Business Process Outsourcing (BPO): The Definitive Guide
- March 22, 2022
- 16 min read
- By Kirti Goyal
TABLE OF CONTENTS
The global share of the business process outsourcing market was $232.32 billion in 2020. The Grand View Research report further reveals that this number will soon be a thing of the past as the BPO market is set to grow at a compound annual growth rate of 8.5% over the next few years.
The verdict is in.
Businesses will continue using virtual assistant services to fuel their revenue engine. But what’s behind the trend?
Image Source: Grand View Research
In an article for Forbes, Mark Thacker, President of Sales Xceleration, traced the growth of virtual assistant services to the fundamental business need for “agility, connectivity, and cost-containment.” Business process outsourcing helps organizations to brave the ever-changing industry dynamics and focus on their core functions.
Get ready to win a competitive advantage over your rivals as this post prepares you to outsource business operations to virtual assistants. I take an in-depth look into everything you need to know about business process outsourcing and cover these topics:
- What is business process outsourcing
- Different types of business process outsourcing services
- How does BPO work
- Benefits of business process outsourcing
- Risks associated with business process outsourcing
- How to choose a BPO provider
- Latest business process outsourcing trends
By the end of this article, you will understand why hiring virtual assistants is the best way to meet the rising business demands and access global resources to stand out in the market.
What is business process outsourcing
It refers to the practice of hiring third-party vendors to perform secondary business tasks that may or may not require expertise in a specific niche.
Popularly known as virtual assistants in American lingo, these services providers may be independent contractors, freelancers, or large-scale enterprises like Office Beacon that tackle both front-office and back-office operations as per your needs.
Businesses of all sizes outsource their processes to cater to the growing demand and stay a step ahead of their competitors. These usually involve a combo of technical and nontechnical services related to bookkeeping, accounting, payroll, data recording, telemarketing, customer support, website management, and digital marketing.
BPOs often offer them together to help businesses run smoothly.
Many end-use industries like manufacturing, healthcare, banking, and financial services have been leveraging business process outsourcing for a long time to enhance their agility.
But what has taken this a notch up recently is the giant technological leap across areas like AI, machine learning, robotic process automation, big data analytics, and social media browsing.
That’s not the only reason, though.
The shift towards SaaS-based solutions, process automation, and cloud-based infrastructure in business functions is an equally crucial reason.
The Grand View Research report I mentioned earlier also noted the impact of the rising popularity of Business Process as a Service (BPaaS) on the market growth of BPO, foregrounding the role of multiple factors in pushing business process outsourcing mainstream.
With the basics clear, let us move on to the categories of BPO.
Different types of business process outsourcing services
There are mainly three types of business process outsourcing depending on the location of the service provider. You can get the maximum out of BPO by using them in combination with each other:
- Onshore: The virtual assistants are in the same country though they may work from a different state or city for your business. For example, if you are in California, an onshore BPO would mean working with a vendor in Alabama or any other US state.
- Offshore: It is a kind of business process outsourcing where virtual assistants are in a different country than your own. If you hire a service provider from the Philippines or India, that’s an offshore BPO.
- Nearshore: It refers to a setup in which you outsource business operations to a virtual assistant in a neighboring country. A BPO in Mexico is a nearshore service provider to a business in the US.
BPOs are also grouped on the basis of the services they provide:
- Knowledge process outsourcing (KPO): It has virtual assistants catering to businesses that outsource crucial IT-related tasks that are central to their value chain and require a high level of domain expertise.
- Legal process outsourcing (LPO): It has vendors offering legal support services to businesses in different areas. While offshore LPOs do not involve activities that may need a physical presence in courts or one-on-one negotiations, onshore virtual assistants can handle agency work and services that need court appearances.
- Recruitment process outsourcing (RPO): Virtual assistants in this business process outsourcing manage a small part or the entire permanent recruitment for your business.
- Information technology-enabled services (ITES) BPO: Business process outsourcing companies in the ITES area use data network or information technology over the net to serve their clients. They have virtual assistants that analyze service desk, IT, and production support.
- Travel:This form of BPO takes over the complete operations you need to support your travel logistics. The service providers are generally trusted partners of airline and travel companies who outsource either their front-office or back-office for streamlining purposes.
Each of the above-listed BPO specializes in certain key areas that can be grouped as follows:
- Back-office administration: The operations include credit and debit card processing, transportation administration, dispatch and logistics, collection, receivables, and warehouse management.
- IT and software operations: Virtual assistants perform technical support functions such as application development and AB testing, IT helpdesk, and implementation services.
- Customer support services: It covers a breadth of customer interaction-focused functions over channels like voicemail and email for your business. This BPO also looks after appointment scheduling, telemarketing, marketing program, surveys, quality assurance, payment processing, and warranty administration, among others.
- Human resource: The virtual assistants in the HR niche help you resolve workplace challenges and offer services related to healthcare administration, hiring and recruitment, employee training, payroll, insurance processing, and retirement benefits.
- Finance and accounting: The external vendor performs functions such as accounts payable, receivables, auditing, billing services, general accounting, and auditing on your behalf.
- Knowledge services: They cover complex processes that may include data mining, data analytics, web research, and data and knowledge management. You can also expect the virtual assistants in this sector to create an information governance program and capture the voice of customer feedback.
The next section looks at how BPO works to support your business. Stay tuned!
How does BPO work
It varies a lot depending on the vendor’s location, SoPs, and expertise. There is no one set formula (and cannot be!) that all BPO companies follow as the terms and conditions of the agreement vary according to the job and the complexity of tasks involved in the outsourcing process.
Benefits of business process outsourcing
Many Americans wrongly believe tax breaks to be the top reason why companies outsource jobs and hire virtual assistants from overseas. It is true that US corporate income tax is one of the highest in the world. And businesses indeed benefit when they relocate to a place with a lower income tax since they pay the rate of their host country.
But there are no loopholes that businesses can bypass in the US law or definite tax breaks for outsourcing. Other than the benefit of lower-income tax rate, they hire BPOs to:
- Lower costs: You can cut down costs for in-house staff and operational expenses on a physical office. A lower-cost labor market like India or the Philippines allows you to partner with a global talent pool using variable-cost models like fee-for-service plans in place of fixed-cost models when working full-time with local employees.
- Enhance speed and efficiency: Niche BPOs hold a high level of expertise that helps businesses complete their tasks faster and with accuracy. You save resources and optimize your performance when working with skilled virtual assistants.
For example, a real estate VA can easily manage complex databases that allow agents to focus on inventory issues and sales pipelines.
- Achieve flexibility: BPOs are pro at tasks that kill your productivity and efficiency. They perform tedious chores that frees up time to design the action plan for business growth and manage risks associated with releasing new services and products.
- Cement global presence: Businesses have access to a talented workforce when they outsource to BPOs with multiple delivery centers. Virtual assistants in offshore locations can serve customers in multiple languages and cut your expenses on the least used divisions.
- Strengthen core competencies: Virtual assistant services enable entrepreneurs to home in on their competitive advantage. They can focus on discovering their business differentiators and reiterate upon them to set themselves out in the market.
- Better non-core offerings: BPO companies offer first-rate services to their clients in areas that are non-core to their businesses. They regularly invest in the latest processes and tech stack that deliver remarkable breakthroughs on scale.
A BPO can get you incredible business results. But only when you onboard the right virtual assistants. Next, I bust some myths related to outsourcing and share risks that make business owners skeptical of entrusting their operations to a third-party vendor.
Risks associated with business process outsourcing
Not everything is merry with business process outsourcing. Contrary to what most BPO companies claim, there are risks you should consider before outsourcing your business operations. These pertain to:
- Security: Wherever information systems (IT) enter the picture, concerns around communication and privacy are bound to rise, and it is no different with outsourcing to virtual assistants.
It gets more complicated when the vendor handling your IS is not in the same country, making data leaks and vulnerability disclosures a real threat.
- Cost of services: It can far exceed your estimate if you do not factor in the running costs, particularly in contract renegotiation and upgrades. The hidden fees around currency fluctuations, internal transitions, vendor selection, layoffs, and software and hardware upgrades can also take the cost of business process outsourcing to the roof.
- Quality: A BPO provider becomes a part of your workflow when you outsource, leading your business to face problems when the former runs into a difficult situation.
You may have to incur extra costs and experience lower productivity due to an individual worker’s inefficiency or decline in a labor shortage, causing quality to take a backseat.
- Communication: A global talent pool in outsourcing is a two-edged sword. You unlock new opportunities to connect with more customers and cement your image but also risk losing the existing clients due to cultural and linguistic barriers.
It can limit activities, cause delays in new processes, and curb feedback from different departments.
A large share of these issues stems from working with either freelance workers or contracting to an inexperienced enterprise. Marketplaces like Fiverr and Upwork seem a pocket-friendly option for bootstrapped startups and SMB owners, but the lax rules around talent management can lead you to waste time and resources in hunting for the right fit.
Concerns around tracking productivity and communication make it a bit more tricky. How do you check that your virtual assistant is making the best use of their time and billing you rightly?
And how do you get on quick video calls with them to share updates on changes in schedule and business priority? Those are the questions you must address to avoid a risky situation with business process outsourcing.
That’s unless you partner with a top-notch BPO provider like Office Beacon. Seasoned business process outsourcing providers have solid security measures and tight-knit teams that work round the clock under the expert care of project managers to deliver the highest quality work on time consistently.
You can find the perfect fit for your business by sticking to a few best practices. Read on to learn more about them in the next section.
How to choose a BPO provider
The search for the right BPO company involves extensive research and a careful review of many crucial details prior to settling upon an agreement. Look for a provider that has considerable experience in the industry and can match your organization’s goals.
Then follow these steps as outlined below:
- Define needs: Carefully consider the key stakeholders and how to include them in the process from the start. After that, set out clear expectations and determine objectives, potential risks, and scope for the BPO. Based on these criteria, shortlist a few candidates.
- Request a proposal: Get together with your business stakeholders and settle upon the essential elements you require in your BPO provider. Perform market research, figure out the service management model you want to use, and send out the request for proposal to the shortlisted companies.
- Choose the vendor: Take your time to assess the proposals. The effort vendors put into creating them can reveal a lot about their thinking process and the quality of work you can expect. Be on the lookout for their chief business process outsourcing solutions and what quality check measures and metrics they use to measure performance.
- Negotiate the agreement: Consult the final BPO candidate on the contract schedule. It’s standard practice to reach an agreement on the service parameters but not the latter. A rock-solid contract has both. It is a crucial step in the hiring stage and must have the buy-in from every stakeholder.
- Hand over the work: Begin by setting up a communication channel internally as well as with the service provider so that everyone is in the loop about the delegated work and the updates. Develop a plan for the work transition after that and set it in motion.
- Manage the relationship: Do not outsource and forget. Open communication, performance tracking and management, and feedback are the key to a healthy partnership with a BPO company. Check proper governance during the lifecycle of your contract and provide regular inputs.
Here are a few more pointers to keep in mind as you hire a BPO company:
- The right vendor will offer strategic insights into the tasks you should finish in-house and not try to push you into outsourcing your core competencies.
- Work-life balance and employee appreciation is the hallmark of a good BPO company. It leads to better communication between the team members and boosts productivity.
- A competent vendor is not only after the money but genuinely interested in seeing your business scale. They have set workflows and well-defined processes to deliver quality work and hone in on their expertise while using the client feedback to continue improving the services.
Outsourcing to freelance help is the best bet for businesses for whom hiring an established BPO company is out of the question at the moment.
As discussed before, it will definitely pose a lot of challenges, but they can be mitigated, keeping in mind some valuable lessons. Experts believe there is a lot they can do to manage the risks associated with hiring independent contractors.
The foundation of a collaborative relationship between remote staff and its clients rests on a couple of factors like definite workflows, duties, standard operating procedures, and minutiae of reporting. They need to sort them out before hiring for virtual assistant services to avoid unnecessary troubles later.
As the image below shows, they can effectively delegate tasks to a virtual assistant by outlining the following at the outset:
- Tasks and goals
- Work standards
- Schedule for updates
- Feedback opportunities
Once these are clear, there are better chances of finding a virtual assistant who shares the same values and is aligned on the key performance metrics and business priorities. They should make sure the remote worker meets the vital behavioral competencies and has incredible time management and communication skills.
As they search around for the perfect resource, the following tips will come in handy:
- Do not rely on just one virtual assistant. Keep a backup ready
- Introduce them to the preferred method of accomplishing things before assigning them duties
- Increase the workload of virtual assistants only gradually
- Divide up tasks as per their priority on the to-do list
- Be explicit with work instructions for virtual assistant services
- Set up a separate email address to track correspondence for virtual staff
- Always send constructive feedback and be polite
- Maintain dedicated cloud storage to transfer and store files
- Use the latest productivity tools for a smooth and streamlined workflow
BPO has a lot to offer to early-stage businesses and corporate powerhouses. If you are wondering where this industry is heading, hang on there!
The next section brings you the latest trends and expert opinions on the future of outsourcing for a better insight into the topic.
Latest business process outsourcing trends
The global BPO market share is over $300 billion, with more than 3 million virtual assistants working for vendors in India alone. The Philippines is the second most preferred destination for hiring talent for BPO companies and has one million-strong workforce.
Europe and the US follow close behind and have millions of others in the field.
The pandemic played a huge role in the spike of business process outsourcing services during recent years. But the industry experts predict the BPO market to continue flourishing due to the radical shifts in consumer behavior and demand for multichannel communication.
The SMB owners will leverage emerging technologies like automation, cloud services, machine learning, and influence the growth of the market in the near future.
Watch out for these trends in business process outsourcing in 2022 and beyond:
#1 New technologies are on the rise
The progress across technologies in cloud computing, AI, automation, and social media use will have noticeable effects on the BPO industry.
#2 Training will help overcome skill shortage
The lack of experts to manage high-end services for US companies made imparting skills to their staff a must for vendors in India and the Philippines. Business leaders as well as governments in the two countries will continue to invest in training the BPO workforce to avoid losing valuable clients to AI.
#3 Startups will become dedicated BPO customers
Business process outsourcing cuts down overhead expenses, saves resources, and streamlines workflows. It boosts productivity and efficiency and is pivotal to achieving ROI goals. Startups experienced this heavily during the pandemic years. Need I say more?
#4 There will be higher transparency
The entry of small businesses into the field has made it imperative for BPOs to be more transparent with their clients. Unlike the 2000s, when only big names outsourced their business operations, the current environment will push the service providers to be more open about their SoPs, tech stack, challenge areas, and pricing.
#5 Politics will have little to no influence on BPO
The Trump-era had raised concerns over the future of the BPO industry due to the changes in tax, trade, and visas policies. But the experts do not believe the shifting political orders in the US will have any major impact on the BPO.
The industry needs people with diverse skillsets and expertise, and that will make the market less prone to disruption due to individual country politics.
#6 Favorite outsourcing destinations will continue to grow (for now)
Established market players such as India and the Philippines will dominate the BPO industry in 2022. The workforce in these locations would invest in upgrading their skills over the next few years and increasingly cater to companies in the automation space.
Shedding light on the Philippines, Cision reported the IT-BPO industry in the country to grow at an annual compound rate of 11.5% until 2023.
#7 Other countries will look to break into the BPO market
Oversaturation in the top business process outsourcing locations is paving the way for countries like Bulgaria, Romania, Egypt, Mexico, and Colombia to enter the global BPO arena. These nations are will soon be tough competitors and emerge as the hot destinations for outsourcing in the coming years.
It is now time for expert opinion on the future of outsourcing. Check out these voices published by Smartsheet:
- Alex Genadinik, Founder and CEO at Problemio
“Moving forward, I fear that there will be a decline of quality as the market saturates with more and more companies and freelancers that do essentially the same relatively low-quality work.
The challenge is that if you hire high-quality companies, they typically do great work, but are costly. As a business owner, this means that you must either get to the point where you can hire costly companies on a long-term basis or allocate resources in-house.
If done intelligently, it doesn’t have to require many resources, but at least you will have control and transparency.”
- Thomas Wooldridge, PR Specialist at Relamark Web Design & Marketing
“BPO is something that will never go away. It’s like saying you want to bring back encyclopedia books or Blockbuster videos. Our world has never gone backward from technology. The internet has made it much easier to bring the whole world together.
There will always be a need for low-skill and low-wage workers who would be difficult to hire in the West, although many countries such as India, the Philippines, or China will gladly do it on your behalf. On the other hand, the same country you used to hire the low-wage workers will eventually get smarter.
The local economies and workers’ skills will improve to where they are demanding higher pay. So then you have to look into another third-world-type country to attract.”
- Derric Haynie, CEO at Vulpine Interactive
“In the short term, I see BPO being easier to access and utilize by all companies, but I also see AI and technology eliminating many BPO jobs in the short- and long-term future.”
- Alex Genadinik, Founder and CEO at Problemio
Let us take a few FAQs before wrapping up this post.
Frequently asked questions
What services does BPO provide?
BPOs can handle a host of business functions related to back-office and front-office management. They are experts at non-core tasks and offer a gamut of services that fall under IT and software operations, human resource, finance and accounting, and customer support.
Why is BPO a growing business strategy?
Business process outsourcing helps companies leverage their key competencies while strengthening their non-core offerings. It delivers world-class results that translate into a remarkable customer experience for its clients.
BPO brings down operational costs and significantly improves business agility, making it a growing business strategy.
What is the difference between BPM and BPO?
BPO stands for business process outsourcing, while BPM is business process management. The BPOs who closely align themselves with their clients and offer the best value are BPM experts. In an article for TOI, Raman Roy, the founder of one such firm, noted “the rebranding was to actualize what has been accomplished in the work.”
Is BPO the same as the call center?
No. BPO is a broad category that includes various functions, whereas a call center handles only telephone-related services like resolving customer complaints for a business. A call center is a BPO organization, but the reverse is not valid for business process outsourcing.
How to choose the best business process outsourcing company?
It ultimately depends on your business requirements. Until you are clear about the services you should outsource and how they connect to the larger picture, finding the right BPO company will be a difficult task.
Begin by outlining your needs, the job functions you want the virtual assistants to perform, and the KPIs you will use to measure their performance.
Refer to this blueprint to check the potential BPOs eligibility and choose someone who shares your values.
The practice of outsourcing non-core business operations is no longer exclusive to corporate giants. The COVID-19 pandemic forced a lot of SMB owners to lay off their in-house employees and hire virtual assistants to survive the severe economic restrictions.
But after experiencing massive benefits of outsourcing, businesses want to continue using virtual assistant services to meet their ROI targets. That spells good tidings for the BPO industry once the pandemic is over as well.
Which services will you outsource to ramp up your competitive advantage in the global market? Head to the comments section and let us know!