To put it simply, business process outsourcing is an exchange in which an organization hires another company to complete specific process tasks. These tasks are essential for the hiring entity’s smooth functioning of the business.
When one organization subcontracts third party vendors for business-oriented operations, we refer to it as business process outsourcing. Initially, this practice began only for the manufacturing domains, but now it is more widespread and extends to outsourcing services.
Since the business climate became increasingly competitive and constantly evolving, many small companies are well as the bigger ones opted to outsource processes. The innovative and new services gave birth to more opportunities, and businesses wasted no time in capitalizing on these windows.
From a broader spectrum, we can safely say that companies employ BPO practices under two main categories: the front office and back-office operations. We refer to the back office BPO when companies contract their processes to outside professionals, such as quality assurance, regulatory compliance, human resources, IT services, payment processing, and accounting.
On the other hand, business process outsourcing in front office refers to marketing, sales, tech-support, and services relating to customer support.
The magnitude of the business process outsourcing for an organization depends on how far they expand their business operations. Whether a company functions within its home borders and expands operations beyond it determines how many options it has for process outsourcing.
We will deem it offshore outsourcing if a company contracts its processes to an outside country where there are tax savings, low labor costs, etc. Contrarily, we would deem it near-shore outsourcing if a company contracts with a neighboring country. If a U.S company gave work to a vendor in El Salvador, we would consider it near-shore outsourcing.
There is also a third category in BPO, which we refer to as "domestic or onshore outsourcing." This scenario is evident when a company contracts vendor within its own country, but the partners are in different states or cities.
It is not surprising why the masses commonly refer to BPS as services that information-technology enables. It is a system of operations that only the technological infrastructure has made possible and external companies can competently fulfill their roles.
Why Companies Opt for BPO
One of the most magnetic features for companies is the operational flexibility that BPO allows them. Companies can reallocate their resources and time when they can outsource their time consuming administrative and non-core functions. Product leadership, customer relations are core competencies for external companies, and hiring companies can gain a competitive edge in the industry by utilizing these core competencies.
Technological resources, too, gained their due spotlight owing to the BPO practices of businesses. Many of these resources might have remained unnoticed and under glorified had it not been for the exposure the businesses gave them. The fact is that external and hiring companies and BPO partners are continuously striving to perform a better process. They have to upgrade to the newest and most efficient technological tools constantly.
The U.S stands at the topmost ranking for corporate income tax in the developed world. This is one primary reason why American companies gain added advantage by outsourcing their process because the countries beneath their status offer cheaper labor forces and lower income tax. All these serve as viable measures of cost reduction for U.S based companies.
The only few drawbacks of BPO are the threats of data invasion, data breach, and communication issues. All these may serve to delay the completion of projects. However, from a holistic point of view, BPO is an advantageous system of contracting third-party vendors for multiple business-oriented processes.
In general, BPO has proved to be a valuable advantage for businesses in the United States in saving them time and money. Learn how Business Process Outsourcing is helping companies overcome recession today!