The 2022 Updated Outsource Business Process Guide

Frequently Asked Questions The 2022 Updated Outsource Business Process Guide

What is Business Process Outsourcing?

Therefore, business process outsourcing is the company business strategy where an organization hires an external outsourcing service provider to perform specific tasks for them (1). The strategy is ideal because the company organization will leave its regular staff to concentrate on other essential aspects of the company while the outsourcing contracted company handles its part. Business company process outsourcing often happens when an arbitrary work pops up without a plan, and the company might not have sufficient staff or skills to handle the task.

A business organization often contracts another specialized outsourcing team for impromptu services when it understands that the process is crucial for the organization, even though it might not be the company’s core value. Most organization executives consider the process a solution for them because having a company’s staff perform such tasks is timewasting and doesn’t give so much value to the company’s money. It is reasonable for them to outsource the processes because it will save their employees time and deliver better results when handled by an outsourcing experienced team.

The manufacturing industry is one sector that utilizes BPO a great deal. Dealing with the supply chain cycle sometimes requires the injection of outsourced expertise. Most manufacturers consider hiring outsourced vendors when they realize they bring betters skills and efficiency than having the company’s team handle it. Other industries have, however, adopted the strategy, and even government agencies have realized its value.

5 Different Types of Business Process Outsourcing

Business process outsourcing (BPO) is an umbrella that encompasses several subcategories. The subcategories describe the service’s location and function. The five subcategories, therefore, make up the different types of business process outsourcing.

The following are the five subcategories of business process outsourcing:

Business Process Outsourcing Types: Supply Chain and Services

Back-Office BPO

Back-Office BPO involves contracting services that do not relate to the company’s customers to a third-party vendor. The services include the following:

• IT services
• Business process automation
• Accounting
• Quality assurance
• Human Resources

When a company outsources such tasks, it saves itself from wasting its own staff’s time and, at the same time, ensures that the vendor is of top-notch expertise to produce the best results. The strategy is also time-saving because the company will save the money it would otherwise use to train its employees and purchase and maintain expensive equipment.

• The following are the subtypes of BPO that companies have adopted:
• IT-Enabled Services (ITES), for example, outsourcing an IT analysts
• Legal Process Outsourcing (LPO), for example, outsourcing legal advisors
• Knowledge Process Outsourcing (KPO), for example, outsourcing an individual with sufficient knowledge of how a program operates.

Front-Office BPO

Unlike Back-Office BPO, Front-Office BPO is a term that refers to the outsourcing of services that affects the company’s customers to a third-party vendor. The services include aspects like:

• Tech support services
• Customer care services
• Sales and marketing
• Web development
• Customer support lines

Companies often outsource these services when they demand technical expertise that the company’s in-house staff cannot achieve. Companies opt to outsource these services to cut costs and tap into a third-party vendor’s unique knowledge for its client’s benefit.

To learn more details about the differences between front and back office outsourcing, click on the blue text. 

Business Process Outsourcing Types: Location of Vendor

Offshore BPO

Offshore BPO involves outsourcing a company’s services to a third-party vendor overseas. The country does not share the same time zone as the outsourcing country. Although it could pose a challenge, organizations have turned it into the advantage of operating in a 24-hour cycle.

The following factors inspire the reason why a company outsources services to a far-off country:

• Political stability in the country
• Availability of resources in the country
• Lower costs of labor
• Availability of highly skilled labor
• When the strategy offers a tax-saving alternative

The most common example of this strategy is when companies outsource their customer services departments. A company can contract with skilled call center third-party vendors overseas and let their regular staff handle other critical company services. The strategy allows the company to access the best services at a comparatively lower price than if they had dealt with the services in their home country. The overall advantage of the strategy is that it generally reduces overhead costs and lowers the prices of the service for the organization.

Nearshore BPO

Unlike Offshore BPO, nearshore BPO involves contracting services of vendors from countries within the same geographical location. In this case, the two countries share the same time zone because of their proximity. For example, US organizations can contract services from experienced third-party vendors from countries like Mexico or Canada.

Organizations adopt this strategy to take advantage of specialized companies from neighboring countries or when conditions in those countries are financially favorable. The strategy, however, brings about new challenges like language barriers and cultural differences.

An excellent example of nearshore BPO is the Royal Bank of Canada nearshoring its IT services to iGATE, an IT service company based in New Jersey, US. Click here To see more real world nearshoring examples.

Another example is Silicon Valley Company which outsources its services to a Canadian company.

Onshore/Domestic BPO

Onshore BPO is also called domestic outsourcing. It involves outsourcing a company’s services to a specialist within the same country. The strategy implies that the proximity between the company and the vendor will ease operations and saves more on costs. For example, a company in Kentucky can outsource a vendor’s services from West Virginia. The factors that can inspire a company to adopt onshore BPO include the availability of specialized companies from the neighboring state or the advantage of the local rates difference. Going for vendors that offer services at comparatively lower prices is ideal for companies who are out to save on their expenses.

Managing Outsourced Vendors

Vendor management is a crucial factor that determines the success of a company’s outsourcing strategy. Carrie Wilkerson said, “The longer you’re not taking action, the more money you’re losing.” A company must monitor outsourced vendors’ progress, just like overseeing regular employees. Managing a vendor’s progress isn’t new in the business but continues to pose significant challenges to many IT companies worldwide. Sitting back and banking wholly on an outsourced vendor is a prerequisite for a company’s downfall.

An example is when a company outsources its IT services to an experienced team from a neighboring country. Unfortunately, there are constant complaints from the company’s clients over poor services. The regular monthly reviews might indicate excellent progress by the vendor, but there might be more than the monthly reports shows.

The problem comes in when the third-party vendor becomes dishonest. It is not guaranteed that a vendor will give your company its ‘A’ Team for a contract. The vendor might give you a ‘B’ team whose expertise in the field might not meet your requirements, while the third-party vendor benefits.

Therefore, a company needs to up its management skills regarding the outsourced vendor to realize its desires. The following are some third outsourced vendor management tips to consider:

Get the contract right from the beginning

Ensuring you get the contract right from the beginning will give you the leverage to ensure that the vendor meets your company’s goals. Trying to right things later when there are discrepancies in the contract is complicated and might jeopardize the success of your chosen outsourcing model. Ensure the agreement indicates the expected outcomes your company is looking forward to because it will give you the base to continually measure and correct the outsourced vendor’s progress.

Develop a plan

Do not just rely on the contract agreements. Your company needs to highlight clear plans as the base for managing the process. Ensure that the plans indicate clear roles and define the responsibilities of the outsourced vendor. Ensure that both teams agree on the supporting terms of services that are subject to constant reviewing to gauge the vendor’s progress.

Regular, meaningful reporting

Periodic analysis of reports about the progress of the outsourced vendor is key to ensuring positive progress. Identify the necessary reports required to monitor the progress of the team regularly. Ask for a report from the team on a regular stipulated period and watch out for ambiguity that might derail the progress. It is also essential to take action if the reports do not indicate progress. Feel free to ask questions and demand quality because having constant reports that don’t bring value does not make sense.

Carry out regular audits

The third-party vendor’s reports might not be an accurate indicator of reality. It will help to conduct a diligent independent audit to check the vendor’s progress. Carrying out regular audits ensures that you have clear objectives for your company and will give you an accurate picture of the vendor’s progress. You might consider using an outside party or internal staff to assess your third-party vendor.

Regular ongoing performance monitoring

Develop a habit of monitoring your third-party vendor regularly. It is a good habit that will ensure that the vendor is sticking to the rules and that its progress is geared towards meeting the set objectives. Lay down meaningful measures that will be your basis for monitoring vendor performance. You must establish methods to undertake regular checks that are necessary for managing your outsourced vendor.

Manage risk

Your third-party vendor management team should know the risks of outsourcing a third-party vendor and how to mitigate them. The team should be conscious of the kind of company data the outsourced team can access, where the data is hosted, and the type of transactions the vendor can perform on the company’s behalf. It will give the management team an idea of the risks associated with hiring a third-party vendor because you cannot entirely trust the third party with crucial company data.

Plan for the worst

Zig Ziglar said, “Expect the best. Prepare for the worst. Capitalize on what comes.” It is always good to have an exit plan if things go wrong. Do not relax and bank on the vendor for success. Issues might arise that might render the strategy unsuccessful. The vendor can terminate the relationship with your company arbitrarily.

On the other hand, your company might find it necessary to terminate its relationship with the third-party vendor, especially when the contract is over costing the company or not producing the expected results despite establishing a vendor management team to oversee its progress. However, that might not still guarantee success. It would help if you become flexible and prepare for all the eventualities that might come out of your relationship with the third-party vendor.

Benefits of Business Process Outsourcing

Business process outsourcing offers some advantages to companies, which is why most US organizations are opting to nearshore their IT services, mainly to Canada. Business owners are turning to the strategy because of the financial impact it offers to their companies. It enables companies to offload burdensome work off their shoulders and to concentrate on other essential aspects of the company while the vendor handles their delegated work. It is convenient to outsource services to companies that are already established and have their equipment to avoid the expense of training the company’s employees and maintenance of expensive equipment.

Forbes has a wonder quote on the subject (2):

“I expect this trend to escalate year-over-year as businesses of all sizes experience the benefits of business outsourcing firsthand.”

-Forbes

The following are the advantages that come with outsourcing your business processes:

Reduction of Cost

Outsourcing services allows companies to save money that would otherwise go to retraining the staff members for the new tasks and purchasing equipment. The financial aspect is one reason so many companies are adopting the strategy. The strategy has also led to the rise of highly skilled vendors in the market that are always ready to offer their services at low costs. Adopting their services will give the company the advantage of getting excellent services at meager prices.

Availability of Experienced Professionals

The presence of third-party employees with relevant skills in handling business processes inspires companies to adopt their services. The strategy saves them the hassle and costs of retraining their employees. All a company does is delegate its services to a group of professionals and let its regular employees concentrate on other essential aspects of the company.

It Gives the Company a Humble Time to Focus on Core Business

Delegating part of the company’s work to an outsourced vendor gives the company’s top management a humble time to concentrate on other essential aspects of running the organization. The strategy leads to better employee productivity and efficiently gears the company into achieving its objectives.

The strategy is an Excellent Source of Customer Feedback

BPO gives the company a platform where clients come in direct contact with their representatives. The company will therefore have the opportunity to interact with its clients and receive information and complaints from them about their products or services. The data will thus help the company to improve on its weak areas and aid in better client satisfaction.

Access to the Latest Technologies

BPO is an ideal strategy for companies to save on the costs of purchasing the latest software technologies. The presence of already established companies with these technologies allows the companies to tap technological advancement without necessarily buying them. The strategy is ideal for small to medium companies that lack the financial strength to purchase this software and hire new staff with the relevant knowledge of operating them. Therefore, companies that already have access to these technologies pose a great advantage to upcoming organizations.

It Creates Excellent Employment Opportunities

The BPO has provided many jobs for youngsters in many countries. It is one of the firms in the world with the highest job opportunities for skilled employees. BPO industries are also among the well-paying organizations in the world. Besides providing salaries for its employees, it also positively changes a country’s GDP.

You Can Work Around the Clock

Outsourcing strategies like offshoring offers the advantage of extra working time. Offshoring some of the services oversea gives your company the chance to operate in a 24-hour cycle. The strategy, therefore, enhances efficiency and gets your project done within a shorter time, especially if it has the efforts of both the vendor and the company itself. Customer satisfaction is also achieved because clients worldwide will get the chance to interact with your company’s representatives in their home countries. It boosts client satisfaction because they will get the opportunity to inquire about some of the issues of the project that might have been troubling them.

Are There Disadvantages To Outsourcing Business Processes?

Apart from the vast advantages of the BPO strategy, the approach is not devoid of shortcomings. The following are some of the disadvantages of outsourcing business processes:

Less Control over Outsourced Tasks

The level of control over outsourced tasks gets hidden under the shade of the advantages of BPO. Delegating a third party to handle part of your company’s work means you trust the company to represent you wholly. It, therefore, doesn’t appear convenient to keep poking them even though you might be looking out for quality. Although the vendor and the business agree on the terms during the agreement, the vendor controls the outsourced task most. Therefore, the company loses total control of the project and leaves it at the mercy of a third-party vendor.

Some companies handle this disadvantage by offering to join forces with the service vendor. The strategy allows the company to dictate terms and make changes when they deem fit.

The Strategy Poses Security Risk to the Company’s Data

A company’s data is crucial, and sharing it with a third-party vendor poses some risk. Therefore, a manager needs to exercise caution on the amount of information he shares with the vendor because a slight mistake could put the company’s security at risk.

Some Vendors Charge Hidden Costs

While a company opts for the BPO strategy to save on expenditure costs, it could involve another spending spree. Owing to the growth of several companies that offers BPO services, some malicious vendors have developed a strategy of swindling money off unknowing companies. The vendor might offer to provide services to the company at the lowest fee in the market while hiding some charges to the company’s shock later. Most companies avoid the problem by having a thorough prior discussion with the vendor on the pricing model.

Benjamin Franklin said, “Beware of small expenses; a small leak will sink a great ship.”

Requires Adjustment Period for Employees

Depending on an outsourced company instead of the regular staff members requires adjusting time. While it might seem easy to implement BPO, the logistics and time needed for downsizing your workforce are hectic.

Your Company Might Lose Focus

Most outsourcing agencies service many vendors at once. Therefore, they might not have the relevant concentration that the work you outsource to them deserves. The lack of focus could be a downfall for your company because while you bank on them to deliver quality services, they are busy serving hundreds of other clients.

The difference between Time Zones and Culture

Outsourcing strategies like offshoring bring about new challenges to your company. For example, suppose you operate a company in the US and offshore some of the company’s services to a company in China. In that case, the difference in time zones will shatter the fluidity of your operation. The cultural differences and language barrier might annihilate your progress and jeopardizes the results.

This strategy is as well time and cost ineffective. It will be a disadvantage to the regular monitoring that it desires. For example, traveling from the US to China is expensive, and making a routine trip while monitoring the vendor’s progress is not financially practical.

4 Tips for Choosing the Right BPO Provider

The above disadvantages of BPO underscore the importance of looking for a legitimate vendor. Delegating a specific aspect of your business means you must wholly trust the vendor to handle the services with exceptional excellence. A high-quality BPO will give you value for your money. Their technological inculcation will help your company compete with other established companies without necessarily breaking the bank with mortgages.

The following are 4 essential tips to consider when choosing the right outsourcing partner that will help your business achieve its objectives:

Check on the vendor’s NPS scores

Net Promoter Scores, called NPS, is a proper system that measures a vendor’s global business customer experience (3). The references that you read about the business company online are often handpicked and might not show a true reflection of its services. NPS are reviews about a business company compiled from surveys that tell a customer’s willingness to recommend the vendor to other business companies.

A high NPS score, therefore, is an accurate indication of high customer satisfaction. It is your work, therefore, to look for a vendor whose NPS score outmatches the rest.

Ensure the vendor has a transition plan

A successful transition between the company and the vendor is the genesis of a successful outsourcing business strategy. Any delay in growth can lead to the stumbling of the strategy and can significantly impact the operations. It is your task to do a background check on your vendor’s transition methodology. A good vendor already has a structured approach to transitioning functions from the company to its staff. The vendor shouldn’t rush the transition process and, at the same time, should not delay so much. A standard transition should last for around 18 hours.

Look for a vendor with the expertise to inject new strategies for improving your company’s services. Such methods include things like automation and positive organizational changes.

Quality Assurance is Important

Do not put your company’s essential services on the line by not doing the necessary background check about the vendor. Before outsourcing, please check the vendor’s past performances and areas of specialization to determine whether they are the right outsourcing business company you are looking for. The first indicator of a quality BPO is certification by a national association. Please spend some time interacting with your team member before signing a long-term contract because they could contribute positively to your decision-making.

The Company Should be Financially Bulletproof

The BPO’s financial health is a very crucial matter to take into consideration. We live in times when technology and AI are taking center stage in business management. It would help, therefore, to take time to check on the business vendor’s financial health, and if you are offshoring, consider looking into the country’s economic situation. Look into the stock market and predict the country’s future economic standing. If the prediction is unfavorable, it would be wise for you to look for another vendor in another promising country. Certain BPOs might have gone bankrupt in the past, and that’s a perfect sign for you to run for your money.

What Types of Services Do Outsourcing Companies Support?

Different business companies outsource different services to qualified vendors. The following are the four common types of services that most business companies outsource:

Professional services

Professional outsourcing entails outsourcing professional services to a third-party vendor. The services could include the following:

• Legal business services
• Accounting Business
• Administrative business posts
• Purchasing business services

This kind of strategy is common, and many companies employ it to offload unnecessary burdens off their shoulder. A company can, for example, hire an independent accounting firm to handle all the company’s finances instead of using its regular finance officer.

The only disadvantage of this strategy is the lack of exclusivity. The business vendor working on your finances can still work on another business company’s finances simultaneously. The lack of the vendor’s focus might lead to a lack of concentration and, eventually, poor performance. The business vendor can also terminate your contract, just like a manager fires an employee. It will leave you awkward because part of your business company’s work will stagnate.

IT Outsourcing

IT is another typical service that many established companies outsource. Huge names like WhatsApp, Basecamp, and Google have outsourced their IT development task to remote workers. These companies are very successful and attributed to hiring offshore developers to work on their IT services.

It is not easy developing an app or software that helps run a company. Instead of bringing in new permanent employees, most companies opt to offload the task to established companies within or outside their country.

At Sonatafy, we are experts in the field of nearshore software development. Our firm only hires top talent at affordable rates from countries close by so we can pass the savings onto you or your business. Visit our homepage to learn more!

The advantage of business outsourcing IT tasks to third-party vendors is that your company business will be quick to implement new technology. Remember, the business vendor has the relevant expertise and equipment to help your company be at par with other established competing business companies. A focused team can take one week to complete an IT project that would otherwise take new in-house team months, and that’s the efficiency of outsourcing IT services.

Manufacturing Outsourcing

If you operate a business company that produces physical products that require manufacturing, it is ideal for you to outsource a business vendor. While it might be easy for you to manufacture within the US, there are more financial benefits of outsourcing to other smaller countries with lower costs of production.

Outsourcing manufacturing entails hiring a business vendor specializing in manufacturing to produce your goods at a lower price. Most US manufacturing companies outsource their manufacturing to China.

Project Outsourcing

Project business outsourcing is ideal for business companies that need help with specific projects but would instead not employ full-time employees for the task. For example, a business company might require temporary help redesigning its website or writing an eBook for the company. Such situations necessitate outsourcing the project instead of hiring permanent in-house employees.

References:

1. Business Process Outsourcing (BPO) Definition
   https://www.gartner.com/en/information-technology/glossary/business-process-outsourcing-bpo
2. “I expect this trend to escalate year-over-year as businesses of all sizes experience the benefits of business outsourcing firsthand.” – Forbes Quote
   https://www.forbes.com/sites/forbesbusinessdevelopmentcouncil/2021/01/08/the-business-process-outsourcing-trend-how-bpo-benefits-businesses-of-all-sizes/?sh=3b86d38c2f49
3. What is NPS? Your ultimate guide to Net Promoter Score
   https://www.qualtrics.com/experience-management/customer/net-promoter-score/