Business Process Outsourcing (BPO): Definition & Best Practices

Juggling the many moving parts within a growing business isn’t easy. But you don’t have to do it all in-house. The right business process outsourcing partner can help you save time, money, and other resources that can be invested elsewhere as you grow your business.

In this article, we’ll be covering the following:

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What is Business Process Outsourcing?

Business process outsourcing, or BPO, is the practice of contracting out certain business operations or processes to a third-party company.

Typically, companies that work with a BPO partner choose to outsource processes that are non-core or non-differentiating, meaning they are not a key part of the company’s competitive advantage or central to its mission. These processes may include administrative tasks, customer service, data entry, payroll, and other functions that are necessary for the operation of the business but are not directly related to its core product or service. . This can help to reduce costs, improve efficiency, and access specialized expertise that may not be available within the organization.

(That being said, there are some cases where outsourcing core processes can be beneficial for a company. For example, if a company does not have the internal expertise or resources to effectively manage a certain process, outsourcing may be a good option. In these cases, it is important for the company to carefully evaluate the risks and potential benefits of outsourcing and to choose a reputable and reliable outsourcing partner. It may also be necessary for the company to implement measures to protect its IP and ensure the quality and integrity of its products or services.)

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According to Grand View Research, the business process outsourcing industry was valued at $261.9 billion in 2021 — they predict the market value to be worth $525.5 billion by 2030, meaning a compound annual growth rate of 9.1% between 2022 – 2030. Pre-pandemic, Clutch reported that more than half of small businesses were planning on outsourcing certain processes in 2019. In 2021, that number grew to 80%.

Overall, all signs point to continued growth for the BPO industry — and continued adoption of business process outsourcing throughout the small business world. Knowing how to implement business process outsourcing into your processes, then, will be key to the survival and growth of your business.

What is BPO Used For?

Business process outsourcing is commonly used in relation to both back office operations and front office operations. In general, back office operations are administrative or support functions that are not directly related to the organization’s core business, while front office operations are customer-facing functions that are directly related to the organization’s core business.

For back office operations, BPO is commonly used to outsource non-core functions or processes, such as accounting, data entry, or human resources. By outsourcing these functions or processes to a BPO provider, organizations can save costs, improve efficiency, and access specialized expertise to support their back office operations.

For front office operations, BPO is commonly used to support customer service and support functions, such as call center operations, technical support, or customer care. By outsourcing these functions or processes to a BPO provider, organizations can improve the quality and effectiveness of their customer service and support, and drive organizational success.

Examples of Business Process Outsourcing Solutions

There are many different types of BPO solutions that companies can utilize. Some of the most common processes businesses outsource are:

Accounting and Finances: From payroll and AP/AR to compliance and auditing, many small businesses use outsourcing to help maintain overall company finances.
IT Operations: Outsourcing IT operations and technical support is common for small companies that aren’t equipped to handle these processes in-house — and that need help optimizing things from a technical outlook.
Legal: Companies that don’t have a legal department or a law-firm on retainer may need to outsource legal-related functions, such as document review, contract management, or legal research.
Digital/Niche Marketing: Companies may outsource certain marketing operations, such as social media marketing or blog writing, to marketing agencies and freelance content creators.
Web/Digital Development: Those in need of a website or mobile app will often outsource the project to dev teams with the creative capacity and technical knowledge to turn ideas into reality.
Human Resources and Recruiting: From managing employee records to actually managing employees — and helping bring new hires aboard — many BPO providers center around HR-related processes.
Customer Service and Support: Growing companies will usually outsource certain customer service processes to keep up with the demands of their ever-growing customer base. This can include phone support, email support, and chat support which enables a company to provide 24/7 support to customers and improve the overall customer experience.
Supply Chain Management: Many organizations outsource their supply chain management operations to BPO providers, who can handle tasks such as sourcing, procurement, logistics, and inventory management.
Data Entry: Data entry is a specialized task that can be quite time consuming and costly. For start ups and SMBs looking to save time and money, it may make sense to oursource the management of data entry and data processing tasks, such as data entry, data validation, or data analysis.

Examples of Business Process Outsourcing Across Industries

There are many examples of business process outsourcing (BPO) in different industries and sectors. Here are a few examples of how BPO is used in different contexts:

In the healthcare industry, BPO is often used to outsource non-core functions or processes, such as billing and collections, claims processing, or data entry. For example, a healthcare provider may use a BPO provider to handle the billing and collections for their patients. The BPO provider would handle tasks such as generating invoices, following up on unpaid bills, and negotiating payment plans or discounts.
In the banking and financial services industry, BPO is often used to outsource functions such as loan processing, credit scoring, or fraud detection.
In the retail industry, BPO is often used to outsource functions such as warehousing and fulfillment, inventory management, or customer service. This can help to improve the efficiency and reliability of the organization’s supply chain, and provide better support to customers.
In the manufacturing industry, BPO is often used to outsource functions such as engineering, design, or prototyping. This can help to access specialized expertise and support the development of new products and technologies.
In the legal industry, BPO is often used to outsource functions such as document review, contract management, or legal research. For example, a law firm may use a BPO provider to handle the document review for a large litigation case. The BPO provider would handle tasks such as reviewing, coding, and organizing the documents, and providing summaries or other forms of analysis.
In the logistics and transportation industry, BPO is often used to outsource functions such as transportation management, fleet management, or warehousing and fulfillment.
In the education industry, BPO is often used to outsource functions such as student recruitment, admissions, or financial aid.
In the public sector, BPO is often used to outsource functions such as tax collection, social services, or voter registration.

Overall, there are many examples of BPO in different industries and sectors, where it is used to outsource a wide range of business functions or processes. By leveraging the capabilities of BPO, organizations can save costs, improve efficiency, and access specialized expertise to support their operations and drive organizational success.

Subsets of Business Process Outsourcing: KPO, HRPO, LPO, FPO, and ITPO

There are several subsets of business process outsourcing (BPO), which are specialized forms of BPO that are designed to support specific business functions or processes. Some common subsets of BPO include the following:

Knowledge process outsourcing (KPO) involves contracting a third-party to take on a more analytical, strategic, and sometimes even administrative role within your company. For example, you might bring on a financial consultant to not only manage company finances, but to also analyze your spending to help you cut costs and make smarter investments.
Human resources outsourcing (HRO) focuses on outsourcing human resources-related business functions or processes, such as recruiting, payroll, or employee benefits. For example, you might look to bring on an HRPO provider to handle the administration and management of employee benefits, including enrolling employees in the benefits program, managing claims and appeals, and providing support and guidance to employees on their benefits options.
Legal process outsourcing (LPO) involves outsourcing legal-related business functions or processes, such as document review, contract management, or legal research. For example, an LPO provider can be brought on to handle the administration and management of contract documents, including reviewing, drafting, and negotiating contracts, tracking and monitoring contract performance, and providing support and guidance on contract-related issues.
Financial process outsourcing (FPO) entails outsourcing financial-related business functions or processes, such as accounting, billing and collections, or financial analysis. As an example, hiring an FPO provider can provide specialized expertise and support on accounts payable-related issues, such as vendor relationships, payment terms, or compliance with financial regulations.
IT outsourcing (ITO) focuses on outsourcing information technology-related business functions or processes, such as software development, data management, or network support. For example, with IT business process outsourcing, a business might have the ITPO provider handle the administration and management of data management, including entering data into the organization’s systems, validating the accuracy of the data, and analyzing the data to generate insights and inform decision-making. This can help to reduce the workload of the organization’s internal IT team, and ensure that the organization’s data management processes are efficient and effective.

Types of BPO: Onshore, Nearshore, and Offshore Outsourcing

When outsourcing to a third-party company, you may choose to employ an onshore, nearshore, or offshore approach.

Onshore Outsourcing is also known as domestic outsourcing, and refers to contracting done with companies operating within your own country and/or jurisdiction.
Nearshore Outsourcing refers to contracting done with companies operating in jurisdictions directly adjacent to yours. For example, a US-Mexican or US-Canadian partnership would be considered nearshore.
Offshore Outsourcing is done with third parties operating in completely different countries elsewhere in the world.

The decision to work with on-, near-, or offshore partners will be based on a number of factors, such as additional costs, communication needs, and tax codes and other laws. Keep this in mind, as we’ll dig a bit deeper later on.

Advantages of Business Process Outsourcing

Now, let’s take a look at the main reasons a company might use business process outsourcing in the first place.

1. Save on Operational Costs

According to Deloitte’s Global Outsourcing Survey 2020, cost-saving is the number one reason companies cite for outsourcing operations.

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As Deloitte points out, this is due in large part to the pandemic and ongoing uncertainty small businesses face around the globe. In fact, cost had actually been trending down as an outsourcing factor in recent years — but is now a main consideration for 70% of outsourcing companies.

Basically, if it costs less to hire a third party than to complete a task in-house — and you can trust the third party will do a similar if not better job than your team — it just makes sense to outsource the entire process.

Another consideration here is that cost-reduction is easily quantifiable and measurable. At the present moment, businesses are focused squarely on improving their bottom line in tangible and immediate ways. That said, it again just makes sense that cost-reduction is the top concern when outsourcing processes.

2. Streamline Low-Level Processes (and Some High-Level, Too)

Having a dedicated third party on-hand to take care of specific processes means these processes will run smoothly and without fail.

The key word there: Dedicated.

Since your outsourced partner will be dedicated to completing that specific task, you can be nearly certain it will always be completed as planned. Conversely, if your team is left to juggle this process along with their other responsibilities, it can easily fall to the back-burner should a problem in a completely different area arise.

What’s more, because BPO providers are specialists, they may be able to help you streamline other related processes within your business — even if not necessarily taking them over completely.

3. Maintain Agility and Flexibility

Working with third-party service providers allows teams to quickly fill knowledge and skills gaps and ramp processes back up with minimal delay.

Again, this goes back to your outsourced partner being a specialist: Because they have experience performing their specific tasks for companies like yours, you’ll be able to onboard them in a fraction of the time it’d take to hire and bring aboard a team of employees.

In many cases, you’ll also have the option of scaling your relationship up or down over time depending on your business’ needs. For example, you might ask your marketing agency to take over your email marketing campaigns in addition to your social media efforts. Or, once you have the capacity to hire a full-time email marketing specialist, you can dial back the agency’s responsibility.

At any rate, it’s all about making immediate moves to ensure your business stays productive and competitive.

4. Invest in Impactful Initiatives

With BPO providers taking so much off your team’s plate, you’ll have that much more time, energy, and other resources to invest in more fruitful ventures for your business.

A prime example: A third-party market research provider will continuously feed data to your marketing team, which you can then use to develop engaging marketing content for your customers. In short, your marketing team will spend less time collecting data, and more time actually using it.

5. Grow and Expand Your Business

Thinking big picture, outsourcing can also lead to growth and expansion for your business.

In one sense, it can allow you to expand to new audiences in some cases. For example, if expanding to a new geographical audience, you might outsource customer service to overcome language barriers, or simply to better serve the local population.

Building on the previous section, contracting out your more menial processes will allow you to shift more resources into various other aspects of your business. Perhaps most importantly, you’ll be able to shift your talented employees’ attention to more worthwhile and profitable initiatives — which can lead to endless opportunities for your business moving forward.

Potential Risks of Business Process Outsourcing

However, there are a number of potential risks involved when outsourcing any part of your business processes.

Though they can be overcome with proper planning, anticipating these risks is the first step in doing so.

1. Security and Compliance Issues

Putting your data and operations in the hands of a third party is always risky.

For one, you need to be completely certain that your provider will keep your data secure, and keep their processes above board. No matter their reputation and track record, though, mistakes happen — and they can end up causing major issues for your company.

Moreover, the simple fact that you’ll be continuously sharing data with a third party means there will always be a risk of misuse or loss. To this end, you need to be sure that both your provider and your team members follow proper protocol at all times.

2. Added Costs and Scope Creep

It’s easy to underestimate the cost and scope of your business process outsourcing initiatives.

Sometimes, this is self-evident: If you’re contracting a process out to a specialist with more knowledge and skills than your team possesses, you might not truly understand all that said process entails.

Or, you and your provider may determine that you actually need additional services (or higher levels of service) after a certain period of time.

(There are also the potential hidden costs of working with a third-party provider in any capacity. More on this in a bit.)

If you’re not clear on scope from the get-go, there’s always a chance you’ll end up spending more than you’d anticipated for business process outsourcing services.

3. Provider Relationship Problems

Maintaining a relationship with your BPO providers is crucial.

Unfortunately, a number of barriers can make doing so quite difficult. Geographic barriers, for one, can hinder real-time communication and engagement. Cultural or language barriers can also make true alignment much more difficult for you and your BPO partners.

Even if these factors don’t apply to your relationships, there’s still the inherent cost of keeping in close contact with your BPO providers. If these relationships hit a snag, your business’ productivity is bound to suffer.

4. Over-reliance on Provider

Once you’ve found a BPO partner you can rely on, it can be easy to become too reliant on them.

Of course, things can change at any time, for any reason. Your partner’s pricing or services may change. Tax and other laws might cause logistical problems. Or, a larger company might buy out your partner — and completely change course for the company.

In any case, you’ll be left with a major gap in your business that will need to be filled immediately.

5. Audience Perception and Brand Reputation Issues

Bringing in a third-party provider for any reason can impact your customer relationships, along with your brand’s reputation.

Obviously, if your BPO partner is taking over a customer-facing process (e.g., service & support), the stakes will be incredibly high. Even when working with internal BPOs, though, their reputation can ultimately affect how your customers perceive your brand.

Business Process Outsourcing Best Practices

To avoid the risks discussed above — and to get the absolute most out of the BPO services you use — you’ll need to adhere to a number of best practices.

1. Optimize Your Knowledge Management Processes

A proper knowledge management system (KMS) is essential for enabling your BPO providers in two key ways.

For one, your KMS will house your company’s BPO-related documentation, such as contracts, service level agreements, and statements of work. This makes it easy to deliver the necessary documentation as needed before signing a contract — and also makes the appropriate documents easily accessible to all stakeholders after the fact.

Secondly, your KMS will hold documentation related to your team’s workflows, customer relations, and overall approach to operating the company — all of which are required knowledge for your BPO providers. With open access to this information, your outsource partners will be able to hit the ground running, and stay on course over time.

As part of effectively managing the knowledge your BPO contractors need, you should be looking at using knowledge base software as part of your KMS backbone. With a knowledge base, you’ll be able to easily organize and share information as needed by the team that you outsource any particular business function to.

2. Define Your Overall Purpose and Business Goals

Before outsourcing any of your internal processes, you should have a clearly-defined reason for doing so.

Typically, this goal will align with one or more of the benefits we discussed earlier. However, knowing this basic goal is only the start of this process.

More than just defining the reason for contracting out, you should also define your rationale for focusing on this goal. If you’re looking to save on costs, how will you be reinvesting the money you save? If you’re looking to gain more traction on a certain marketing channel, what will you do once it happens?

To be blunt, your goal should never be “to make the third party do the work while I rest on my laurels”. Rather, you should always have a plan in place for growing your business in some way once your BPO providers start showing the results you’d hoped for.

3. Define Your Key Performance Indicators

Speaking of getting the results you’d hoped for…

Once you’ve determined a general need to outsource a certain process, you then need to get a bit more specific with your goals. These goals, of course, depend on the process being outsourced.

A few examples:

When outsourcing customer service, you might focus on improving First Contact Resolution rates, average Time to Resolution, and CSAT, CES, and NPS.
In outsourcing certain marketing operations, you’d look to improve lead acquisition and conversion rates.
In partnering with a hiring agency, you might be looking to improve new hire onboarding process in an effort to bolster new employee performance or decrease absenteeism — or to simply decrease your average time to hire.

Also, look outside of the immediate improvements your BPO partner will bring to the table — and consider how your team’s performance will improve in turn.

For example, if you’re using a BPO to take care of basic customer service issues, you might focus on improving your user onboarding process. So, you’d then be able to revisit your current onboarding-related KPIs and performance metrics — setting your sights even higher for the future.

4. Identify and Prepare for Potential Risks

While you now know the most common risks of business process outsourcing, overall, it’s critical to understand which of these (and other) risks are most pertinent to a given partnership.

Again, data security will be a concern, so you’ll likely want to start here. Before you even start working with a BPO partner, it’s important to define:

What data they’ll need
What channels you’ll use to communicate
How specific data is to be used by the third-party

You can then set rules for your team and your partners to follow when sharing data. Setting permissions, for example, will ensure that data remains accessible on an as-needed basis — and minimizes the chances of it being lost or misused.

From there, you can address the specific risks you’ll be facing based on relevance and potential impact. For example, if outsourcing a specific marketing task, you’ll need to prepare your in-house marketing team to effectively communicate and collaborate with your external partner. Or, if outsourcing basic customer service processes, you’ll need to keep your audience informed of the changes to be made — and of how it will benefit them.

To reiterate once more: There will be risks involved when outsourcing any part of your business operations. In preparing for them early, you’ll minimize the chances of encountering them at all — and at least be able to mitigate the damage if things do go wrong.

5. Identify and Assess Third-Party Providers

As the BPO industry grows, so too will your options when choosing a provider.

Of course, choosing the right BPO provider will require some effort on your part. Regardless of the actual services being offered, the right BPO provider is one that:

Knows and understands the industry and specific processes in question
Has a proven track record of success with similar partners
Shows a unique dedication to serving and delivering value to your company

You also need to be sure your provider’s terms are in-line with your future goals and expectations. Often, teams will seek shorter initial contracts with third-party providers to maintain flexibility and test their options with minimal risk — and will then lock in a specific provider once they’ve proven their worth.

To do this, though, you need to be sure your potential partners are willing and able to be in it for the long haul with your team.

6. Spend Time on Implementing Change Management Strategies

BPO involves outsourcing specific business functions or processes to an external provider, which can result in significant changes to the organization’s processes, systems, and structures. Without effective change management, these changes can be disruptive and cause problems for the organization and its employees. This is why it should come as no surprise that interviewees from Deloitte’s global outsourcing survey stated that they would like to put greater effort into implementing change management as part of the overall business process outsourcing.

For example, without effective change management, BPO can lead to challenges such as resistance to change, communication breakdowns, or loss of productivity. By implementing effective change management strategies, organizations can mitigate these challenges and ensure that the transition to BPO is smooth and successful.

Additionally, effective change management can help to ensure that the BPO provider has the information, support, and training they need to perform their tasks effectively. By providing the BPO provider with the right resources, tools, and support, organizations can ensure that they can deliver the desired outcomes and drive organizational success.

Spending time on implementing effective change management strategies allows organizations to mitigate the challenges of BPO, ensure that the BPO provider has the support and resources they need, and drive organizational success.

7. Manage and Improve Your Provider Relationships

Deloitte’s report explains that the many changing dynamics of the modern business world “have made the role of supplier management more critical than ever.”

However, Deloitte reports that this function is “still underpowered in many organizations.” That being the case, strengthening your supplier relationships will allow you to get much more out of said relationship than the “average” company in your industry would.

In short: The stronger your supplier relationships, the better your competitive edge.

Some keys for improving your BPO provider relationships:

Set clear, comprehensive goals and expectations at the onset of your relationship
Develop onboarding and transitional workflows for your team and your providers
Create open lines of internal communication, and inject direct engagement with providers into your internal workflows

Improving your supplier relationships over time involves meeting regularly to review their performance and its impact on your business — and to create an action plan for further collaboration moving forward.

8. Document BPO Lessons Learned

Over time, you’ll gain a better understanding of how to make outsourcing work for your organization.

You’ll be better able to identify:

What processes can (and should) be outsourced
The qualities to look for in a provider for a given purpose
Any red flags to look out for when narrowing down your choices

As these things come to light, it’s vital that you document them appropriately. That way, you’ll be able to cover all the angles when looking to bring aboard a new BPO partner.

Business Process Outsourcing Companies

There are many BPO companies that organizations can use to outsource specific business functions or processes. Some of the more well known business process outsourcing companies include the following:

Accenture provides a range of BPO services including call center outsourcing, data entry outsourcing, and accounting outsourcing.
IBM’s BPO services include marketing process outsourcing, legal process outsourcing, and human resources process outsourcing.
Cognizant offers outsourcing services like knowledge process outsourcing, IT process outsourcing, and supply chain outsourcing.
Infosys provides a range of BPO services including customer service outsourcing, accounting outsourcing, and data entry outsourcing.
Genpact can help with the following business processes that include finance and accounting outsourcing, supply chain outsourcing, and customer service outsourcing.

Using a Knowledge Base to Support BPO Operations

A knowledge base can be a helpful tool for organizations that use business process outsourcing (BPO), as it can support the transfer of knowledge and expertise between the organization and the BPO provider.

You can create an internal knowledge base to store and organize information and expertise related to the business functions or processes that are being outsourced to the BPO provider. This can help to ensure that the BPO provider has the information and expertise they need to perform their tasks effectively, and that the organization maintains control over the knowledge and expertise that is being outsourced.

Additionally, a knowledge base can be used to provide training and support to the BPO provider, by providing access to resources, tutorials, or other forms of support that can help them to learn and develop their skills and knowledge. This can help to improve the quality and effectiveness of the BPO provider’s services, and drive organizational success.

To ensure the most of using a knowledge base to support your BPO operations there are several specific steps that you can take including:

Identify the knowledge and expertise that needs to be shared with the BPO provider. Before using a knowledge base for BPO, it is important to identify the knowledge and expertise that needs to be shared with the BPO provider. This can include information on the organization’s policies and procedures, products and services, internal processes, standard operating procedures, and other relevant topics. By identifying this knowledge and expertise, you can ensure that it is included in the knowledge base as well as any other related knowledge base articles that can be used to support your BPO provider.
Organize and structure the knowledge and expertise in the knowledge base. Once you have identified the knowledge and expertise that needs to be shared with the BPO provider, you should organize and structure this information in the knowledge base. This can include creating categories, sub-categories, and tags to organize the information, and using search and navigation features to make it easy to access and find. By organizing and structuring the knowledge and expertise in the knowledge base, you can make it easier for the BPO provider to access and use this information.
Provide access to the knowledge base for the BPO provider. After organizing and structuring the knowledge and expertise in the knowledge base, you should provide access to the BPO provider. This can include creating user accounts, assigning permissions and roles, and providing training and support on how to use the knowledge base. By providing access to the knowledge base, you can ensure that the BPO provider has the information and expertise they need to perform their tasks effectively.
Monitor and maintain the knowledge base. Once the BPO provider has access to the knowledge base, you should monitor and maintain it to ensure that it remains up-to-date and accurate. This can include regularly reviewing and updating the information and expertise in the knowledge base, as well as monitoring and responding to feedback and suggestions from the BPO provider. By monitoring and maintaining the knowledge base, you can ensure that it remains a valuable and useful tool for the BPO provider.

Use Helpjuice to Equip Your BPO Partners for Success

Your business process outsourcing partners will be heavily reliant on your team’s knowledge and documentation to get up and running quickly — and to stay moving in the right direction.

And it’s your job to get this info to them whenever and wherever they need it.

Which is where Helpjuice comes in.

With our knowledge base software, your BPO partners will always have access to the information they need to get the job done. On your end, you can easily provide access to additional documentation as needed — and can restrict access to it when they’re finished.

Want to check out Helpuice in action? Book a free demo with our team today.