Business Process Outsourcing (BPO)
What is Business Process Outsourcing (BPO)?
Business Process Outsourcing (BPO) is the contracting of a specific business function, such as customer support, marketing, etc. It should not be confused with the concept of outsourcing as a whole, though. The difference is that with BPO, you outsource an entire business function (all of lead generation, for example), rather a single job (think, hiring a VA from a developing country).
The processes outsourced, however, are rarely the core ones. After all, if it’s something critical to company success, you really wouldn’t trust a contractor doing it. You’re more likely to benefit from outsourcing support roles, such as customer relations. This way, your team back home can focus more on your core functions, rather than trying to learn new skills. This is, at the end of the day, a win-win. Instead of having to start a customer support team from scratch, you’re giving the job to a company that specializes in it – and you’ll end up spending less, to boot.
In terms of outsourcing functions, there’s back office and front office. Back office includes internal company processes – accounting, purchasing, etc. The front office, on the other hand, is anything that deals with customers: sales, customer support, and so on.
There are 3 different types of outsourcing:
Offshore – Outsourcing in a distant country. Think, USA to China. This usually means very significant cost-cutting, since the salaries in developing countries can be 8x cheaper than in the US.
Nearshore – For countries that are located close to the contracting company. Think, USA to Mexico.
Onshore – Outsourcing within the same country but a different city or location. The main value here is still cutting costs, while maintaining the added benefit of your employees being native, cutting out chances for miscommunication. Lyft, for example, is moving its support team from San Francisco to Nashville, where living costs (and accordingly, salaries) are 3-4x times cheaper.
Business Process Outsourcing Benefits
The most popular and talked-about benefit for outsourcing is the significantly lower expenses.
Depending on where you’re sourcing, prices can be slightly lower (Think, San Francisco to Nashville), or significantly (development from San Francisco to India). Other than the lower salaries, there’s the added benefit of getting a “tax break.” While the government doesn’t straight-off give you a tax break, you get the option to defer paying income tax on profits made abroad.
Focus on Core Functions & Improved Support
If you’re an up-and-coming software startup, you really can’t be bothered with starting a huge customer support team from scratch. While doing it right is important, chances are, in-house isn’t the best place for that. If your founding team has a technical background, they won’t be as good in training a support team. So, by outsourcing to a company that specializes in support, you end up with better processes at the same price.
This, in turn, allows your team to focus on what’s important for the company – the core processes that make the company stand out.
If you decide to enter the French market, for example, you’d be having a very difficult time getting started. First of all, you can’t just import your American sales team because of the language barrier. So, you’d have to send someone from company management to start a regional department. This, in turn, leads to some other issues – even if the company official is fluent in the language, they’re unlikely to know how the market in that specific country works.
So, instead, it’s easier to find a local partner company with a native workforce. They’re already aware of how the market works, as well as having the knowledge of the language and culture on their side. And, of course, you can manage the 3rd party company as much as needed.
Managing the BPO Initiative
Depending on what process you’re outsourcing, you might need to have some control over the partner company’s operations. With customer support, for example, your oversight might be minimal – communicating through reports on a monthly basis. If you’re outsourcing software development, though, you’d need to actively manage the company. While they have the technical skills, your team knows the industry, what problems the software should solve, etc.
Without the right software, though, managing a remote company can be hard. Tallyfy is a business process management software that helps you track, manage and automate processes. It allows you to seamlessly collaborate with partner companies from around the world, making BPO easier than ever before.