Introduction to Business Process Outsourcing
Running a business is complicated. Your company has a product (or service) that it knows (alternative: or that it delivers) exceptionally well, and that know-how makes you invaluable. But that’s not all you have to worry about—you’re managing a company after all; you have to manage documents, track employees, manage processing, make sure invoices are paid on time, and all sorts of work that keep an operation moving, but aren’t the focus of your organizational expertise. And the more resources that you dedicate to these functions, the less you’ll have to invest in what makes you great.
In the past, companies have run entire accounting, administrative, and human resource departments internally. But with improvements in interconnectivity and digital office solutions, it is now possible to delegate these tasks to other specialists, and focus more of your resources on value-added work. We do that with business process outsourcing. It’s how growing businesses can stay lean and competitive, and how established ones can cut costs and improve efficiency.
Business process outsourcing is ubiquitous in today’s economy, but given its broad reach, plenty of people still don’t fully understand what it is or how it all works. So to provide some clarity, we’ve put together this post to explain the different types of BPO, why companies outsource, and how it can help your business.
What is business process outsourcing?
To put it simply, business process outsourcing is the act of contracting an external third-party provider to handle specific work processes, which may not be cost effective to handle on your own. Generally speaking, most BPO services handle supplementary or non-core business functions—ranging from something as simple as data entry, to those as complicated as IT, customer support, and marketing—but do occasionally extend into core functions depending on the needs of the business.
Given the range of services, it should be no wonder that businesses of all sizes and stages—from stock market behemoths to mom and pops, startups to legacy companies—outsource, or have the potential to outsource at least one, if not several, of their processes.
BPO service types
BPO services fall into one of two types: front office and back office. Front office services are usually customer-facing, such as customer support, tech support, or even marketing, while back office services frequently handle the operations of internal departments, such as accounts payable, claims processing, or human resources.
Although there are generally two different types of BPO services, there are plenty of businesses that employ both or may even blur the line between the two to get the most out of outsourcing.
While outsourcing is generally perceived to be an out-of-country process, it really just refers to a third-party handling specific work operations, regardless of where they are based. However, it’s still categorized one of three ways.
Onshore Outsourcing: Onshore outsourcing simply means that the third-party contracted to do the work resides in the same country as the client who hired them, and the respective proximity reaches border to border. For example, a business based in Austin, Texas would be using onshore BPO if they contracted another Austin-based business or one based in Spokane, Washington.
Nearshore Outsourcing: Nearshore outsourcing is when a business contracts work out to a business in a neighboring country. When a U.S. business outsources to Mexico, Canada, or a minor outlying island, it is considered nearshore.
Offshore Outsourcing: Offshore outsourcing happens when one business contracts BPO services in other countries. When most people refer to “outsourcing,” what they’re referring to is offshore BPO.
Why do businesses use business process outsourcing?
Because BPO services cover such a massive array of processes, it’s nearly impossible to nail down every single use case for every business. But in general, there are a handful of reasons most businesses choose to employ these types of services.
Efficiency: While nearly every company may have internal departments to handle their operations, that doesn’t guarantee those departments are actually efficient. Most companies have an organizational expertise centered on their product, rather than complying with regulations or sorting the mail. It could take dozens of employee-hours a day for a company to receive, process, and circulate the documents flowing through its mailroom. On the other hand, trained specialists working with the right tools and software can handle it much more efficiently, passing the cost savings on to you.
Many businesses simply prefer to minimize the amount of menial work done in-house. And there’s little doubt that it’s good logic. By eliminating that type of low-value work from internal operations, you open the door for your employees to work on high-value projects.
Outsourcing improves the efficiency of specific business processes, but in the process, it can also help the work that surrounds it. For instance, digitizing your mailroom not only improves the efficiency of receiving incoming mail and email, but also allows you to implement workflow automation software, which increases the productivity of those that review, approve, and process invoices, work orders, insurance claims, etc.
Increased transparency and control
Most good business process outsourcing companies will have a clear service level agreement (SLA) that makes it easy to see what types of results clients can expect to see and when, as well as remediation procedures for unsatisfactory performance. And while that’s not to say internal departments don’t have high standards to meet, guidelines for outsourcing critical work should include clear deliverables, turnaround time, and quality levels.
Another thing to note is that a BPO company can augment your processes with services like document management software and workflow tools, enhancing visibility and giving you greater control of your work.
For example, document scanning services don’t simply digitize documents—most are able to provide document management software for digital storage and instant access to your files. On top of that, they can incorporate workflow automation software to process documents for you as well. Some of these services can even digest data to provide business insights and a vast improvement in both overall transparency and control.
Added security and data protection
Of course, plenty of BPO services handle document management and scanning processes, and with it comes at least some level of inherent security risk once the documents and/or data leave your facility. On the other hand, however, much like transparency and control, companies who specialize in handling sensitive material such as intellectual property, any HR-based data, financial data, and so on, usually not only employ secure practices when handling that material, but often find it pertinent to offer added security and protection as a part of their service.
Using document scanning services as an example again, good outsourcing partners will be SOC 2 audited, meaning they’ve met the high standard necessary to help ensure customer data and documents are secure while in their facility.
How it works
As previously mentioned, managers and business owners consider business process outsourcing when they notice certain lower-value tasks start to dominate their employees time and distract them from mission critical work. They may also find that their employees are simply unable to keep up with mounting paperwork. At that point, it’s a matter of finding an outsourcing company that can work with you on setting up outsourced processes without creating any functional gaps or security weaknesses.
Managing the risks
Businesses are all run differently, and outsourcing parts of your company’s processes can be risky; change one part of a working machine, and you risk disrupting inter-linked processes and functionalities. That’s why your outsourcing partner, whomever they may be, should be ready to dedicate time to learning your business and offering a solution specific to your needs and business, in addition to making sure that the outsourced processes deliver improved functionality that integrate seamlessly with your in-house systems.
While we’re on the subject of a third-party getting involved with your business, it’s important to think about trust. An outsourcing partner will glimpse some of the inner workings of your operations when setting up service, but will also be handling your documents and data and transmitting completed work on an ongoing basis. How their staff is trained on security and privacy such as HIPAA compliance guidelines and the physical and IT security infrastructure they have in place is critical to the secure handling of your documents and data.
If you understand and plan for the risks, engaging with a good BPO partner could actually strengthen the security of your information by removing information channels from your internal network, and transferring them to a company with better security protocols.
To get started with outsourcing, start by assessing the state of your business processes. Are there areas where your resources are strained? Whose time would be better spent on more value added work? Where can you grow without having to invest in more space or people?
Once you have at least a broad picture of where you can improve efficiencies in your business operation, you can start to look at solutions. The mailroom is a very common pain point for companies; it takes a lot of labor to receive, open, sort, and route incoming mail. If doing that is becoming a pain for your business, find out how to outsource it all using a digital mailroom.