Business Process Outsourcing (BPO): Definition and Best Practices

Learn what business process outsourcing is, the benefits to making use of BPO, and best practices to successfully outsource.

Written by: Josh Brown

Published: February 11 2022

Juggling the many moving parts within a growing business isn’t easy. But you don’t have to do it all in-house. The right business process outsourcing partner can help you save time, money, and other resources that can be invested elsewhere as you grow your business.

In this article, we'll be covering the following:

What is Business Process Outsourcing?

Business process outsourcing, or BPO, is the practice of contracting out certain business operations to a third-party company.

When implementing BPO, companies usually focus on processes that are integral to the company’s overall functionality — but that aren’t a part of what differentiates them from the competition.

(That said, many BPO providers do aim to help teams create and deliver more value to their customers and their industry in a number of ways. More on this in a bit.)

According to Statista, the business process outsourcing industry was valued at $92.5B in 2019 — a $7B increase in just one year. Pre-pandemic, Clutch reported that more than half of small businesses were planning on outsourcing certain processes the following year. In 2020, that number grew to 80%.

Overall, all signs point to continued growth for the BPO industry — and continued adoption of business process outsourcing throughout the small business world. Knowing how to implement business process outsourcing into your processes, then, will be key to the survival and growth of your business.

What Business Processes Do Companies Usually Outsource?

The most common processes small businesses outsource are:

  • Accounting and Finances: From payroll and AP/AR to compliance and auditing, many small businesses use outsourcing to help maintain overall company finances.
  • IT Operations: Outsourcing IT operations and technical support is common for small companies that aren’t equipped to handle these processes in-house — and that need help optimizing things from a technical outlook.
  • Digital/Niche Marketing: Companies may outsource certain marketing operations, such as social media marketing or blog writing, to marketing agencies and freelance content creators.
  • Web/Digital Development: Those in need of a website or mobile app will often outsource the project to dev teams with the creative capacity and technical knowledge to turn ideas into reality.
  • Human Resources and Recruiting: From managing employee records to actually managing employees — and helping bring new hires aboard — many BPO providers center around HR-related processes.
  • Customer Service and Support: Growing companies will usually outsource certain customer service processes to keep up with the demands of their ever-growing customer base.

A Note on Knowledge Process Outsourcing

We’re now seeing the true emergence of knowledge process outsourcing (KPO), which is typically seen as a subset of BPO.

(For comparison, the KPO industry had reached roughly $14.5B in 2020 — and is expected to reach a market size of $36B by 2027.)

Knowledge process outsourcing involves contracting a third-party to take on a more analytical, strategic, and sometimes even administrative role within your company. For example, you might bring on a financial consultant to not only manage company finances, but to also analyze your spending to help you cut costs and make smarter investments.

Because knowledge process outsourcing is a much more in-depth and niche industry, we’ll be discussing it at length in a future article. Generally speaking, though, most of what we’ll be discussing here will apply to knowledge process outsourcing, as well.

Onshore, Nearshore, and Offshore Outsourcing

When outsourcing to a third-party company, you may choose to employ an onshore, nearshore, or offshore approach.

  • Onshore Outsourcing is also known as domestic outsourcing, and refers to contracting done with companies operating within your own country and/or jurisdiction.
  • Nearshore Outsourcing refers to contracting done with companies operating in jurisdictions directly adjacent to yours. For example, a US-Mexican or US-Canadian partnership would be considered nearshore.
  • Offshore Outsourcing is done with third parties operating in completely different countries elsewhere in the world.

The decision to work with on-, near-, or offshore partners will be based on a number of factors, such as additional costs, communication needs, and tax codes and other laws. Keep this in mind, as we’ll dig a bit deeper later on.

Advantages of Business Process Outsourcing

Now, let’s take a look at the main reasons a company might use business process outsourcing in the first place.

Save on Operational Costs

According to Deloitte’s Global Outsourcing Survey 2020, cost-saving is the number one reason companies cite for outsourcing operations.

As Deloitte points out, this is due in large part to the pandemic and ongoing uncertainty small businesses face around the globe. In fact, cost had actually been trending down as an outsourcing factor in recent years — but is now a main consideration for 70% of outsourcing companies.

Basically, if it costs less to hire a third party than to complete a task in-house — and you can trust the third party will do a similar if not better job than your team — it just makes sense to outsource the entire process.

Another consideration here is that cost-reduction is easily quantifiable and measurable. At the present moment, businesses are focused squarely on improving their bottom line in tangible and immediate ways. That said, it again just makes sense that cost-reduction is the top concern when outsourcing processes.

Streamline Low-Level Processes (and Some High-Level, Too)

Having a dedicated third party on-hand to take care of specific processes means these processes will run smoothly and without fail.

The key word there: Dedicated.

Since your outsourced partner will be dedicated to completing that specific task, you can be nearly certain it will always be completed as planned. Conversely, if your team is left to juggle this process along with their other responsibilities, it can easily fall to the backburner should a problem in a completely different area arise.

What’s more, because BPO providers are specialists, they may be able to help you streamline other related processes within your business — even if not necessarily taking them over completely.

Maintain Agility and Flexibility

Working with third-party service providers allows teams to quickly fill knowledge and skills gaps and ramp processes back up with minimal delay.

Again, this goes back to your outsourced partner being a specialist: Because they have experience performing their specific tasks for companies like yours, you’ll be able to onboard them in a fraction of the time it’d take to hire and bring aboard a team of employees.

In many cases, you’ll also have the option of scaling your relationship up or down over time depending on your business’ needs. For example, you might ask your marketing agency to take over your email marketing campaigns in addition to your social media efforts. Or, once you have the capacity to hire a full-time email marketing specialist, you can dial back the agency’s responsibility.

At any rate, it’s all about making immediate moves to ensure your business stays productive and competitive.

Invest in Impactful Initiatives

With BPO providers taking so much off your team’s plate, you’ll have that much more time, energy, and other resources to invest in more fruitful ventures for your business.

A prime example: A third-party market research provider will continuously feed data to your marketing team, which you can then use to develop engaging marketing content for your customers. In short, your marketing team will spend less time collecting data, and more time actually using it.

Grow and Expand Your Business

Thinking big picture, outsourcing can also lead to growth and expansion for your business.

In one sense, it can allow you to expand to new audiences in some cases. For example, if expanding to a new geographical audience, you might outsource customer service to overcome language barriers, or simply to better serve the local population.

Building on the previous section, contracting out your more menial processes will allow you to shift more resources into various other aspects of your business. Perhaps most importantly, you’ll be able to shift your talented employees’ attention to more worthwhile and profitable initiatives — which can lead to endless opportunities for your business moving forward.

Potential Risks of Business Process Outsourcing

However, there are a number of potential risks involved when outsourcing any part of your business processes. 

Though they can be overcome with proper planning, anticipating these risks is the first step in doing so.

Security and Compliance Issues

Putting your data and operations in the hands of a third party is always risky.

For one, you need to be completely certain that your provider will keep your data secure, and keep their processes above board. No matter their reputation and track record, though, mistakes happen — and they can end up causing major issues for your company.

Moreover, the simple fact that you’ll be continuously sharing data with a third party means there will always be a risk of misuse or loss. To this end, you need to be sure that both your provider and your team members follow proper protocol at all times.

Added Costs and Scope Creep

It’s easy to underestimate the cost and scope of your business process outsourcing initiatives.

Sometimes, this is self-evident: If you’re contracting a process out to a specialist with more knowledge and skills than your team possesses, you might not truly understand all that said process entails.

Or, you and your provider may determine that you actually need additional services (or higher levels of service) after a certain period of time.

(There are also the potential hidden costs of working with a third-party provider in any capacity. More on this in a bit.)

If you’re not clear on scope from the get-go, there’s always a chance you’ll end up spending more than you’d anticipated for business process outsourcing services.

Provider Relationship Problems

Maintaining a relationship with your BPO providers is crucial.

Unfortunately, a number of barriers can make doing so quite difficult. Geographic barriers, for one, can hinder real-time communication and engagement. Cultural or language barriers can also make true alignment much more difficult for you and your BPO partners.

Even if these factors don’t apply to your relationships, there’s still the inherent cost of keeping in close contact with your BPO providers. If these relationships hit a snag, your business’ productivity is bound to suffer.

Over-reliance on Provider

Once you’ve found a BPO partner you can rely on, it can be easy to become too reliant on them.

Of course, things can change at any time, for any reason. Your partner’s pricing or services may change. Tax and other laws might cause logistical problems. Or, a larger company might buy out your partner — and completely change course for the company.

In any case, you’ll be left with a major gap in your business that will need to be filled immediately.

Audience Perception and Brand Reputation Issues

Bringing in a third-party provider for any reason can impact your customer relationships, along with your brand’s reputation.

Obviously, if your BPO partner is taking over a customer-facing process (e.g., service & support), the stakes will be incredibly high. Even when working with internal BPOs, though, their reputation can ultimately affect how your customers perceive your brand.

Business Process Outsourcing Best Practices

To avoid the risks discussed above — and to get the absolute most out of the BPO services you use — you’ll need to adhere to a number of best practices.

Optimize Your Knowledge Management Processes

A proper knowledge management system (KMS) is essential for enabling your BPO providers in two key ways.

For one, your KMS will house your company’s BPO-related documentation, such as contracts, service level agreements, and statements of work. This makes it easy to deliver the necessary documentation as needed before signing a contract — and also makes the appropriate documents easily accessible to all stakeholders after the fact.

Secondly, your KMS will hold documentation related to your team’s workflows, customer relations, and overall approach to operating the company — all of which are required knowledge for your BPO providers. With open access to this information, your outsource partners will be able to hit the ground running, and stay on course over time.

As part of effectively managing the knowledge your BPO contractors need, you should be looking at using knowledge base software as part of your KMS backbone. With a knowledge base, you'll be able to easily organize and share information as needed by the team that you outsource any particular business function to.

Define Your Overall Purpose and Business Goals

Before outsourcing any of your internal processes, you should have a clearly-defined reason for doing so.

Typically, this goal will align with one or more of the benefits we discussed earlier. However, knowing this basic goal is only the start of this process.

More than just defining the reason for contracting out, you should also define your rationale for focusing on this goal. If you’re looking to save on costs, how will you be reinvesting the money you save? If you’re looking to gain more traction on a certain marketing channel, what will you do once it happens?

To be blunt, your goal should never be “to make the third party do the work while I rest on my laurels”. Rather, you should always have a plan in place for growing your business in some way once your BPO providers start showing the results you’d hoped for.

Define Your Key Performance Indicators

Speaking of getting the results you’d hoped for…

Once you’ve determined a general need to outsource a certain process, you then need to get a bit more specific with your goals. These goals, of course, depend on the process being outsourced.

A few examples:

  • When outsourcing customer service, you might focus on improving First Contact Resolution rates, average Time to Resolution, and CSAT, CES, and NPS.
  • In outsourcing certain marketing operations, you’d look to improve lead acquisition and conversion rates.
  • In partnering with a hiring agency, you might be looking to improve new hire onboarding process in an effort to bolster new employee performance or decrease absenteeism — or to simply decrease your average time to hire.

Also, look outside of the immediate improvements your BPO partner will bring to the table — and consider how your team’s performance will improve in turn. 

For example, if you’re using a BPO to take care of basic customer service issues, you might focus on improving your user onboarding process. So, you’d then be able to revisit your current onboarding-related KPIs and performance metrics — setting your sights even higher for the future.

Identify and Prepare for Potential Risks

While you now know the most common risks of business process outsourcing, overall, it’s critical to understand which of these (and other) risks are most pertinent to a given partnership.

Again, data security will be a concern, so you’ll likely want to start here. Before you even start working with a BPO partner, it’s important to define:

  • What data they’ll need
  • What channels you’ll use to communicate
  • How specific data is to be used by the third-party

You can then set rules for your team and your partners to follow when sharing data. Setting permissions, for example, will ensure that data remains accessible on an as-needed basis — and minimizes the chances of it being lost or misused.

From there, you can address the specific risks you’ll be facing based on relevance and potential impact. For example, if outsourcing a specific marketing task, you’ll need to prepare your in-house marketing team to effectively communicate and collaborate with your external partner. Or, if outsourcing basic customer service processes, you’ll need to keep your audience informed of the changes to be made — and of how it will benefit them.

To reiterate once more: There will be risks involved when outsourcing any part of your business operations. In preparing for them early, you’ll minimize the chances of encountering them at all — and at least be able to mitigate the damage if things do go wrong.

Identify and Assess Third-Party Providers

As the BPO industry grows, so too will your options when choosing a provider.

Of course, choosing the right BPO provider will require some effort on your part. Regardless of the actual services being offered, the right BPO provider is one that:

  • Knows and understands the industry and specific processes in question
  • Has a proven track record of success with similar partners
  • Shows a unique dedication to serving and delivering value to your company

You also need to be sure your provider’s terms are in-line with your future goals and expectations. Often, teams will seek shorter initial contracts with third-party providers to maintain flexibility and test their options with minimal risk — and will then lock in a specific provider once they’ve proven their worth.

To do this, though, you need to be sure your potential partners are willing and able to be in it for the long haul with your team.

Manage and Improve Your Provider Relationships

Deloitte’s report explains that the many changing dynamics of the modern business world “have made the role of supplier management more critical than ever.”

However, Deloitte reports that this function is “still underpowered in many organizations.” That being the case, strengthening your supplier relationships will allow you to get much more out of said relationship than the “average” company in your industry would.

In short: The stronger your supplier relationships, the better your competitive edge.

Some keys for improving your BPO provider relationships:

  • Set clear, comprehensive goals and expectations at the onset of your relationship
  • Develop onboarding and transitional workflows for your team and your providers
  • Create open lines of internal communication, and inject direct engagement with providers into your internal workflows

Improving your supplier relationships over time involves meeting regularly to review their performance and its impact on your business — and to create an action plan for further collaboration moving forward.

Document BPO Lessons Learned

Over time, you’ll gain a better understanding of how to make outsourcing work for your organization.

You’ll be better able to identify:

  • What processes can (and should) be outsourced
  • The qualities to look for in a provider for a given purpose
  • Any red flags to look out for when narrowing down your choices

As these things come to light, it’s vital that you document them appropriately. That way, you’ll be able to cover all the angles when looking to bring aboard a new BPO partner.

Use Helpjuice to Equip Your BPO Partners for Success

Your business process outsourcing partners will be heavily reliant on your team’s knowledge and documentation to get up and running quickly — and to stay moving in the right direction.

And it’s your job to get this info to them whenever and wherever they need it.

Which is where Helpjuice comes in.

With our knowledge base software, your BPO partners will always have access to the information they need to get the job done. On your end, you can easily provide access to additional documentation as needed — and can restrict access to it when they’re finished.

Want to check out Helpuice in action? Book a free demo with our team today.

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