So you’re considering outsourcing some key business processes to an external service provider, known as business process outsourcing or BPO. It seems like it could help lower costs, improve efficiency, and let you focus on your real core competencies. But how can you tell if BPO is the right move for your company? 

This is an important strategic decision that requires careful analysis of multiple factors unique to your business. In this comprehensive guide, I’ll walk through the key considerations, benefits, risks, best practices, and signals to monitor that will allow you to make a fully-informed decision about BPO.

Whether you’re hoping to outsource processes for the first time or reevaluating existing arrangements, use this advice to determine if BPO will provide real advantage or potentially create more problems than it solves.

Let’s start by making sure we’re all clear on what exactly BPO entails.

What Exactly is BPO?

BPO stands for business process outsourcing. It means taking tasks and operations that are critical parts of your business and handing them over to an external third-party provider to manage on your behalf. 

Some common examples of business processes companies outsource include:

– Customer service and support functions

– Inbound sales and telemarketing 

– Manufacturing and assembly of products

– Back office accounting and finance 

– HR administration

– IT helpdesk and infrastructure management

– Marketing operations like lead generation

The key difference between BPO and simply outsourcing supportive services is that BPO involves core business activities central to operations. The provider takes over critical processes end-to-end, often with dedicated staff and specialized management.

The goal is to leverage vendor scale, expertise, and cost efficiencies for key functions so your company can direct resources toward high-value tasks like strategy, innovation, and product development.

Popular offshore locations for BPO centers include India, China, the Philippines, Malaysia, and parts of Eastern Europe, where labor costs can be far lower. Many providers also maintain US-based centers for onshore services.

Now that we understand what BPO is, let’s look at the potential upsides and downsides you need to weigh in your decision.

The Potential Benefits of BPO

There are some very compelling reasons why companies choose to outsource certain business functions. Here are some of the main benefits that BPO can provide:

#Significant Cost Savings

For many companies, lowering costs is the primary driver for outsourcing. BPO provides access to offshore talent pools at much lower labor rates. It also lets you convert fixed costs into variable, where you only pay for the specific resources used each month.

BPO providers can offer reduced pricing through economies of scale and focused expertise in the processes being outsourced. Utilizing external capabilities often decreases expenses for things like infrastructure, training, and overall management of the outsourced functions.

#Increased Focus on Core Competencies  

Outsourcing lets your company direct more time, money and strategic attention toward your true core capabilities – the things that create real competitive differentiation and drive revenue.

Rather than getting bogged down trying to manage non-core but critical processes internally, you can leverage specialized vendors to handle these functions efficiently at lower cost.

#Access to Deep Expertise

Reputable BPO vendors develop very specialized expertise that would be difficult and expensive to recreate internally. They handle the same processes day in and day out for companies across your industry.

You benefit from their accumulated best practices, methods, training programs and tools developed through years of focused experience. Their outside perspective can reveal opportunities for improvement you may have been blind to.

#Increased Scalability and Flexibility

It’s expensive and disruptive to try to rapidly scale internal teams, facilities and systems up or down to meet fluctuating business demands. BPO provides much more flexibility to right-size operations quickly.

For example, outsourced call centers or manufacturing partners can easily adapt capacity to meet seasonal spikes, new product launches, promotions, etc.

#Transfer of Risk

BPO transfers a variety of risks associated with managing certain processes in-house to the outsourcing provider who becomes responsible for them.

For example, providers assume risks around workforce management, business continuity, technology deployment, regulatory compliance, and more. This enables your company to focus on strategic initiatives rather than “firefighting”.

So those are some of the most compelling benefits that make BPO so appealing. But it’s not all rosy. There are also some serious downsides and risks to consider.

The Drawbacks to be Aware of

While BPO can certainly provide some major advantages, it also comes with inherent tradeoffs and potential pitfalls including:

#Loss of Control 

Handing off processes to third party vendors by definition means you lose some oversight and control compared to managing them in-house. 

Providers have their own procedures, chain of command, priorities and internal culture that drive decisions. If they miss deadlines, deliver poor quality work, or fail to adapt quickly to changing needs, you may have limited power to influence outcomes. This loss of control can be difficult.

#Hidden Costs

The upfront cost savings offered by BPO often erode over time as needs change or unforeseen challenges emerge. Things like transition costs, contractual minimum commitments, travel expenses, knowledge transfer, added management and governance overhead can really add up.

Service quality may also degrade without vigilance, necessitating supplementary internal staff to monitor and manage providers. So true long-term costs often exceed initial estimates.

#Communication Challenges 

Communication problems are common with outsourcing, especially offshore arrangements crossing languages, time zones and cultures. Misunderstandings, unclear requirements, and mismatched expectations frequently impede progress.

Rigorous documentation and governance processes can help, but also add extra overhead. Ineffective communication with providers often creates headaches.

#Heightened Data Security Risks

When proprietary company data is shared with external vendors, risks of data breaches, leaks and cyber attacks increase markedly. Protecting networks, applications, data access and physical security requires substantial vigilance.

Without air-tight contractual controls and oversight processes, outsourcing can dramatically escalate vulnerability to costly security threats.

#Quality Control Concerns

Maintaining consistently high output quality is challenging with outsourced processes. Factors like training gaps, high turnover, language barriers, lack of context, and misaligned priorities often diminish quality. Remedying these issues adds cost. 

Delivering poor quality ultimately undermines customer satisfaction, company reputation, and internal efficiency.

These are some of the most common pitfalls to be aware of when considering BPO. Let’s now examine the key factors you should analyze to determine if outsourcing specific functions makes sense for your business.

Key Factors to Consider in Your Evaluation

Determining if BPO is the right choice requires a holistic analysis across multiple elements including:

#The Nature of Your Business

First, look at whether the processes you’re considering outsourcing are central to your competitive differentiation or more peripheral supporting functions.

BPO likely makes more sense for supplementary capabilities outside your “secret sauce” than mission-critical processes tied directly to your core value proposition. Be very cautious about outsourcing crown jewel functions.

Also assess things like seasonality, time sensitivity, and customer contact to determine if agility, visibility and tight integration are needed. If so, these requirements may not align well with outsourced delivery models. 

#Importance of Protecting IP

Think carefully about the intellectual property risks that come with exposing internal processes and data to third parties, especially offshore vendors. 

If the activities you’re considering have sensitive trade secrets, proprietary methods or privileged information embedded in them, outsourcing greatly increases vulnerability. Only outsource IP-sensitive processes after extensive security vetting.

#Data Privacy and Security Obligations

Carefully evaluate data protection implications, including types of data accessed, specific regulatory obligations like HIPAA or GDPR, and consequences if data is compromised.

Rigorously validate provider security provisions, access controls, data handling processes, employee screening, infrastructure vulnerability prevention, continuity safeguards and subcontractor management.

#Output Quality Requirements 

The importance of accuracy, consistency, timeliness and attention to detail should guide evaluation. Things like manufacturing defect rates are easier to outsource than subjective interactions directly impacting customers.

Evaluate whether processes can be realistically outsourced while still upholding quality standards, or if quality tradeoffs are dealbreakers.

#Cost Savings Analysis

Do an objective analysis of current costs versus realistic expected costs long-term, factoring in transition overhead, contractual minimums, added governance and management. 

Recognize that initial cost reduction estimates often prove optimistic over time as scope changes, new demands emerge, and incentives fade.

#Scalability Needs

Evaluate how well BPO providers can scale processes up or down to meet changing business demands driven by new products, promotions, technologies etc. 

BPO offers better scalability than in-house, but analyze if partners can adapt nimbly based on projected needs.

#Cultural Fit 

Vet for cultural alignment in work styles, communications, values, priorities and problem-solving approaches. Lack of cultural chemistry is linked to many outsourcing relationship troubles.

Consider site visits and face-to-face interactions when evaluating providers to assess cultural fit beyond just skills.

Analyzing these elements systematically will surface the key pros and cons to determine if BPO makes strategic sense for your situation.

Now let’s look at finding the right partner should you decide BPO is worthwhile. 

Finding and Selecting the Right Partner

Choosing the right outsourcing provider is crucial. Switching vendors down the road can mean major transition costs and business disruption. Here are some best practices for selecting a trusted BPO partner:

#Research Their Industry Reputation

Talk to others in your industry network to get candid insider reviews of providers they’ve worked with. Search industry analyst reports profiling reputable BPO players.

#Review Their Specific Expertise 

Look for extensive experience handling the exact processes you’re outsourcing for companies similar to yours within your industry. Evaluate things like client retention rates, management quality, and employee turnover.

#Assess Culture Fit

Interact directly with the provider team to observe communication style, work norms and problem-solving alignment beyond just skills. Cultural cohesion is hugely important for collaboration.

#Rigorously Vet Security and Compliance Controls

Don’t cut corners validating data security provisions, infrastructure protection, employee screening, compliance controls, quality monitoring and related policies. Ask probing questions.

#Examine Quality Assurance Practices  

Review provider approaches to quality management, performance metrics, monitoring, reporting, and continuous improvement. Validate that governance practices are rigorous.

#Request and Check References

Ask for current customer referrals and have candid conversations to determine strengths as well as weaknesses. Probe into their real experience.

#Compare Multiple Providers

Perform diligent evaluations in parallel before down selecting a final partner. Use structured scoring models to make transparent, objective comparisons.

Taking time upfront to carefully vet providers will prevent mismatches down the road. Now let’s look at managing successful BPO relationships.

Fostering a Successful Outsourcing Relationship

Once you’ve chosen an outsourcing partner, you need to proactively cultivate a healthy relationship for it to work long-term. Here are some proven tactics:

#Set Clear Expectations

Detail required inputs, quality metrics, timelines, governance protocols, reporting, escalation procedures and everything expected in contracts to eliminate assumptions.

#Maintain Open Communication 

Over-communicate, especially early on to head off small issues before they become major problems. Institute rhythms for reviewing progress and voicing concerns quickly. 

#Monitor Performance Diligently

Frequently audit quality, turnaround times, and contractually obligated service levels. Resolve any deviations immediately to prevent bad habits from developing.

#Build Personal Connections and Trust 

Make site visits, invite provider team members to your offices, socialize together, and share internal context to build camaraderie critical for fluid collaboration.

#Make Them Feel Like Part of Your Team

Onboard providers extensively like internal employees. Give access to tools, systems, and knowledge bases. Include them in company meetings and celebrations.

Managing outsourcers as true, trusted partners yields major dividends. Now let’s look at signs it may be time to insource previously outsourced work.

When It May Be Time to Bring It Back In-House

Even initially successful BPO engagements may eventually go sideways due to changing needs or circumstances. Watch for these indicators it may be time to insource:

#Chronic Quality Problems  

Despite escalations, audits and warnings, critical quality metrics, errors, regulatory missteps or customer satisfaction issues continue missing the mark. Insourcing may be required to resolve persistent deficits. 

#Lack of Realized Cost Savings

Cost creep from contract minimums, travel, added governance and coordination eclipse expected savings. The outsourcing relationship is draining resources rather than adding value.

#Loss of Critical Visibility 

Frustration reaches a boiling point over arms-length management, inadequate reporting, lack of authority over decisions, and limited operational visibility. Insourcing returns direct control.

#Data Security Breaches 

Confidence is shaken by security incidents, unauthorized data sharing, questionable controls, or other negligence in stewarding sensitive data. Bringing data management in-house secures it.

#Damaging Cultural Divides

Divergent work norms, problem-solving approaches, priorities and styles of communication cause constant painful conflicts and delays. Cultural chemistry proves impossible.

#Shifting Core Competencies

Evolving business strategy steers the company toward capabilities previously outsourced, necessitating internal development of new differentiating skills and expertise.

Should any of these circumstances arise, it may be prudent to insource previously outsourced functions to resolve them.

Conclusion

We’ve covered a lot of ground on the key considerations around business process outsourcing. When executed well, BPO can yield real cost efficiencies, flexibility, expertise and other advantages. But also weigh risks like loss of control, hidden costs, security, quality and culture. Take time to make fully-informed BPO decisions tailored to your organization’s unique needs and constraints. With diligent partner selection and relationship management, BPO can deliver significant strategic value.