What is BPO? A Comprehensive Guide to Business Process Outsourcing
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What is BPO?
Business process outsourcing (BPO) is a business practice in which an organization contracts with an external service provider to perform one or more essential business tasks. Industry analyst Gartner defines BPO as the delegation of one or more IT-intensive business processes to an external provider that, in turn, owns, administrates and manages the selected processes based on defined and measurable performance metrics. BPO service offerings are categorized in two major categories: horizontal offerings, which can be leveraged across specific industries, and vertical-specific offerings, which demand specific industry vertical process knowledge (“Gartner Glossary”). Both back-office functions, such as payroll and billing, and mission-critical business functions such as insurance claims and unemployment forms processing, are candidates for BPO. The important point is that enterprise executives often determine that instead of having their own staff perform these processes, there is value in outsourcing them to service providers that have the expertise to deliver better results.
What is BPO used for?
Organizations often engage in business process outsourcing to streamline both back-office (e.g., accounts payable) and mission-critical (e.g., insurance claims and unemployment forms processing) functions. BPO contracts can involve outsourcing an entire functional area, such as human resources (HR), to a single vendor. Organizations also often outsource specific processes within a functional area. For example, an organization may outsource its payroll process but perform all other HR processes itself. Commonly outsourced processes include accounts payable, office administrative services, human resources, workforce management, claims and payment processing, manufacturing, and shipping and logistics. Companies typically choose to outsource when they decide that another, more specialized and experiences services partner, such as Canon, can handle a business task better than they can in-house. The goal is to leverage outsourcing as a more efficient approach than staffing and paying a department within their company to handle business processing.
How does BPO work?
In business process outsourcing, a company delegates specified functions to a service provider. The provider can be a local, nearshore, or offshore company. Canon, for example, offers an integrated services delivery capability that enables tailored solutions to be delivered onsite at the client’s location, as well as offsite and/or offshore. Upon reaching an agreement, a service provider may then manage such tasks as claims or invoice processing, including workforce management responsibilities that span hiring, training and retaining talent to maintain a team for the client. Providers also typically assume responsibility for tracking the staff’s performance and progress as well as monitoring service level agreements (SLAs) for the work being performed. Ideally, providers such as Canon have the expertise in methodologies such as Six Sigma to help ensure continuous process improvement.
What are the different types of BPO?
BPO projects are often based on the service provider's location. For example, an organization might contract for outsourcing services offered by an “offshore” provider that is located in a foreign county. “Onshore” outsourcing occurs when a company engages a services provider that is located in the same country as the hiring company. Finally, there is the “nearshore” outsourcing option, in which an enterprise engages a service provider based in neighboring countries.
To maximize potential benefits of each of these approaches, Canon offers an integrated services delivery capability. It provides optimal flexibility by enabling tailored solutions to be delivered onsite at the client’s location, as well as via offsite and/or offshore Canon Business Processing Centers.
What are the benefits of BPO?
For BPO, and outsourcing in general, reducing costs is seen as a major objective. Participants in a Deloitte survey disclosed that they use outsourcing to achieve the following benefits: cost savings (70%); flexibility (40%); speed to market (20%); access to tools and processes (15%); and agility (15%) (“How Much Disruption? Deloitte 2020 Global Outsourcing Survey.”). Beginning in 2018, there was a small shift away from cost savings being the major objective of outsourcing. However, that has since swung the other way with cost savings back at the forefront.
Other benefits that can be achieved include enhancing operational efficiency and reducing the time it takes to complete such activities as processing invoices. Companies that outsource some business activities also can gain an opportunity to spend more time on their core services and competencies. This shift in focus can result in improved customer satisfaction and stronger competitive advantage. Additionally, in our experience many organizations want to leverage outsourcing to address workforce challenges. They want a partner that can help them build a high-performance workforce with the industry experience and expertise to drive the business forward.
What are the challenges of BPO?
There are several challenges that an enterprise should consider when planning an effective BPO initiative. One of these challenges is being clear about the price that will be charged for the outsourcing project. Without this clarity, there is the risk that the price will be higher than anticipated. This can happen when the amount of the work being performed, or the full BPO contract costs, are not calculated accurately. Communication problems can also be a challenge between organizations and their service providers, which can diminish the benefits of BPO. A third challenge is that the hiring organization must effectively manage the BPO initiative together with its outsourcing partner. This means directing the relationship to ensure that mutually agreed-upon objectives and service level agreements are being met at the agreed-upon cost. Finally, the client organization must monitor for issues that could interrupt the BPO initiative. These issues could include, for example, financial or workplace problems being experienced by the services provider. Organizations need to consider these kinds of risks and implement processes and procedure for coping with them.
To effectively mitigate these and other risks, it is important to think beyond cost when looking for a BPO partner. Consider providers that offer the full span of expertise needed to address your current and future operational challenges and goals. These providers should have hands-on experience working in your industry and with companies of similar size. Leading companies, like Canon, have the ability to use established, written procedures for standard business processes and functions. This way they can tailor these best practices to individual applications. This approach means the BPO provider is not starting from the very beginning on processes, job descriptions, or other requirements. The firm has the HR, IT, and operational talent in place and ready to go.
Is BPO related to digital transformation?
According to The Hackett Group, many service providers in the BPO market are coming to grips with digital-age expectations and becoming true digital partners. Hackett offers one example of how a company and its BPO partner are streamlining operations over a three-year period by systematically implementing robotic process automation. In essence, together they are dramatically transforming major labor and technology elements of the business via new digital technology. This kind and rate of change is a significant evolution from traditional BPO initiatives. The key point is that we are now seeing game-changing examples of BPO delivery, driven by the new possibilities of the digital age. While these examples are still the exception rather than the rule, the rate of change is accelerating, and they show that BPO can be a key part of digital transformation.
Finding the right BPO partner.
There are a wide variety of factors to consider when searching for a BPO provider that can support your business objectives, as well as help your organization become more agile, flexible, innovative, and competitive. One critical element is to look beyond the price of a BPO contract when choosing a provider. Also focus on whether the provider has an in-depth understanding of your organization's business and industry; possesses the ability to meet both your current requirements and potential future needs; can provide reporting metrics that demonstrate the provider is delivering on service level agreements.
An example of BPO in action.
Following is one example of how a company and its BPO partner are effectively working together. An insurance company wanted its current BPO program to focus more on leveraging innovation and automation. The company engaged Canon to implement services in a phased approach. First, Canon took over existing document management processes ― spanning such areas as mail, print and office services―at approximately 75 sites across the country within 90 days. This included completing knowledge transfer (documenting responsibilities and workflows) as well as developing and finalizing standard operating procedures and statements of work. In the next phase, the team is exploring automation opportunities. This includes digitizing and distributing mail electronically to optimize mail management activities and reduce costs. The third phase includes considering such innovations as RPA and consolidating operations into regional hubs, potentially utilizing the flexible onsite/offsite/offshore service delivery capabilities of Canon Business Processing Centers. These and other initiatives are delivering significant benefits. Projected cost savings are expected to exceed millions of dollars annually due to workforce centralization and optimization approaches. Improving the efficiency of business process workflows has yielded such results as trimming a claims process from 17 to five days and significantly reducing the document processing cycle time for many insurance activities.