Business Process Outsourcing (BPO): Definition, Types And Benefits

We are all familiar with the concept of outsourcing business processes. With improved IT capabilities and reduced international trade barriers, organizations interlink with each other to flourish their businesses globally. However, they are mostly focusing on cost reduction while accessing global resources to meet the demands of the industry. Here comes the concept of Business Process Outsourcing (BPO) which leads organizations to increase the scope of business as a whole by generating avenues on a global scale.

Every successful organization can adapt, solve problems, and find efficient ways to conduct its business operations. However, fixing problems couldn’t be the ultimate goal. Adopting a BPO business model for selective work functions can lead to streamlining businesses effectively.

What is Business Process Outsourcing (BPO)?

Business Process Outsourcing (BPO) is a form of outsourcing where one organization delegates one or more business processes to another company. The business functions that are most commonly outsourced are customer support, back-office, payroll, HR activities, data entry services, market research, etc.

Moreover, the concept of BPO has been evolving. Nowadays, BPO services also include domains that require specialized skills such as social media analytics, software development, search engine optimization, and so on. These areas are also known as Knowledge Process Outsourcing (KPO). From promising startups to Fortune 500 companies, organizations of all sizes outsource processes, and the demand grows as innovative services are introduced in BPO services that lead to competitive advantage.

Furthermore, the growing economy worldwide has led the BPO market to achieve an impressive
growth, and the trend is anticipated to continue.

So, to provide you an idea, here are some latest BPO statistics that will help you better understand the happenings in the BPO industry.

Major Outsourcing Statistics

• • The Business Process Outsourcing market growth is anticipated to hit US$0.39 trillion by 2024.
  • Reports suggests, nearly 52% of executives prefer outsourcing business functions.
  • The Insurance BPO Services Market revenue is expected to be USD 7.08 billion in the year 2024, growing to USD 8.94 billion by 2029.
  • According to a survey, 76% of executives receive IT services through third-party delivery models.
  • Approximately 44% of businesses prefer outsourcing their financial tasks to external providers.
  • Cost-efficiency drives the rate of outsourcing by 70% states survey.
  • Small and medium-sized enterprises (SMEs) search for new outsourcing partners for domains including marketing (27%), design (21%), and IT services (22%).
  • The United States annually outsources nearly 300,00 jobs.
• • The IT and telecom segment, in the BPO market, is expected to witness over 32.7% of growth in the Asia Pacific region from 2022 to 2032.
  • The Asia BPO market will garner USD 84.08 billion by the end of 2024.
  • The customer care BPO market in the Middle East and Africa is expected to elevate from $1,986.49 million in 2023 to $2,618.71 million by 2028.
  • The UAE has become a fundamental Center for global business, attracting several multinational corporations that need BPO services to empower their international operations.
  • 56% of SaaS marketing professionals use a combination of in-house and outsourced staff to achieve their marketing goals. 

  (Source)

Categories of Business Process Outsourcing

When organizations refer to BPO companies, they often focus on the type of business functions and work that they are going to outsource. Depending on the company’s specific needs, BPO services are divided into two categories:

1. Back Office Outsourcing

   Back Office Outsourcing is a form of outsourcing that deals primarily with in-house business activities that include data entry, internet research, data collection, data analysis, order processing, payment posting, quality assurance, information technology services, billing, etc.

2. Front Office Outsourcing

   Front office BPO refers to outsourcing customer-support tasks such as marketing, sales, tech support, customer services, grievances redressal, etc.

Types of BPO

Based on the geographical location of the vendor, the BPO industry is divided into 3 types. A company can achieve absolute process optimization by combining these 3 categories:

1. Offshore Outsourcing

   When an organization hires a service provider located in a different country to fulfill certain work requirements, it is known as offshore outsourcing.

   For instance, a US-based agency outsources its business functions to a company in India.

2. Nearshore Outsourcing

   Nearshore outsourcing happens when a company outsources its business functions to a company in a neighboring country.

   An example of this is a Canadian company that outsources its selected business functions to a US company.

3. Onshore Outsourcing

   When a business outsources its non-core functions to a company located in the same country, it is known as onshore outsourcing.

   For example, when a US-based agency hires an outsourcing firm in the USA.

How to Choose a BPO Service Provider

It is the most important decision for a company to pick the right outsourcing partner. Transferring in-house non-core business activities to a BPO company requires change management as it creates an impact on the employees, business operations, and workflow practices as a whole. If you are messing up here, finding a new company will be both expensive and time-consuming. The decision-making process for outsourcing involves the following steps:

1. Define your requirements

   It is very important to have a clear understanding of the business processes that need to be outsourced. Without specifications, it will be difficult to find the perfect outsourcing partner. Moreover, the partner company should understand what the job entails and the project specifications.

2. Narrow down your selection criteria

   The most crucial step in picking the right vendor is to decide on the selection criteria while evaluating them based on them. The criteria that can be used while selecting your BPO service provider are as follows:

   • Areas of Expertise of the BPO Company
   • Services offered by them
   • Employee Strength of the firm
   • Cost of their services
   • List of clienteles

3. Shortlist a Few Outsourcing Agencies

   Based on your evaluation criteria, start shortlisting a few outsourcing agencies. Ideally, the shortlisted companies will be limited to three to five service providers that can be narrowed down further.

4. Assigning pilot projects

   Once the process of shortlisting has been done, it is time to delegate pilot projects to each of them. This helps in assessing the firm’s ability to execute the tasks that will be given to the firm that will be hired.

5. Evaluation of the BPO agencies

   This is the most crucial step in selecting the appropriate outsourcing agency. Evaluation can be done based on criteria such as:

   • Quality of the Delivered Output
   • The adaptability of the sudden updates in the project
   • Turnaround time of the project
   • Cost of the Services offered

6. Monitoring the Project Performance

   Starting the project with the outsourcing partner is the first step. The work needs to be monitored closely while ensuring that the outsourcing firm can deliver your project on time.

Advantages of Business Process Outsourcing:

There are many reasons agencies decide to outsource their processes. For a few of them, it is a strategic decision to gain a competitive advantage. While for others, it is just more sensitive to manage the particular processes efficiently. Below are a few benefits that businesses experience given the situation where functions are outsourced to the best BPO companies.

1. Lowered Costs

   The greatest benefit that organizations are experiencing while using BPO services is cost savings. Typically, in businesses, a large portion of their finances is incurred in manpower. However, it is not possible to perform all business within the company. Because it includes the process of hiring, onboarding, which is both time-consuming and expensive.

   Hence, BPO can be a perfect solution for any size of firm in terms of allocating resources efficiently when it comes to employees and business processes. Since the outsourced third-party vendor is offsite, there is no need for concern about the manpower, office space, materials, etc. as they are maintained by the outsourcing partner.

2. Enhanced Speed and Efficiency

   It is a proven fact that organizations tend to stay in their wheel tracks for a longer time when they are outsourcing their non-critical business processes to an outsourcing partner. In this case, they can successfully manage their business criticalities more efficiently while paying almost negligible attention to the less complicated functions.

3. Gaining Competitive Advantage

   To be more competitive in the overseas market, it is of utmost importance for agencies to find and continuously improve their expertise and skills in the services and products that they are offering. With non-critical processes handled by outsourcing partners, organizations find more room to become more efficient with their products, thus tapping more customers in their respective target markets.

4. Greater Flexibility

   Efficient allocation of resources is the key to the success of any business. When a company outsources its business functions to vendors, it is likely that the vendor will spend time and expertise while delivering the project on time. Hence, they can allocate their resources to core business activities and employees for better performance.

5. Time Zone Advantage

   With scaling businesses, often companies enter a foreign market. The most common problem that firms face that has businesses spread across the globe is the time zone. If the company is headquartered in Sunnyvale, then it will be difficult to expand their businesses in different countries in Asia and Australia when you can’t have employees available for each time zone in those countries. Instead of opening offices in various countries, it is more efficient and cheaper to hire a BPO service provider located in those areas.

6. Increased Security

   Outsourcing firms that are specialized in handling financial services and processes provide better security and safety from cyber theft and cybercrime. For a small- to medium-sized business, it is difficult to hire a safety and security team to monitor security measures against cyber theft.

7. Global Expansion

   If a company wants to enter a foreign country, then for some activities it requires national law expertise, local market knowledge, knowledge of the target audience, and communicating with them. In this scenario, hiring a BPO company helps with quicker expansion and boosts efficiency. For example, if a US-based company is entering the French market, then hiring a local partner company with native manpower helps in greater business expansion.

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