Legal process outsourcing (LPO) is a type of KPO that is specific to legal services; these range from drafting legal documents and performing legal research to offering advice.
- Research process outsourcing (RPO) -- another type of KPO -- refers to research and analysis functions; biotech companies, investment firms and marketing agencies are among the types of organizations that engage in RPO for services.
BPO examples
Clutch, a business-to-business research firm , surveyed 500 U.S. small-business owners and managers in 2021 and found that eight in 10 small businesses plan to outsource business functions. This breaks down as follows:
- 27% plan to outsource IT services;
- 23% plan to outsource finance and accounting work;
- 21% plan to outsource legal work;
- 20% plan to outsource digital marketing; and
- 10% plan to outsource HR.
How to choose a BPO provider
Enterprise executives should select BPO providers that can support their business objectives, as well as help them be more agile, flexible and innovative and, ultimately, more competitive. As such, organizations should consider more than just the price of a BPO contract when choosing a provider. They must also consider how well the provider can deliver on those other points, evaluating each provider to determine whether it has the following:
- an adequate understanding of the organization's business and industry;
- the capacity to meet current requirements, as well as to scale to meet future needs;
- an understanding and ability to meet compliance and regulatory requirements, as well as data privacy needs;
- reporting metrics to demonstrate it is delivering on contractual standards; and
- the geographical locations to meet business needs and regulatory requirements.
BPO market size
Research firms predict that the global business process outsourcing market will continue to grow
through the coming decade. Grand View Research, for example, valued the global BPO market at $245.9 billion in 2021 and estimated that it will experience a compound annual growth rate (CAGR) of 9.1% from 2022 to 2030 reaching $525.2 billion.
Analysis from Data Bridge Market Research's report "Global Business Process Outsourcing (BPO) Market, By Regions, 2022 to 2029" shows similar growth, predicting that the BPO market will experience a CAGR of 7.9% between 2022 and 2029, with the market reaching $422.6 billion in 2029. It cited business needs for agility and improved efficiency as primary factors driving that growth.
Future directions of the BPO industry
Executives continue to identify and reorder what they need and want from the vendors they contract with to handle their business processes.
Service provider CGS, which surveyed more than 200 business leaders and decision-makers about what they used to evaluate their BPO providers in 2021, found the following:
- 6% put data privacy and compliance as their top priority;
- 9% want their providers to be a knowledge partner with advanced technology capabilities;
- 3% evaluate BPOs on their technology platform capabilities; and
- 3% want BPOs with in-depth experience in the organization's own industry vertical.
BPO vendors, however, are contending with disruption as well, as the practice of business process outsourcing could be at least partially displaced in upcoming years by technology .
Robotic process automation ( RPA ) and artificial intelligence can handle some of the business processes now frequently outsourced, and these technologies can often perform those functions at lower costs and higher speeds.
Deloitte's "2021 Global Shared Services and Outsourcing Survey Report" found that successful providers are implementing both shared services and outsourcing models and that they are building continuous improvement and innovation into their talent programs. The survey also found that providers see RPA as a top enabler of their own transformation.
Organizations are deploying RPA at increasing rates in an effort to boost efficiency and accuracy. Learn how RPA is adding artificial intelligence to make it even more resilient and agile.
Continue Reading About business process outsourcing (BPO)
- RPA vs. BPM: How are they different?
- BPM best practices to ensure project success
- Top business process management tools
- Bolstered BPMN standard is core of new BPM+ ecosystem
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IMAGES
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COMMENTS
Business process outsourcing (BPO) happens when a company outsources entire business functions to be handled by another company. For example, companies can outsource their marketing,...
Business process outsourcing (BPO) is the practice of contracting a work process or processes to an external service provider. BPO fills supplementary business functions like payroll, accounting, telemarketing, data recording, social media, customer support, and more.
Here's how you can start and run a business process outsourcing company in six simple steps: 1. Determine The Type Of BPO You Want The first step in setting up a BPO company is identifying your business niche. Why? Zeroing in on a niche helps you determine: Your BPO industry sector. The activities your BPO firm undertakes.
A Sample BPO Startup Business Plan Template 1. Industry Overview The Business Process Outsourcing (BPO) industry has no dominant company with a large share of the market. The industry is valued at $136 billion and has grown at a 4% per annum between the periods of 2010 to 2015.
Outsourcing business processes empowers the company to maintain a strategic focus on its core competencies and competitive advantages. This can help the organization respond, adapt and lead...
Business process outsourcing (BPO) is a type of outsourcing wherein a third-party service provider is employed to carry out one or more business functions in a company. The third party is responsible for carrying out all operations related to the business function. BPO is also known as subcontracting or externalization.
An outsourcing strategy is a plan that describes how a company hires third-party companies or individuals to perform tasks. As an alternative to relying solely on internal employees, this approach can reduce expenses, increase productivity and improve the overall quality of the final product.
Business Process Outsourcing, a shared future together 6 To assess if BPO is the right solution for your organisation, you should as a first step, ask the right questions to identify the requirements and key drivers Business Process Outsourcing (BPO), a shared future together - Darling, do you want to marry me? 7 Are we meant to be together?
Here is the part of your outsourcing implementation plan that covers the transition to the third-party vendor. This will be a highly collaborative process and should be led by the in-house project manager if one has been assigned. Involved in this process are the various internal stakeholders as well as the important people at the new company.
A professional outsourcing business plan will always have financial projections that are reasonable and achievable. A robust financial model can help your management team to make decisions more efficiently, in addition to appearing more organized and well prepared for any third-party financiers.
It offers lower costs, access to better-skilled talent, more flexibility, and even responsive customer service. Let's take a detailed look at these key benefits of IT outsourcing: 1. Cost savings. In most cases, an outsourcing model would be significantly more cost-effective for a business.
What is business process outsourcing? Between 2012 and 2016, the global business process outsourcing (BPO) industry grew at a compound annual growth rate of 4.4% to reach total revenues of $140.3 billion in 2016.. Business process outsourcing is a subset of outsourcing that involves contracting third-party service providers for various business-related operations and responsibilities.
Outsourcing is the business practice of hiring a party outside a company to perform services and create goods that traditionally were performed in-house by the company's own employees and staff ...
Outsource Accelerator is the trusted source of independent information, advisory and expert implementation of Business Process Outsourcing (BPO). The #1 outsourcing authority. Outsource Accelerator offers the world's leading aggregator marketplace for outsourcing. It specifically provides the conduit between world-leading outsourcing ...
As a result, you can always adapt to changes in the market. 3. Fill out the paperwork. In order to establish a business process outsourcing firm in India, you must register your business under the Companies Act 2013. Private Limited Companies should be registered for call centers and other IT-related services.
Business Process Outsourcing, or BPO, is the process of outsourcing business-related functions to third-party service providers. Although it was initially and primarily used in the manufacturing sector, BPO is now commonly found in almost every industry. BPO can generally be divided into back-office and front-office business process functions.
In the economically vital business process outsourcing (BPO) industry, which provides support services to companies from Amazon to Zoom, revenues increased 10.3 per cent to $32.5bn and staff count ...
As part of your business resilience plan, make a list of the different services you need such as document scanning, cloud document management, workflow automation software, and an outsourced mailroom. You are looking for a long-term partner who will become a core element in your business's continuity. Instead of working with different vendors ...
Revista Informatica Economică nr.2 (38)/2006 49 Business Process Outsourcing Conf.dr. Doina FOTACHE Catedra de Informatică Economică, Universitatea „Al. I. Cuza" Iaşi Conf.dr. Luminiţa HURBEAN Catedra de Informatică şi Statistică Economică, Universitatea de Vest din Timişoara Business Process Outsourcing (BPO) is gaining widespread acceptance throughout the US, Europe, South ...
Involve the executive team. For your outsourcing relationship to be successful, consider involving the management team or the board in your organization. It is essential for management to involve ...
Business process outsourcing (BPO) and IT outsourcing (ITO) transitions require full analysis of the services being outsourced. ... and unless the transition process, transition plan and conduct ...
A detailed analysis of 53 business-process-outsourcing deals that closed between 2016 and 2020—a sample taken from a pool comprising more than 200 such transactions—shows that about one-quarter included at least one digital component (social media, mobile applications, analytics, automation, cloud, or Internet of Things).
Business process outsourcing (BPO) is the contracting of a specific business task , such as payroll, human resources (HR) or accounting, to a third-party service provider. Usually, BPO is implemented as a cost-saving measure for tasks that a company requires but does not depend upon to maintain their position in the marketplace.