Business process outsourcing is a common service provided for third-parties for various sectors. The BPO Services Global Industry Almanac 2013-2022 reports generated revenues of nearly $145 billion in 2017. This process allows business to subcontract operations to third-party vendors. Below, learn about business process outsourcing and how it may help your business.
What is Business Process Outsourcing (BPO)?
Business process outsourcing (BPO) is a practice in which a business hires an organization to perform a task or process that is necessary for the business’ operations that detract from the business’ primary competencies.
Businesses outsource specific business processes to the selected third-party service provider. These services may include customer support, data recording, accounting, telemarketing, social media marketing, payroll or others. These functions are usually supplemental functions and not core business functions.
BPO often utilizes technology and infrastructure that equips the service provider with the tools to perform its functions. For this reason, it is sometimes referred to as information technology-enabled services (ITES).
Types of Business Process Outsourcing
BPO is generally divided into categories: front office and back office. It may also involve more subtypes.
Back office tasks often deal with internal business functions, such as logistics, receivables or collections. Back office outsourcing may involve outsourcing some of the following tasks:
- Payment processing
- Human resources
- Regulatory compliance
- Quality assurance
- IT services
BPO service providers can competently complete these tasks to help the business run smoother.
- Setup of payroll calculations
- Routine running of employee payroll
- Social charges and tax compliance
- Payment to third parties
- Regulatory compliance
- Annual tax declaration
- Comprehensive benefits management, including leave and holiday pay
- Coordination of final payments to terminated employees
Front office tasks refer to the actual operations of the business, such as interacting with customers. Some front office tasks that BPO services assist with include:
- Customer relation services
- Tech support
- Inbound and outbound sales
Businesses can outsource all functions or specific functions like payroll.
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Other Types of Business Process Outsourcing
In addition to these two broad categories, BPO services are also divided in other ways, such as:
BPO services may be divided into different types that are based on the BPO servicer’s location, including the following:
- Offshore outsourcing – This refers to BPO service providers that are located in a foreign country and provide contracted services for other companies. This type of outsourcing may be used when the company wants advantages such as a more political environment, lower labor costs or tax savings.
- Onshore outsourcing – This refers to BPO service providers that provide contracted services in the same country where the host business is located. Vendors may be located in other cities or provinces.
- Nearshore outsourcing – This BPO service involves a BPO service provider and the other company that are located in neighboring countries.
Categories Based on Service Type
There are many different subsets that companies can outsource, including contractor management outsourcing. For BPO services, the following types of service categories may be provided:
- Knowledge process outsourcing – This type of outsourcing provides the business with a particular business process as well as expertise surrounding it. BPO providers may provide business and domain-based expertise. This work may involve research, analysis or data entry work.
- Legal process outsourcing – This type of outsourcing is specific to legal services, including eh drafting of legal documents, researching legal issues and possibly offering legal advice. Some BPO providers draft patent applications, contracts and other important legal documents.
- Research process outsourcing – This type of outsourcing involves providing research and analysis functions. BPO service providers may complete such work that supports business services, biotech, marketing and investment firms.
- Information technology-enabled services outsourcing – This type of BPO utilizes information technology over the internet or network to provide services, including service desk and IT analysts.
- Travel outsourcing – Some businesses may use BPO service providers to handle all logistics surrounding travel. Some companies may travel extensively and BPO providers can handle all bookings related to air travel, hotel and vehicle bookings.
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What Industries Use Business Process Outsourcing?
Many businesses use BPO services. These range from fledgling new startups to large corporations. BPO allows businesses to implement innovative services in a competitive business climate. More businesses turn to this option in order to get ahead of the competition. A variety of organizations use business process outsourcing, including the following:
Manufacturing was the first industry to embrace BPO services, such as when soft drink companies outsourced certain processes to third parties. Manufacturers often hire other companies to handle specific processes. The manufacturer uses BPO services that are not integral to make the products but that can assist the business, such as being part of the company’s supply chain.
Business and financial service providers may outsource certain processes. Investment firms, banks and marketing agencies may outsource important functions to BPO service providers.
Healthcare and pharmaceutical companies may outsource processes involved in their operations. Biotech companies may use research process outsourcing.
Retailers may use BPO services to provide customer service, social media marketing and IT support. E-commerce companies can outsource many of their functions to BPO providers. BPO services often assist with supply chain issues.
Technology companies may outsource IT support and other functions to a BPO service provider. Providers may assist with capacity solutions and asset management.
Telecom and media are additional industries that may utilize BPO services.
Government offices also use BPO services to outsource certain functions.
Types of Services BPO Providers Offer
BPO providers support a variety of services which fill in many gaps in the company. These services may include the following categories:
- Customer interaction services – These services include scheduling appointments, managing the company’s marketing program, telemarketing, payment processing, processing orders, providing email services, managing voicemail services, providing quality assurance, conducting surveys, administering warranties and handling other customer service tasks.
- IT operations – BPO service providers provide technical support functions such as developing applications, testing, implementing services, data capturing and providing IT helpdesk assistance.
- Back-office transactions – These functions include payment processing, collections, receivables, transportation administration, logistics and warehouse management.
- Human resource services – BPO service providers can take over human resource administration, including payroll services, administration of healthcare and other benefits, hiring employees, recruiting, workforce training, insurance processing and disbursing retirement benefits.
- Financial and accounting services – Financial and accounting services include handling billings for the business, accounts payable and receivables, accounting, auditing and regulatory compliance.
- Knowledge services – These services involve analyzing data, researching, developing programs, implementing changes based on customer feedback and data mining.
Benefits of BPO Services
There are ample benefits to using BPO services. Some of the most cited reasons for making the decision to outsource business processes include the following:
The United States corporate income tax is one of the highest in the developed world. By outsourcing functions to a country with a lower income tax, the business pays the lower tax rate of the host country. This helps reduce costs without sacrificing any quality in the final product.
In addition to tax savings, companies may be able to further reduce costs by outsourcing certain processes. In-house labor costs may be significantly lower than comparable rates in the home country or city.
Additionally, BPO service providers can handle training aspects, further cutting down on labor costs. They also provide the physical location for workers, so companies do not have to provide as much capital investment to accommodate these needs.
Outsourced service providers may be experts int heir field and be able to complete the required work for less money due to using existing practices. Outsourcing also allows businesses to scale up or down as business needs demand.
Concentrate on Key Functions
Businesses that utilize BPO services can delegate company functions that are not directly tied to their core operations to another company. This allows the business to focus its attention on these core processes.
The company can outsource important activities to a trusted BPO service provider such as payroll and accounting that are not integral to the business’ operations. BPO service providers focus on the tasks that they are hired to complete and focus on providing these activities at the highest levels, often with improved accuracy, efficiency and speed.
At the same time, the company’s team can focus their resources and attention on operations that make them distinct in the marketplace. The company can focus on differentiating itself and maximizes growth. This attention can provide the company a competitive advantage, improved customer service and higher profits.
To Improve Results in Noncore Functions
Outsourcing services can also improve results in noncore functions. BPO service providers specialize in these functions. They use specializes processes and technologies that offer innovation in the business. These providers may have a better skillset to handle these noncore functions.
Outsourcing noncore and administrative functions can allow the company to better allocate resources, time and attention to areas of core competency. They can improve customer relations, introduce new products or services and improve operations. They may be able to more quickly start a new project or introduce a new line when they are not bogged down completing non-essential functions.
Companies can better react to changing dynamics in the marketplace and how to assign work to its employees. Team members may be reassigned to perform more critical functions to cover important areas.
This provides a competitive advantage to the business since the business can take advantage of opportunities that present themselves. Because capital and asset expenditures are reduced, these resources can be assigned to more profitable investments.
Improved Speed and Efficiency
Companies that outsource business processes allow specialists to take over these tasks. There is only so much time in a day, so delegating these tasks allows the business to focus on work that makes the greatest return on investment while allowing specialists to handle noncore functions.
This saves the business time, improves accuracy and increases the capacity of the business. BPO service providers can often automate processes, further improving speed and efficiency.
Additionally, BPO service providers can provide quick and accurate reporting, which allows stakeholders to make real-time decisions about the business.
BPO service providers allow businesses to access the latest technological resources that they may not otherwise have access to. Businesses may not want to invest in new technologies that are not core to their business.
However, BPO service providers may already have these technologies that help improve their own efficiency which they can use for the business. BPO service providers constantly work to improve their processes and often do so by implementing the newest technologies and practices to make themselves more competitive. The business can then benefit from incorporating these technologies into their operations.
Expand Global Presence
Some BPO service providers provide customer service in multiple languages and offer off-hour services. This helps the business be more available to more customers.
Outsourced companies can leverage their presence in multiple countries. Having certain processes outsourced also allows the business to devote more time to global expansion.
Find Out More About Business Process Outsourcing
If you would like more information about the business process outsourcing services that New Horizons Global Partners offers, contact us today.