Business Process Outsourcing – What, Why and When
We hear a lot these days about business process outsourcing (BPO), and for many of us, that phrase conjures up agonizing telephone calls with off-shore call centers who are ill-equipped to answer your questions or provide the service that you need. In reality, today’s BPO is a far cry from the call centers we all love to hate. When done right, BPO is seamless for the business and transparent to the customer.
What is BPO?
Gartner defines business process outsourcing as “the delegation of one or more IT-intensive business processes to an external provider that, in turn, owns, administrates and manages the selected processes based on defined and measurable performance metrics. BPO offerings are categorized in two major categories: horizontal offerings (those that can be leveraged across specific industries) and vertical-specific offerings (those that demand specific industry vertical process knowledge).”
Outsourcing is not a new concept. Companies have been outsourcing labor-intensive tasks that are not critical to their core competencies for years – call centers, order departments, etc. But, as those tasks have been replaced by web-based services (on-line chat and on-line ordering, for instance), BPO has emerged as a more data-driven process. With the advent of cloud computing, Artificial Intelligence (AI) and sofware Bots, routine workflow processes can be more easily outsourced and controlled through automation.
Small and medium sized businesses can now outsource a wide array of finance and accounting activities, as well as human resources, records management, Digital Mailrooms and Robotic Process Billing. The cloud makes it possible to outsource activities ranging from complex decision-making and analytics support to high-resource, low-complexity transaction processing.
With today’s technologies, your company can off-load accounts payable/receivable or the management of complex cash flows. You can off-load a simple payroll or an entire HR department (payroll, tax services, insurance and benefits, time and labor, workers' compensation, COBRA and ACA compliance, and more). By working with a business process service provider any company can significantly reduce operating costs, improve cash flow and nearly eliminate human error.
Today, some MBAs recommend outsourcing anything that is not part of your core business…and, by using the right vendor and technologies, nearly anything can be outsourced.
Why Outsource Business Processes?
When call centers first came into play, the most common driver of outsourcing was cost savings, through the use of low-cost labor markets via third-party service providers. Time has proven that when cheap labor is the entire underpinning of a business’s cost-reduction strategy, savings are not sustainable, innovation suffers, customers become dissatisfied, costs are driven up and losses are sustained.
The true value of outsourcing comes from improved operational efficiency and effectiveness, along with the ability to rapidly scale the business, update technologies and benefit from the service provider's ongoing investments in progress, process and technology innovations.
If you want outsourcing to be successful for your company, then you should focus on improving operations and processes first and foremost.
When Should You Outsource?
Determining when to outsource is nearly as important as identifying the right tasks and processes to outsource. Don't assume that outsourcing is a silver bullet that will solve all your problems. For instance, if you’re a manufacturer undergoing a revamp of the management within your manufacturing processes, this might not be the time to decide to outsource your HR department. It’s best to have your priorities straight and your goals clear. Take things one step at a time, and be attuned to changes in management practices, which can be critical.
Start small, be creative, and leverage cloud-based services, vendor knowledge and technology to get the best results. Your goal is to maximize potential success of a BPO outsourcing strategy. Focus on tasks that don’t add value to your core business and that have a negative impact on your overall productivity. Learn how to define a successful BPO strategy.
Editor’s Note: This post was originally published in July 2015] and has been updated for freshness, accuracy, and comprehensiveness.