In the past few decades, outsourcing has been a hot topic of discussion amongst many businesses in different countries. Outsourcing is the process of involving a third party or external service provider (who are generally specialists in the work that is being outsourced) to perform the jobs and functions of any company. 

Outsourcing has been a controversial topic since no one likes their jobs going overseas. But with the right context and if deployed shrewdly, outsourcing can prove to be an excellent measure for a company to better its Bottomline and improve efficiencies. Here you can know about the bpo introduction and other aspects related to outsourcing. 

Introduction to Outsourcing

Outsourcing is known to be a standard business practice. There are negotiations and contract signing when a company hires another agency or organization to carry out a portion of their activities like operations, services, etc. Companies today are outsourcing work majorly in information technology that includes programming and application development, technical support, customer services, and call services. 

There are other types of work also which the companies can outsource like manufacturing, human resources functions, financial functions (bookkeeping payroll processing, etc.). Sometimes a company outsources an entire division, for example, the whole IT department, or chooses to outsource just a portion of it.

The other names for outsourcing are “contracting out” and BPO (business process outsourcing).

BPO Introduction

BPO or business process outsourcing is done usually to fulfil peripheral or supplementary jobs and functions of a company rather than the core business functions. The services could be technical or non-technical. Any type of company, a start-up or a Fortune 500 company, is outsourcing their work and the demand for BPO has been growing over the years.

BPO is divided into two types of services:

  1. Back office - Internal business processes like purchasing, billing, etc. are the back-office services.

  2. Front office - The services which deal with the customers of the contracting company is termed as front office services. Few examples are marketing, technical support, etc.

BPOs could also combine these services so that they work together rather than independently.

The locations of the vendor divide the BPO industry into three categories. To optimize the total process, a business can combine all three categories:

  1. Offshore - This type of outsourcing is done outside of the company’s own country. For example, a company in the U.S. can outsource its work to a third party in India.

  2. Nearshore - When vendors are located in countries close to the outsourcing company, it is said to be a nearshore outsourcing. For example, for the United States, outsourcing to Mexico would be considered nearshore.

  3. Onshore - In this type of business process outsourcing vendors belong to the same country as that of the company, though they might be in different cities or states. For example, a company in San Francisco, California, U.S could outsource its work to another company in Santa Clara, California, U.S or Huntsville, Alabama, U.S.

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How Does Outsourcing Work?

Outsourcing involves focussing both on business partnerships and logistics. More than the SLAs (service level agreements), outsourcing is a lot about managing relationships. It is a partnership and not just a purchasing project. It is vital to maintain a secure and trusting relationship with the company you outsource to. This effort is more complicated than merely establishing service agreements.

Experts in outsourcing lay a lot of emphasis on the exit clause of a service contract. Both parties in an outsourcing activity must know when the contract ends and that all responsibilities and obligations have been met before the contract due date.

Advantages of Outsourcing

Some of the major benefits outsourcing brings to a company are:

  • Expertise and swiftness - Most of the time vendors are those who specialize in the area that is outsourced to them. The vendors usually possess better equipment, specific talents, and skills which are not present in the contracting organization. Hence the company which outsources can get more quality work done in less time.

  • Companies can concentrate on core processes - If a company outsources its supporting work to vendors, it can devote more time to focus on its core business processes. It brings about more quality work and in turn, more profit to the organization.

  • Share risks - Risk analysis is one of the most crucial parts of a project campaign. If a company can outsource a part of that work to vendors who know that area, they can share the risk mitigation responsibility. Since the vendors are experts in their areas, they can formulate an enhanced risk mitigation plan.

  • Reduce costs - Since you outsource, your need for hiring diminishes. This takes a heavy load off of recruitment and operations costs. Outsourcing piecemeal work is always cheaper than hiring full-time staff. Your ongoing investments in internal infrastructure also reduce due to outsourcing.

  • Get work done around the clock - If the outsourced vendor is overseas, your business could run even when you are sleeping. Though initially, logistics could be an issue, you get tremendous benefits with the different time zones and holidays.

  • Simplify project management and work relationships - With outsourcing, the relationship with workers can be contractual and simplified. This could mean better yields. If you outsource work through specialist freelance websites, most of the time, you are provided with a dynamic platform that helps you efficiently manage projects. Things like; when is the work due, when it is done, when the payment has to be made, etc. are all automated through these intuitive platforms which free up your time for more crucial work.

FAQs (Frequently Asked Questions)

Q1. What are Some of the Pitfalls of Outsourcing?

Ans. Despite many advantages of outsourcing, it brings with it a few risks and extra efforts:

  • Maintaining a relationship with the third party - There are many aspects of the relationship that is shared with the vendor, which requires time and effort. Negotiations and contract are signing to be done, which would need the involvement of the company’s legal counsel. Outsourcing also involves day-to-day communication with vendors and oversight.

  • Security - Third parties usually have access to organizations’ sensitive data when work is outsourced to them. It could involve business data, trade secrets, and other confidential matters which is necessary to carry out the contracted functions. This could palace the security of the company at risk.

  • Negative impact on public relations - When outsourcing results in the loss of jobs for employees in the local communities, it could bring a bad image for the company.

  • Reduce control on the quality of work - When you farm out your work, you lose control of the way the tasks are performed and monitored. If the outsourcing companies are motivated more by profit than a quality job, your work might suffer from poor quality and standards. 

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Q2.  What are a Few Most Common Services Supported by BPOs?

Ans.  BPO providers are helping companies fill the gaps with their gamut of services now. The participating industries in the BPO sector include energy, healthcare, pharmaceuticals, business services, telecom, retail, e-commerce, banking, supply chain, asset management, etc. The growth of BPO has given rise to many subspecialties like:

  • ITES BPO - This form of BPO pertains to information technology-enabled services. It leverages IT (information technology) over the internet to deliver services. IT analysts, Service desk analysts, etc., are some of the ITES BPO jobs.

  • KPO - This stands for knowledge processing outsourcing where BPOs are also supporting functions that are core to the companies. KPO firms not only offer process enhancement but also possess domain and business expertise. They are capable of making low-level business decisions as long as they do not conflict with higher-level decisions of the company, which is outsourcing them. 

  • Travel - When a company needs travel-related services, they outsource this to a BPO which does all the logistics work which involves reservations, hotel bookings, vehicle bookings, etc.