“If we can’t do it, it won’t happen” was the attitude that many companies adopted as they successfully asserted themselves on the market in days gone by. Whether product development, production, human resources, accounting, IT, sales or customer service – all business processes were handled in-house.
However, in today’s global, digitalized economy, it is often virtually impossible to fully cover the costs of all these areas yourself. This is where Business process outsourcing (BPO) comes in with its promising solution. We give you an overview of how BPO works, what opportunities and risks are associated with it and what factors need to be taken into account to ensure BPO brings greater success to your company.
What Is Business Process Outsourcing?
BPO represents an extended form of outsourcing business processes to external providers. This way, the contractor not only takes on individual tasks and everyday business activities, such as payroll accounting. They are also responsible for making sure the complete business process is carried out in the back office and front office according to predefined success criteria.
Call centers are a classic example of business process outsourcing in the front office. The third-party provider is responsible for all processes associated with the operation of the call center: infrastructure, personnel, organization and operational business. On the other hand, the user company can adapt the collaboration with the call center to its individual needs. Simultaneously, the user company is reaping the benefits of the BPO provider’s experience in the area of customer care – without compromising on its core business.
The example of the call center also shows why BPO can be beneficial. The BPO user can plan the business process with easy-to-manage financial resources, while the outsourcing company can invest in expertise by concentrating on its own business area. In addition, because BPO serves more than one user company, the BPO provider is also able to operate the outsourced services much more cost-efficiently due to scaling effects. If all things run seamlessly, this is a real win-win situation for all involved!
The Business Processes Suited to BPO
The outsourcing market in Europe, America and Asia has been on a steep growth curve for several years now. As a result of this development, there has been a steadily growing number of highly specialized providers arriving on the scene. BPO solutions are offered for numerous industries. They range from healthcare and pharmaceuticals, wealth and finance, automotive and engineering to telecom and energy, retail and e-commerce.
The solutions offered address the ongoing digitalization of business processes and the growing importance of knowledge for companies in an increasingly competitive market environment. We can distinguish between different fields of application and business functions:
- Finance and accounting: These services include handling part or all of the financial accounting process, as well as financial statements, reports and auditing.
- IT: BPOs provide technical support for developing and testing applications, implementing software and hardware as well as supplying a helpdesk.
- Customer care: The BPO provider covers processes in areas such as marketing, direct customer communication, payment and order processing, quality assurance, service, repairs and warranty.
- Back office: Services range from the processing of cheques, credit and debit cards to receivables management, purchasing and procurement as well as the organization and implementation of logistics.
- HR: BPO providers cover the whole range of HR services, such as payroll accounting, recruitment and training.
- Knowledge: This includes data analysis, data and knowledge management in the company, internet and web research, the development of a governance program and the creation & evaluation of customer feedback.
How Companies Benefit from Business Process Outsourcing
Outsourcing has long ceased to be a business strategy available almost exclusively to large corporations. In fact, BPO also has many advantages in store for SMEs and start-ups:
- Concentrate on the essentials: Outsourcing enables your company to concentrate fully on the business areas in which your core competencies lie. This allows valuable resources to be used for more rewarding tasks such as product development, rather than IT maintenance or accounting. At the same time, the company retains a leaner structure.
- Reduce costs: You can bid farewell to financial expenses for the potentially necessary setting up of a new department, the recruitment of new employees, training, workplaces and equipment. Variable BPO cost models can also give the company increased financial leeway.
- Work more effectively: Business processes that are outsourced also increase in quality. After all, the BPO provider has more know-how and better technical capabilities in the outsourced area than the user company.
- Flexibility: A higher degree of specialization and a stronger focus on the core areas of the company open up new opportunities. The entire company becomes more agile and flexible when it comes to reacting to sudden changes in the market or business environment.
- Speed and efficiency: External specialists can integrate new technical developments into business processes in a quicker, easier and more competent manner. This way, the company remains up to date at all times, especially in IT-driven business areas.
What Risks Does Business Process Outsourcing Entail?
Outsourcing business processes to external service providers can also cause great damage to a company. For this reason, the management team should be aware of the possible risks before entering into any contracts. These risks can include:
- Communication: Depending on the location of the provider, BPO may be affected by geographical factors. The service provider could be located on another continent (offshore outsourcing), in another EU country (nearshore outsourcing) or in the local area (onshore outsourcing). The more different cultural backgrounds are, the greater the risk of misunderstandings occurring during cooperation. Language barriers and large time differences can add an extra layer of complexity to communication.
- Security: The location of the BPO provider’s infrastructure can also play a major role when it comes to security. For example, other countries or regions of the world may have different security guidelines for handling private and confidential data.
- Dependency: If the BPO provider is centrally connected to important business processes, a certain dependency will automatically arise for the user company. If the external service provider has problems providing its services, this can have massive consequences. In individual cases, personnel fluctuation can sometimes cause the provider to suddenly assign a new, less experienced employee to the BPO project.
- Cost traps: Companies often underestimate the running costs of a BPO service. In particular, the renewing of contracts is often accompanied by a significant cost increase. Other potential cost traps are: software updates, currency fluctuations, internal technical problems or staffing issues for the BPO provider.
What to Look Out for When Selecting a BPO Provider
BPO means relocating complex and far-reaching business processes to an external provider. For this reason, it is of paramount importance that you look for a suitable partner in an extremely structured and goal-oriented manner. In addition to a precise definition of the requirements and a targeted exploration of the market, it is particularly crucial that you exercise great care during contract negotiations. This is where the basis for further cooperation is determined.
The decision to start using a BPO provider sets the course for the long term. For this reason, it is essential that managers are actively involved in the whole process. In addition, when selecting a suitable BPO partner, forward-looking management will plan ahead just in case the partnership were to fail.