Business Process Outsourcing
What is business process outsourcing?
Business process outsourcing (BPO) is the practice of sub-contracting an organisation to perform the essential functions or tasks of your company. Companies outsource some of their processes because they may not be a part of their core value proposition. In such a scenario, the company decides to outsource it to an external entity that has the necessary means and experience rather than hiring a team and spending on gaining expertise on that critical business process.
Businesses are now outsourcing their processes to other countries that offer skilled labour at lower rates. This is called ‘offshore outsourcing.’ For example, a US telecom company may outsource its process and solution designing to an Indian IT company for its lower rates and competitive, skilled labour. Outsourcing these processes results in better efficiency, cost savings, and results.
The benefits of business process outsourcing
Business process outsourcing started with the manufacturing sector, but now it spans multiple industries. These include legal, finance and accounting, healthcare, software, and more, with added benefits such as:
- Standardisation and efficiency of processes
- Direct cost savings and other financial benefits through tax savings
- Higher business value
- Digital acceleration
- Increased competitive advantage
- Higher quality and better services
- Access to newer innovations in the outsourced process
- 24 x 7 availability of support staff
Business process outsourcing applications
Business process outsourcing works on two types of contracts: time and material and fixed-price contracts. In the first category, the company pays the sub-contractor for its time and skill. In the second category, the company agrees and pays upfront for the specified work. Common processes to outsource are:
- Payroll and accounting
- IT management and consultancy services
- Customer support services
- Research and development
- Sales processes
- Shipping and logistics
- Software development
Types of outsourcing models
The outsourcing models depend on the location of the sub-contractor or the service provider.
- Offshore outsourcing: When a business outsources its processes to another country
- Onshore or domestic outsourcing: When a business outsources the processes within the country, which often happens due to stringent data security protocols such as the GDPR
- Nearshore outsourcing: When the business outsources the processes to companies in a neighbouring country