What is business process outsourcing (BPO)?

In the ever-changing world of business and commerce, companies constantly seek innovative ways to streamline operations, cut costs, and gain a competitive edge. One of the strategies that has gained significant traction in recent decades is Business Process Outsourcing (BPO). But what exactly is BPO, and how can it benefit your organization? In this comprehensive guide, we'll dive into this fascinating world and explore its various facets, while shedding some light on its potential impact on your business.

Defining BPO.

Essentially, BPO is when one company hires another to handle a part of its business. It refers to the practice of contracting out specific functions or processes to external providers, and these can range from customer and technical support to data entry, accounting, and even human resources. The idea is to leverage the expertise and resources of specialized providers to handle non-core activities, allowing businesses to focus on their core competencies and strategic objectives.

Types of BPO.

1. Offshore outsourcing: This involves delegating tasks to service providers located in different countries, often to take advantage of lower labor costs or access specialized skills.
2. Nearshore outsourcing: Similar to offshore outsourcing, but the service provider is located in a neighboring country, offering geographical proximity and cultural similarities.
3. Onshore outsourcing: This entails partnering with service providers within the same country, ensuring easier communication and adherence to local regulations.
4. Smartshoring: This term has gained traction in recent years, pioneered by global BPO leaders including Transcom. It refers to the combination of classic off-, on-, or nearshoring with advanced technology such as translation to create the ideal conditions for optimal performance and reduced cost.

Why might a company opt for BPO outsourcing?

The business process outsourcing industry had an estimated value of US$0.33 trillion in 2023, with a projected growth to arround 586 billion USD in 2030. This is likely due to the increasing costs of managing inhouse operations, more frequent market shifts and peak volumes, and the loom of new, highly-powerful AI solutions. Consumers are demanding more and more, and brands have to be ready to meet, and exceed, their expectations.  

Companies decide to partner with providers for a multitude of reasons, primarily driven by the desire to optimize operations and enhance competitiveness. One key motivation is cost reduction, as outsourcing non-core functions to regions with lower labor costs can lead to significant savings. 

Additionally, BPOs offer access to specialized skills and expertise that may not be readily available in-house, allowing companies to focus on their core competencies. The scalability and flexibility offered by these partners are also attractive, as they enable businesses to adapt to fluctuating demand without the burden of hiring and training additional staff. Moreover, partnering with a BPO can lead to improved service quality and efficiency, as these providers often employ advanced technologies and dedicated teams to streamline processes and deliver superior customer experiences. 

By carefully evaluating their specific needs and goals, companies can strategically select a service provider that aligns with their objectives and contributes to their overall success.

What are some of the most common BPO services?

Business process outsourcing can encompass a wide range of services, catering to various industries and business needs. Essentially, any kind of business process or service can be outsourced to a specialized partner, and within BPO companies there may be departments responsible for a whole gamut of operations for each individual client. The types of services offered can depend on the industry the client is operating on, or even the BPO outsourcing partner themselves and what their focus area is. 

A company like Transcom, for example, partners with clients from almost every industry, and provides all kinds of CX services, including customer support, tech support, collections, sales, content moderation, and even AI-enhanced solutions to further increase efficiency and decrease total costs.

• Customer service and support: This includes traditional call center operations, email and chat support, and social media management. This type of customer service has evolved heavily in the last 20 years, expanding in terms digital solutions and international teams. This is very widely seen in the retail, e-commerce, telecommunications, and hospitality industries.
• Technical support: Providers can offer technical troubleshooting, software support, hardware support, and even IT helpdesk services. Companies operating in the technology, white goods, software, utilities, and manufacturing sectors benefit hugely from these services.
• Accounting and finance: Services like bookkeeping, payroll processing, accounts payable/receivable, and tax preparation are often outsourced. This can be seen in all industries, and depends on each individual case.
• Human resources (HR): Recruitment, onboarding, benefits administration, and employee training can be outsourced to BPO providers and within any sector.
• Data entry and processing: Includes data entry, data cleaning, data validation, and data conversion. You will often see this used in healthcare, insurance, and finance.
• Content moderation: With the rise of social media and the growth of the gaming industry, Trust & Safety has become a vital part of operations for companies in these sectors. An outsourcing partner can monitor and moderate user-generated content on social media platforms and websites. 

The benefits of BPO.

The allure of BPO outsourcing lies in the plethora of benefits it can offer a company. These include:

Cost reduction.

Contracting out certain processes can significantly reduce operational costs by leveraging lower labor costs in offshore or nearshore locations. With Co-pilot AI solutions, such as Real-time translation, agents don’t even need to be proficient in the target language and can be located anywhere around the globe, while still providing excellent customer service.

Increased efficiency. 

Specialized providers can often complete tasks more efficiently due to their expertise and focus. If all a company does is hone its expertise on specific business processes, then their effectiveness in those areas increases dramatically as compared to in-house operations. BPO outsourcing companies also often hire specialists and leaders in specific industries or service areas to help better direct operations and provide the best services possible.

Focus on core competencies. 

By outsourcing non-core activities, businesses can redirect their resources and attention to their core competencies, fostering innovation and growth. Imagine a leading global telecommunications company focusing primarily on how to ensure the best connectivity, reach, reliability, and software for its customers, whilst also partnering with an external vendor to provide best-in-class customer experiences.

Access to skilled talent. 

BPO providers often have access to a wider talent pool, offering specialized skills that may not be readily available in-house. This might include recruitment teams that are better-versed in the art of high volume candidate attraction during peak seasons, or CX Advisory experts that can observe existing operations and determine the most cost-efficient and effective areas for improvement.

Scalability. 

Does your business often need to quickly scale operations up or down, based on demand? With a business process outsourcing partner, any brand can ensure they are ready to meet all of their consumers’ expectations regardless of the season or the reason. The best partners will provide the utmost flexibility and agility in this regard.

Improved service quality. 

With their increased focus and specialist knowledge, an outsourcing company can enhance a brand’s customer service and support through dedicated teams and advanced technologies. A great example of this is an AI Agent Assist solution, which provides agents with real-time suggestions, analysis, and knowledge in a single dashboard, and ensures each interaction with a client is hassle-free.

Risk mitigation. 

Outsourcing certain functions can help mitigate risks associated with internal operations, such as compliance or data security. BPO outsourcing companies are well-versed in regulatory frameworks, legal requirements, and government regulations, meaning that the strictest security standards are always met. This is particularly crucial for companies in highly regulated industries, such as BFSI and FinTech.

What are some of the challenges BPOs can face?

While BPO offers numerous benefits, like with any sector, it's not without its challenges. We’ve outlined a few of the most common challenges, and included some tips on how the best providers in the world might address them:

• Communication and cultural barriers: Offshoring and nearshoring can introduce communication challenges due to language and cultural differences.
  • Excellent BPO outsourcing partners will approach each client and project with an attuned understanding of local customs and brand values. Many companies dedicate significant resources to building strong international networks between departments, and reinforcing positive company culture that promotes inclusivity and cross-cultural understanding.

• Data security and privacy concerns: Sharing sensitive business information with external providers requires robust data security protocols.
  • By staying up to date with the latest best practices in data privacy and security, a solid BPO provider will ensure that all sensitive information is treated with the utmost care and confidentiality. This can be achieved through stringent protocols, ongoing employee training, and systems of checks and balances across the organization.

• Quality control: Ensuring consistent quality standards and performance from BPO providers can be a challenge.
  • Communication is key here, as is setting clear expectations. A good partner will ensure that both parties are on the same page when it comes to brand values, standards of care, and targets, and then strive to ensure that all are being taken into consideration during the operational phase.

• Hidden costs: Unexpected costs can arise from contract negotiations, transition, and ongoing management.
  • Although this is still an issue that can be observed in many partnerships, increasing client expectations over the last few years have meant more transparency and accountability when it comes to incurred costs. A great outsourcing partner will never conceal this kind of information from a client.

• Dependency on providers: Over-reliance on BPO providers can create a dependency risk, impacting business continuity if the relationship is disrupted.
  • Anything may cause issues with service levels, from natural disasters, to market shifts, to sudden peaks or technical issues. Solid BPO companies have contingency plans for their contingency plans, ensuring that their operations can continue as needed even in difficult situations.
     

When should you consider outsourcing?

BPO is not a one-size-fits-all solution. It's essential to assess your organization's specific needs and circumstances to determine if outsourcing is the right fit. There are some scenarios where this might be a viable options, from high volumes to scalability.

If your business involves a significant volume of repetitive tasks, such as data entry or customer support, outsourcing can streamline these processes and free up internal resources. With more time available to spend on strategy or optimization, the benefit will outweigh any added cost.

On occasion, your organization may require specialized skills that are not readily available in-house or are expensive to maintain over long periods of time. An experienced BPO outsourcing company can source these resources for you and take charge of ensuring their continued satisfaction and growth.

Cost reduction is one of the main reasons many companies opt for outsourcing. Significant savings can be achieved by automating processes, relocating teams to more cost-efficient markets, or by implementing digital solutions that speed up work.

If your business is at a point where you need to focus more time and energy on strategic initiatives or core competencies, for example for the purpose of expansion or diversification, a BPO partner can be a clever and easy way to remove the strain of non-core functions.

In this day and age, scaling a business up and down can be an extraordinary challenge, particularly in the face of fluctuating demand. With an outsourcing partner, the flexibility to ramp up or down accordingly is guaranteed, and will not come with what may otherwise have been astronomical costs.

How should you choose a BPO outsourcing partner?

1. Decide on your objectives. Keep all the relevant stakeholders in the loop from the beginning of the process and ensure that they all define requirements, key objectives, and foreseeable risks. Determine which processes need to be automated or outsourced, and how this will impact the business.
    
2. Open a request for proposal (RFP). The RFP document describes a job and requests bids from qualified vendors. All expectations for the contract, as well as the terms, are often stated in an RFP.
    
3. Assess the vendor replies and evaluate proposals. Identify any unique strengths or potential areas for improvement of the shortlist and compare them to your pre-agreed objectives and needs. Ask questions, dig deeper, and discover what more the partner may have to offer you.
    
4. Negotiations begin. Once you’ve selected your preferred partner, you’ll start the process of finalizing the contract. With a detailed and clear RFP, many of the terms will already be agreed upon, but ensure that key items such as service parameters, timelines, lines of service, and risk assessments are agreed on.
    
5. Begin the work transfer and check in consistently. You will have a pre-established strategy for how to shift processes from in-house to the provider, and regular communication both within and without the organization will help to foster effective operations during the transition. Get to know your vendor, collaborate with them closely, and monitor their work as they continue. Don’t be afraid to speak up if someone is unclear or if you feel standards are not being met. Use pre-defined KPIs and objectives to argument your position, and trust the process of learning and improvement.
    

What does the future of BPO look like?

As with many sectors, the BPO industry is continually evolving, driven by technological advancements and changing business needs. The advent of GenAI solutions have brought a new dimension to the future of customer experience and process automation, making a lot of what was previously considered core ‘human-driven’ work fully automated, or at least AI-assisted. 

Here are some key trends shaping the future of BPO:

• Automation and Artificial Intelligence (AI): Providers are increasingly incorporating automation and AI to enhance efficiency, accuracy, and customer experiences. This may include Autopilot or Co-pilot solutions, or even knowledge bases and Large Language Models (LLMs) that assist with routine tasks, training, or translation services.
• Robotic Process Automation (RPA): RPA is being used to automate repetitive tasks, reducing the need for human intervention. The days of manually entering data or replying to rote inquiries may soon be long behind most companies.
• Cloud computing: Cloud-based BPO solutions are gaining popularity due to their scalability, flexibility, and cost-effectiveness. The accessibility of these solutions is also increasing, with geography and location becoming less and less of a factor.