Business Process Outsourcing Pros and Cons: Is It Right For You?
Hiring in-house employees for every aspect of your business can be a grueling, time-consuming process. These issues aren’t limited to large corporations — small to medium businesses are complex enough to require different processes in order to conduct business. This is where business process outsourcing comes into play.
What is Business Process Outsourcing, and how does it work?
Business Process Outsourcing (BPO) is a type of outsourcing wherein a company hires an outside service provider to conduct a specific part of its business. The method was mostly associated with production and manufacturing firms that segmented their operations and supply chain. Advancements in technology and communications have allowed this type of outsourcing to expand beyond manufacturing.
Recent developments like cloud computing and increased globalization are pushing the BPO industry to reach new heights. In 2022, the BPO industry was reported to be worth $262 billion, with analysts predicting sustained single- to double-digit global growth over the next decade.
Which shore?
BPOs are divided into three categories based on location. Offshore outsourcing refers to processes outsourced to foreign vendors outside of the country. Onshore outsourcing means that the third-party vendor is located within the country. Nearshore outsourcing, meanwhile, refers to outsourcing to nearby countries.
The global leaders in the BPO industry
Some countries are known for providing offshore outsourcing services. India is the biggest one currently, with a well-established reputation for providing skilled help in IT and customer service. The country’s government recognizes BPO as one of its most profitable and progressive industries and has enacted regulations and reforms to further support its growth.
The Philippines stand in a close second to India, with BPO being one of the biggest business sectors in the country. The country is notable for having a 95% English-speaking population, which it has leveraged to make the BPO industry the fastest-growing sector, with business analysts predicting an 8-10% yearly growth.
Business activities that can be outsourced
Many business operations can be outsourced, but they generally fall within two types: back-office operations and front-office operations. Back office operations are internal business processes that are required to support day-to-day operations. The most commonly outsourced back-office tasks are:
- Human resources
- Finance and Accounting
- Information Technology
- Data Management
- Maintenance,
- Cyber Security
- Record-keeping
- Research
Front office operations, meanwhile, are mostly customer-facing tasks like:
- General customer service
- Technical support
- Billing support
- Marketing
- Sales and retention
Examples of industries that outsource their business processes
Many industries and types of businesses have outsourced significant aspects of their operations over the years.
Software development has been one of the key outsourced business processes during the Internet Age, especially with companies that don’t necessarily belong in the IT industry. This goes the same with game development, animation, engineering design, and architectural services. Medical transcription is another popular business task that’s being outsourced worldwide. Hospitals now use electronic health records to help streamline documentation and minimize manual data entry. This helps drive demands for medical transcription services to supplement and/or complete their documentation process.
Advantages of BPO
Outsourcing business operations can yield various benefits, making it a very attractive proposition for business owners. Some of them are:
Savings
This is usually the first and most important aspect when considering outsourcing business processes. Onboarding, training, and retaining in-house employees for every business activity can be costly. To keep the in-house process running smoothly, business owners must contend with salaries, taxes, employee benefits, overhead, and other related expenses. Hiring a BPO company to cover certain parts of the business can greatly reduce costs, especially with offshore outsourcing centers. Many businesses end up paying only a fraction of the costs.
Another thing to consider regarding costs is hiring an expert or a team of experts. These professionals tend to be expensive if sourced locally. This leads us to our next point:
Getting services from experts
BPO companies offer highly skilled and specialized services that can fit every business need. They often hire experienced professionals or provide specialized training for new employees. This continuity in their training and development programs, coupled with their focus on new processes and technology, can lead to marked increases in efficiency for the specific business task. Furthermore, there is no lack of competition in the industry, which pushes companies to innovate and develop their talents, giving business owners more choices in working with service providers.
Scalability
BPO companies offer customizable service coverage, which is good news for companies with varying business needs. Size can be scaled up or down depending on requirements, giving business owners unparalleled flexibility, especially when compared to in-house hiring and administration.
Time advantage
Certain business activities like IT infrastructure management, cyber security services, and customer and technical support can require teams to work around the clock. Outsourcing allows owners to easily cover night shifts and holidays, ensuring that all systems continue functioning while lowering hiring and maintenance costs.
Focus on function
Not worrying about some parts of your business can be a godsend under the right circumstances. Companies can allocate more time and resources to core business functions by outsourcing certain business segments. This allows business owners more freedom to explore other markets, focus on product research and development, create new business initiatives, and improve overall financial performance.
Disadvantages of BPO
Outsourcing business tasks have some notable drawbacks that must be addressed. The most common ones are:
Loss of control
Handing over crucial parts of your business can be risky. Firstly, you will not have direct control and oversight of the BPO’s operations. If there is a lack of transparency it could hide budding issues that are better addressed immediately. Second, any issues resulting from the provider’s operations will reflect directly on your business, not theirs. Mismanagement or drastic errors can affect service or product quality and directly impact your process and, by extension, your reputation. These problems can potentially erode your existing customer base, reduce trust, alienate new customers, and negatively impact your bottom line.
Quality of work
Choosing the wrong service provider can cause more problems in the long run. It doesn’t help that the BPO industry is becoming increasingly crowded in top BPO providing countries like India and the Philippines. The provider’s issues with their quality of work can stem from several factors, including improper training, lack of access to new technology, quality control difficulties, and an unfit talent pool. All of these factors, unfortunately, are out of your direct control.
Risk of dependency
Outsourcing makes your business dependent on the provider, especially if the task you give them is a core part of your process — meaning that if they go down, a part of your business goes down.
But it doesn’t have to be as drastic as the whole provider’s business closing. Certain issues like system downtimes or connectivity issues can severely affect their ability to meet your requirements. In the Philippines, for example, severe tropical storms can cause massive flooding in metropolitan areas, cutting off transportation and impacting a service provider’s manpower capacity. Remote work has significantly reduced this issue but is still a concern that BPO companies must address. It also helps if the business owner prepares contingencies for such occurrences.
Contact center turnover
The BPO industry — especially its customer service segment — has such high turnover rates that one in three contact centers indicate it as one of the most significant issues they face. This can directly impact businesses that outsource to such providers since the potential lack of manpower can reduce the BPO company’s ability to meet their client’s needs.
Privacy and security
One of the most common arguments against business process outsourcing is the potential risk of data breaches. Giving access to sensitive information to third-party vendors opens up new avenues for leaks, making it more difficult to maintain security and privacy for your business. BPO companies usually have their security measures spelled out before any deals, and clients can require additional features or systems that account for hacks or human errors. However, that doesn’t give a 100% guarantee of security.
SolarWinds breach
One of the biggest data security breaches in the world happened in 2020. SolarWinds is a large software company that provides system management programs and IT monitoring services. Hackers gained access to their Orion IT Management System and used the company’s update delivery system to inject malware into their customers’ networks. SolarWinds says that the breach affected only 18,000 of their 300,000 customers in 2020. However, these customers included Fortune 500 companies and several federal agencies like the Department of Defense, US Cyber Command, the FBI, the Department of Homeland Security, and many more. The hack triggered a domino effect of new vulnerabilities, as most of the affected systems also had their own databases of confidential information.
Is Business Process Outsourcing right for you?
Like any other aspect of business, owners need to weigh the advantages of outsourcing against its potential flaws before making a decision. Yes, outsourcing can result in tremendous savings, especially for bigger organizations, but the risks can offset any positive impacts and actually cost more to fix in the long run. If you feel that outsourcing is the way to go, you must consider how you can mitigate its disadvantages in case they materialize over the course of your operations.
