What is BPO? Essential things you need to know
Business Process Outsourcing or BPO is a business practice where a company contracts certain operations of the business to a third party. The most prevalent motivations for doing these are to reduce costs, reorient focus on core functions and maximise high work performance and efficiency.
Functions that can be outsourced range from customer service, marketing or sales to back-office processes like administrative, accounting, HR, or I.T. functions. Like what was mentioned, companies’ motivation for outsourcing drives what specific processes can be outsourced.
BPO’s total global revenue is estimated to be around 26 billion USD last 2019 (Statista, n.d.). This is just close to a third of a whopping 92.5 billion USD of all outsourced services globally. Yet, the demand for outsourcing continues to increase. Grand View Research reported that there will be a total of 8.5% compound annual growth rate (CAGR) in the industry from 2021 to 2028.
But what is the reason for this increasing demand and what makes BPO an attractive option for organisations in the current age of global and technological advancement?
Location Perspectives in Outsourcing
Before delving into specifics, let’s look at what strategies can be considered when outsourcing based on location:
Offshoring – is when a company outsources its operations outside of and considerably far from its home country. Usually, companies offshore to save on employment costs.
Nearshoring – this is when a company outsources its operations in a nearby country – like when a company based in the US outsources in Mexico. Obviously, this is considered when proximity is a factor in business operations.
Onshoring – outsourcing to companies located within the same country. This can be considered if culture, language or legal restrictions prevent a company from considering the earlier approaches.
Benefits/Advantages of BPO
Focus on Core Competencies
With the help of outsourcing, companies can focus on developing and building their core competencies. They can develop new product lines, look for new markets, or strengthen other capacities within, and outsource non-core functions such as administrative tasks, accounting, human resources, or I.T. To simply put, companies can turn their attention to what they do best while BPO does the rest.
Improved access to technology
Outsourcing companies make sure they are constantly updated with the latest technologies to improve their processes and services – thereby giving their clients access to these technologies.
Reduced costs
More affordable labour cost is one of the most attractive reasons on how outsourcing can reduce costs. For instance, employment and technology costs are significantly affordable in developing countries, making them an attractive place to outsource.
High-quality performance and efficiency
It is their business – BPO companies have specialisation on their operations, and they can perform efficiently as compared with a company that has in-house capacities for the same functions BPO offers.
Issues and Challenges
While BPO offers a lot of benefits, offshoring is not bereft of potential risks.
Security issues. Companies offshoring share their data to a third party which places private data and information at risk. Before entering into an agreement, it is important to thoroughly examine and analyse a BPO partner’s policies, regulations, and reputation when it comes to security.
Communication and operation issues. The differences in the overall characteristics of countries can be issues in BPO. Unexpected interruptions of operations due to calamities and other reasons can affect the operations of the company. Hence it is important to be aware of these potential challenges and the measures and regulations that the BPO company is ready to or already has put in place before signing into an agreement.
Criticisms. BPO, particularly offshore outsourcing, faces several criticisms. One major issue is its tendency to overexploit workers from other countries. Lack of empathy to employees results to some BPO companies making their people work for beyond work hours with unreasonable pay, benefits, and other programs and services. Hence, aside from looking into the performance and results that BPO companies deliver, companies should also perform a background check on understanding how employees are treated in the BPO company.
The outsourcing industry is a growing industry. BPO is a consideration many companies can choose to maximise focus on their core functions, reduce operational costs, gain access to the latest technologies and capitalise on high operational performance and efficiency.
While BPO offers these benefits, it is important to note that issues and challenges may arise. Some of these include information security, communication and operational, and other social and economic issues. Before a company engages in an offshoring agreement, it must understand the partner, the country it is located in, and other considerations that would affect the reputation of the company.
With the continuous advancement of technological services, the BPO industry is seen to be in for more growth as access, engagement, connection, customisation, and collaboration among networks are being made possible and easy in this digital age.
References
Bloomenthal, A. (n.d.). Business Process Outsourcing (BPO) Definition (investopedia.com)
Great View Research (n.d.). Business Process Outsourcing Market Size Report, 2021-2028 (grandviewresearch.com)
Infosearch (n.d.). Article On Offshore Outsourcing (infosearchbpo.com)
Pratt, M. & McLaughlin, E. (n.d.). Business Process Outsourcing
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