What is business process outsourcing (BPO)?

How does outsourcing parts of your business help?

Business people in front of computers

Business process outsourcing (BPO) is a cost-saving measure for businesses wanting to take advantage of third parties to transform their operations. Not only can it offer significant cost-savings, it can also ensure resources are used in the most effective manner too, boosting motivation for in-house staff and increasing productivity.

BPO can benefit the entire organisation and can be used across most departments, but it's most commonly used for the back office functions of a business, including its finance division.

However, some front office operations, including contact centres, telemarketing, market research, technical support and sales, can also be outsourced if the business thinks it needs to.

Increasingly, businesses are turning to offshoring - the act of using resources from outside their native country, either to save costs, or to fill skills gaps their native country cannot. If the country they offshore from is nearby, it's known as nearshore outsourcing, while contracted-out services within the same country is called onshore outsourcing.

Another type of business outsourcing is knowledge process outsourcing (KPO), which refers to outsourcing roles that cannot (or are harder to be) automated. These types of roles require a certain level of expertise in the specific area that can only really be carried out by individuals with a knowledge of that aea of business. 

Examples of KPO include talent management, research and development, financial consulting and technical analysis.

Use cases

There are many areas where BPO is used by organisations. 

The main category of BPO is the call centre, where organisations can access agents trained to handle customer questions and/or take orders.

Accounting and payroll is the second main area where BPO is used, covering functions such as accounts receivable, collections, reconciliations, payroll, and audits, which can all be outsourced to a third-party service provider easily. 

HR is another fast-growing area of BPO, with HR benefit administration being a multi-million-pound business. In addition, organisations can also outsource areas recruiting, employee hotlines, and employee contracts.

Reporting is also a good candidate for BPO. Large organisations can create thousands of reports each month and outsourcing the monthly creation and updates of these reports can save a company millions.

Benefits

The main benefits of outsourcing business processes are that it helps an organisation's flexibility. Primarily, an organisation can have the flexibility to concentrate on the most relevant parts of its operations. An employee that doesn't have to perform non-core activities can spend more time building up the core business.

The cost efficiencies of outsourced business processes are also improved and there are opportunities to save on training and employee costs as well. It can also mean that through BPO organisations can access the latest technology for little extra cost, meaning companies can avoid capital expenditures that may take years to amortise.

BPO can also provide access to experienced professionals, avoiding the trouble of hiring and training people and the associated costs, which can be significant.

An organisation can also continue growth while circumventing business bottlenecks. BPO can allow a firm to keep an entrepreneurial spirit and pace, which could be impacted as it expands and becomes more bureaucratic.

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