What Is BPO?
BPO stands for business process outsourcing. You may know it as simply outsourcing. When a business utilizes BPO, it finds an outsourcing company that is able to provide outsourcing services for the specific business function the company wants to outsource. These business functions are non-core competencies.
BPO has its history in manufacturing. Manufacturing companies are complex and have many moving parts. Below are just a few of the business operations manufacturing companies must manage:
- Product development.
- Product testing.
- Quality assurance.
- Creation of parts.
- Fabrication of parts.
- Assembly of products.
- Inventory management.
- Supply Chain.
The above list will vary across manufacturing companies, with some having a much larger list of operations. Depending on the size of the company and its financial resources, it may struggle to manage all of its manufacturing operations in-house. Labor is often the highest cost for most companies. Managing operations in-house means using lots of labor.
To meet customer demand at a profit, manufacturing companies outsource specific areas of their business. This is where BPO comes in. Let's say a company wants to outsource its quality assurance. The company must find an outsourcing company that can ensure quality for its specific products. Once the company finds an outsourcer, it doesn't simply pay a fee and offload its quality assurance.
Discussion must take place so the outsourcer understands the quality metrics that must be checked, what to do with parts that fail the process, and which reports to produce. The manufacturing company might pay a flat fee to test 10,000 parts. Or it may use a volume-based fee structure where the first 5,000 parts cost a base rate and each additional 2,000 parts cost another rate. All of this can be negotiated with the outsourcing company.
In deciding what to outsource, companies choose areas of their business that are not considered a core competency. For a manufacturing company, its core competency might consist of product development or research.
Some companies may not want anyone knowing they are using a BPO (business process outsourcer). In that case, the company can have the BPO sign a non-disclosure agreement (NDA). An NDA prevents the BPO from discussing whatever is outlined in the NDA.
BPO has come a long way since it's manufacturing-only days. Today, far more industries use BPOs and outsource a larger variety of business operations. When we think outsourcing, visions of hard-working, well-qualified people in India or Asia writing code for Silicon Valley tech giants and startups come to mind.
Way before the Internet was even a twinkle in anyone's eye; Coke was outsourcing large parts of its business. This included using overseas outsourcing companies. Check out this article if you want to learn how Coca-Cola built its empire through outsourcing. Now, it's common practice to use overseas outsourcing companies due to the Internet and globalization.
Types of BPO
There are different types of BPOs that are categorized by geography and business function.
This is a common type of outsourcing for businesses seeking cheaper labor in a different country. Especially for the United States, companies will often outsource to India and Asia, where highly skilled workers can be found for far less than their counterparts in the U.S.
Used for finding out an outsourcer within the same country.
Outsourcing to a nearby country.
Research Process Outsourcing
(RPO) - RPO provides in-depth analysis for specific areas. Some of these areas include SWOT, marketing research, biotech research, competitive analysis, development of customer profiles, and more.
Knowledge Process Outsourcing
(KPO) - In addition to providing specific business functions, these outsourcers can also provide advice. In this way, the outsourcer is similar to a consultant.
Legal Process Outsourcing
(LPO) - Specific to legal services, LPO is used by law firms and non-law firms alike. Some areas provided by LPO include performing investigations, due diligence, discovery, and general litigation.
The Advantages Of BPO
The primary advantages of BPO are reduced cost and increased productivity. As we'll see at the end of this article, the primary benefits of automation are the same but automation takes it a step further.
BPO reduces cost by finding labor that can do the same job for less. Productivity is increased because a company's higher paid workers can focus on the company's core competency.
Another benefit of BPO is scale. A company can ramp up production through BPO at a much lower cost over using in-house resources.
Which Industries Use BPO?
Virtually every industry uses BPO. Thanks to globalization and the Internet, the barriers to entry are extremely low. The following are just a few ways some industries are using BPO.
Collections - Collecting late payments can be both costly and time-consuming. At what point do you decide to stop pursuing a late payment? An alternative is to leave it up to the pros - collections agencies. Collection agencies can not only take over chasing down long overdue payments, but they can also integrate with a company's accounts receivable system and provide an online portal for viewing progress, statements, collected payments and more.
Finance - With all of the regulations that banks face, you might wonder what can they outsource? One area is customer service, or more specifically, call centers. But there are far more areas that banks outsource. These include compliance, IT, HR administration, securities settlement, and risk management.
Call Centers - running a call center is costly. From the high number of staff to the complex technology, many businesses don't have the resources to manage a call center. Nor do they want to. As a customer, you are probably familiar with this type of outsourcing. It's common to outsource tech support to India. While you might call the 800 number of American businesses, you'll get someone with an Indian accent handling your tech questions.
Call centers outsource to multiple companies, not just one. The tech person you're speaking to will probably take the next call for a completely different company.
Software - Companies that create software using a mixture of onshoring and offshoring outsourcing. Because of the complexity involved with software development, there is usually an in-house software development team and an Indian or Asian based team. Software developers are an expensive group, with the 2017 median pay in the U.S. coming in at $101,790. To reduce cost, software companies outsource part of their development to lower cost foreign workers.
What Are Companies Saying About BPO?
To get an idea of how business leaders view BPO, below are a few quotes from various industries, plus one from a worker in Uganda.
“It’s the warmth of the Jamaican people that’s helped make us and so many other companies in the sector become so successful here,” Yoni Epstein, founder of itelbpo, told Site Selection Magazine. “The BPO business is built on human capital.”
"Thanks to advances in the Internet arena, SMB executives don't need to worry about whether a process can be outsourced, but rather who is the best vendor to outsource it to," Michael Salem, co-founder and CEO of Vorex, Inc., told Comcast Business Community. "Marketing and sales can be outsourced to an online marketing company or PR firm, and IT should be in the hands of a managed services provider (MSP)."
"When companies look at the staggering cost of buying and operating systems by themselves, they sometimes turn to outsourcing as a way, in effect, of renting a provider's system," Lowell Williams, executive director for HR services at EquaTerra, told Profit Magazine. "You're essentially buying a system by the drink rather than owning the bar."
"I was given an opportunity to start working, otherwise I would have been seated back home doing nothing. At least it has given me a sense of independence since I earn and I can do something on my own," 26-year-old Flavia Aliteesa, a graduate from the IT department at Makarere University doing back office work for foreign companies, told ZDNet.
What Are The Risks?
While BPO can sound like the end-all-be-all for businesses, there are some trade-offs.
Companies have to give access to their internal systems for people in other countries to complete their work. This opens the company up to vulnerabilities. Access should be tested ahead of time, which can be costly but well worth it. Additionally, sensitive data, such as customer information, needs to be obfuscated. This prevents unauthorized viewing of sensitive data and protects it in case the data ends up on the Internet.
If you're on a tight production schedule, finding a BPO that can meet your deadlines is critical. Many BPOs have several clients. The BPO you choose may not put a priority on meeting your deadlines. Be sure this is outlined in your contract.
While the cost to outsource is usually lower than in-house resources; sometimes, it may not be. If you need a rush job, the cost may be higher than in other jobs. If you need more people, each person over your contract agreement may cost more. Get an agreement on various scenarios ahead of time to avoid costly surprises.
A BPO may claim they have great quality but until the product rolls off the line or the service is complete, you don't really know. If you wait until the full production run has completed checking the quality, it may be too late. Do a few test runs under various scenarios before committing to a full run.
When you have a team across the world who may not speak the best English plus throw in some cultural differences for good measure, there's going to be communication issues. If real-time communication needs to happen, one team is going to be up late or early. Communication expectations need to be discussed before any engagement happens.
According to the BPO Services Global Industry Almanac 2017, the global BPO services market had total revenues of $140,316.1 million in 2016. By the end of 2021, it is expected to reach a value of $163,764.0 million.
Robotic Process Automation (RPA) - RPA is the replacement of human labor with automation. Tasks that are low-skill and repetitive are ripe for automation. While that will eliminate some jobs, it will open up new ones that require higher skillsets.
Despite the name, RPA doesn't have to involve physical robots. For many companies, automation is done through software. Tasks such as data entry, posting to social media, and sending recurring invoices can all be automated. The primary benefit of automation is the reduction in cost and increase in productivity.
- When a company utilizes BPO, it finds a different company that provides outsourcing services for their specific business function
- BPO can come with a few risks including the vulnerability of security, limited timing of production, and there can be different expenses associated
- It can also be hard to communicate with your outsourcing company due to different language barriers, and there might be some question in the quality of the products or services provided
- To be confident in the outcome of your outsourcing, you have to be careful in picking the right company to outsource to