What are BPO Companies and How Do They Work?

BPO stands for business process outsourcing. It is the (not so) simple practice of outsourcing jobs to third-party companies and experts.

With the recent COVID pandemic, up to 45% of global corporations worldwide are considering outsourcing. This is due to the inherent value of outsourcing: reducing the overall operational costs.

If you’ve been wondering whether to outsource some of your processes, read this article. In it, we’ll describe what BPOs are, as well as their advantages and disadvantages. Let’s check them out!

What Is a BPO Company?

A BPO company is a company that specifically rents out its services as a third-party expert. This means that these firms form their business model around the idea that larger companies require external services for some internal processes.

This process can be anything from HR, IT, insurance claims, payroll, accounting, shipping, manufacturing, and many other services. 

Pretty much anything can be outsourced these days, as experts in their respective fields can produce more clients by working as a third party than by working in-house.

Another reason why experts become part of BPOs is that their specific work can be done remotely. This is especially prevalent in the IT industry, and IT is one of the most outsourced professions worldwide, with SaaS revenue hitting $152 billion in the US in 2020, and the numbers keep rising.

Overall, BPO companies perform two types of services, based on operations performed.

Back-office operations include operations that take place behind the scenes. These can include legal operations, HR, IT, accounting, and more. Basically, these are operations that happen within a company that the customers and clients don’t get to see.

Front-office operations are the opposite. Front office includes marketing, customer relations and handling, customer support, grievance redressal, and other operations that directly involve interacting with customers/clients.

With that said, BPOs can also be divided by their physical location in relation to their clients.

Offshore BPOs are companies that have been hired by a client from another country. For example, if a US company outsources its operations to a company in Southeast Asia, then that BPO is considered an offshore BPO.

Near-shore BPOs are companies based in the neighboring countries of the client. This time, our US company hired a BPO from Canada or Mexico. That company is, then, a near-shore BPO.

Finally, there are on-shore BPOs. These companies are located in the same country as their client. This is sometimes also called domestic outsourcing.

The Advantages of Outsourcing

So, what are the advantages of outsourcing? Why would any individual company bother hiring an external party and trusting them to handle their affairs, instead of just hiring experts themselves, or training people in-house?

Well, as we mentioned in the beginning, the biggest advantage of outsourcing is the reduction in operational costs. In fact, around 70% of companies in 2020 reported that their main reason for outsourcing is to reduce the overall cost of running a business.

Consider it like this: hiring a BPO company is like hiring a freelancer. You’re hiring an already trained professional with years of experience to come fix a problem for you. The freelancer then comes in, does his job, you pay him, and that’s it.

By doing this, you’re eliminating the entire process of screening new candidates, hiring them, and then having to go through the rigors of showing them the ropes and teaching them how you run things in your company.

Instead, for the same money, you can hire two or three professionals that already know what to do, and the time you would have spent training them can be then spent on focusing on your core operations.

This brings us to our next point – focusing on your mission-critical operations.

Companies sometimes just don’t have the resources and the manpower to plug all the holes. Especially smaller businesses that are just starting out. Not only that, but, because they haven’t established their brands yet, they aren’t attracting the caliber of talent they need in order to run their business properly.

Enter outsourcing. By outsourcing those operations in which they don’t have enough expertise, businesses can rest assured that they’re in good hands, and that their BPO partner will handle that operation far more efficiently and with better attention to detail than their in-house talent could.

By doing this, businesses can then turn to the matters that concern them the most at that time, and develop their business model, establish their brand and create an efficient sales funnel, before hiring and training in-house talent.

Finally, BPOs can help a company expand beyond the borders of its own country.

In fact, offshore outsourcing is one of the most common forms of outsourcing out there. The US outsources close to 300,000 jobs annually, and most of these jobs go overseas.

The reason for this is local knowledge and expertise. By setting up a business in another country, you have to adhere to that country’s laws and regulations concerning trade. On top of that, you also have to appeal to a new audience with their own trends, preferences, and sensibilities.

By hiring a local BPO company, you are now in possession of experts from that region who can then advise you on how to approach that new audience, and grow your business in the new environment.

The Challenges of Hiring a BPO Company

Naturally, outsourcing, especially offshore outsourcing, comes with its own set of challenges. So, if you’re really looking to hire a third party, you’d better be prepared for some of these problems.

The first issue with outsourcing is always security. By transferring the duties of an operation to a third party, you are opening your doors and inviting that party to become a part of your company. Needless to say, there are many scammers out there who would take advantage of that trust and breach your company’s security.

This problem becomes even more egregious if you’re handling sensitive data, like the personal data of your clients. Now, not only do you have to protect yourself from industry espionage, but you also run the risk of endangering your clients.

Naturally, this is why you only hire the top BPO companies to run your operations. Pay attention to testimonials of the company you intend to hire – these are a better indication of that firm’s integrity and expertise than anything else.

Besides security issues, you may also face communication issues. Either due to the language barrier, time difference, or simple miscommunication, you may end up with missed deadlines or the quality of work being lower than you anticipated.

This is why you need to make your intentions clear from the onset. As a client, you need to be very clear and upfront about your standards when hiring a third party – otherwise, you leave yourself open to misinterpretation, which can quickly lead to resentment on both sides and sour your relationship.

Finally, we come back to the issue of cost, or, rather, cost efficiency. As we’ve said before, many companies outsource in order to reduce costs. However, always remember that you’re playing the long game, and the long-term costs of having an operation run by a third party might end up being higher than expected.

We also mentioned that smaller and newer businesses are, typically, the ones that outsource the most. Again, as we said, this is due to a lack of expertise and branding issues. However, as businesses grow, they might find it unnecessary to keep a BPO company on the payroll. At that point, perhaps it’s best to now hire your own in-house talent, and cut the third party loose.

There is also the issue of overdependence. Now, while having a long-time partner is a good thing, because it builds mutual trust and respect, overdependence can hinder you when the need for change arrives. Perhaps your partner isn’t as good as they were before at performing their job. Perhaps you’ve grown outside of their capabilities. Perhaps you need to downsize.

All this means that you might need to change partners, and that change can be made all the more difficult by depending so heavily on outsourcing, or a particular BPO company.

Conclusion

And that’s about all we have to say about BPO companies. As you’ve seen, BPOs are quite common nowadays, and have become especially prolific with the rise of COVID. And even with the pandemic receding, outsourcing has become a very cost-effective way of running operations you don’t want to or can’t deal with at the time.

Hiring a BPO company can bring you many benefits that you would have otherwise missed had you kept all of your operations in-house. 

From lower costs to a better understanding of a foreign market, outsourcing can help you develop your business faster than you’d anticipated.

However, do remain vigilant, as challenges posed by outsourcing can be a significant hurdle when moving toward your goal. 

Ultimately, your goal is to grow and expand your business, so be sure that the risks of hiring a BPO company don’t outweigh the rewards in the long run.

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