Business Process Outsourcing has both risks and rewards. BPO has been through a lot of ebbs and flows, but the inevitable fact is an enterprise has to in part rely on such strategies to streamline operations, focus on the core, and control costs. Let’s take a deep dive into business process outsourcing risks and rewards.
Typically, business process outsourcing is focused on two core areas – back office and front office operations. Back office operations can include things like payment processing, quality assurance, and even information technology services. Front office operations include things like sales, marketing, and customer relations.
But at the same time, it’s important to acknowledge that business process outsourcing isn’t necessarily the right move for every company. Only by coming to a better understanding of the benefits that BPO brings with it – and some of the challenges that it can potentially create – will you be able to make the best possible decision regarding the future direction of your organization.
Business Process Outsourcing Risks and Rewards
By far, one of the most significant advantages of business process outsourcing has to do with the fact that it frees up your valuable time to focus on your core business processes. Once your outsourcing partner is trained on firm-specific processes and provided that you’ve chosen a trustworthy partner in the first place, you can allow them to focus on those tasks they’ve been assigned while you get to devote more of your attention towards those matters that truly need you.
Cost-saving is another significant advantage of business process outsourcing. Consider an example where you’re outsourcing some or even all of your information technology services to a third-party. If you were still trying to maintain your enterprise entirely in-house, you need to spend time researching and buying IT equipment. You need to pay someone to deploy and configure that equipment. You’ll likely need to hire more employees to maintain that equipment over time. If something breaks, it’s your exclusive responsibility to fix it.
These costs add up quickly – and they’re also virtually eliminated when outsourcing IT to a third-party provider. You still get access to all the technology you need, but you don’t have to deal with enormous up-front capital investment to get to that point.
Another one of the major benefits of business process outsourcing comes by way of the efficiency gains you get to enjoy. Again, this depends on you having done your due diligence to make sure you’ve selected a trustworthy BPO partner in the first place. There are times when outsourcing has lower productivity, higher error rates, and more because your enterprise still needs to train your partners on firm-specific processes.
To continue with the example of outsourcing information technology, you’re getting access to a team of people who are experts in their field and who know how to perform at the highest level. You don’t have to pay to bring this expertise into your organization because it’s included in your BPO agreement by its nature. These are people who are dedicated to carrying out whatever core business functions you’ve tasked them with, all to free up as much of your time as possible to focus on those matters that truly need you.
Not only does this almost immediately result in higher efficiency, but it also enables greater productivity for your in-house employees as well.
Finally, another one of the most significant benefits to business process outsourcing has to do with how it can help younger organizations in particular. Many startups and similar early-stage companies often have a difficult time managing certain ancillary business activities. You’re devoting so much time and attention to the trajectory of your company that you simply don’t have the bandwidth needed to pay proper attention to things like payroll processing or customer relations.
When you make the decision to transfer those non-core processes to a third-party outsourcing provider, you have the peace-of-mind that comes with knowing those tasks will get completed correctly, all while having more time and attention to focus on the main business objectives in front of you.
The Risks and Challenges of Business Process Outsourcing
None of this is to say that business process outsourcing doesn’t come with its disadvantages, too. Maybe the biggest of these has to do with security. Anytime you bring a new provider into the fold and give them access to your critical business data, you’re creating another vulnerability that could potentially be taken advantage of by someone who knows what they’re doing.
If your business process outsourcing partner suffers a data breach, your sensitive or otherwise confidential information could easily fall into the wrong hands – bringing with it enormous costs and potential damage to your reputation during a time when you can’t afford it.
Another one of the common risks that come with business process outsourcing involves the potential to slowly develop an over-dependence on the provider that you’ve chosen.
This is something that usually happens to companies when they work with a BPO provider over a long period of time. You just get so comfortable with the way they like to work and the functions they’re performing for you that you get over-dependent on them. In the short-term, this usually means that you could end up paying higher than the usual costs – thus eating into your return on investment. If you should ever decide to sever your relationship with that company, it could also create a situation where you are unable to function properly for some time.
Business process outsourcing also has the potential to create a variety of communication problems if you don’t choose your partner incredibly carefully. When you outsource labor-intensive business processes like IT services, for example, you’re creating a situation where there are a lot of different people involved in the day-to-day operations of your infrastructure. Not only can this lead to mistakes that are caused by miscommunication, but depending on where your provider is located the language barrier could very well be a factor, too.
These mistakes can be incredibly costly in more ways than one. If some type of dispute arises with your BPO provider, you could be looking at legal expenses to get things settled. Likewise, any delay in the delivery of your services can result in indirect costs like lower productivity.
In the end, it’s important to understand that business process outsourcing is nothing if not malleable – meaning that there truly is no “one size fits all” approach to the decision you now have to make. Some organizations stand to benefit so much from the lower costs, higher efficiency, and similar benefits that they’re willing to accept some of the risks that come with bringing a third party into the fold. Others simply cannot afford the potential security issues and will need all of their core business functions to remain entirely in-house – at least for now.
But especially as companies in all industries begin to prepare for a post-pandemic world, business requirements will continue to evolve rapidly. You need to make sure you’ve positioned yourself in a way that allows you to scale your resources to keep up with constantly changing demands. You also need to do this to continue to allow people to work from home as productively as possible.
There are many organizations out there who simply won’t be able to get to that point on their own – which is why business process outsourcing is the right solution for them at exactly the right time.