Business Process Outsourcing

by bizboon

January 18, 2015

Business Process Outsourcing

More famously known by its acronym, BPO, Business Process Outsourcing is the practice employed by the companies in the developed economies to export their routine work such as customer care or insurance-claims as well as IT services and migrate move their business operations from their countries to the less expensive ones with a view to reducing costs. The top outsourcing destinations in the world such as India, China, Philippines ad Brazil, teem with outsourcing companies that provide business process outsourcing solutions to their customers who usually come from the European and American nations.

As a matter of fact, outsourcing as a business practice has always been there. It is thanks to advent of Internet and new technologies outsourcing has gone offshore.

Why BPO (Business Process Outsourcing)

The business world the companies operate in today is getting more and more competitive. The economy is facing stiff competition thanks to the advent of globalization which has resulted in the reduction of international trade barriers. CIOs and business transformation managers across the world are under constant pressures to cut costs of operations. The Business Process Outsourcing has come forward to offer its helping hand to these CIOs who are taking advantage of the increased capabilities in the telecommunication and data-communication space to spread their business operations in different locations across the world.

The rising popularity of the business process outsourcing can be attributed to the philosophy that in order to be successful the companies should focus on their core mission and outsource their other work to other firms.

One of the main reasons for the growth of the Business Process Outsourcing is that the outsourcing vendors offer business process outsourcing solutions to their clients a low cost.

Today, businesses in the US and European countries are rushing the famed outsourcing destinations to offshore their IT and back-office services to the business process outsourcing solutions providers.

Business Process Outsourcing faces stiff resistance in the US and other countries because thousands of jobs are being sifted to the offshore locations. However, according to the US -based firm Hackett that advises companies on outsourcing, export of services to the offshore destinations will slow down after 2014 and by 2022 it will stop completely.

Challenges to BPO

However, Business Process Outsourcing has sits own share of risks. There always remains the concern for the security of data which runs the risk of being compromised when organizations offshore their business functions. Hence it is incumbent on the business managers to take steps which will stand them in good stead while protecting their companies from the ill-effects of the BPO.

Moving business expertise to another organization located outside the country is not without risks. This can create competition to the outsourcing from the BPO entity itself.  Hence, it is advisable for the offshorers that they should take appropriate legal advice as far as protection of intellectual property rights is concerned.

Thanks to the rise in the business of BPO, there has been a growing demand for the skilled personnel in famous off-shoring destinations such as India and Philippines. This has resulted in an occurrence of high staff attrition rates. Apart from the loss of knowledge and confidential data that accompanies the exit of skilled personnel from the service provider, there is every possibility that the operations of the service provider may get disrupted. This may lead to poor service delivery.

Last but not the least, the companies opting to move their business operations to the service provider physically located offshore should consider the geo-political risks associated with the move. The offshore destination should be politically and economically stable.

Types of Business Process Outsourcing (BPO)

Some of the business processes that are mainly outsourced to a third-party service provider are payroll, billing, customer relationship management (CRM), online technical support services and digital marketing campaigns.

Rise of BPO or business-process outsourcing

The success of BPO or business-process outsourcing during the last two decades has been nothing short of extraordinary. Today the sector in the popular outsourcing destinations including India, Philippines etc, employs thousands of people in the respective countries. In the coming years the business process outsourcing or BPO industry is expected to add many more jobs and generate revenues of billions of dollars.

One of the main reasons for the rise of the business-process outsourcing in those countries is that these places are home to a big pool of IT and engineering graduates and well-educated workers who speak English. The American customers are also drawn to these countries by cheap labour.

When it comes to the off-shoring of manufacturing, China remains on the top. However, in the case of services India has claimed most of the work. If you take into account the findings of “The Handbook of Global Outsourcing and Off-shoring”, six Indian cites ranks among the top ten leading cities for off-shoring. Though more than hundred countries offer IT and BPO services, India is still far ahead of them.

Benefits of Business Process Outsourcing

In the competitive cutthroat world of business where costs are rising and it is becoming increasingly harder to find talent, it is becoming utterly out of the question to accomplish all the non-core business activities at a time.  Business Process Outsourcing allows the companies to focus on the core business functions and outsourcing non-core business tasks to the third party service providers.

Some of the benefits BPO offers are increased productivity and profitability, cost savings, more flexibility and mobility and improved business processes. Since taking resort to BPO helps the companies save time, money and energy, their efficiency and productivity are bound to increase. According to one estimate, BPO can save companies anywhere from 20% to 40% in increased efficiency and reduced labor costs. The companies that use BPO services don’t have to hire employees in non-core positions.

Using efficient Business Process outsourcing services allows a company to cut back on costs including the cost of hiring additional employees. BPO allows an organization to bring down the expenses related to employee benefits, taxes, medical and paid-leave. By outsourcing business processes, the organization could see a positive increase in productivity as valuable time saved will allow for the necessary time needed to concentrate on core business activities leading to an increase in profitability. Business process outsourcing also offer the luxury of gaining access to skills and expertise that the company wouldn’t in most cases have access to.

Challenges

With the passage of time the cost advantages derived from Business process outsourcing are slowing down. In the outsourcing locations where work is being off-shored, the cost of labor has risen. At the same time work is repetitive and dull and does not offer better career prospects.

On the other hand, many business software makers are facing heat from the increasing popularity of BPO. The departments within the organizations are often outsourcing their work away. This is resulting in a situation where instead of purchasing large software packages to run in house, companies are resorting to outsourcing the whole process. Software companies that make software which manages a company’s finance, human resources, manufacturing and other business activities are facing challenges from BPO.

Trends

According to new research, the global Business Process Outsourcing market is still fragmented, and is mostly dominated by small and medium-sized outsourcing vendors.

The popularity of business process outsourcing is fast growing as more and more companies come to realise the benefits of the BPO. Outsourcing of business processes within the different industry sectors such as travel, healthcare, hospitality and finance is witnessing growing traction in popularity thanks to an impressive improvement and revolution in IT and Telecoms business process outsourcing.

The growing popularity of Business process outsourcing can be attributed to increasing improvement of the online technologies. As more BPO companies enter into the market, the firms that are looking to outsource their bottom line jobs so as to reduce the operational costs in order to increase their overall productivity.

BPO is a standard business practice which companies take resort to remain profitable. Apart from being about cutting costs, Business Process outsourcing is also about value addition by way of getting things done faster and better.

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