Business Process Outsourcing: Why It’s Thriving and Why You Should Get On Board
Globalization has caused the world to shrink. Just a couple of decades ago, communicating with someone who’s in a different country meant sending letters that could take days or even weeks to get delivered, or else a phone call that could lead to an unreasonably high telephone bill. Today, however, communicating with someone no matter where in the world can easily be both instantaneous and free, all thanks to the internet that stitches countries together. It’s easy to chat with anyone in the world, have a voice call, or even have a video call. It’s even possible to collaborate on different tasks through various products and services that utilize the internet.
These technological innovations have made possible a number of new business models that allow organizations to be more cost-effective. One such model that has soared to popularity is business process outsourcing or BPO, which is the act of delegating a particular work to a third-party service provider. This has become especially useful for lines of work that utilize technology and the internet, because these are accessible in virtually any part of the globe. For instance, BPO has become popular for call centers, since these only require the use of voice call technology. It’s also become popular for IT services, as it only requires the use of computers.
In this article, we take a closer look at what is business process outsourcing in general, and take a more focused examination of information technology services in the context of BPO. We then take a look at the advantages of utilizing BPO for your IT service needs.
What Is Business Process Outsourcing: IT-BPO Outsourcing Market Overview
What is BPO? Business process outsourcing (BPO) is the practice of delegating or contracting the responsibilities and operations for a specific business process to some third-party vendor. The BPO industry worldwide is huge and is steadily growing. According to Grand View Research, the global BPO market was valued at 195.2 billion US dollars in 2017, and is growing at an annual rate of 7.4%. This is expected to grow to 343.2 billion USD by 2025. A huge chunk of this is in the IT outsourcing sector, which accounts for up to 70% of the entire BPO industry in the United States. This is in agreement with findings by KPMG, which reports that in 2017, IT outsourcing contracts worth 137.2 billions USD were signed out of a total of 167.8 billion USD worth of contracts signed for the entire BPO outsourcing sector.
Ukraine is a relatively new player in the IT outsourcing industry, but is a particularly promising country for IT-BPO services. According to Financial Times, Ukraine’s IT industry is rising at a whopping 16% annually, with its IT market in 2017 amounting to 3.6 billion USD. In 2018, Ukraine housed more than 100,000 IT professionals.
Business Process Outsourcing Examples: Types of BPO Services and BPO Companies
Business process outsourcing is an umbrella term that represents many different concepts. BPO services may be classified into different types. Let’s take a look at three common ways BPO IT services are classified and learn the how to business process outsourcing.
By Services Offered
BPO companies may be categorized based on the types of business process outsourcing solutions and services they offer.
Back office process outsourcing is the outsourcing of tasks that are considered support and administrative functions for an organization. This means that such functions do not directly generate revenue. This typically comprises of non-customer-facing functions, hence the term back office. Among the processes considered back office work are accounting, human resource, compliance, data encoding, payments processing, and the like. Back office BPO companies focus on performing these tasks on behalf of different organizations so that the said organization can concentrate on generating revenue.
Front office process outsourcing is the outsourcing of tasks that are considered the main revenue-generating functions within an organization. Typically, this is comprised of processes that involve direct interaction with clients and/or customers, hence the name front office. Among the processes typically considered front office are marketing, sales, business development, customer service, technical support, and market analysis and research. Front office business process outsourcing companies focus on performing these customer-facing tasks for companies, so that these companies can focus more on strategizing and improving their offerings and services.
Horizontal process outsourcing is the performance of tasks that are common across organizations in different industries. For example, human resource is a horizontal function as it is present across different industries. The same holds for accounting and payroll, and to some degree, marketing and sales. Horizontal BPO companies therefore focus on performing such horizontal tasks, and although they may have clients coming from different industries, they perform the same function for each of their clients.
Vertical process outsourcing is the performance of the set of tasks specific to an industry or business domain. For example, a vertical BPO company that services retail companies may have responsibilities to perform tasks that include inventory management, sales, recruitment, security, surveillance, and the like. Although each of these tasks may also be applicable to other industries, vertical BPO business process outsourcing companies focus on performing these tasks specifically for companies in the specific industry or domain that they are specializing in.
By Geographic Location
Offshore outsourcing is when a client delegates the performance of certain tasks to a BPO company from a geographically distant location, such as from a different country. In this set-up, the resources that perform the outsourced tasks remain in the premises of the vendor’s building, but they report directly to the assigned resources of the client company. In the case of most IT offshore business process outsourcing companies, the vendor also provides the software licenses needed for the development of whatever product the client wants to be developed. These resources also use the machines and work stations provided by the vendor, but perform tasks for the client. For this set-up, the client typically pays the vendor a fixed, all-inclusive fee that includes taxes and employee benefits such as health insurance.
Onshore outsourcing is when the resources allocated by the vendor for the client are asked to report to the office of the client itself, or else to a nearby office. A client-vendor BPO set-up is typically considered as onshore BPO outsourcing when the client and the vendor’s provided resources are working within the same country, or if the vendor and the client are within the same country, hence the term onshore. Depending on the set-up, this may mean that clients may need to provide workstations to the vendor’s resources if they ask these resources to report to their (the client’s) premises. Otherwise, the set-up would be roughly the same as with offshore outsourcing.
Nearshore outsourcing is a compromise between offshore and onshore outsourcing. Nearshore outsourcing is typically characterized by the client and the vendor belonging to different countries, but these countries are typically neighboring or very near each other. This set-up eliminates some of the problems encountered with offshore outsourcing, such as time zone differences and possibly language and cultural barriers. However, the vendor’s resources also remain in their (vendor’s) office and make use of their work stations, much like with offshore outsourcing.
By Business Model
Project-Based Outsourcing is when the client delegates the full responsibility of completing a project to the vendor. With this model, the vendor oversees the whole project to its completion following only the guidelines and requirements set by the client. In the context of IT outsourcing, the vendor performs business analysis and project management on top of the development services typically offered. Usually, the client’s involvement during the development process is minimal and may be limited to regular checkpoints to inspect progress and current product states.
The Dedicated Teams model is when the vendor provides resources skilled in the specific technologies that the client requires for the project, but the client remains in full control of the project. The resources will report full-time to the client and may work together with other developers the client may have working on the same project. With this model, therefore, the resources provided by the vendor practically serves as an extension of the client’s team.
Benefits of Business Process Outsourcing
The success of the business process outsourcing services model speaks volumes of the benefits that it actually brings to organizations around the world. Here are some of the benefits that BPO introduces to various companies:
- Improved cost efficiency – The typical set-up of business process outsourcing IT is that the client usually comes from a country where the outsourced service is expensive, and the vendor comes from a country where the said service is substantially cheaper, likely due to a generally lower cost of living. The most upfront advantage of business process outsourcing is therefore cost savings. The performance of the outsourced tasks can cut more than half of the original operational cost of performing the said tasks.
- Improved operational efficiency – With BPOs, the resources are typically well-trained and even highly experienced in performing the tasks being outsourced. As such, they tend to achieve a much higher level of operational efficiency than in-house employees that may not have been trained extensively enough. Moreover, when in-house employees leave, organizations will have to hire replacements and train them before they can get on the job, while with outsourcing, this isn’t as much of a problem.
- Higher employment rate – Typically, since the service being offered is expensive in the country in which the client resides, this implies that the demand for professionals skilled or willing to perform these tasks exceeds the actual supply of applicants for these positions. On the other hand, in the country of the vendor, these jobs may be considered “hot” and there is more than enough supply of resources willing and qualified to perform these tasks. BPO therefore results in a higher employment rate for the country of the vendor.
- Better coverage – A BPO provider typically has a large pool of resources at its disposal, each possibly having multiple skills and able to perform a wide variety of tasks. As such, when a resource becomes unavailable for some days, it’s easy to assign someone else to perform his/her tasks. In contrast, with in-house employees, there is usually a limited number of employees trained to perform the job, so it’s much more difficult to cover for those who call in sick or are generally unable to go to work on some days.
- Improved security – Not only are the resources of a BPO company highly skilled in performing the outsourced functions, the company itself is also very knowledgeable with the landscape and domain they are servicing. As such, they are well aware of industry-standard best practices, as well as the security concerns that are typically raised and how to address these concerns. Business process outsourcing therefore offers improved security in performing the outsourced functions as this comes with the higher level of expertise.
Explore the Business Process Outsourcing Model Now
The business process outsourcing industry is on an aggressive rise, and this is primarily led by the success and proliferation of information technology outsourcing. The IT-BPO industry is seeing worldwide success and is expected to continue rising substantially in the next couple of years. We’ve laid down the business process outsourcing definition and examined what is a business process outsourcing company. We’ve taken a look at some trends within the BPO and IT-BPO spheres and we’ve seen that BPO is a general term that has a large number of variations. We’ve seen the different types of BPO services, categorized by service offered, geography, and business model. We’ve also seen the various advantages of business process outsourcing and what it offers to companies that adopt it. Having digested all of this information, now would be the perfect time to start delving into business process outsourcing.
If you’re looking to explore BPO for a certain project you have in mind, then you couldn’t have gone to a more perfect place. We are Mobilunity, a provider of IT-BPO services based in Ukraine, at the very heart of Europe. We have a pool of Europe’s brightest and most highly skilled developers and IT professionals who can help bring your project to completion and help drive your company towards success. What’s even better is that our expertise comes at a very affordable price, because we want to give you the perfect balance of cost efficiency and resource quality. With Mobilunity, you’ll get much more than your money’s worth.