Did you know that in the business world outsourcing is a 6 trillion industry? That’s right. It is one of the biggest service industries in our global economy. In fact, in India, the BPO sector has seen tremendous growth since the early 2000s. Let us learn more about Business Process Outsourcing.
Business Process Outsourcing (BPO)
Business Process Outsourcing, popularly known as BPO, is the business strategy where one company hires another company to perform a certain task for them, i.e. they outsource a certain job.
Say for example a manufacturing company will outsource their supply chain management to another company who specializes in supply chain management. So it essentially entails outsourcing one or more non-core business activities or processes to an external service provider. So there are two parties involved, the client company (the outsourced) and the external service provider or the vendor (the outsourcer)
One point to note that only non-core activities are usually outsourced. The companies do not part with their core competencies, they maintain all their focus on these like manufacturing, marketing etc.
However non-core services like after sales service, customer relations, supply chain management, real-time accounting etc. can be outsourced to BPOs.
Advantages of a BPO
Outsourcing non-core activities to a BPO allows a company to be far more flexible. Firstly, the company does not have to invest in additionally fixed assets and can convert them to variable costs. It also increases flexibility in resource management of the client company and helps in adapting to changes in the environment much faster.
2. Cost Effective
Outsourcing some of the business processes and activities can be very cost effective for the client company. They save on investing in fixed assets and fixed costs. And they can redirect these funds for their core activities.
Also outsourcing to developing countries proves to be very cost saving for these companies. For example, if any large MNC was to outsource their IT services to India, they would save an average of 30% of the company’s expenses. This is quite a significant difference.
One of the biggest advantages of BPOs is that they increase the speed of the business processes outsourced to them. They have a very good response time and the clients can focus on the core activities. This fragmentation of activities speeds up the whole process and is very important in cases like customer service.
4. Skilled Manpower
When you outsource one of your business activities to a BPO, you are insured of exemplary services provided by skilled manpower. So if you outsource your supply chain management, rest assured your supply chain will be handled by skilled supply chain managers who are experts in their field. Same goes for IT services or accounting etc.
Disadvantages of BPOs
There can also be certain general demerits of using a BPO for your non-core activities. The company can take steps to eliminate most of these disadvantages. Let us take a look.
1. Communication Problems
There can be communication gaps between the client and vendor companies due to various reasons. There can be misunderstandings and missed messages. Also, both companies may adhere to different standards of services and this can also create friction between the two.
2. Different Time Zones
This is another logistic problem with the Business Process Outsourcing. The client and the vendor can operate in two different time zones that are far apart. The difference in time can create many problems like online meetings, communication etc. It is usually the vendors that adjust their shifts to match the office hours of the client company.
3. Loss of Control
Due to communication errors, time differences etc. the client company can at times lose control of the project. They may thus feel that the quality of services has suffered. Thus it is very important to have effective communication and transparency with a BPO project.
Solved Question on Business Process Outsourcing
Q: What are some of the types of outsourced services?
Ans: Some of the services popularly outsourced are,
- Financial Services
- Advertising Services
- Courier Services
- Customer Support Services