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Pros Cons of Business Process Outsourcing

Definition for Business process outsourcing (BPO)

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

Before we explore the pros and cons of Business Process Outsourcing (BPO), we should know about insourcing vs. outsourcing. The difference between these two business approaches is in the organization’s placement of the operations and business processes. Insourcing processes involve having the work performed within the organization’s operational structure, with dedicated specialized teams for each business process. On the other hand, outsourcing 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: cost savings and strategic focus on the core aspects of the business. While there are certainly trade-offs, generally, when activities are outsourced, the overall efficiency and productivity of the company can be significantly improved.

Now let’s review the outsourcing business operations pros and cons.

7 Benefits Of Business Process Outsourcing (BPO)

1. Business process outsourcing lowers costs and saves time

Lower costs are the most significant factor companies consider when choosing between in-house and outsourcing operations. When considering office setup, infrastructure costs, the burden of hiring, and paying in-house salaries and benefits, outsourcing is almost always less costly. In addition, a focus on growing and improving core business processes can be maintained. The savings in time, money, effort and distraction are significant. 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 build 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 you’re outsourcing, simply hire a BPO company to do all of this for you.

Or here’s another example: Let’s say you already have a product and 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 on an 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 code developed for an ongoing project. This might be a short-term (i.e., two-month) job, so there’s no point in permanently employing a new professional coder to your in-house team. Instead, you ask for a BPO company that provides software development services to hire a developer with a specific skill set required for your project. Problem solved without spending a considerable amount or signing permanent contracts.

Or let’s say your product is up and running, but customers have difficulty onboarding or have functionality questions. Finding a good customer service representative might take ages and drain your energy. Hiring a BPO company with a dynamic contact center will provide you with trained customer success agents.

3. Access to the talent foundry

Yet another advantage of outsourcing is that BPOs have a trained and experienced workforce it takes time to develop. In addition, they may have wider talent networks of freelancers and independent contractors that can perfectly meet your needs without onboarding or training.  This means you’ll have top-level talents available without going through the long recruiting process.

4. Business process outsourcing helps you focus on business growth

Peter Drucker said, “Do what you do best and outsource the rest.” The ability 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 to a BPO the nonessential work or some part of your business you lack the knowledge, workforce, or interest to excel at. You are then free to focus solely on essential business needs and accelerate the growth of your business.

5. Smaller team size

The benefits of leaner teams include smaller offices, less equipment, and closer team relationships.  Hiring a BPO means you can do the work that matters without the bureaucracy and expenses that get in the way.

6. NImble changes

Unhappy with the output of your BPO? Changing the team or the provider is a much simpler process than the HR nightmare of restructuring, reshuffling, or a reduction in force.

7. Risk Reduction

One of the most significant advantages of hiring a BPO is reducing risk.  Recruiting can be a drain on resources but also comes with the risk of bad hires or poor cultural fits. Until employees are located, interviewed, and onboarded, their contribution is often completely unknown. In addition, the positions that BPOs replace are often higher-turnover jobs.

Outsourcing is contractually bound to include the scope of work, performance metrics, and budgets. Your information is protected through NDAs and confidentiality agreements.  BPOs accept much of the uncertainty that comes with hiring, and you can rest easier.

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The Cons of Business Process Outsourcing (BPO)

1. Lack of Control and management

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

A good practice is to have detailed documentation of your business and scope of work, requirements, milestones, and everything you think is important. This will help both parties keep track of the work and issues in case something goes wrong. However, if you prefer delegating management tasks, this will not be as efficient with a BPO. In this case, an in-house Project Manager might be a more efficient solution.

2. Poor communication & questionable quality

Communicating with an in-house or on-site team is easier than with an outsourcing company. However, in the wake of the pandemic and the adoption of remote work arrangements,  that transition has already been made in many cases. Communication issues may still arise, especially if the outsource team is located at a different timezone, doesn’t have a solid internet connection, or does not stick to the preferred communication medium. But again, this is manageable by finding a reliable BPO partner and determining the core communication channels and processes, including 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

As the above information demonstrates, there are a lot of benefits to hiring a BPO company. It’s also worth mentioning that you may find long-term relationships or networks that will contribute to the success of your business while working with BPO.

If you having a large company is important to you, you should build one. If you are focused on making an impact, however, a BPO may be your exact tool to achieve that. (BPOs can also be very beneficial to large companies as well.)

On the other hand, if you are a start-up, need to focus on funding, and cannot afford to expand the in-house team, the BPO is the right way to go. However, a hybrid model may be the best approach. 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 when searching for specific talents, elusive skill sets, or varied perspectives. At the end of the day, you need to analyze your company’s needs and goals to determine an appropriate choice that will not distract your focus from core business functions.