Outsourcing isn’t new, but it is changing shape.

As the world of work becomes increasingly global, a growing number of organizations are trusting third-party vendors to carry out select business functions. 

According to expert estimates, the business process outsourcing (BPO) industry was worth more than 260 billion dollars in 2022—and it’s not showing any signs of slowing.

But despite its popularity, many organizations still see outsourcing as inherently inferior to getting things done in-house. In reality, BPO can facilitate major growth for organizations that know how and when to use it.

To help, this article will explain both the benefits and risks of BPO, offering field-tested recommendations and considerations to get your outsourcing journey started right.

What is Business Process Outsourcing (BPO)?

BPO is the process by which companies hire other companies to perform specific operations. 

Unlike traditional outsourcing (which mostly focuses on manufacturing), BPO spans a range of complex business processes that were, for the most part, previously completed in-house.

For instance, The Wall Street Journal uses BPO for inbound customer retention, LinkedIn uses it for customer service and sales, and countless other companies use it for everything from human resources to software development.

Some of the most commonly outsourced business processes include:

• Payroll/accounting
• Administrative
• Customer support
• Manufacturing
• IT Management
• Software development
• Shipping/Logistics
• Marketing
• Research
• Sales

Front office vs. Back office BPO

Generally, we categorize BPO into two groups: front office BPO and back office BPO.

• Front office BPO typically includes customer-facing processes like marketing, sales, and customer support.
• Back office BPO refers to internal and/or core operations like accounting, human resources, IT services, payment processing, quality assurance, and regulatory compliance.

Whole process BPO vs. Single function BPO

Organizations like TriNet are an excellent example of the whole process vs. single function BPO.

By offering a mix of human resource solutions for companies—from payroll processing to benefits management—TriNet enables its customers to outsource their entire HR function (whole process BPO) or just a specific process (single function BPO). 

Onshoring, off-shoring, and nearshoring

Where the outsourcing happens relative to the contracting company is yet another way to think about BPO.

• Onshore BPO (also known as “domestic sourcing”) refers to outsourcing that happens in the same country as the contracting or hiring company.
• Offshore BPO happens when a company hires help outside of its resident country.
• Nearshore BPO occurs when a company works with a neighboring country, such as an organization based in the U.S., hiring a vendor in Canada.

What are the benefits of BPO?

Organizations gravitate towards BPO for several interrelated reasons.

1. Scale processes with reduced effort

Massive and ongoing processes that would be hard to scale internally often lead to BPO.

Take Facebook, for example. According to the New York Times, the social media giant has hired at least 10 staffing firms since 2012 to help moderate offensive content on the platform.

For organizations with a global presence (or in high-touch industries like healthcare), outsourcing customer service enables them to provide much-needed 24/7 support.

2. Reduce labor costs

Companies based in more developed countries (where employees require higher salaries)  typically choose BPO to reduce labor costs. WhatsApp is one such company. To keep costs down without losing momentum, the company outsourced product development to Russia for significantly less than they’d have invested in engineering talent based in the United States.

3. Focus on core competencies

Companies also opt for BPO to enable the business to more easily focus on the strategic objectives that matter the most. Apple, for example, outsources its supply chain and production processes so its employees can put their efforts towards the company’s main output: innovative design.

4. Access specialized talent within a global talent pool

Talent exists everywhere, but opportunity doesn’t—and some of the best BPO practitioners take full advantage of this. Skype, for example, hired hundreds of people in Estonia to develop, market, and implement its groundbreaking product. 

As one of the largest health insurance carriers in the U.S, UnitedHealth Group uses offshore BPO to outsource front office work like customer service and back office work like medical billing and claims processing.

Taken together, the benefits of BPO help organizations drive growth, maximize resources, and reach significant milestones they may not have achieved otherwise—but only when it’s done right.

5. Improve quality

That’s right, BPOs can improve quality. Most businesses don’t associate the BPO industry with quality. They think of lower costs.

But the right BPO company has seen countless implementations of great teams and processes, and knows their local labor markets exceptionally well. The best firms, at a minimum, should be able to match your pre-existing talent and operational quality.

So what’s stopping everyone from outsourcing?

While demand for outsourced services is growing rapidly, organizations do need to prepare properly to find the right BPO partner and get the most benefit from them.

If you’re considering Business Process Outsourcing for your organization, here are a few factors you should consider before building a business case:

Regulatory compliance + increased security needs

If your organization is bound to certain regulatory compliance requirements—like GDPR or HIPPA— there’s a good chance they’ll extend to any vendors the business partners with.

It’s important to confirm that your BPO partner can meet your compliance needs.

Relationship and communication challenges

Cultural and communication differences can interfere with even the most talented person’s ability to get things done. 

If you choose offshore outsourcing, it’s important to ensure that they are able to staff night shifts to allow for synchronous work with onshore colleagues. Otherwise, wide differences in time zones can limit meeting opportunities and productivity.

It’s also helpful to work with countries, such as the Philippines, that are known to have strong English language skills and an affinity for Western culture.

Perhaps most importantly, the BPO partner chosen needs to have a strong and collaborative internal culture that makes them pleasant for your teams to work with.

The need to find the right partner

Communication isn’t the only thing that can falter with the wrong BPO partner.

Companies often go to outsourcing to save on costs and increase ROI. With some vendors they’ll find they save on costs, but with an equal reduction in quality. If your in-house team spends more time correcting mistakes than providing directions, the BPO operation won’t actually increase efficiency.

Similarly, businesses often look to BPO companies to build or take over certain teams so that they can focus. Without a strong partner, they may find themselves more distracted than ever preventing issues.

Is your organization ready to outsource?

To successfully navigate the risks—and reap the rewards—we recommend that organizations considering BPO:

Identify which services are outsource-worthy

If a department or process is experiencing problems, it can be helpful to identify them and hand them off to an outsource partner. The best BPO companies can help you understand and correct these issues.

For instance, if a team is under-resourced or lacking mature processes, certain BPOs can be very effective in hiring up affordably while improving processes.

It can be harder for a BPO to add value quickly when there is little additional hiring to be done in a team.

Find reputable BPO vendors that specialize in those services

There are more than 250K BPO companies in the U.S. alone. To cut more quickly through these options—and find a partner that best meets your needs—look for vendors that specialize in the types of services your organization needs to offload, and ideally one that has aligned working and cultural styles.

You’ll also want to see a track-record of success in their service delivery, whether it’s front office BPO for sales or back office BPO for accounting.

Assess your needs beyond the process or service

If you’ve never handled the level of change management adopting BPO can bring, you may also want to find a vendor that acts more as a partner. 

With full-service firms like Catalyst BPX, you’ll gain access to advisory services that optimize both the BPO services they provide as well as all of the interconnected business processes around them.

Other factors to think about include time zones, cultural compatibility, organizational culture, compliance and quality standards and practices, and the vendor’s technology stack.

Establish robust service level agreements

Outsourcing works best with clear guidelines in place to reduce risk. Service level agreements (SLAs) are where those guidelines become concrete.

To be effective, an SLA should:

• Define the outsourced processes and expected outcomes
• Define the scope, duration, and cost of outsourced services
• Provide methods to evaluate service delivery/quality
• Define the roles and responsibilities of each party
• Establish monitoring and reporting methods

Of course, you’ll need to negotiate terms with your BPO provider before finalizing the agreement, but once you’re on the same page and have found a reliable firm that meets your needs, your organization is ready for BPO.