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The Pros & Cons of Business Process Outsourcing

Brief introduction: Definition for Business process outsourcing

What Is Business Process Outsourcing (BPO) and How Does It Work?

Before we see the pros and cons of Business Process Outsourcing (BPO), we should be aware of the difference between insourcing vs. outsourcing. In essence, the difference between the two business approaches is in the placement of the operations and business processes within the organization or outside of the organization with the help of specialized companies (BPOs). Therefore, the in-house operation processes involve having the work performed within the organization’s operational structure, with dedicated specialized teams for each business process. Outsourcing, on the other hand, places the operations and processes off-site, using the workforce and resources of an outside organization.
There are two main reasons companies decide to outsource their business operations: saving money on costs and better focusing on the core aspects of the business. This means if some activities are outsourced, the overall efficiency and productivity of the company can be significantly improved. That being the case, it’s about deciding whether you want to hire a team to work within the company or hire an organization of specialists to fulfill your business operations and requirements outside of your company.
Let’s have an extensive review of the outsourcing business operations pros and cons.

7 Benefits Of Business Process Outsourcing (BPO)

1. Cost efficiency

Lower costs happen to be the most significant factor companies consider when choosing between in-house vs. outsourcing operations. If you consider and calculate all costs for setting up an office and building an onsite or remote infrastructure (both hardware & software), combined with hiring expenses, salaries and/or hourly rates and benefits for employees, business process outsourcing can be significantly cost-effective, or in simple terms: will save you a lot of money. You’ll have none of those many long interviews, no huge salaries for top in-house employees, and no building workplaces. Hence, outsourcing also saves a lot of your time, effort, and energy and more importantly, allows you to focus and utilize other important matters to your business.
Let’s understand this with the help of an example.
Imagine you need to build a website, some software, or a mobile app. This is the IT team you’ll need to assemble and the resources you’ll need to have the required software solution built in-house:

  • Team of Designers (graphic & UI/UX)
  • Team of Developers (frontend & backend)
  • Quality Assurance Testers & QA Software
  • Project Manager
  • Workplace Infrastructure (Office utilities, Hardware and Software)

On the other hand, if outsourcing, you simply hire a BPO company to do all of this for you.
Or here’s another example:
Let’s say you already have a software or an application and you need to take care of the users. This is the Customer Success team you’ll need to acquire and the resources you’ll need to have:

  • Onboarding Specialist
  • Call Agent
  • Experienced Customer Success Manager
  • CRM software/system
  • Data Analyst / Manager
  • Workplace Infrastructure
  • Again, if outsourcing, you will hire a company to manage the customer interactions instead.

2. Shorter Commitments

Another great benefit of BPO is the ability to hire an expert without long-term commitments. This means you’ll hire an expert on hourly or project basis and you will pay only for the work done. Whereas, hiring an in-house team is a longer commitment bound to a fixed monthly salary plus other employee benefits. Let’s look at another example. You may need some code developed for a project you have ongoing. This however might be a short-term (i.e. two-month) job, so there’s no point in employing a new professional coder to your in-house team permanently. Instead, you ask for a BPO company that provides software development services to hire a developer with a specific skillset required for your project, and have it completed without spending a huge amount or signing permanent contracts. Or let’s say your product is up and running but customers have difficulties in onboarding or have a lot of functionality questions. Finding a good customer service representative might take you ages and for sure drain your energy, while hiring a BPO company that has a dynamic contact center, will provide you an already trained customer success agent with a specific skillset tailored to your needs.

3. Access to the talent foundry

Yet another advantage of outsourcing is that a lot of great experienced and talented specialists work with BPOs. This in essence means you’ll have top-level talents available without going through the long process of recruiting.

4. Focus on core competencies

Take a moment to reflect on Peter Drucker’s words here:
“Do what you do best and outsource the rest”. Having to concentrate on the core business functions and work that matters most to growing your business is yet another great advantage of outsourcing. You can either decide to delegate some part of the nonessential work or some part of your business you lack knowledge or manpower of to a BPO so you can focus solely on important business needs, and with that actually accelerate the growth of your business.

5. Smaller team size

Also important and great benefit of having smaller teams is you won’t need a bigger office, equipping new workplaces, etc. Instead, you just hire a BPO with a dedicated team that works from offices you are not interested in building.

6. Easy and quick team change

Yes, if you’re not happy with the work of the team that the BPO has dedicated to you, you can easily ask for a team change. You can even find another BPO for that matter. However, with in-house employees, this is a bit more difficult for the reasons stated earlier.

7. Risk Reduction

Another benefit of outsourcing, or better yet one of the most significant advantages of hiring a BPO: reducing the risk of work. We often forget all the types of risks a project or work brings, right?

The great thing about Outsourcing is that it is always bound by a legal contract that usually includes the scope of work, NDA (Non-Disclosure Agreement), as well as other important aspects like payments, delivery time, performance, confidentiality etc.

Call to action image with link for Business Process Outsourcing guide

The Cons of Business Process Outsourcing (BPO)

1. Lack of Control and management

The control and management issue always comes first as the most common concern when thinking about outsourcing. And it is a legitimate concern. However, if you find a reliable BPO and dedicated team who will have knowledge, skills and understanding of your business, you might actually not need to control the entire process.

Another good practice is to have a detailed documentation of your business and scope of work, requirements, milestones and everything you think is important. This will help both parties in keeping track of the work and in case something goes wrong you will be able to easier track the whereabouts of the issues. However, there are a lot of companies who prefer delegating management tasks and this will not be as efficient with a BPO. In this case, an in-house Project Manager might be more efficient rather than BPO.

2. Poor communication & questionable quality

It’s a fact that communicating with an in-house on-site team is far easier than with an outsourcing company. However, with the pandemic and all the WFH, we all got used to having people off premises, so the transition has already been made. Yes, communication issues still may arise, especially if the outsource team is located in a different timezone, if they don’t have a solid internet connection, or do not stick to the preferred medium of communication. But again, this is also manageable simply by looking for a reliable BPO partner and determining the core communication channels, meeting and response times.

To make this easier for you, here a chart that shows both pros and cons of BPO:

Business Process Outsourcing Visual

The Conclusion

Having all this information and looking at this chart, there are a lot of benefits for hiring a BPO company. This all makes outsourcing worth giving a try, as it might be more beneficial than you actually think. It’s worth mentioning that you may find long-term players that will be focused on the success of your business while working with BPO. However, the decision will be based on the business type, size, needs and opportunities.

If you have a big company and want an even bigger in-house team, you should build one. Even though hiring a BPO can be beneficial for big companies because it provides access to worldwide talents regardless of yours and the team’s location.

On the other hand, if you are a start-up and need to focus on funding and cannot afford to expand the in-house team, the BPO is the right way to go. However, probably the best approach is simply combining the two. Have an in-house team for some operations, but outsource others or better yet, augment an existing in-house team by adding outsourced team members. This works perfectly in times when you cannot find some talents to hire. But at the end of the day, you need to analyze your company’s requirements and needs and determine an appropriate choice that will not distract your focus from core business functions.