What is BPO & How Does it Work?
It's time to learn more on Business Process Outsourcing and how it could be benefiting your business today.
4.5 | March 8, 2021
Business process outsourcing (BPO) is the practice of contracting a specific process or processes to an external service provider.
Why Do Businesses Offshore Processes?
Businesses outsource (or offshore) processes for a number of reasons, with ‘improvement in cost level or reduction’ being recorded as one of the most popular reasons. Smartsheet identifies some other reasons in which a BPO can benefit your business. These include:
- Increasing efficiency and reducing costs: Offshoring business processes enables your business to utilise and reallocate your limited resources effectively. Your business can also benefit from having a highly skilled team external to your business, without the cost and inconvenience of recruiting and training new staff. Offshoring business processes also enables your business to act more efficiently when managing risks associated with introducing new products or services.
- Focusing on key business functions: Partnering with a BPO company allows you to focus your efforts on your core business offerings & activities.
- Driving growth: Utilising your BPO company experience and expert knowledge can drive growth within your business and enables you to focus your resources on core business processes such as developing new products and services, exploring new revenue streams, diversifying into new markets, etc.
- Expanding global presence: offshoring companies can often service customers in multiple languages, around the clock, ultimately providing another means of support.
How Does BPO Work?
While you might be clear about your reasons for offshoring, it’s important to take the time to carefully consider which are the right processes to offshore. According to Corporate Finance Institute, your business can contract with BPO vendors in two main areas: front office and back office.
The front office represents the customer-facing function of a company. Dynamic Business Outsourcing Solutions states that it is composed of individuals who possess diverse skills with people and communication. These functions typically include Marketing, Sales, Customer Relations, Grievance redressal, etc.
Back office services often refer to internal business processes or ‘behind-the-scenes’. These functions typically include data entry, content writing, IT services, HR, Accounting Support, Payroll Services, AI Training, Software Development, etc. Businesses often offshore back-office services to assist in their sustained growth and development. These services are often considered the backbone of businesses as it provides support to the front office people.
Types of BPO
BPO companies can be divided into several types based on their location:
Onshore outsourcing (Onshoring)
Onshore outsourcing, also known as domestic outsourcing, is the obtaining of services from an external company but within the same country. The purpose of onshoring is to transfer non-essential activities that still hold business value but are not part of the core business functions. Onshoring enables a higher level of control and closer contact between the two companies. However, depending on the work involved, it can come at a higher cost in comparison to other outsourcing options. Onshoring offers a number of advantages:
- Ease of Communication: The ability to communicate with ease tends to be the most obvious benefit.
- Cost Savings: This is undoubtedly one of the largest reasons for outsourcing business processes to an external company.
- Greater quality control: Onshore outsourcing enables greater control over the quality of output. You can extend an invite for in-person meetings and physical demonstrations.
Nearshore outsourcing (Nearshoring)
Nearshore outsourcing or nearshoring, refers to outsourcing processes to a nearby country, preferably a neighbouring one or one that’s on the same continent. Nearshoring allows for greater control and closer contact between two companies at a reduced cost. Other nearshoring advantages include:
- Similar time zones: by remaining nearshore, business hours will typically be very similar, if not the same. Therefore, it’s much easier for teams to communicate and get a response in a timely manner.
- Smaller cultural divide: most nearshore countries have friendly ties and there is typically more familiarity with each other’s culture and language barriers.
- Easy travel: a greater opportunity for one on one, in-person meetings.
Offshore outsourcing (Offshoring)
Offshore outsourcing or offshoring, is the process of transferring key areas of your business to countries with lower labour costs but equal expertise, like the Philippines. Offshoring offers many advantages:
- Cost reductions of up to 75%: By partnering with an offshore company your business can save up to 75% in overhead costs.
- Concentration on core business functions: Partnering with a BPO company allows you to focus your efforts on your core business offerings & activities.
- Increase in productivity: By offshoring non-essential tasks, your company can improve its productivity in a number of ways. Your company can focus on its core functions, cost savings can be re-purposed to business development programs, and your company can delegate tasks that require higher and more technical competencies without compromising its budget. Your company can increase its production output and not incur significant changes in its cost of operations.
- Save on Infrastructure and Technology: Offshoring eliminates the need for investment in infrastructure as your offshoring partner takes the responsibility for the business processes and hence develops infrastructure for the same.
- Establish/expand a global presence: Offshoring gives your business the opportunities to reduce costs of operation and offer your products/services directly in a foreign market.
Making The BPO Decision
BPO can help support growth, improve efficiency and provide significant cost savings when handled correctly. Offshoring, in particular, offers tremendous benefits to businesses. While selecting the right functions to outsource is important, it’s just as important to choose the right outsourcing partner. At MVP, our primary goal is to connect small, medium, and large companies with highly skilled offshore professionals for the purpose of reducing overhead costs by up to 75% and increasing scalability.