As businesses scale and grow, they often have requirements that cannot be addressed internally — whether because of resource or budgetary constraints. Business process outsourcing (BPO) can be a solution that enables organizations to grow and scale effectively.
But exactly what is business process outsourcing? What are the risks associated with the practice, and how can corporate leaders use business process as a service (BPaaS) to their advantage?
BPO meaning: What is business process outsourcing?
Business process outsourcing describes a practice where specific tasks, functions, or processes within a company are contracted out to third-party organizations and vendors. These outside organizations have expertise in their specified area, which allows them to manage tasks and processes on behalf of other businesses.
For example, a marketing agency may choose to outsource their payroll and accounting functions in order to focus on the core competencies of their organization.
There are three types of business process outsourcing: offshore, nearshore, and onshore outsourcing.
- Offshore outsourcing: The function is managed by an operator or vendor in a different country (often far away and in another time zone)
- Nearshore outsourcing: The function is managed by an operator or vendor in a neighboring/closeby country
- Onshore outsourcing: The function is managed by an operator or vendor within the same country — but could be in another state or region
Business functions ideal for outsourcing may include admin, customer service, PR, data entry, HR, content moderation, and more.
Business process outsourcing can improve efficiency and present significant cost savings for companies that may not have the resources to hire a team of in-house customer service specialists or payroll professionals, for example.
In fact, Deloitte research indicates that 59% of companies who outsource say they do so with cost savings as a primary motivator.
What is business process as service (BPaaS)?
Business process as a service enables BPO by managing specific functions through cloud-based delivery systems. The global BPaaS market is extensive and expected to reach a value of $77.8 billion by 2023. Some well-known names in BPaaS include Accenture and IBM.
BPaaS can help manage:
- Finance and accounting
- IT services
- Customer service processes
BPaaS leverages the capabilities of infrastructure as a service (IaaS), software as a service (SaaS), and platform as a service (PaaS) solutions in order to help companies manage and address their business objectives.
Business process as a service also relies on automation in many cases, reducing the need for manual intervention.
Who needs business process as a service (BPaaS)?
Business process as a service can be beneficial for organizations across sizes and industries. For example, instead of hiring an outside firm to manage their finance and accounting needs, a company might instead execute this function via a cloud-based platform licensed through a monthly subscription model.
This naturally brings costs down and offers a more flexible and scalable way of managing operations.
Any company looking to manage processes without the costs associated with hiring, training, and managing an internal team or department may find that BPaaS is an effective solution.
What are the benefits of outsourcing business processes?
There are many benefits associated with outsourcing business processes. These benefits include cost and time savings, efficiency gains, the ability to focus on core business competencies, and more.
High costs associated with labor, training, management, and infrastructure can be a barrier as an organization scales and grows its operations. Outsourcing non-core processes can enable businesses to meet their objectives and operational needs while minimizing these internal costs and time commitments.
Access to expertise and improved efficiency
BPO gives businesses access to vendors that have the necessary expertise, equipment, and personnel needed to execute a project or function on their behalf. This expertise means they are better equipped to provide cutting-edge, compliant, and effective services.
Ability to focus on key business competencies
As a company grows and scales, there is often a need for growth or expansion in other areas of the business.
For example, a high-growth eCommerce company may need increased customer support capabilities to provide quality assistance to customer queries and issues. In this instance, outsourcing customer support staff to an agency or outside vendor allows the business to focus on its main competencies while also addressing customer challenges that can impact the bottom line.
As is the case with most things, business process outsourcing can have its set of challenges and risks.
Are there risks to business process outsourcing?
Risks in business process outsourcing can include lower than expected or inconsistent quality of service, lack of visibility and collaboration with the vendor, and security considerations.
We’ve all been there. A service looks good on paper, but the results turn out to be inconsistent or of a lower standard than expected. This is always a risk, especially when outside vendors are involved.
Lack of visibility and collaboration
When handing over the keys to a business function, visibility and communication allow those within the organization to accurately track progress, success, and any challenges. Lack of visibility is a huge risk and could mean that a lower standard of service is inadvertently being passed on to customers.
Privacy and security concerns
Privacy and security are a top concern in business process outsourcing. In most cases, BPO will involve some degree of handling sensitive or confidential internal data. Engaging a vendor with lax digital security policies may make an organization vulnerable to breaches or attacks.
As Deloitte notes, the tax implications of business process outsourcing should also be a consideration and factored into any business case.
How to choose the right BPO vendor
Choosing the right vendor can help avoid headaches, losses, and disputes. Here are some tips for choosing the right BPO partner for your business.
- Due diligence
Due diligence will involve researching the vendor and their reputation to determine if they have success and experience with your industry, project type, or company size.
- Understand costs
While cost-saving is a major factor when establishing a BPO partnership, unexpected fees may make outsourcing pricier than initially thought.
- Evaluate security infrastructure
When determining the suitability of a vendor, be sure to assess their ability to manage and protect sensitive information.
- Communicate clear objectives and KPIs
Clearly communicate objectives, expected outcomes, and KPIs and ensure they have the capacity to deliver.
- Ensure stability
Outsourcing a business function can be risky if the third party is in a financially, legally, or otherwise unstable position. Overreliance on unstable vendors can be a unique challenge to overcome.
How to organize your BPO with Wrike
Streamline and simplify your business process outsourcing with Wrike. With Wrike, you can:
- Create and manage a risk register for your vendor and the outsourced function
- Invite vendors as external collaborators to share reports and status updates
- Share and store vendor meeting minutes using our actional meeting notes template
- Integrate data from 400+ applications like Salesforce, Marketo, and more
Take advantage of the cost savings, time savings, and expertise that BPO and BPaaS can afford your business. Be sure to track and manage progress, communication, and risk using Wrike.
Sign up for a free two-week trial and discover why 2 million+ people trust Wrike to manage and execute their tasks and projects.