Many companies, including yours, might find outsourcing to be a good idea as there is so much to be gained from it: operationally, financially and logistically. But there are also risks involved in this business model.
Several issues may crop up. For instance, the cost saving might not be what your company expected. The third party service provider might not be able to handle the scope of the project. It could even turn out that they may not have the personnel and the skills to execute the assignments; this, in turn, may impact the deliverables. If everything else seems fine, the quality of service provided by the outsourcing company might not be up to the standards expected by your company’s customers.
To manage such risks, take the following steps in a timely manner.
8 Key Steps to Minimize the Risk of Outsourcing
Discussion of Critical Issues:
This first step should be taken at the initial stage itself. Start by discussing all relevant issues with the outsourcing firm. Structure the modalities of the agreement in such a way, that the success of the project is the joint responsibility of both your company and the third party service provider.
Sharing Responsibilities:
The burden of managing the risks and the responsibility for accurate execution of the process has to be shared by the concerned parties. This will ensure that neither side is in a position to shed accountability.
Ensuring Business Goals are Achieved:
The outsourcing agreement should be such that it yields a specific business result to you as a client. Ensure that it does not merely become a channel for you to acquire inexpensive labor. The service provider should also be informed about the goals of the business model that your firm is trying to achieve, so that they can also take steps to contribute towards achieving those targets.
Establish Quality Standards and Performance Indicators:
Document what quality means to your company. Document what quantity means. Define the parameters that represent success and the ones that represent failure. There should be timelines, Key Performance Indicators (KPIs) and benchmarks for achieving targets. If these indicators are breached, then penalties should be imposed and an enquiry should be conducted into the probable cause of the failure to reach the agreed targets.
Conduct a Trial of the Services:
There should be a trial period where the outsourcing company could be put to test to check if they can handle the work. This could be of the duration of one month or three months or any other time period, that you both agree upon. In case the process fails during that time, then you always have the option of entrusting the project to another firm. If you are satisfied with the services, then you could finalize the agreement and the service provider can start the process in full earnest.
Ensure Flexibility and Adaptability:
Business situations keep changing constantly. These changes impact both your firm as well as the service provider. That is why it is essential that the outsourcing model and the process methods are kept flexible. These models and methods should not fail with the slightest of changes. The process methods and the outsourcing terms should be amenable to changes as and when the needs of your firm progress.
Ensure Confidentiality:
Today, confidentiality is everything. Therefore, you should sign a non-disclosure agreement with the service provider. This will ensure that your company’s information is kept confidential. There will be certain processes where you might have to give access to the service provider to intranet sites and other important company information. It would be in your best interest to sign agreements with the service provider that protect the secrecy of this data. You could also conduct site visits at the office of the outsourcer to ensure that the data is being kept safe.
Ensuring the Right Recruitment:
There are many businesses that insist on overseeing project recruitments by the service provider, so that only personnel that suit the company’s needs and have the right skills, are on-boarded. You could do this while outsourcing, especially if the work requires a specialized set of skills or access to extensive knowledge.
Finally, if you and the service provider plan everything well in advance by working out the smallest of details, planning for all eventualities and establishing strong backup plans, then the chances are very high that the outsourcing model could turn out to be a success.
How Top BPO Companies Handle Data Security
Delegating tasks or projects to a business process outsourcing company is becoming one of the major trends with corporates these days. A significant amount of work is outsourced and quality work is what every company expects in return these days. The biggest concern a client has with BPO companies is how secure their data is. There have been breaches that have cost millions of dollars for major corporates.
So how do companies that provide business process outsourcing services assure data security to clients?
A dedicated IT team available 24/7: Every reputed BPO has a team dedicated to monitor bandwidth activity and ensure that data is not being compromised. Besides monitoring, they ensure that every server assigned to every department is well encrypted and they act quickly in situations where servers are down and disrupt the whole company business.
Stringent data security policies: When employees handle projects of clients based in another company, they have to sign documents which state that the clients data will be handled with utmost care and in no way will be it be compromised. In case they do not follow the same, heavy penalties and legal actions come into play.
ISO certifications: An ISO certified company ensures that the company is following the guidelines and standards set by the ISO firm. Depending on the ISO certification, any company can understand the level of security measures the company follows.
Although these are the basic measures taken by top BPO companies, all the employees in BPOs have to follow a strict set of guidelines. No employee in a BPO company is allowed to carry mobiles, laptops, flash drives, etc. inside the work-area, rather employees are not allowed to carry anything that can store or transfer data. Conversations with customers or clients, if taken down in paper, have to be shredded after use. If employees fail to adhere severe actions like suspension, termination and even heavy penalties have to borne by them.
Data security is the most important aspect for any BPO company. Higher the security, higher is the level of trust of a client.
10 Ways to Outsource Business Processes Effectively
Outsourcing is here to stay. There are various reasons why businesses may choose to outsource. Some outsource with an eye on maintaining their competitiveness through cost-effective operations. Some other businesses outsource operations that might be too convoluted for their staff to handle.
If you want to outsource your business operations like others, it is not difficult to hire a third party service provider either domestically or internationally to take care of your business needs. However, remember that you would be handing over your operations, along with confidential information and exclusive business practice records, which could impact your clients, competitors and other stakeholders. Therefore, it is imperative that your business processes are handled efficiently when they are outsourced.
How Can You Improve The Effectiveness Of Your Outsourcing Arrangements?
Making A List:
It is critical that you make a list of the operations that you would be outsourcing. It could be invoicing, payroll, digital marketing, tech support, or customer service or all of them. This would give you clarity as to which operations you would still need to handle and this would also help in more effective resource allocation.
Consider Relevant Providers:
Look at all the relevant proficient service providers in the market who handle the operations that you want to outsource. Check their track records: the list of successful clients they have serviced, the list of successful projects they have executed and the time taken to complete the project.
Compare and Choose:
Go through the proposal of the service provider in great detail. Apart from comparing the associated costs, read all terms and conditions and look at the kinds of services offered before choosing a service provider. Conducting a comparative analysis would help you in coming to a better decision on your outsourcing partner.
Go for a Trial Run:
A trial run is an effective way of evaluating the ability of the outsourcing company to handle and deliver the work expected from them. So before settling down on a particular outsourcing vendor, ensure that you get a trial run done. In the trial run, the provider will recruit employees, set up the technology, negotiate vendor contracts and decide on shift timings. At the end of the trial period, you will evaluate whether the deadlines and targets have been met. The trial run would showcase any potential problems. If such problems are uncovered, you can analyze them and ask the provider whether improvements can be made. If the outsourcing company is unable to provide suitable solutions and fails to fulfill your expectations, you can choose another one.
Set up a Monitoring Team:
You need to create a team to liaise with and monitor the outsourcing company. This team would answer queries, check reports submitted, follow up on missed targets and deadlines, and deal with any other issues as regards the outsourced processes. It would be best to include the senior members of your company in this team as they would know how the operations need to be handled and what are the desired targets.
Plan for Changes In Advance:
For effective outsourcing, it is imperative that the transitions involved in this process, involving transfer of responsibilities between the business and the outsourcing partner, are made quickly. Check how many employees from the service provider’s side are going to come for training. If it is an international outsourcing company, then you may have to arrange the visas quite in advance. Alternatively, training can be set up through technology tools such as video tutorials or virtual sessions. You will have to arrange for your own employees to train the outsourcing team as well. Any intra-organization change management will have to be implemented at this stage.
Proper Documentation:
Make sure that every part of the service level agreement is documented and that nothing is left undocumented. The paperwork should be as comprehensive as possible and should clearly delineate accountability and responsibility. Outsourcing can sometimes lead to legal conflicts owing to carelessness in this regard; hence, your business should take appropriate steps to optimize the process.
Transfer Accountability:
Make sure that the outsourcing service provider takes complete responsibility and accountability for the project after a certain period of time. Your staff should be relieved from monitoring duties and the handing over needs to be smooth as possible.
Track the Performance Reviews:
Periodic reviews of the service provider and the services rendered are crucial. In case there is a shortfall, you must ensure that it is rectified by the service provider as soon as possible. Establish Key Performance Indicators (KPIs) and metrics to facilitate assessment.
Regular Communication:
Conduct regular conference calls with the service provider where all issues are raised, clarifications and explanations are given, and information passed on from one to another. This will minimize interruptions and resolve conflicts even before they arise.
In summary, outsourcing your business processes to a competent and experienced outsourcing service provider can streamline the manner in which a process is implemented, boost internal productivity, provide cost savings and enhance your competitiveness. However, this would require amongst many things, adequate foresight, planning, attention to detail and regular reviews. Doing all this can help ensure that the whole outsourcing process is satisfactory for you and profitable for your business.
In today’s connected world, a successful business is often an efficient one, and the difference can come down to smart, innovative processes, with suitably adept management to match. Novel, modern process management techniques can take your business from good to great. One outgrowth of BPM, business process outsourcing (BPO), can enable just such a change if enacted in a careful, conscientious manner and with a quality vendor.
This article has everything you need to know about business process outsourcing: what it is, what types of processes and functions BPO vendors support, the current state and future outlook of the industry, and how to choose a vendor that’s right for your company. Along the way, BPO experts weigh in, and we even provide a vendor scorecard template to make that decision easier for you.
Business process outsourcing (BPO) is the practice of contracting a specific work process or processes to an external service provider. The services can include payroll, accounting, telemarketing, data recording, social media marketing, customer support, and more. BPO usually fills supplementary — as opposed to core — business functions, with services that could be either technical or nontechnical.
From fledgling startups to massive Fortune 500 companies, businesses of all sizes outsource processes, and the demand continues to grow, as new and innovative services are introduced and businesses seek advantages to get ahead of the competition. BPO can be an alternative to labor migration, allowing the labor force to remain in their home country while contributing their skills abroad.
BPO is often divided into two main types of services: back office and front office. Back-office services include internal business processes, such as billing or purchasing. Front-office services pertain to the contracting company’s customers, such as marketing and tech support. BPOs can combine these services so that they work together, not independently.
The BPO industry is divided into three categories, based on the location of the vendor. A business can achieve total process optimization by combining the three categories:
American businesses choose to outsource for many reasons. Some people believe that businesses are only after the tax break associated with outsourcing jobs, or “shipping jobs overseas” as some political ads claim. According to PolitiFact, this is a flawed notion. PolitiFact concedes that there are tax breaks for a company when it relocates, whether out of country or to a different state, but there is no specific tax break or loophole in the U.S. tax code related to outsourcing.
What is relevant to this argument, however, is that the U.S. corporate income tax is one of the highest in the developed world (39.1 percent). Therefore, U.S. companies benefit from outsourcing operations to countries with a lower income tax because businesses pay the rate of their host country. In addition, businesses cite many other reasons to engage in outsourcing:
Ryan Fitzgerald, owner of and realtor at Raleigh Realty, has extensive experience with BPOs. He says, “There are both pros and cons to creating an outsourcing process for your business. The obvious pros are that it saves you time and effort, which likely saves you money. There are only so many hours in a day, so you will want to focus the limited time you have on the work that makes you the greatest ROI (return on investment) on your best work.
“Another pro is that there is a good chance the person you’re outsourcing your projects to is armed with a better skill set for the specific goal you’re trying to accomplish. By outsourcing your work, you allow yourself the opportunity to be more productive and grow your business faster.
“One of the biggest cons is that you leave yourself exposed if you don’t do the work yourself. What happens if the person you’re outsourcing to moves away? What if they take your ideas and give them to other businesses you’re competing against? We had an instance where we bought a lot of video marketing equipment and decided to outsource our projects to a video professional. That video professional is now reaching out to our competitors to ask if they would like the same work done. That means one of our competitive advantages is potentially lost if other real estate companies see the value.
“There are a lot of benefits to business process outsourcing, but make sure you keep an eye on how it could come back to hurt you as well.”
BPO providers now support a number of services and help fill many gaps within companies. Some of the participating industries include healthcare, pharmaceuticals, energy, business services, retail and e-commerce, telecom, automotive, utility companies, banking, supply chain, capacity solutions, and asset management. In fact, the growth in BPOs has resulted in the emergence of subspecialties, including the following:
Each BPO company will specialize in specific services. They may be grouped as follows:
Customer interaction services: The BPO company would cover a business’s voicemail services, appointment schedules, email services, marketing program, telemarketing, surveys, payment processing, order processing, quality assurance, customer support, warranty administration, and other customer feedback.
Back-office transactions: This includes check, credit, and debit card processing; collection; receivables; direct and indirect procurement; transportation administration; logistics and dispatch; and warehouse management.
IT and software operations: These technical support functions include application development and testing, implementation services, and IT helpdesk. For example, manual data entry can be replaced with automated data capture, increasing data intake and reducing cycle time.
Finance and accounting services: These functions include billing services, accounts payable, receivables, general accounting, auditing, and regulatory compliance.
Human resource services: BPOs can help address workforce challenges. They can also cover payroll services, healthcare administration, hiring and recruitment, workforce training, insurance processing, and retirement benefits.
Knowledge services: These higher-level processes may include data analytics, data mining, data and knowledge management, and internet and web research, as well as developing an information governance program and providing the voice of customer feedback.
The global market size of services outsourced from the United States was $88.9 billion in 2017 and is expected to hit $140.3 billion by 2022, as reported by Statista and The BPO Services Global Industry Almanac 2017 Company Report. This was after steady growth of 4.4 percent compounded annually from $45.6 billion in 2000. For U.S. companies, India and the Philippines perform a large portion of the outsourcing services. India in particular is a leader in BPO for the United States because its labor force is highly skilled, educated, English-speaking, and economical.
Not only are these countries geographically disparate, they are different cultural entities as well, which may constitute a risk for the contracting company. In fact, hiring any outside vendor to perform business processes for your company comes with inherent question of efficiency and quality. This is especially concerning because the industry has seen reported shortages in skilled workers, increased trade protectionism, and gridlocks due to political issues. Other risks include the following:
Security: In outsourcing, especially when information systems (IS) are involved, companies face communication and privacy risks. Security is more difficult to maintain when the business taking care of your IS is not in the same country, especially one with different security requirements. Potential data privacy breaches and vulnerability disclosures are a real threat, particularly with the current prevalence of hacking. The internet, which makes BPO for IT feasible, also may offer a portal through which hackers enter.
Underestimating the costs of services: Companies that employ BPO vendors often underestimate the running costs, especially in upgrades and contract renegotiation. Other hidden costs include vendor selection, currency fluctuations, hardware and software upgrades, internal transitions, layoffs, and the potential decrease in individual worker productivity.
Overdependence on service providers: Once a company designates a vendor for specific processes, the vendor becomes a part of the workflow. The company can incur extraneous costs and decreased productivity when the vendor encounters problems or lapses in its work — for example, when the cost of hiring workers increases. Vendors often replace veteran employees with less experienced workers to keep costs down, and quality suffers as a result.
Communication issues: Language barriers can limit activities when your company hires individual service providers spread across the globe. This can result in delays in new processes and curbs on feedback from different departments, and it can potentially magnify current problems in your business operations. Further, customer-facing services may present language barriers to third-party vendors.
When outsourcing your processes and parts of your business, you face significant risks, depending on the type and structure of your company. For example, in very large segmented companies, outsourcing only the back data entry can carry a low risk. But for a small business that is reliant on BPO as part of its manufacturing, the risk increases. Other possible risks associated with outsourcing include:
On the other side of the equation, BPO companies face risks as well. These include:
Robotic process automation (RPA): RPA uses bots or artificial intelligence (AI), a form of cognitive computing. These robots operate on a user interface in the same way a human worker would. Due to the demand for increased cost efficiency and innovation, robots are becoming more widespread. According to the Institute for Robotic Process Automation, RPA creates 25-50 percent cost savings. Robots cost between one-fifth to one-ninth of a full-time equivalent (FTE) worker in the United States, and about one-half of an FTE in a developing country. Some experts postulate that BPOs may adopt RPA in limited use or that BPOs will still have contracts, but their role will change to become more of a consultant.
Globally, the BPO sector is worth over $300 billion. BPO vendors employ more than 3 million people in India, and more than 1 million people in the Philippines. Millions more are employed by BPO companies in Europe and the United States. BPO vendors are located all over the world, especially in developing nations with low income tax. South Africa has shown recent dominance in the BPO market, notably in call centers.
In the past five years, the BPO industry has exploded due to shifts in social media use and the concurrent demand for multichannel communication. Consumer behavior has changed too. Browsing social media is now the third most popular online activity, and 81 percent of the U.S. population has at least one social media account.
Before 2000, companies provided customer service through websites and by transferring calls via interactive voice response, and the BPO industry was primarily composed of call centers. But with the growth of social media and, according to Rightscale, the majority (95 percent) of small to medium-sized businesses’ dependence on cloud technologies, BPOs now provide more professional and technical services such as web design, human resources, and accounting services. This has led to increased investment in BPO, with $462 million poured in by startups in 2014.
Another iteration of the BPO industry is business transformation outsourcing (BTO). BTO offers strategy consulting services, not only in-the-box, traditional supportive business functions. BTO consultants help businesses revamp their processes through outsourcing. In other words, BTO consultants review your business as part of their services and find the opportunities to implement BPO where it makes sense and is most beneficial for the company.
The future of BPO is similar to that of many industries in that automation will be key. Many experts point to RPA as the main avenue through which BPO will change. For example, data entry work and image recognition can be automated easily. However, experts report that certain functions, like handwritten data and telemarketing, will resist automation.
All industries, including BPO, will likely leverage emerging technologies, such as cloud services, social media, and machine learning, to reduce costs and accelerate growth. One business model, the productized service, combines software and an outsourced staff member. An example of productized services is a package that bundles cutting-edge accounting software and accounting services, with both services billed to the contracting company monthly. Startups in particular are becoming more dependent on this type of service, so there is mutual dependence with BPOs.
The trend of providing and supporting improvements in social media management tools is expected to continue. Investments in cloud computing will also persist, as it becomes a more mature platform. In addition, BPOs will invest in diversifying their workforce. As BPOs get more competitive and are forced to lower their prices, they will move to lower-cost alternatives such as software automation and AI. With the threat of losing workers to AI and automation, governments and business leaders are educating them so they can meet the newer demand for highly skilled positions.
With businesses expecting BPOs to fill their gaps or even becoming dependent on them, BPOs are required to be more transparent so that they may build and maintain trust. In the 2016 U.S. presidential election, BPO providers were concerned that they would lose their ability to work for U.S. companies if the new administration changed policies on trade, tax laws, and visas. However, experts do not believe that changing political tides will negatively affect BPO or KPO. Because KPO in particular requires higher-level skill sets or higher education, experts believe that individual country politics will be less apt to disrupt the businesses.