Why Businesses Look to BPO Industry to Develop?

Initially, most businesses run their operations in-house. As they grow and thrive, they are faced with the dilemma of how to keep growing without spending over the top on each aspect of the business. It may turn out that spending on a non-core operation may not be as profitable as outsourcing the same to another company specializing in that area, which would reap enriching dividends for the company while also keeping the purse strings intact. From HR and customer interaction, third party billing and printing, to manufacturing, all can be outsourced to BPO industry.

What is BPO (Business Process Outsourcing)?

Simply speaking, BPO means outsourcing or contracting out your processes to other companies. It has roots in the manufacturing industry, wherein manufacturers hire other companies to manufacture (certain parts or complete end products). Generally, processes that are not the core competencies of a company are outsourced. This allows businesses to focus on their core areas. Soon, the outsourcing practice focused on manufacturing was adopted by other organizations, and now BPO industry spans from non-profit organizations to government agencies.

BPO is the subcategory of outsourcing. It is contracting out of specific processes, such as back office business functions, human resources, or customer-centric functions (like call center operations). The industries covered by BPO market include HR, Procurement, Customer Care, Supply & Logistics, BFSI, Manufacturing, Healthcare, Telecom, etc.

ISS World, a Danish company specializing in facility services and Accenture, which takes IT, helpdesk, HR, and consulting services, are two of the global leaders in BPO.

Why is BPO industry important?

The global BPO market was valued at as much as $189.61 billion in 2017 with a revenue of $24.6 billion. It is expected to grow at a rate of more than 7.75% from 2018 to 2025. (MarketWatch).

India was the leading provider of offshore business services in 2017 given the financial attractiveness, skills availability, and business environment. Europe, the Middle East and Africa (EMEA) gained the largest share of global BPO revenue in 2017. This industry is generating huge amounts in revenues for businesses, governments, and countries at large.

Why businesses outsource?

In a global survey, Statista reports, 59% of the business leaders cited cost-cutting as the major reason for outsourcing. Other top reasons include focusing on core competencies and solving capacity issues. Outsourcing has become a commonplace because it provides:

• Financial benefits to the organizations in helping them run operations with premium quality without also compromising on the costs, which comes with running in-house operations.
• Competitive advantage accrued by the companies in hiring a BPO company. Outsourcing helps businesses in focusing on their core competencies, allowing them more time and resources to devote to the core operations.
• Greater accuracy, efficiency, and speed to the processes. The BPO professionals hired by BPO industries make sure that they provide higher quality services. This ensures the hiring companies that, while those operations might not be core to them since it's what the BPO company is hired for, they would provide those services at the highest level with precision.

Types of Outsourcing per location

BPO can be divided into three major types of outsourcing based on the service provider’s location:

• Offshore Outsourcing: Offshore outsourcing is when an organization contracts out services to a company of foreign origin.
• Onshore Outsourcing: Onshore outsourcing is when an organization contracts out services to a domestic company that operates within the same country.
• Nearshore Outsourcing: Nearshore outsourcing is contracting out of services to companies in neighboring countries.

Risks inherent to BPO industry

BPO practice involves hiring another company to perform a task for the hiring organization. This naturally involves sharing of information between two companies, of which arises potential problems, such as:

• Breach of information and security. Technology connections are created between companies and create vulnerable points. This can lead to sharing of sensitive information or data with malevolent actors, creating potential security risk.
• Unexpected higher costs of operations. Though cost-cutting is among the prime reasons of outsourcing, organizations can happen to underestimate the prices initially, and may end up spending comparatively too much for outsourcing than what they may have to leak out in-house. This requires careful decision making in the beginning and calculating full costs of the contracts.
• Dissonance in communication and relationship challenges. Outsourcing often takes place from a developed country to developing, which brings its own set of challenges – from diverse nationalities, cultures and language barriers. The professionals of the outsourcing company may not match the expectations of the hiring agency. There could be communication problems in coding and decoding of the messages, etc. Therefore BPO companies often make sure to hire top-notch BPO professionals on competitive basis.

For decades now, the number of organizations adopting outsourcing as a business practice for their operations – from back office to front office – is surging. BPOs are solving the needs arising from the focus on workload management and competition brought on by globalization.