The Definition of Business Process Outsourcing and Its Benefits

The Definition of Business Process Outsourcing and Its Benefits
The Definition of Business Process Outsourcing and Its Benefits

Business process outsourcing is an arrangement between a service buyer and seller where the service buyer contracts with a third party to perform all or part of an existing business function.

Over the last three decades, it has evolved as companies have sought economies of scale, skilled talent, access to new markets, and other benefits by outsourcing non-core activities.

The idea behind it is that one company can outsource its human resources or back-office work to another company to focus on its core competencies. For example, banks are considered finance experts but are not experts in customer service.

Many companies outsource their customer service needs to other firms that offer this service approach because they feel they can provide it more efficiently by not hiring their own.

Special Things to Consider

It is important to note that even though outsourcing may offer some advantages, it also has its disadvantages.

For example, an offshore team cannot replace local teams because they lack access to certain information and knowledge sharing. But at the same time, companies should understand that if their key business processes are appropriately managed, these disadvantages will be mitigated or reduced altogether.

What is the Attraction of Business Process Outsourcing?

Usually, most companies would want a slice of the pie which is why most people opt for dealing with external vendors instead of hiring internal employees who might be paid more than what they pay the service provider. Some companies do not want to spend money on headcount and instead plug and play with outsourced service providers.

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Benefits of BPO

Here are some benefits associated with Business Process Outsourcing.

Improved customer service

For example, a call center might implement better technology or change its shift schedule so that fewer customers complain about long hold times on the phone. The more efficient employees can answer calls faster, which means they can resolve problems more quickly and ensure customers feel satisfied before hanging up.

Higher productivity

Higher output typically leads to higher profits because products or services need to be sold more often. Improved business processes can also help employees work smarter instead of harder, making them less likely to feel overwhelmed by their jobs.

Reduced waste

Any activity that doesn’t generate revenue for the company is considered “waste.” Reducing wasteful activities will improve the bottom line and free up resources so managers can put them toward more profitable projects or products. It might also give employees more time to do what they were hired for – working on productive tasks rather than busywork.

Improved efficiency/decreased costs

The overall goal of most businesses is to make a profit, but doing so usually requires an investment in resources that must be justified with solid returns down the road – whether that’s money, time, or energy. Improving efficiency ensures the most efficient use of resources so they can be put to better use elsewhere.

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Better customer value

Although this point is often linked to its predecessor (improved customer service), it also means that managers can meet the demands and expectations of customers more effectively by giving them what they want without wasting company resources in the process.

For example, a clothing retailer might find ways to lower costs while providing inexpensive fashion options for its customers.

Improved operational performance

Business operations encompass everything from sales to human resources, marketing, public relations, and other areas critical for business growth and survival – especially if the competition offers similar services at a lower cost. After all, if customers don’t see the value of what you offer, they will probably choose your competitor.

Improved staff satisfaction

When employees are more satisfied with their jobs, they can be more productive and work harder to generate higher profits. A win-win situation usually leads to higher pay and better benefits, and greater job security for workers.

Increased workforce commitment

People who feel valued and appreciated for their contributions to a business are also less likely to leave or look elsewhere when another opportunity comes along – keeping companies from continuously searching for new talent and bringing them up to speed. In some cases, this could lead to greater employee engagement.

Greater workforce engagement

Although similar to increased workforce commitment, greater employee engagement is about how enthusiastic workers are about their jobs and the company, which helps elicit better overall performance. A symbiotic relationship that also creates happier employees.

Improved customer service

This ties into improved customer service because improving business processes typically helps companies provide better customer service, which means they can also retain existing customers and attract new ones. It could also lead to higher profits if the company successfully has previous customers or attracts entirely new ones.

What Are Some Disadvantages of BPO?

There is no perfect model for outsourcing any business process. Depending on the size of the project, some disadvantages may include:

  • Greater communication demands between client and outsourced company than when processes were owned internally.
  • Risk of losing control over specific business areas due to poor communication or lack of relevant skills in offshore teams.
  • Challenges regarding cultural differences such as communication styles, language barriers, and time zones can create issues during software testing, which must be addressed adequately before signing contracts.
  • Aspects such as data security and intellectual property may become a point of concern.
  • Outsourced teams may have more excellent turnover rates than internal teams, resulting in substantial hidden costs, so it is vital to do proper cost analysis before signing any contract.
  • Another disadvantage is the loss of business intelligence since companies share their information with an outside company instead of monitoring progress internally.

Types Of BPO Companies

There are three types of service providers that offer BPO services. These include:

Transactional Process Outsourcing (TPO): Is a division or department within a company that provides business process outsourcing for another company.

An example will be if one division of a company outsources all its customer records management tasks to another division within their company. When this happens, the division providing the outsourced services controls how it performs the tasks.

Business Process Outsourcing (BPO): This is the outsourcing of an entire business function or process. It could be an entire department within a company, but it can also refer to contracting out certain internal business functions such as research and development (R&D), accounting, customer service, human resources (HR), etc. It is essential to find a truly professional BPO company that can perform all mentioned above functions.

Contact Centers: This includes any company that offers access to call centers for customers like customer order lines, billing inquiries, technical support centers, telemarketing centers, etc. These companies typically employ anywhere between 100-10,000 employees depending on the size of their clientele which will rely on a client’s needs.

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