what is business process outsourcing essay

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What is outsourcing? Definitions, benefits, challenges, processes, advice

Outsourcing can bring big benefits, but risks and challenges abound when negotiating and managing outsourcing relationships. here’s what you need to know to ensure your it outsourcing initiatives succeed..

Outsourcing definition

Outsourcing is a business practice in which services or job functions are hired out to a third party on a contract or ongoing basis. In IT, an outsourcing initiative with a technology provider can involve a range of operations, from the entirety of the IT function to discrete, easily defined components, such as disaster recovery, network services, software development, or QA testing.

Companies may choose to outsource services onshore (within their own country), nearshore (to a neighboring country or one in the same time zone), or offshore (to a more distant country). Nearshore and offshore outsourcing have traditionally been pursued to save costs.

Outsourcing services

Business process outsourcing (BPO) is an overarching term for the outsourcing of a specific business process task, such as payroll. BPO is often divided into two categories: back-office BPO, which includes internal business functions such as billing or purchasing, and front-office BPO, which includes customer-related services such as marketing or tech support.

IT outsourcing is a subset of business process outsourcing, and it falls traditionally into one of two categories: infrastructure outsourcing and application outsourcing. Infrastructure outsourcing can include service desk capabilities, data center outsourcing, network services, managed security operations, or overall infrastructure management. Application outsourcing may include new application development, legacy system maintenance, testing and QA services, and packaged software implementation and management.

Today, however, IT outsourcing can also include relationships with providers of software-, infrastructure-, and platforms-as-a-service. These cloud services are increasingly offered not only by traditional outsourcing providers but by global and niche software vendors or even industrial companies offering technology-enabled services.

For more on the latest trends in outsourcing, see “ 7 hot IT outsourcing trends — and 7 going cold .”

Outsourcing pros and cons

The business case for outsourcing varies by situation, but the benefits and risks of outsourcing often include the following:

IT outsourcing models and pricing

The appropriate model for an IT service is determined by the service provided. Most outsourcing contracts have been billed on a time and materials or fixed price basis. But as outsourcing services have matured to include strategic transformation and innovation initiatives , contractual approaches have evolved to include managed services and outcome-based arrangements.

The most common ways to structure an outsourcing engagement include:

Outsourcing vs. offshoring

The term outsourcing is often used interchangeably — and incorrectly — with offshoring, usually by those in a heated debate. But offshoring is a subset of outsourcing wherein a company outsources services to a third party in a country other than the one in which the client company is based, typically to take advantage of lower labor costs. This subject continues to be charged politically because offshore outsourcing is more likely to result in layoffs.

Outsourcing of jobs

Estimates of jobs displaced or jobs created due to offshoring tend to vary widely due to lack of reliable data. In some cases, global companies set up their own captive offshore IT service centers to reduce costs or access skills. Some roles typically offshored include software development, application support and management, maintenance, testing, help desk/technical support, database development or management, and infrastructure support.

In recent years, IT service providers increased investments in IT delivery centers in the US, according to a report from Everest Group. Offshore outsourcing providers have also increased their hiring of US IT professionals to gird against potential increased restrictions on the H-1B visas they use to bring offshore workers to the US to work on client sites.

Some industry experts point out that increased automation and robotic capabilities may actually eliminate more IT jobs than offshore outsourcing.

Outsourcing risks and challenges

The failure rate of outsourcing relationships remains high, ranging from 40% to 70%. At the heart of the problem is the inherent conflict of interest in any outsourcing arrangement. The client seeks better service, often at lower costs, than it would get doing the work itself. The vendor, however, wants to make a profit. That tension must be managed closely to ensure a successful outcome for both client and vendor. A service level agreement (SLA) is one lever for navigating this conflict — when implemented correctly . An SLA is a contract between an IT services provider and a customer that specifies, usually in measurable terms, what services the vendor will furnish. Service levels are determined at the beginning of any outsourcing relationship and are used to measure and monitor a supplier’s performance.

For more on outsourcing contracts, see “ 11 keys to a successful outsourcing relationship ” and “ 7 tips for managing an IT outsourcing contract .”

Another cause of outsourcing failure is the rush to outsource as a “quick fix” cost-cutting maneuver rather than an investment designed to enhance capabilities, expand globally, increase agility and profitability, or bolster competitive advantage.

Generally speaking, risks increase as the boundaries between client and vendor responsibilities blur and the scope of responsibilities expands. Whatever the type of outsourcing, the relationship will succeed only if both the vendor and the client achieve expected benefits.

See also: “ 9 IT outsourcing mistakes to avoid ” and “ 10 early warning signs of IT outsourcing disaster .”

Types of outsourcing

Many years ago, the multi-billion-dollar megadeal for one vendor hit an all-time high, but wholesale outsourcing proved difficult to manage for many companies. These days, CIOs have embraced the multi-vendor approach , incorporating services from several best-of-breed vendors.

Multisourcing, however, is not without challenges. The customer must have mature governance and vendor management practices in place. In contract negotiations, CIOs need to spell out that vendors must cooperate or else risk losing the job. CIOs need to find qualified staff with financial as well as technical skills to help run a project management office or some other body that can manage the outsourcing portfolio.

The rise of digital transformation has initiated a shift away from siloed IT services. As companies embrace new development methodologies and infrastructure choices, many standalone IT service areas no longer make sense. Some IT service providers seek to become one-stop shops for clients through brokerage services or partnership agreements, offering clients a full spectrum of services from best-in-class providers.

How to select a service provider

Selecting a service provider is a difficult decision, and no one outsourcer will be an exact fit for your needs. Trade-offs will be necessary.

To make an informed decision, articulate what you want from the outsourcing relationship to extract the most important criteria you seek. It’s important to figure this out before soliciting outsourcers, as they will come in with their own ideas of what’s best for your organization, based largely on their own capabilities and strengths.

Some examples of the questions you’ll need to consider include:

• What’s more important to you: the total amount of savings an outsourcer can provide you or how quickly they can cut your costs?
• Do you want broad capabilities or expertise in a specific area?
• Do you want low, fixed costs or more variable price options?

Once you define and prioritize your needs, you’ll be better able to decide what trade-offs are worth making.

Outsourcing advisers

Many organizations bring in a sourcing consultant to help establish requirements and priorities. Third-party expertise can help, but it’s important to research the adviser well. Some consultants may have a vested interested in getting you to pursue outsourcing rather than helping you figure out if outsourcing is a good option for your business. A good adviser can help an inexperienced buyer through the vendor-selection process, aiding them in steps like conducting due diligence, choosing providers to participate in the RFP process, creating a model or scoring system for evaluating responses, and making the final decision.

For more advice, see “ Outsourcing advisors: 6 tips for selecting the right one .”

Negotiating the best outsourcing deal

Balancing the risks and benefits for both parties is the goal of the negotiation process , which can get emotional and even contentious. But smart buyers will take the lead in negotiations , prioritizing issues that are important to them, rather than being led around by the outsourcer.

Creating a timeline and completion date for negotiations will help rein in the process. Without one, discussions could go on forever. But if an issue needs time, don’t be a slave to the date.

Finally, don’t take any steps toward transitioning the work to the outsourcer while in negotiations. An outsourcing contract is never a done deal until you sign on the dotted line, and if you begin moving the work to the outsourcer, you will be handing over more power over the negotiating process to them as well.

Outsourcing’s hidden costs

Depending on what is outsourced and to whom, studies show that an organization will end up spending at least 10% percent above the agreed-upon figure to manage the deal over the long haul. Among the most significant additional expenses associated with outsourcing are:

• the cost of benchmarking and analysis to determine whether outsourcing is the right choice
• the cost of investigating and selecting a vendor
• the cost of transitioning work and knowledge to the outsourcer
• costs resulting from possible layoffs and their associated HR issues
• costs of ongoing staffing and management of the outsourcing relationship

It’s important to consider these hidden costs when making a business case for outsourcing.

The outsourcing transition

Vantage Partners once called the outsourcing transition period — during which the provider’s delivery team gets up to speed on your business, existing capabilities and processes, expectations and organizational culture — the “valley of despair.” During this period, the new team is trying to integrate transferred employees and assets, begin the process of driving out costs and inefficiencies, while still keeping the lights on. Throughout this period, which can range from several months to a couple of years, productivity very often takes a nosedive.

The problem is, this is also the time when executives on the client side look most avidly for the deal’s promised gains; business unit heads and line managers wonder why IT service levels aren’t improving; and IT workers wonder what their place is in this new mixed-source environment. The best advice is to anticipate that the transition period will be trying, attempt to manage the business side’s expectations, and set up management plans and governance tools to get the organization over the hump.

Outsourcing governance

A highly collaborative relationship based on effective contract management and trust can add value to an outsourcing relationship. An acrimonious relationship, however, can detract significantly from the value of the arrangement, the positives degraded by the greater need for monitoring and auditing. In that environment, conflicts frequently escalate and projects don’t get done.

Successful outsourcing is about relationships as much as it is actual IT services or transactions. As a result, outsourcing governance is the single most important factor in determining the success of an outsourcing deal. Without it, carefully negotiated and documented rights in an outsourcing contract run the risk of not being enforced, and the relationship that develops may look nothing like what you envisioned.

For more on outsourcing governance, see “ 7 tips for managing an IT outsourcing contract .”

Repatriating IT

Repatriating or backsourcing IT work (bringing an outsourced service back in-house ) when an outsourcing arrangement is not working — either because there was no good business case for it in the first place or because the business environment changed — is always an option. However, it is not always easy to extricate yourself from an outsourcing relationship, and for that reason many clients dissatisfied with outsourcing results renegotiate and reorganize their contracts and relationships rather than attempt to return to the pre-outsourced state. But, in some cases, bringing IT back in house is the best option, and in those cases it must be handled with care .

For more on repatriating IT, see “ How to bring outsourced services back in-house .”

More on outsourcing:

• 7 hot IT outsourcing trends — and 7 going cold
• Top 10 IT outsourcing providers
• 9 outsourcing myths debunked
• The hidden costs of outsourcing
• 11 keys to a successful outsourcing relationship
• 9 IT outsourcing mistakes to avoid
• 10 early warning signs of IT outsourcing disaster
• 12 signs your strategic partnership has gone wrong
• 7 keys to transformational outsourcing success
• SLA guide: Best practices for service-level agreements
• 10 dos and don’ts for crafting more effective SLAs
• How to contract for outsourcing agile development

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Everything You Need to Know about Business Process Outsourcing

By Kate Eby | January 17, 2017

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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.

What Is Business Process Outsourcing?

Business process outsourcing (BPO) is the practice of contracting a work process or processes to an external service provider. BPO fills supplementary business functions like payroll, accounting, telemarketing, data recording, social media, customer support, and more.

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:

Offshore vendors are located outside of the company’s own country. For example, a U.S. company may use an offshore BPO vendor in the Philippines.

Nearshore vendors are located in countries that neighbor the contracting company’s country. For example, in the United States, a BPO in Mexico is considered a nearshore vendor.

Onshore vendors operate within the same country as the contractor, although they may be located in a different city or state. For example, a company in Seattle, Washington, could use an onshore outsourcing vendor located in Seattle, Washington, or in Huntsville, Alabama.

Why Do Businesses Outsource Processes?

Outsourcing is a part of many successful business models, especially for companies who do not have the resources and services they need available internally. Businesses often outsource to decrease costs, expand their presence, or increase flexibility.

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:

To decrease costs : Outsourcing cuts down on costs for in-house labor, particularly for staffing and training, and for the work space to accommodate local employees. An outsourcing company physically located in a developing country leverages lower-cost labor markets. Finally, outsourcing enables businesses to use variable-cost models, like fee-for-service plans, instead of fixed-cost models that are required when retaining local employees.

To concentrate on key functions : Outsourcing allows businesses to hone in on their main offerings instead of company functions that aren’t directly tied to their core processes. For example, when outsourcing, the company won’t have to monitor the payroll accountant’s performance. Rather, it can focus its energies on highlighting its business differentiators and maximizing overall growth. In turn, these actions can boost a company’s competitive advantage and enhance its interactions with the value chain. Ultimately, the company can enjoy improved customer satisfaction and increased profits.

To achieve better results in noncore functions : Outsourcing companies specialize in what are considered noncore functions of other businesses, delivering world-class capabilities for its clients. In fact, an outsourcing company that invests in specialized processes and technologies can deliver cutting-edge breakthroughs to its clients. For example, a gaming design company may not want to pay for the latest payroll program on the market, but an outsourcing business that offers payroll services would likely make that investment to benefit its own performance, as well as that of its clients.

To expand their global presence : Some outsourcing companies can serve customers in multiple languages, around the clock, thus relieving the local company of the responsibility. Outsourcing companies can leverage their presence in multiple countries and keep the local company’s redundant divisions to a minimum. For example, WNS Global has 37 “delivery centers” across the world and specializes in business process management.

To enable flexibility : Companies that outsource their noncritical functions can act more quickly and more efficiently when managing the risks associated with introducing new products or services. They can also reassign their internal resources to more critical functions to help ensure better coverage and allocate responsibility.

To improve speed and efficiency : Companies that outsource processes are opting to let specialists handle those tasks, thus saving time, improving accuracy, and increasing their capacity. For example, a BPO that specializes in records management can automatically index documents, making them available for retrieval and keeping a company in compliance with legal requirements. This replaces manual data entry and storage.

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.”

What Types of Services Do Outsourcing Companies Support?

BPO providers support a number of services to help fill 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 everything from information technology-enabled services (ITES) to travel:

Information technology-enabled services (ITES) BPO : This form of BPO leverages information technology (IT) over the internet or data network to deliver services. Some examples of ITES BPO jobs are service desk analyst, production support analyst, and IT analyst.

Knowledge process outsourcing (KPO) : KPO has changed BPO a bit. Some KPO vendors support functions that are considered core in business, although they may not be core functions in the particular business that hires them. KPO firms offer more than process expertise; they may also provide business and domain-based expertise. Some examples of KPO services include research, analysis, or Microsoft Word and Excel work. KPOs may be capable of making low-level business decisions if they do not conflict with higher-level business policies, but those decisions may be undone easily. KPO vendors are usually linked to the business’s value chain, and they hire people who are competent in a specific field.

Legal process outsourcing (LPO) : LPO is a subset of KPO and encompasses a huge range of higher-level legal work, not merely lower-level legal transcription. LPO firms can draft patent applications and legal agreements, as well as perform legal research. Some LPO firms even advise clients. In-house legal departments usually retain LPOs. Experienced paralegals using industry-standard databases do the work.

Research process outsourcing (RPO) : A subset of KPO, RPO specializes in research and analysis functions. RPO companies perform research and analysis work that supports business, investment, biotech, and marketing firms.

Travel : This pertains to all the operations a business needs to support its travel logistics, from reservations to hotel and vehicle bookings. Travel BPO saves money for the company because it cuts costs while increasing customer satisfaction. Airline and travel companies also engage in BPO for either front- or back-office process streamlining. For example, an airline could outsource its ticketing process.

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 Risks of Business Process Outsourcing

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:

Data breaches

Quality control

Operation restoration

Nonlocal employees

Maintenance of strategic alignment

Political instability

Changes in technology and exposure to hacking

Specialization to the point that the niche demand is no longer necessary

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.

The Business Process Outsourcing Industry

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 Business Process Outsourcing

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.

Our experts weigh in and provide their opinions of the future of BPO, and some have recommendations for hiring BPO vendors:

According to SEO expert and business advisor Alex Genadinik, Founder and CEO of Problemio.com , “Moving forward, I fear that there will be a decline of quality as the market saturates with more and more companies and freelancers that do essentially the same relatively low-quality work. The challenge is that if you hire high-quality companies, they typically do great work, but are costly. As a business owner, this means that you must either get to the point where you can hire costly companies on a long-term basis or allocate resources to SEO in-house. If done intelligently, it doesn't have to require many resources, but at least you will have control and transparency of what the SEO work is being done. This ensures that your employees are not cutting corners or doing something that will get your website penalized by Google.

“I have experience outsourcing to a BPO for my business Problemio.com, and I have been hired by SEO marketing agencies to train their staff. What I can say is that if you are hiring on a budget, you will get very low-quality work. Only the top tier of the BPO companies actually do good work that I as an SEO expert would deem acceptable. So for the long term: Hire high quality or don't hire at all.”

Thomas Wooldridge, who specializes in web design, social media, and PR at Relamark Web Design & Marketing, advises, “BPO is something that will never go away. It's like saying you want to bring back encyclopedia books or Blockbuster videos. Our world has never gone backward from technology. The internet has made it much easier to bring the whole world together.

“There will always be a need for low-skill and low-wage workers who would be difficult to hire in the West, although many countries such as India, the Philippines, or China will gladly do it on your behalf. On the other hand, the same country you used to hire the low-wage workers will eventually get smarter. The local economies and workers’ skills will improve to where they are demanding higher pay. So then you have to look into another third-world-type country to attract.

“For example in the 1990s, India was the prime location for BPO services. Because of this, education and middle-class incomes rose to the point that they have nearly surpassed that of workers in the United States. Now U.S. companies have to nearly import those same workers to take the jobs that Americans couldn't fill. That is why there is a tremendous growth in Indian medical doctors and IT people in the United States.”

Pete Abilla, Lean Six Sigma expert turned entrepreneur and owner of  FindATutorNearMe , a tutoring marketplace with over 100,000 private tutors, says, “During my career, I've spent a lot of time improving the processes of clients. One trend I'm seeing is that organizations are more interested in training their own employees in the techniques of Lean manufacturing and Six Sigma. However, for some processes, such as call centers and primarily back-office operations, it might be more cost effective to outsource those to a BPO entity. Another trend I'm seeing is that BPO organizations are best to use for departments that are primarily cost centers and not revenue generators for the company.”

Ben Walker, the CEO of Transcription Outsourcing , LLC, says, “We work with all kinds of companies, small, medium, large, public, private, and many different government agencies, on a daily basis. They use my company because they don’t have the internal personnel to do what we do for them. Transcription is not something a lot of people do any more, so by utilizing us and our teams of transcriptionists we can help them get what they need much faster and cheaper than they could do it themselves. I don’t think companies like mine will be going anywhere any time soon because we do highly specialized work that you can’t replace at the drop of a hat and start filling cubicles next week.”

Derric Haynie , CEO of Vulpine Interactive , says, “By the end of 2017 or early 2018, I'm planning on opening up my own counterpart agency in Asia (Bali or the Philippines are front-runners right now). The reason I'm doing this is because my business relies heavily on systems and processes, things that technology can't quite do, but doesn't require significant strategy or high-level employees either. By opening up our own business, we can ensure quality and continuity while simultaneously keeping costs very low.

“While I don't think all companies will move toward this model, I do see it as highly viable and would expect more ‘outsourcing’ to actually be done in-house as even small companies like mine can open up their own in-sourced shop in another country.

“In the short term, I see BPO being easier to access and utilize by all companies, but I also see AI and technology eliminating many BPO jobs in the short- and long-term future. It's the same venture, not a new venture. We will just be opening an office in Asia to handle all of our low-level processes. I imagine there will be many problems starting a business in another country. I have yet to assess all of them properly. I’m not looking forward to that.”

FInally, the new BPO destinations expected to emerge in 2018 include Bulgaria, Romania, Egypt, Mexico, and Columbia. Due to fierce BPO competition, oversaturation, and reduced business growth, these five countries may become alternate low-cost locations.

Business Process Outsourcing Commercial Providers

Below you’ll find links to lists of BPO companies throughout India, Asia, the U.S., the U.K., Australia, and Europe. A BPO company usually specializes in one service or group of services, such as back-office support or, in the case of RPOs, biotech research. These lists are not comprehensive, as new companies crop up weekly, and companies frequently merge.

You can also try service companies that can help you find the right BPO vendor for your needs. Through the contracting process, these service companies can help ensure that all of your needs are covered. Many also use e-procurement services (supplier exchange) to keep the costs constant. E-procurement is a system that allows business-to-business management of services. Here are some useful resources:

eBook directory through the IT and Business Process Association of the Philippines

A commercial company lists of BPO contact information

BPO service providers listed by region and functional area through 123outsource

How to Choose a Business Process Outsourcing Vendor

It’s no easy task choosing a vendor to support your outsourcing needs, but you’ll need to review many details prior to settling on one company and getting an appropriate agreement in place. Experts recommend a formal, extensive process to choose a vendor that has the best outsourcing experience and can meet your company’s goals. The following is a list of tasks to perform in sequential order for companies considering hiring a BPO vendor:

Define your requirements and review potential vendors : Start by defining your key stakeholders, and engage them in the process from the beginning. Set all key stakeholder expectations early and engage them often. During this step, your company must also figure out the key objectives, risks, and scope for BPO. This is your business case scenario, so this step should take the longest and include a full review of your company processes, not only those initially considered for outsourcing. During this step, you should start to source potential vendors and develop a scorecard to determine the most important criteria. You can find a template for developing a scorecard here.

‌ Open Vendor Selection Scorecard Template - Google Sheet

Put together a request for proposal (RFP), and source vendors : In concert with your company stakeholders, determine the most crucial elements of a BPO provider. Develop and send out an RFP from your market research. At this stage, define what service management model your company will use.

Choose the right vendor for your company : Evaluate the proposals. Start analyzing the change that will result from contracting with a third-party vendor. What are the risks and benefits determined from the shortlist of potential vendors?

Negotiate the contract : This is the most important step in the process of acquiring a third-party service provider. Both parties must reach an agreement not only on the service parameters, but also on the contract schedule. It’s critical to ensure buy-in and agreement by all stakeholders.

Transition the work and processes to your chosen vendor : This is the actual “go” step. Develop and put in place a plan for transitioning to the new model. Ensure that your business has open communication internally and with the service provider.

Manage your relationship : Verify proper governance during the life of the contract with your service provider. Performance monitoring is key for ensuring that your company reaps the expected benefits of outsourcing. Expect a collaborative relationship and plan to renegotiate your contract and its scope at the end of its term.

Additional tips that can help you choose the right BPO:

A good outsourcing company should help you decide which parts of your business you need to keep in-house. Beware of a company that tries squeezing core processes out of you.

A good outsourcing company values the work of every employee. This enables a better connection between their company and your organization and can help increase productivity.

A good BPO company’s objective is to help your organization boost sales without consuming too much money.

Choose your BPO company carefully. Look for evidence that it can deliver the task well and on time.

Ask two questions when looking for a BPO service provider: (1) How can I find the right candidate? and (2) How do I manage the outsourcer after I settle their contract?

The key to a successful BPO experience is to do your research beforehand, lay out clear expectations and deliverables with your selected vendor, and stick to what both parties agreed upon.

Overall, the company should choose a BPO vendor carefully and conscientiously. The relationship should be defined formally, and managed and considered regularly.

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Updated: 2 April 2024 Contributors:  Mark Scapicchio, Matthew Finio, Amanda Downie

Business process outsourcing (BPO) is the practice of hiring external service providers to handle noncore business functions or processes.

BPO entails contracting an external service provider to fulfill a business function or process. BPO is sometimes referred to as information technology-enabled services (ITES) because in the modern world, outsourced processes are often reliant on IT.

BPO was first used in the manufacturing industry, where firms gained efficiencies by outsourcing business tasks for supply chain management . Today, BPO services are used in healthcare, asset management, energy, pharmaceuticals, ecommerce, and other industries as companies use new and innovative ways to improve customer experience and gain competitive advantages.

Generally, companies outsource non-core business functions—tasks that, while essential to the business, are not part of its core value proposition—that are similar across companies and industries. These include back-office functions (internal business functions) like accounting, IT services, sourcing, procurement, quality assurance and human resources management. Front-office (customer-facing) roles like sales, marketing or customer support are included as well. These roles are also using newer technologies such as chatbots .

Traditionally, companies have outsourced functions mainly to cut costs, save time and improve performance. These benefits remain the primary drivers of the BPO market, but the trend toward digital transformation has more firms looking beyond cost-saving strategies. There is now an increased focus on access to technology and expertise that are not available in-house.

Explore the 2023 Gartner® Magic Quadrant™ for Finance and Accounting Business Process Outsourcing.

Transform your talent with our guide

The proliferation of new technologies like Robotic Process Automation  (RPA) and artificial intelligence (AI) has impacted BPO processes. These advancements have ushered in unparalleled levels of efficiency, accuracy and scalability, making BPO a competitive advantage  for many organizations.

RPA automates repetitive and rule-based tasks traditionally performed by humans. By deploying software bots programmed to replicate human actions, RPA simplifies processes, enabling human workers to focus on more complex tasks. This streamlining of workflows reduces errors and accelerates process execution.

Integrated analytics, which connect data insights solutions to everyday workflows and applications, are enhancing business intelligence. Machine learning (ML) , a subset of AI, is dedicated to using data and algorithms to mimic human learning processes. This continuous refinement of accuracy over time represents a significant leap forward in data processing and analytics. ML can extract valuable insights from vast amounts of structured and unstructured data, leading to better decision making.

Predictive analytics, another branch of AI, employs mathematical and statistical models to identify data patterns and generate predictions. Integrated analytics offer deeper visibility into operations and aid in identifying emerging trends. This empowers organizations to make informed, data-driven decisions to stay ahead.

With technology playing such a pivotal role in business success, organizations are looking for BPO partners with expertise in AI, automation and emerging technologies. These partners can bridge the technology gap and help organizations remain competitive within their industries.

Identifying the appropriate functions for BPO requires strong business process management and a complete understanding of organizational processes. Typically, the outsourcing of a function or process will involve the following steps:

Organizations base this decision on many factors, including company size and industry, market size and economic forces, and overall needs and goals. For example, startups or small businesses might decide to outsource any number of functions because they lack the in-house expertise or do not have the staff to do them. Larger organizations might decide to outsource because a third-party vendor can complete the task more efficiently or effectively.

The organization must choose the business functions best suited for outsourcing and consider the impact outsourcing will have on technology requirements and current processes. Organizations must evaluate how this new business model affects the company, from processes and workflows to finances and taxes to company culture.

Organizations must determine which vendors offer the best outsourcing services at reasonable rates and turnaround times. Depending on an organization’s needs and their assessment of service providers, an entire business operation might be contracted to one vendor. Alternatively, the operation might be divided among multiple vendors. Comparing vendor offers against requirements and expectations helps make this decision.

An organization must decide whether to offer a vendor a fixed-price contract or a time-and-materials contract. If the service provider agrees to a fixed-price contract, they are paid a fixed amount regardless of the amount of time and resources expended on the outsourced role. For a time-and-materials contract, the provider is paid based on the amount of time and resources used during the work.

Alternatively, the contract may be based on performance outcomes. Whatever the contract type, service-level agreements (SLAs) should be established to simplify the evaluation of the quality of service provided.

Develop and implement a plan for moving the workload to the vendor. Communication, both internally and with the vendor, is crucial for a smooth transition.

The organization should regularly assess the vendor’s performance against the objectives and goals outlined in the contract, usually on a quarterly or annual basis. This evaluation should include metrics to gauge aspects such as efficiency, accuracy and customer satisfaction. This helps the organization decide whether to renew, amend or terminate the contract.

Business process outsourcing offers valuable benefits for organizations and allows for greater focus on highly skilled and specialized roles essential to core objectives. These benefits include:

Access to innovations. As specialists in the services they provide, BPO vendors often invest in the latest technology solutions available to maintain an advantage over competition and offer the greatest value for clients. This allows companies to access cutting-edge technology, like AI, advanced analytics or automation solutions that handle more complex processes, while minimizing costs.  

Efficient global presence. Outsourcing providers can deliver around the clock service to customers in multiple languages, eliminating the need for an organization to staff a local office. In addition, for organizations looking to expand, a partnership with a BPO vendor in the region can grant a better understanding of local markets and help streamline the expansion process.

Improved efficiency and standardization. BPO providers are often specialists in non-core business operations, like payment processing, call centers or accounting. Thus, they can handle these operations with greater efficiency and expertise than if the services were handled in-house.  

Increased focus on core business competencies. By outsourcing non-core competencies, organizations free up resources. These can be redirected toward business differentiators that drive value and give the company a competitive advantage.  

Reduced cost. While overhead costs are unavoidable, by outsourcing various functions to third-party vendors, organizations can reduce in-house labor costs related to staffing and training. They can also take advantage of fee-for-service plans that are more cost effective than retaining full-time employees. Through offshore outsourcing, organizations can use lower-cost labor markets and tax advantages to improve the bottom line.

Business process outsourcing can be classified according to the location of the hired outsourcing company and the type of service rendered.

BPO based on location:

• Near-shore outsourcing. Here, the contracted vendor operates in a neighboring country, like a firm in the United States of America outsourcing to Mexico.
• Offshore outsourcing. This is when an organization contracts a provider in another non-neighboring country. For example, a German firm hiring a vendor in the Philippines.
• Onshore outsourcing. Also referred to as domestic or local outsourcing, this is when both the organization and the service provider operate in the same country.

BPO based on the type of service:

• Knowledge process outsourcing (KPO). This is the outsourcing of core, information-related business activities to a third party, or to a different group within the same organization with expertise in that particular area. Examples of KPO services include research and development (R&D), data and technical analysis, and consulting services.
• Legal process outsourcing (LPO). LPO is a subset of KPO involving the outsourcing of higher-level legal work. Examples include the drafting and revision of legal agreements and patent applications, legal research and client advising.
• Research process outsourcing (RPO). Another subset of KPO, this is the outsourcing of research and analysis functions. Organizations that commonly engage in RPO include biotech and investment companies.

Choosing a BPO industry service provider to meet an organization’s outsourcing needs requires thorough planning. The goal is to choose an affordable vendor with the right mix of expertise and experience. The following are general steps to follow when evaluating and choosing a BPO provider:

Define the requirements. All relevant stakeholders should be involved from the outset in choosing a vendor. Each department should outline requirements and expectations as they relate to the functions to be outsourced. The key objectives and foreseeable risks of outsourcing these functions should also be counted.  

Publish a request for proposal (RFP). An RFP is a document that describes a job and invites bids from qualified vendors. The expectations for the role and the contract terms are often stated in an RFP.  

Select a vendor. Evaluate the proposals. Assess the strengths and weaknesses of the shortlisted vendors and compare against stated requirements and objectives, weighing any value-adds offered by vendors.  

Negotiate the contract. Once a vendor has been selected, begin to finalize the contract. Because the contract terms have already been detailed in the RFP, most of the terms should already be agreed upon. Make sure that the service parameters and delivery timelines are clearly understood by all stakeholders.  

Transfer the workload and regularly evaluate performance. Follow the pre-established plan for the transition of services to the vendor. Communicate regularly with relevant in-house teams as well as with the external service provider to maintain efficient business operations and foster a collaborative relationship. Monitor and evaluate vendor performance against the key performance indicators (KPIs) outlined in the SLA, and use these evaluations to determine whether a contract should be renewed.

Though it offers many benefits, BPO exposes an organization to some risks as well. Outsourcing your organization’s business processes to an external service provider raises questions about work quality, data security and work culture compatibility, especially when the provider is located in a different part of the world. BPO can introduce the following risks:

• Communication barriers. Language barriers can restrict business activities in offshore outsourcing, leading to poor communication and delays in service delivery.
• Increased potential for disruption. When outsourcing to other countries, issues like political instability and natural disasters in a provider’s country of operation can interrupt an organization’s business activities.
• Over-reliance on external service providers. Working with one BPO vendor for a long period of time can lead to an over-reliance on that vendor. The vendor becomes more or less a part of the organization and, if necessary, replacing them is not always easy. A vendor might take advantage of this knowledge to use the situation.
• Regulatory compliance issues. Despite being third parties, BPO companies still must comply with the client organization’s regulatory requirements. An organization risks sanction from relevant authorities when there is regulatory non-compliance. Different workplace cultures and norms might increase the chances of falling out of compliance, especially when compliance is outsourced to other countries.
• Security issues. Business process outsourcing often requires the sharing of sensitive information with vendors, which increases security risk. Most communication and information sharing is done over the internet, which is a viable entry point for bad actors. Also, despite best efforts to align security standards, it can be more difficult to ensure that a third-party vendor is adhering to data privacy protocols and security measures than it is with an in-house team. Different countries have different security requirements and data privacy policies, which can pose a threat to data security for organizations that outsource to other countries.
• Unforeseen costs. Organizations do not always accurately estimate the cost of an outsourced service. Some unforeseen and indirect costs can be incurred due to, for example, currency fluctuations, hardware or software upgrades, and delayed delivery. It’s important to consider these hidden costs when evaluating the financial implications of outsourcing.

Create business continuity for better intelligent workflows that boost agility and resiliency.

Streamline HR processes, improve productivity and help positively transform your workplace culture.

Learn how companies are creating efficiencies while also modernizing processes rather than relying on offshore outsourcing.

Read why 92% of polled executives agree that their organizations' workflows will be digitized and will leverage automation by 2025.

See what supply chain leaders should do—and stop doing—to capture the generative AI opportunity.

Discover why Gartner named IBM a Leader in its Magic Quadrant for Finance and Accounting Business Process Outsourcing report.

Learn about BPM and how it can help you continuously optimize and automate your business processes to improve efficiency and reduce costs.

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Our BPO experts can help you create business continuity for intelligent workflows that boost the agility and resiliency of your enterprise. To date, we have transformed the BPO and Business Process as a Service (BPaaS) processes of over 100,000 BPO practitioners worldwide.

Everything You Need to Know About Business Process Outsourcing (BPO)

Published: June 24, 2022

Business Process Outsourcing (BPO) is a fantastic way to cost-effectively scale a business. The ability to offload many recruitments and onboarding tasks is a significant timesaver that can free up focus time for your leadership team. With an outsourced model, the applicant pool is increased, and you don't have to struggle with tax or employment laws as you expand to new regions.

Your company still needs to consider security and customer apprehension around third parties accessing sensitive data and risks of attrition and loss of control over the team. Balancing these concerns will be the determining factor to success or failure with an outsourcing partner.

What is BPO?

Business process outsourcing (BPO) is a method of providing a variety of services using a third-party partner or vendor. BPO companies specialize in finding talent across multiple geographies and with various skills that allow you to focus on your business as they handle recruitment and logistics, such as scheduling and performance management.

Often associated with call centers or customer support, BPO services have expanded to cover many uses, including content creation, trust and safety, marketing , and lead generation , depending on the vendor you choose.

In this post, you'll learn everything you need to know about outsourcing — its advantages, disadvantages, and why you might consider using BPO software.

Types of BPO Companies

Cost is one of the first considerations when evaluating BPO companies. Although it's a determining factor, the types of these companies are distinguished by their location. The options are onshore, near-shore, and off-shore. Some companies offer three while others only offer one.

Also known as local outsourcing, onshore operates in the same country where you operate. This type of outsourcing usually costs more; however, its advantages include an easier find for culture and language fit.

2. Near-shore

Near-shore outsourcing operates in the same geographic region or in very close proximity. For example, Canadian or Mexican BPO companies would be near-shore outsourcing options to the United States. This approach might save you some money but often doesn't allow for expansion into other time zones.

3. Off-shore

Off-shore outsourcing is typically the first type discussed when exploring BPO options. This type of outsourcing has the advantages of lower cost, time zone expansion, and broader language availability but has the disadvantages of more complex communication and higher security requirements.

The Disadvantages of Business Process Outsourcing

Although BPO services will allow you to cut costs and free up time to focus on other tasks, they also come with some potential disadvantages to consider.

Security and Compliance

One of the most important considerations is ensuring the security of your data and the compliance of your processes. When choosing a BPO company, always ensure their standards meet your needs.

Depending on your business, you might require compliance with HIPAA, GDPR , SOC2, or other standards. Also, consider the internal data, system data, intellectual property (IP), or customers' personal identifiable information (PII) the team will access. Make sure there are clear answers to questions like:

• Can this data be given to a third party?
• Does it need to be obfuscated?
• What contractual obligations and penalties have to be in place to protect the business and customers?

Security should always be top-of-mind, especially when you involve a third party.

Customer Satisfaction and Quality

Outsourcing is often associated with impacting customer satisfaction and response quality. This sentiment often stems from BPO call centers used by large corporations — like telecom companies — because they are commonly used services. However, this is not the norm for all BPO services.

You've likely worked with multiple BPO employees without being aware. With the right BPO partner, the customer experience won't deteriorate by a noticeable amount. They achieve this through robust support ticket Q&A practices that adjust as you scale.

When transitioning to a BPO, increase your focus on customer feedback to ensure there are no glaring concerns. The best way to do this is to work in advance with your BPO vendor to ensure clear expectations of what service level agreements (SLAs) you want to see and who will measure them. Coupled with less direct control over your team, this alignment will significantly improve your chances of success.

Costs, Engagement, and Attrition

Low cost shouldn't be your only goal. Sure, low cost is attractive, but that means lower-paid employees, which may mean lower employee engagement and higher attrition. Outsourced teams may not know or even have access to your business or industry knowledge.

This discrepancy can cause a lack of motivation or reduce the ability to see the corporate vision. These aren't attractive traits to have, especially in customer-facing work. Consider more than the salary of the BPO employee compared to an internal employee. Look at the costs of recruitment, equipment, training, and management, as well as a vendor's expertise.

It's likely that even if you choose a vendor with higher rates, you will still see savings and avoid issues with attrition and engagement.

Communication

Another significant struggle is navigating the added complexity of a BPO vendor relationship. While the outsourced employees are working with you and your customers, it's crucial to recognize that they aren't your employees and don't report to anyone in your organization.

This structure means that coaching, discipline, promotions, and even team announcements need to include extra communication with your vendor. It's critical to protect yourself from co-employment concerns, where there's confusion over who the employee works for, as those can result in legal issues.

Of course, time zones and language barriers also may increase communication struggles. The importance of accessible, asynchronous communication increases when using BPOs. For example, Slack may not be a great choice to send an important team message if a portion of the team is not even awake when the message is sent. Each BPO company will have its guidelines for how communication should work and best practices to follow. Make sure you align on these as part of your research.

The Advantages of Business Process Outsourcing

There are many reasons why you would choose to use a BPO company to help grow your business. Each BPO company will offer solutions to some or all of the following:

Cost-efficiency

The most often cited reason to outsource is cost-efficiency. By utilizing different labor markets, BPO companies specialize in hiring talented employees at a lower cost. Tasks like handling IT help desk calls, offering first-tier support, or content moderation have high repeatability but still require a human touch. Outsourcing these activities can allow your higher compensated team to focus on more complex, in-depth issues while providing a high-quality service across all functions.

Language Requirements

As your company expands, you might require marketing materials or customer-facing services in multiple languages. BPO vendors are set up to quickly hire in many countries with locals who can provide services in their native language. The advantage to this approach is that you don't need to set up foreign entities or have recruitment staff or paid recruiters who can assess the language skills correctly. Instead, the BPO company will handle the hiring, language tests, and skills assessments on your behalf.

Expanded Hours

As with language, a scaling business often needs around-the-clock services. Services such as 24/7 support or business development in new geographic locations can be provided more quickly by a BPO. They also have a strong knowledge of staffing models to best cover different holiday schedules, redundancy for sick leave and vacations, and task hand-offs. This arrangement lets you have people working in their local hours instead of attempting shift work in your local teams. Leaning on a BPO partner can help your business thrive as you expand globally.

Seasonality and Flexibility

Depending on the nature of your business, you may need short-term staff to help you cover busy seasons or unforeseeable spikes in demand. Many BPO companies can quickly scale up temporary teams or provide shared services where employees aren't specific to your company but are available to help as required. Once again, this saves you recruitment costs, training costs, and other onboarding/offboarding inefficiencies.

When you're scaling rapidly, hiring never seems to end. The time taken to interview, onboard, and professionally develop these hires, and expand your leadership team to maintain a healthy leader-to-direct report ratio is significant.

Often, BPO vendors have people assessed and waiting for the right role or have internal hires looking for new opportunities that can transition in days. It's also in the best interest of a BPO to continually develop their employees and provide high-quality services so that you want them to scale along with you. Trusting a BPO company to handle these tasks will give you the same level of expertise, just faster.

What is BPO software?

To facilitate the process of using BPO call centers or services, your company might choose to integrate your system with a business process management software. BPO software like Kissflow, Pipefy, and Appian help companies streamline their workflows by defining, deploying, and managing automated business processes.

When evaluating BPO software, features to consider are:

• Automations - BPO software should enable your company to eliminate repetitive tasks to increase workflow speed and accuracy.
• Integrations - With the growing number of business apps and databases, integrations offer a seamless experience for employees and customers.
• Workflow views - Outsourcing business tasks and processes can create security issues; however, multiple workflow views give you more control and visibility over your company's progress.
• Scalability - As your business changes or grows, the scalability of BPO software allows your workflow to adapt.

The goal of implementing BPO software is to make outsourcing easier to manage while creating a constant, stable system for internal and external business parties.

Should you use BPO services?

Overall, if you're in a business that's expanding fast, needs to reduce cost, or needs to expand its scope, you should research BPO companies to see how they will deliver your desired business outcomes.

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Pros and Cons of Business Process Outsourcing (BPO)

Table of contents.

Many organizations hold IT helpdesk, customer support and other processes exclusively in-house, however there are times when leadership may want to see if it makes sense to outsource non-core processes and tasks to a third party contracting company.

BPOs, or business process outsourcers, are one of the most common models and today we are going to deep dive into them and review their pros and cons.

BPOs can be beneficial for the right company allowing for more energy to be focused on core competencies.  Offloading some work to a BPO isn’t always easy to accomplish though, even if there’s a cost-savings measure over the long run.

There are plenty of companies abroad and in the United States that offer support in IT, legal, CS and human resources and many other areas. Let’s take a look at what may or may not make these BPOs a good fit for your organization.

What Is Business Process Outsourcing (BPO)?

The meaning of BPO, or business process outsourcing, is the practice of contracting and outsourcing a particular work process or multiple processes to an external provider. The services can include virtual customer support , tech support, payment processing, telemarketing, accounting, IT support, data recording, legal work, data entry, data analytics, web design, and more. In most cases, BPO fills a supplementary business function rather than a core process.  These services could be technical or nontechnical.

BPO is a flexible form of outsourcing that may or may not involve a close relationship between customers and the outsourcing provider. Unlike piecemeal outsourcing of individual projects with specific budgets and deadlines, BPO may have more flexible budgets or time restrictions depending on the nature of the work.

How Does Business Process Outsourcing (BPO) Work?

Executives may decide to outsource a business process through a BPO, such as customer support, for various reasons. For example, many startup companies simply don’t have the resources or energy to worry about front office or even back office operations when they’re focused on building their minimum viable product. This isn’t because these companies lack competent staff for these operations or somehow can’t perform basic front office duties, it’s just that they have more important things to worry about. 

A large, established business, in contrast, may decide to outsource a business process through BPO that they had already been performing for many years. Analyses of running costs can show that an outsourced service provider, such as a contact center, could perform the job better and at a considerably lower cost since their organization is specifically geared up for it. Depending on your organization, business process outsourcing can be a practical approach. The key then is training and making sure the company and product is understood, but we’ll get to that in a minute.

Management consultants like to advise enterprise executives to identify business operations they can easily start outsourcing to an external provider through BPO. 

Internal IT services is a very common one. Part of evaluating the pros and cons of BPO in this case is to decide if shifting that business task to an outsourced, third party service provider is strategically sensible for the company given the downsides. For example, IT helpdesk tickets such as employee login lockouts and new computer and network printer additions are very straightforward, however researching products for hardware upgrades and maintaining in-house ERP systems are much more complex tasks that a vendor would need significant investment in training.

If it does make sense to go BPO, a company has to of course go through the process of not just qualifying the most suitable provider for the work, but also shifting that work itself from in-house to that external provider which can take months or even years.

Most Common Example of Business Process Outsourcing (BPO)

Some common examples of BPO are outsourcing your information technology, human resources operations, or customer relationship management processes . 

Outsourcing inbound and outbound phone calls to dedicated contact centers or call centers is also one that most everyone is familiar with, and many businesses in the United States use these kinds of BPOs to cut costs. The downside of course is these customer service agents represent multiple companies usually, and won’t be as familiar with your product or company as a dedicated rep.

With business process outsourcing, you can theoretically put someone in charge of a complete functional area of your business, and fledgling startups to Fortune 500 companies have outsourced various business processes and services through BPOs.

What Are The Benefits Of Business Process Outsourcing (BPO)?

Business process outsourcing (bpo) decreases costs and saves time.

BPO cuts down considerably on costs on in-house labor, especially for hiring, staffing, and training, as well as for the workspace or office to accommodate local employees, such as customer support agents. Contact centers can take this burden off your shoulders, as it is their main job to hire, manage, and train personnel. Many outsourcing firms are physically located in developing countries and leverage lower-cost labor markets.  ITES, or IT-enabled services make this possible along with increasing bandwidth speeds.

Process automation is one of the big benefits of BPO. They’re simply more experienced with fielding dozens or hundreds of calls at a time and have more information technology infrastructure to support it. Outsourcing customer support to a service provider through a BPO can of course save a company’s time, allowing them to better focus on operations such as developing an amazing product and making sure their in-house people are regularly in communication with members of the supply chain instead of dealing with customers asking simple questions.

You will need to make some sacrifices if you decide to work with a BPO, but if the end result is considerably more cost efficient than having full-time staff members (especially at scale), and it can be worth the trade-off in company culture and training. Leading BPO firms work to improve and streamline methods by eliminating or reducing wasteful measures and may even help you raise the overall quality of work.

Finally, it is important to note that business process outsourcing enables your company to use variable-cost models, such as fee-for-services plans, rather than fixed-cost models that you have to adopt when retaining local employees or service reps. In a post-COVID world, that can be huge.

Business Process Outsourcing (BPO) Lets You Focus On Your Core Operations

Non-core business tasks often remain in company backlogs. By outsourcing to a third party, your business can now clear those items. For example, by outsourcing tier one customer support to a contact center, you can offload a significant chunk of your in-house team’s work and have them only deal with escalated tickets that require more experience.

By outsourcing through a BPO your organization will have more time to concentrate on core competencies, deriving better ROI for your business.

Business Process Outsourcing (BPO) Can Improve Inconvenient Tasks

BPO implementation should carry various considerations, such as what roles are involved, who the business process impacts, and the way a business process is currently completed. For example, unless an e-commerce company can offer around-the-clock customer support and service, outsourcing their live chat to a BPO provider is likely the best option for capitalizing on those late-night purchases.

Once inconvenient business operations (such as staffing night shift) are outsourced, the overall reputation of your company can improve. Just ensure that the process is streamlined and stakeholders are held accountable.

This is but one example, but outsourcing contact center functions allows organizations to offer 24/7 customer support at a price point that will not break the bank and there are many business process outsourcing companies that support this industry.

Business Process Outsourcing (BPO) Allows Cheaper Access to Technology

Purchasing a licensed version of the most recent tech, such as a contact center stack that integrates with your CRM and ERP, can be quite expensive both in acquisition and in setup. It can also be financially risky, especially if you can’t accurately forecast demand for your services. The great thing about BPO is that someone has probably already figured it out and done the heavy lifting for you.

Outsourcing to firms that already have access to the technology and the relevant expertise that you need is vital, and also one of the biggest benefits of this approach.

Business Process Outsourcing (BPO) Grants Flexibility and better seasonal support

On-boarding and laying off customer support reps before and after the holiday season isn’t fun for e-commerce companies. However, outsourced contact centers are already well prepared to handle customer support and service during these peak periods with high call volumes, and the agents simply switch to a different project and don’t need to be let go.

Outsourcing customer support activities to a contact center provider allows one to quickly scale up customer support and service needs in peak times without investing in additional employees or infrastructure.

Businesses that outsource can act more efficiently when managing or mitigating the various risks associated with introducing new services or products. The squeaky wheel needs the grease, and being able to easily reallocate internal resources to more pressing business functions can be critical at times.

What Are the Downsides of Business Process Outsourcing (BPO)?

Business process outsourcing (bpo) comes with security risks.

When a company strikes a deal with a BPO service provider, they establish important technological connections with that provider. Sharing sensitive company and customer data exposes your business to security risks.  Data theft and a security breach of sensitive information can be a major issue for organizations without a comprehensive information security policy in place (which is common practice in the BPO industry however).

There is always the risk of a third party stealing confidential information, like customer lists and personal information, but that’s a risk that can be mitigated to some degree. At any rate, certain guarantees pertaining to security issues and data protection must be in writing when it comes to signing the contracts with a business process outsourcing company.

Business Process Outsourcing (BPO) Can Mean Lack of Company and Product Knowledge On Part of the Provider

Outsourced contact center agents and reps will often be much less familiar with company culture, products, practices, and values. Therefore, they will not be as dedicated to your company, devoted or committed to your customers, and they may not offer a level of service that is in line with your company standards.

Outsourced customer service companies do not usually specialize in a specific niche, however most specialize in broader industries such as banking or retail support. If your reps require specialized knowledge and experience to serve the customers, it is important to train them and have a dedicated team built for you. These agents must be fully equipped with the skill sets necessary to offer the level of customer support required of and expected by the customers.

Business Process Outsourcing (BPO) May Come with Hidden and Unforeseen Costs

With most business process outsourcing situations, you should take extra care to identify any hidden costs such as legal expenses and fees, and understand how exactly pricing structures, overage and down-scaling works before moving ahead. In the BPO business, lengthy terms and complex contracts are the norm, so it pays to do the required due diligence.

Even RFPs can require lengthy agreements in the BPO contracting process, so make sure that before signing you actually have your counsel review all the fine print and ask as many questions as you need regarding the terms and conditions and SLAs.

It is important to spell everything out clearly in the business process outsourcing agreement so that there aren’t any financial surprises for either parties. Outsourcing processes can sometimes involve costs that might be tricky to model, especially if they occur months or years down the line.  You may, for example, underestimate the amount of services required and what the contract holds you to if you need to expand or contract at a certain time.

Business Process Outsourcing (BPO) May Mean a Loss of Quality

You can imagine that agents in call centers are not as directly accessible (or held as accountable) as your in-house employees. This makes it more difficult to maintain a high level of quality assurance for most types of business processes, and you will likely not have as much control over the way these people perform and monitor their tasks. This is a common issue in the BPO industry, especially in legal, and communication-related work.

It is important to research the service providers you are looking into to make sure they are fully trustworthy and up to the task of customer satisfaction. Talk to them, play golf with them and let them wine and dine you. Don’t rely on your email address or Zoom account to stand in for all your communications! Ask to see as many case studies and recorded phone calls and other proofs of execution before you move forward.

Business Process Outsourcing (BPO) May Come with Communication Difficulties

There is also the risk of language (and culture) barriers when it comes to offshore outsourcing. Is this a big deal for your industry? In banking, for instance, it’s probably less of an issue and most customers are already expecting it, whereas if you were a high-end US-based bicycle manufacturer it would not be a good look for the company to have a chat support agent on the other side of the globe.

Cultural differences that would not otherwise happen in your home country are also a negative. Agents located overseas might lack the pop culture knowledge, communication skills, and fluency necessary to offer truly outstanding support. Choosing an outsourcing BPO vendor or call center that’s nearshore (or in the US proper) is the easiest choice, but a company that already has an upstanding global presence may work too.

Should You Outsource Some Operations through BPOs?

Letting go of your company’s procedures (even if they’re non-core processes) can be a daunting business decision and you may not be ready for business process outsourcing and all that’s required of it.

However, if done right, business process outsourcing can allow your company to focus on core competencies and essential functions instead of being caught up in secondary services such as call support. BPO also gives you access to the latest technology, decreases business costs, saves time, and grants greater flexibility.

On the other end, BPO can be a risky move (and a curse word down the line) if you aren’t fully aware of potential hidden costs and security breaches. A loss of quality for your customers is also very possible if the provider can’t communicate well enough or solve the problems that your customers have.

Before deciding if a BPO is right for your organization, it is  necessary to do your research and talk with proven and reliable partners and really get to know them and how they will be able to help you. A partner you want to work with will be forthcoming on their benefits as well as potential shortcomings.

• Business Process Outsourcing (BPO)

Did you know that in the business world outsourcing is a 6 trillion industry? That’s right. It is one of the biggest service industries in our global economy . In fact, in India, the BPO sector has seen tremendous growth since the early 2000s. Let us learn more about Business Process Outsourcing.

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Business Process Outsourcing, popularly known as BPO, is the business strategy where one company hires another company to perform a certain task for them, i.e. they outsource a certain job.

Say for example a manufacturing company will outsource their supply chain management to another company who specializes in supply chain management . So it essentially entails outsourcing one or more non-core business activities or processes to an external service provider. So there are two parties involved, the client company (the outsourced) and the external service provider or the vendor (the outsourcer)

One point to note that only non-core activities are usually outsourced. The companies do not part with their core competencies, they maintain all their focus on these like manufacturing, marketing etc.

However non-core services like after sales service, customer relations, supply chain management, real-time accounting etc. can be outsourced to BPOs.

Advantages of a BPO

1. flexibility.

Outsourcing non-core activities to a BPO allows a company to be far more flexible. Firstly, the company does not have to invest in additionally fixed assets and can convert them to variable costs. It also increases flexibility in resource management of the client company and helps in adapting to changes in the environment much faster.

2. Cost Effective

Outsourcing some of the business processes and activities can be very cost effective for the client company. They save on investing in fixed assets and fixed costs. And they can redirect these funds for their core activities.

Also outsourcing to developing countries proves to be very cost saving for these companies. For example, if any large MNC was to outsource their IT services to India, they would save an average of 30% of the company’s expenses. This is quite a significant difference.

One of the biggest advantages of BPOs is that they increase the speed of the business processes outsourced to them. They have a very good response time and the clients can focus on the core activities. This fragmentation of activities speeds up the whole process and is very important in cases like customer service.

4. Skilled Manpower

When you outsource one of your business activities to a BPO, you are insured of exemplary services provided by skilled manpower. So if you outsource your supply chain management, rest assured your supply chain will be handled by skilled supply chain managers who are experts in their field. Same goes for IT services or accounting etc.

Disadvantages of BPOs

There can also be certain general demerits of using a BPO for your non-core activities. The company can take steps to eliminate most of these disadvantages. Let us take a look.

1. Communication Problems

There can be communication gaps between the client and vendor companies due to various reasons. There can be misunderstandings and missed messages. Also, both companies may adhere to different standards of services and this can also create friction between the two.

2. Different Time Zones

This is another logistic problem with the Business Process Outsourcing. The client and the vendor can operate in two different time zones that are far apart. The difference in time can create many problems like online meetings, communication etc. It is usually the vendors that adjust their shifts to match the office hours of the client company.

3. Loss of Control

Due to communication errors, time differences etc. the client company can at times lose control of the project. They may thus feel that the quality of services has suffered. Thus it is very important to have effective communication and transparency with a BPO project.

Solved Question on Business Process Outsourcing

Q: What are some of the types of outsourced services?

Ans: Some of the services popularly outsourced are,

• Financial Services
• Advertising Services
• Courier Services
• Customer Support Services

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Outsourcing: Benefits and Challenges Essay

Introduction.

Outsourcing is a business practice in which a company enters into a contract with another company to provide certain services essential for the operations of the client organization (Duran & Duran, 2009).This practice has increased in the recent past, and the increase can be attributed greatly to the increased use of information technology that has improved communication.

In most instances, the firms contracting other companies for a given task also have the capacity to carry out the tasks domestically. These firms, ranging from small through medium-sized to large organizations, are driven into outsourcing for a number of reasons. It has emerged that services that did not appear to be tradable are now in high demand and form the basis for outsourcing.

All functions needed to run a company can now be obtained off shelf (Engardio, 2006). Firms contract other organizations for services like data management, accounting or editing, data analysis and processing, call center services, or e-mails among many others. The supplying firms are highly specialized in the respective areas and are able to offer the services at cheaper costs as compared to the whole costs that would be incurred by a company performing the tasks in-house.

Outsourcing has increased considerably, particular in the developed countries like the US. In the article ‘Fair exchange: Who benefits from outsourcing?’ (In ‘The Blair Reader: Exploring Issues and Ideas ’ by Kisser and Mandell),Barrera (2004) focuses on the benefits of outsourcing and asserts that the practice is beneficial to both the parties involved and their respective countries.

However, the author also points out that the practice has some weaknesses that have to be addressed by the policy-makers to ensure its effectiveness. This view forms the basis upon which this paper is developed. The paper provides a comparison of Barrera’s views and views provided by other authors in relation to outsourcing.

Thesis Statement

Outsourcing has been criticized for displacing the local employees and shifting employment opportunities to overseas. However, this practice is beneficial to the two parties involved, both the outsourcing firm and the service suppliers and their respective countries.

The challenges of outsourcing

Outsourcing happens to have certain challenges to the operations of the outsourcing firm and the economic development in the country of origin of the firm. The practice is blamed for the rising level of unemployment in the United States. Wadhwa (2009) terms it a dirty word that involves relieving full-time employees in an organization of their duties to look for these services elsewhere.

The United States is seen as a destination for outsourced jobs, a move that agonizes most of the jobless citizens. The companies outsource these services since the costs of the services are lower compared to performing the tasks by the employees of the organization.

Besides, the rate at which new jobs are created is also not high enough to meet the demands of those rendered jobless due to outsourcing. Barrera (2004) observed that employees in the developed countries lose their jobs due to outsourcing and yet similar well-paying jobs cannot be created at the same rate.

There is often a large time interval between the destruction of jobs and creation of other opportunities. The employees may be forced to seek employment in new fields in new geographic locations. This would necessitate additional training to acquire the relevant skills and adaptation to the new work-environment. Outsourcing is also characterized by increased use of high-tech and occupational services that have rendered many employees jobless.

Outsourcing also appears to be a threat to the proper management of an organization in some sense. Organizations that outsource services may not be in touch with some of their key stakeholders. The poor relationship may be developed between the suppliers or consumers and the business organization that impedes its smooth operations.

Similarly, the company becomes so much dependent on outsourced services that it may fail in case there is a sudden withdrawal from the contract by the supplying firm. In this regard, it has been pointed out that a firm should evaluate the other organization providing outsourcing services before contracting it (Duran and Duran, 2009). Different aspects like cost, time, and quality of the services have to be considered.

Benefits of Outsourcing

The increasing rate of outsourcing as witnessed in the United States can be supported by several observations. Various developments have been witnessed in the business industry that justifies the use of outsourcing. The current international trade that involves shifting of resources to gain a comparative advantage is the fundamental building block behind outsourcing.

Firstly, outsourcing is cost-effective and helps increase the profits of organization. It is aimed at minimizing cost and time for a given task (Duran and Duran, 2009). Outsourcing is not a recently developed idea in the United States. The idea has been in existence whereby the country obtained goods from other countries where they could be produced cheaply. The companies manufactured products from these goods and sold the finished product to other countries.

Barrera (2004) supports this practice and asserts that it is needless to produce some products using many resources when similar products could be obtained elsewhere at cheaper prices. These resources could be channeled to the production of other products that are of high value to the organization. Similar scenario is witnessed in the outsourcing of services. Increased global competition and the economic pressure caused by developing countries calls for replacing full-time employees with contractors (Wadhwa, 2004).

The firms that offer outsourcing services do not incur huge operations costs like consumer benefits or other overhead expenses. The firms make use of few employees with highly specialized skills. As such, they are able to provide the services at relatively cheaper costs to the client organizations.

Thus, outsourcing allows the developing and the developed countries to develop on the products and services that are of the highest possible benefits to the country (Barrera, 2004). The US companies that outsource services have a lean organizational structure that allows improved operations to gain competitive advantage in the international market.

Secondly, the quality of outsourced services is often high. The quality, time, and cost should be the major focus of an outsourcing company (Duran and Duran, 2009). It has been observed that small business organizations need certain technology services and yet they are not equipped to perform the tasks (Wadhwa, 2009).

The firms offering these services often streamline their operations towards specialized lines. The companies can employ the modern technology and machinery that may not be available in the client organization. This implies that if the firms withdraw their services for the client organizations then the latter can suffer consequences of poor quality services.

Besides, in as much as outsourcing is criticized to cause unemployment in the industrial nations, the practice improves the lives of the poor in the developing countries. There is increased level of employment in these developing nations that contribute significantly towards social and economic development in the countries. This helps alleviate poverty and improve the lives of the citizens of the country thereby contributing towards the desired global development.

This is advantageous to the large international organizations that operate across several countries. Outsourcing has the advantage of ‘multi-local benefits administration program, scalable technology, and a consistent employee experience, a single point of contact for managers and members, and cost efficiencies’ (Miller, 2011, p.24). The developing countries provide competitive emerging markets for such huge organizations.

Outsourcing is growing at considerable rate and its positive impacts on economic development at the local and international scene are evident. It is very necessary for organizations that want to extend their operations across different nations. This is essential owing to the current globalization.

It provides a cost-effective way of building strong foundations in one country before settling to operate on the country. After contracting some firm, the management of an organization may focus on other operational strategies as the experts work on the problems at hand. The practice is not without some challenges. However, the challenges can be managed through effective trade policies.

Duran, D., & Duran, I. (2009). Process outsourcing benefits. Annals of DAAAM & Proceedings , 945-946. Web.

Engardio, P. (2006). The Future of Outsourcing: How it is transforming whole industries and changing the way we work. Web.

Miller, J. (2011). The Touchstones of Successful Global benefits Outsourcing. Benefits Quarterly , 27(2); 24-27.

Kisser, G., & Mandell, R. (2011). The Blair Reader: Exploring Issues and Ideas. Seventh edition. Boston: Prentice Hall.

Wadhwa, V. (2009). Outsourcing Benefits U.S. Workers, Too. BusinessWeek Online , 5. Web.

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Outsourcing: How It Works in Business, With Examples

Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

Outsourcing is the business practice of hiring a party outside a company to perform services or create goods that were traditionally performed in-house by the company's own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. As such, it can affect a wide range of jobs, ranging from customer support to manufacturing to the back office.

Outsourcing was first recognized as a business strategy in 1989 and became an integral part of business economics throughout the 1990s. The practice of outsourcing is subject to considerable controversy in many countries. Those opposed argue that it has caused the loss of domestic jobs, particularly in the manufacturing sector. Supporters say it creates an incentive for businesses and companies to allocate resources where they are most effective, and that outsourcing helps maintain the nature of  free-market economies on a global scale.

Key Takeaways

• Companies use outsourcing to cut labor costs, including salaries for their personnel, overhead, equipment, and technology.
• Outsourcing is also used by companies to dial down and focus on the core aspects of the business, spinning off the less critical operations to outside organizations.
• On the downside , communication between the company and outside providers can be hard, and security threats can amp up when multiple parties can access sensitive data.
• Some companies will outsource as a way to move things around on the balance sheet.
• Outsourcing employees, such as with 1099 contract workers, can benefit the company when it comes to paying taxes.

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Outsourcing can help businesses reduce labor costs significantly. When a company uses outsourcing, it enlists the help of outside organizations not affiliated with the company to complete certain tasks. The outside organizations typically set up different compensation structures with their employees than the outsourcing company, enabling them to complete the work for less money. This ultimately enables the company that chose to outsource to lower its labor costs.

Businesses can also avoid expenses associated with overhead , equipment, and technology.

In addition to cost savings, companies can employ an outsourcing strategy to better focus on the core aspects of the business. Outsourcing non-core activities can improve efficiency and productivity because another entity performs these smaller tasks better than the firm itself. This strategy may also lead to faster turnaround times, increased competitiveness within an industry, and the cutting of overall operational costs.

Companies use outsourcing to cut labor costs and business expenses, but also to enable them to focus on the core aspects of the business.

Examples of Outsourcing

Outsourcing's biggest advantages are time and cost savings. A manufacturer of personal computers might buy internal components for its machines from other companies to save on production costs . A law firm might store and back up its files using a cloud-computing service provider, thus giving it access to digital technology without investing large amounts of money to actually own the technology.

A small company may decide to outsource bookkeeping duties to an accounting firm, as doing so may be cheaper than retaining an in-house accountant. Other companies find outsourcing the functions of human resource departments, such as payroll and health insurance, as beneficial. When used properly, outsourcing is an effective strategy to reduce expenses, and can even provide a business with a competitive advantage over rivals.

Criticism of Outsourcing

Outsourcing does have disadvantages. Signing contracts with other companies may take time and extra effort from a firm's legal team. Security threats occur if another party has access to a company's confidential information and then that party suffers a data breach. A lack of communication between the company and the outsourced provider may occur, which could delay the completion of projects.

Outsourcing internationally can help companies benefit from the differences in labor and production costs among countries. Price dispersion in another country may entice a business to relocate some or all of its operations to the cheaper country in order to increase profitability and stay competitive within an industry. Many large corporations have eliminated their entire in-house customer service call centers, outsourcing that function to third-party outfits located in lower-cost locations.

First seen as a formal business strategy in 1989, outsourcing is the process of hiring third parties to conduct services that were typically performed by the company. Often, outsourcing is used so that a company can focus on its core operations. It is also used to cut costs on labor, among others. While privacy has been a recent area of controversy for outsourcing contractors, it has also drawn criticism for its impact on the labor market in domestic economies.

What Is an Example of Outsourcing?

Consider a bank that outsources its customer service operations. Here, all customer-facing inquiries or complaints with concern to its online banking service would be handled by a third party. While choosing to outsource some business operations is often a complex decision, the bank determined that it would prove to be the most effective allocation of capital, given both consumer demand, the specialty of the third-party, and cost-saving attributes. 

What Are the Disadvantages of Outsourcing?

The disadvantages of outsourcing include communication difficulties, security threats where sensitive data is increasingly at stake, and additional legal duties. On a broader level, outsourcing may have the potential to disrupt a labor force. One example that often comes to mind is the manufacturing industry in America, where now a large extent of production has moved internationally. In turn, higher-skilled manufacturing jobs, such as robotics or precision machines, have emerged at a greater scale.

While outsourcing can be advantageous to an organization that values time over money, some downsides can materialize if the organization needs to retain control. Outsourcing manufacturing of a simple item like clothing will carry much less risk than outsourcing something complex like rocket fuel or financial modeling. Businesses looking to outsource need to adequately compare the benefits and risks before moving forward.

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Business process outsourcing studies: a critical review and research directions

• Research Article
• Published: 27 September 2011
• Volume 26 , pages 221–258, ( 2011 )

Cite this article

• Mary C Lacity 1 ,
• Stan Solomon 1 ,
• Aihua Yan 1 &
• Leslie P Willcocks 2  

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Organizations are increasingly sourcing their business processes through external service providers, a practice known as Business Process Outsourcing (BPO). Worldwide, the current BPO market could be as much as $279 billion and is predicted to continue growing at 25% annually. Academic researchers have been studying this market for about 15 years and have produced findings relevant to practice. The entire body of BPO research has never been reviewed, and this paper fills that gap. We filtered the total studies and reviewed 87 empirically robust BPO articles published between 1996 and 2011 in 67 journals to answer three research questions: What has the empirical academic literature found about BPO decisions and outcomes? How do BPO findings compare with Information Technology Outsourcing (ITO) empirical research? What are the gaps in knowledge to consider in future BPO research? Employing a proven method that Lacity et al. (2010) used to review the empirical ITO literature, we encapsulated this empirical literature on BPO in a way that is concise, meaningful, and helpful to researchers. We coded 43 dependent variables, 152 independent variables, and 615 relationships between independent and dependent variables. By extracting the best evidence, we developed two models of BPO: one model addresses BPO decisions and one model addresses BPO outcomes. The model of BPO decisions includes independent variables associated with motives to outsource, transaction attributes, and client firm characteristics. The model of BPO outcomes includes independent variables associated with contractual and relational governance, country characteristics, and client and supplier capabilities. Overall, BPO researchers have a broad and deep understanding of BPO. However, the field continues to evolve as clients and suppliers on every inhabited continent participate actively in the global sourcing community. There is still much research yet to be done. We propose nine future paths of research pertaining to innovation effects, retained capabilities, environmental influences, global destinations, supplier capabilities, pricing models, business analytics, emerging models, and grounded theory development.

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Review of the Empirical Business Services Sourcing Literature: An Update and Future Directions

Review of the empirical business services sourcing literature: an update and future directions.

http://www.strategy-business.com/media/file/Outsourcing_for_Virtuosos-webinar.pdf

Similarly, ‘(00)’ or ‘(0)’ indicate multiple tests of an independent variable which found no significant relationships 80% or more times for ‘(00)’ or 60–80% more times for ‘(0)’. For example, in Appendix C , the independent variable Industry was examined 10 times as a determinant of BPO Outcomes, but it was found insignificant six times and is thus indicated as a ‘0’. Relationships that were repeatedly found to be insignificant were not included in Figure 1 , but we do write about them in the Discussion section.

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Absorptive capacity – Client : A client organization's ability to scan, acquire, assimilate, and exploit valuable knowledge (e.g., Grimpe and Kaiser, 2010 ; Reitzig and Wagner, 2010 ).

Absorptive capacity – Supplier: A supplier organization's ability to scan, acquire, assimilate, and exploit valuable knowledge (e.g., Luo et al., 2010 ).

Access to expertise/skills: A client organization's desire or need to access supplier skills/expertise (e.g., Currie et al., 2008 ; Lam and Chua, 2009 ).

Access to global markets: A client organization's desire or need to gain access to global markets by outsourcing to suppliers in those markets (e.g., Van Gorp et al., 2007 ).

Adaptability: The extent to which a party is able to adapt a business process to meet changes in the environment (e.g., Sia et al., 2008 ).

Asset specificity : The degree to which an asset can be redeployed to alternative uses and by alternative users without sacrifice of productive value ( Williamson, 1976 ; Sia et al., 2008 ).

Business process management capability – Client : The ability of a client organization to efficiently and effectively manage a business process using in-house resources (e.g., McIvor et al., 2009 ).

Business process management capability – Supplier : The ability of a supplier organization to efficiently and effectively manage a business process (e.g. Saxena and Bharadwaj, 2009 ).

Business process performance improvement : A client organization's desire or need to engage a supplier to help improve a client's business, processes, or capabilities (e.g., Gewald and Dibbern, 2009 ).

Business strategic type : An organization's strategy to address three fundamental business problems – entrepreneurial, engineering, and administrative. Categorized under the Miles and Snow typology as Defenders, Prospectors, Analyzers, and Reactors ( Miles and Snow, 1978 ; Shih et al., 2005 ; Kenyon and Meixell, 2011 ).

Career development of employees: A client organization's desire or need to provide better career opportunities for employees (e.g., Lacity et al., 2004 ).

Centralization of department: The degree to which the department's decision-making is concentrated within a particular group or location (e.g., Delmotte and Sels, 2008).

CEO personality: The attributes of a CEO's personality, including conscientiousness, emotional stability, agreeableness, extraversion, and openness to experience (e.g., Nadkarni and Herrmann, 2010 ).

Change catalyst : A client organization's desire or need to use outsourcing to bring about large scale changes in the organization (e.g., Gospel and Sako, 2010 ).

Change management capability : The extent to which a client organization effectively manages change (e.g., Lacity et al., 2004 ).

City size: The size of a city in which a client or supplier is located (e.g., Rajeev and Vani, 2009 ).

Client age : The age of a client organization in years (e.g., Delmotte and Sels, 2008).

Client dependency : The degree to which a supplier depends on a client (e.g., Gainey and Klaas, 2003 ).

Client experience with outsourcing: A client organization's level of experience with outsourcing or offshoring (e.g., Mani et al., 2010 ).

Client experience with multiple governance modes: A client organization's level of experience with multiple governance modes, such as captive centers, offshore outsourcing, etc. (e.g., Hutzschenreuter et al., 2011 ).

Client management capability : The extent to which a supplier organization is able to effectively manage client relationships (e.g., Howells et al., 2008 ).

Client outsourcing readiness : The extent to which a client organization is prepared to engage an outsourcing supplier by having realistic expectations and a clear understanding of internal costs and services compared to outsourced costs and services (e.g., McIvor et al., 2009 ).

Client size : The size of a client organization usually measured as total assets, sales, and/or number of employees (e.g., Wahrenburg et al., 2006 ).

Client/supplier alignment : The degree to which client and supplier incentives, motives, interests, and or goals are aligned (e.g., Sen and Shiel, 2006 ).

Client-specific knowledge required : The degree to which a unit of work requires a significant amount of understanding/knowledge about unique client systems, processes, or procedures (e.g., McKenna and Walker, 2008 ).

Client-supplier interface design : The planned structure on where, when, and how client and supplier employees work, interact, and communicate (e.g., Sen and Shiel, 2006 ).

Coalition : A strategy in which an agent enlists the aid or endorsement of other people to influence a target to do what the agent wants (e.g., Bignoux, 2011 ).

Commitment : The degree to which partners pledge to continue the relationship (e.g., Levina and Su, 2008 ).

Communication : The degree to which parties are willing to openly discuss their expectations, directions for the future, their capabilities, and/or their strengths and weaknesses (e.g., Gainey and Klaas, 2003 ).

Concern for security/intellectual property : A client organization's concerns about security of information, transborder data flow issues, and protection of intellectual property (e.g., Wüllenweber et al., 2008a , 2008b ).

Concern for regulatory requirements: A client organization's concerns about complying with regulations (e.g. Howells et al., 2008 ).

Configurational approach – The client firm matches multiple factors in configurations that maximize their chances of BPO success. For example, matching strategic intent with contractual governance, matching transaction attributes with contractual governance (e.g., Sen and Shiel, 2006 ; Saxena and Bharadwaj, 2009 ).

Conflict resolution : The degree to which clients and suppliers quickly, fairly, and meaningfully resolve disputes (e.g., Wüllenweber et al., 2008a , 2008b ).

Contract detail : The number or degree of detailed clauses in the outsourcing contract, such as clauses that specify prices, service levels, key process indicators, benchmarking, warranties, and penalties for non-performance (e.g., Luo et al., 2010 ; Handley and Benton, 2009 ).

Contract duration : The duration of the contract in terms of time (e.g., Willcocks et al., 2004 ).

Contract flexibility : The degree to which a contract specifies contingencies and enables parties to change contractual terms (e.g., Sia et al., 2008 ).

Contract management capability : The extent to which a client organization is able to effectively manage contracts with suppliers, including the ability to track service levels and verify invoices (e.g., Sanders et al., 2007 ).

Contract size : The size of the outsourcing contract usually measured as the total value of the contract in monetary terms (e.g., Gewald and Gellrich, 2007 ).

Control mechanisms : Certain means or devices a controller uses to promote desired behavior by the controlee (e.g., Daityari et al., 2008 ).

Convenience : A client organization's desire to select a sourcing option based on ease of use, convenience, and less frustration (e.g., McKenna and Walker, 2008 ).

Cooperation : The degree to which client and supplier employees are willing to work together in common pursuit (e.g., Wüllenweber et al., 2008a and 2008b ).

Corporate social responsibility capability-supplier – A supplier organization's ability to behave in a socially responsible way, such as promoting environmental responsibility and promoting fair labor practices (e.g., Brown, 2008 ).

Cost reduction : A client organization's need or desire to use outsourcing to reduce or control costs (e.g., Borman, 2006 ).

Country: Outsourcing outcomes – Success – Offshore : A client organization's general perceptions of success and satisfaction with offshore outsourcing (e.g., Vivek et al., 2008 ).

Partnership view : A client organization's consideration of suppliers as trusted partners rather than as opportunistic vendors (e.g., Willcocks et al., 2004 ; Sen and Shiel, 2006 ).

Persistence of expectatio ns: ‘The tendency for prior beliefs and expectations to persevere, even in the face of new data or when the data that generated those beliefs are no longer valid’ (e.g., Lewin and Peeters, 2006 ).

Political reasons/influences : A client stakeholder's desire or need to use an outsourcing decision to promote personal agendas (e.g., Maelah et al., 2010 ).

Prior client/supplier working relationship : The situation in which the client and supplier organizations have worked together in the past (e.g., Mani et al., 2010 ).

Prior firm performance – Client : Client firm performance usually measured as net profits, return on assets, expenses, earnings per share, number of patents, and/or stock price prior to an outsourcing decision (e.g., Dunbar and Phillips, 2001 ; Gilley et al., 2004 ).

Prior firm performance – Supplier : Supplier firm performance usually measured as net profits, return on assets, expenses, earnings per share, and/or stock price prior to an outsourcing decision. (e.g., Gewald and Gellrich, 2007 ; Nadkarni and Herrmann, 2010 ).

Proactive sensemaking : The extent to which executives proactively create awareness and understanding in situations of high complexity or uncertainty in order to make decisions (e.g., Sia et al., 2008 ).

Process complexity : The degree to which a task requires compound steps, the control of many variables, and/or where cause and effect are subtle and dynamic (e.g., Ventovuori and Lehtonen, 2006 ; Penfold, 2009 ).

Process integration : The degree to which clients and suppliers are able to integrate processes (e.g. Sen and Shiel, 2006 ).

Process interdependence : The level of integration and coupling among tasks; processes that are highly integrated are tightly coupled and difficult to detach (e.g., Sanders et al., 2007 ).

Process interoperability : The extent to which a business process can operate on many supplier platforms (e.g., Sia et al., 2008 ).

Process standardization : The degree to which a process is standard (e.g., Tate and Ellram, 2009 ).

Public perceptions of outsourcing : The degree to which the public has a negative perception of outsourcing or offshoring (e.g., Sen and Shiel, 2006 ).

Public awareness : The degree to which there is publicly available information about outsourcing or offshoring (e.g., Hutzschenreuter et al., 2011 ).

R&D spend : The amount of money an organization spends on R&D (e.g., Calantone and Stanko, 2007 ; Grimpe and Kaiser, 2010 ).

Rapid delivery : A client organization's desire or need to engage in outsourcing in order to speed up delivery (e.g., Bandyopadhyay and Hall, 2009 ; Lam and Chua, 2009 ).

Relational governance : The unwritten, worker-based mechanisms designed to influence inter-organizational behavior ( Macneil, 1980 ; e.g., Kim, 2008 ).

Relationship quality : The quality of the relationship between a client and supplier (e.g., Sia et al., 2008 ; Saxena and Bharadwaj, 2009 ).

Relationship-specific investment : Specific investments made over time, which discourage opportunism, reinforce signals of the client firms, and create extendedness of the relationships (e.g., Tate and Ellram, 2009 ).

Risk management capability – Client : A client organization's practice of identifying, rating, and mitigating potential risks associated with outsourcing (e.g., Borman, 2006 ).

Risk management capability – Supplier : A supplier organization's practice of identifying, rating, and mitigating potential risks associated with outsourcing (e.g., Borman, 2006 ).

Risk – The extent to which a transaction exposes clients to a chance of loss or damage (e.g., Wüllenweber et al., 2008a , 2008b ).

Scalability : The ability to scale volume of service up or down based on demand (e.g., Currie et al., 2008 ; Redondo-Cano and Canet-Giner, 2010 ).

Security, privacy, and confidentiality capability – Supplier: The proven ability of a supplier to protect client data through investments in technology, training, process controls, audits, and other management practices (e.g., Sen and Shiel, 2006 ).

Senior leadership: The extent to which the senior executives of an organization are effective leaders (e.g., Lacity et al., 2004 ).

Service quality : The quality of a service, frequently measured as a client's perception of a satisfactory service performance by the supplier (e.g., Lewin and Peeters, 2006 ).

Social capital: Cognitive dimension: Social capital arising from the sharing representations, interpretations, and systems of meaning among parties ( Nahapiet and Ghoshal, 1998 ; e.g., Willcocks et al., 2004 ).

Social capital: Relational dimension: Social capital arising from personal relationships people have developed with each other through a history of interactions ( Nahapiet and Ghoshal, 1998 ; e.g., Willcocks et al., 2004 ).

Social capital: Structural dimension : Social capital arising from the patterns of linkages between people or units including network ties, network configuration, and network appropriability ( Nahapiet and Ghoshal, 1998 ; e.g., Willcocks et al., 2004 ).

Social norms : An individual's perceptions of the social pressures put on him or her to perform or not to perform the behavior in question .’ ( Ajzen and Fishbein, 1980 ; e.g., Raman et al., 2007 ).

Sourcing capability – Supplier : Expertise in procurement and the ability to leverage aggregate purchasing power (e.g., Lacity et al., 2004 ).

Stakeholder buy-in : Gaining commitment and support from all parties involved in outsourcing related decisions (e.g., Tate and Ellram, 2009 ).

Stakeholder resistance : The degree to which stakeholders oppose an outsourcing decision (e.g., Ventovuori and Lehtonen, 2006 ).

Strategic flexibility : An organization's ability to precipitate strategic changes and adapt to substantial, uncertain, and rapidly occurring environmental changes (e.g., Nadkarni and Herrmann, 2010 ).

Strategic intent : A client organization's desire or need to outsource for strategic reasons, such as developing new capabilities that can be leveraged in the marketplace (e.g., Sanders et al., 2007 ).

Subcontracting : The practice when the primary supplier engages another supplier for contracted work, either with or without the client's knowledge or approval (e.g., Kuruvilla and Ranganathan, 2010 ; Luo et al., 2010 ).

Supplier age : The age of a supplier firm in years (e.g., Lahiri and Kedia, 2009 ).

Supplier business growth: A supplier increases revenues by extending services to existing clients, obtaining new clients, or through mergers and acquisitions (e.g., Saxena and Bharadwaj, 2009 ).

Supplier competition : The presence of multiple, reputable, and trustworthy service providers, which can provide a range of choices for the clients (e.g., Levina and Su).

Supplier dependency : The degree to which a client depends on a supplier (e.g., Borman, 2006 ).

Supplier employee performance : The client's perception of the performance of individual supplier employees (e.g., Daityari et al., 2008 ; Lam and Chua, 2009 ).

Supplier employee turnover : The percentage of the workers that are replaced in a given time period (e.g., Budhwar et al., 2006 ).

Supplier management capability : The extent to which a client organization is able to effectively manage outsourcing suppliers (e.g., Sanders et al., 2007 ).

Supplier ownership : The supplier's ownership structure; private, public, jointly owned with primary client (e.g., Kuruvilla and Ranganathan, 2010 ).

Supplier reputation : The public's perception of a supplier's capabilities based on past performance and financial status (e.g., Gewald and Gellrich, 2007 ).

Supplier size : The size of a supplier organization usually measured as total assets, sales, and/or number of employees (e.g., Nadkarni and Herrmann, 2010 ).

Switching costs : The costs incurred when a client organization changes from one supplier or marketplace to another (e.g., Wahrenburg et al., 2006 ).

Task structure : The degree of clarity and structure pertaining to tasks (e.g., Daityari et al., 2008 ).

Technical and methodological capability – Client : A client organization's level of maturity in terms of technical or process related standards, and best practices such as component reuse (e.g., Bardhan et al., 2007 ).

Technical and methodological capability – Supplier : A supplier organization's level of maturity in terms of technical or process related and best practices such as component reuse (e.g., Sia et al., 2008 ; Bharadwaj and Saxena, 2009 ).

Time zone differences : The difference in local times between two locations as measured in hours (e.g., Mehta et al., 2006 ).

Top management commitment/support : The extent to which senior executives provide leadership, support, and commitment to outsourcing (e.g., Tate and Ellram, 2009 ).

Training : The nature or extent of supplier employee training by either the client or supplier organization (e.g., Raman et al., 2007 ; Malik, 2009 ).

Transaction costs : The effort, time, and costs incurred in searching, creating, negotiating, monitoring, and enforcing a service contract between buyers and suppliers ( Williamson, 1991 ; e.g., Levina and Su, 2008 ).

Transaction frequency : The number of times a client organization initiates a transaction, typically categorized as either occasional or frequent (e.g., Wahrenburg et al., 2006 ).

Transaction size : The size of a transaction in terms of dollar value or effort (e.g., Luo et al., 2010 ).

Transition management capability – Client : The extent to which a client organization effectively transitions services to outsourcing suppliers or integrates client services with supplier services (e.g., Luo et al., 2010 ).

Transition management capability – Supplier : The extent to which a supplier organization effectively transitions services from a client organization to the supplier or integrates client services with supplier services (e.g., Saxena and Bharadwaj, 2009 ).

Trust : The confidence in the other party's benevolence (e.g., Gainey and Klaas, 2003 ).

Uncertainty : The degree of unpredictability or volatility of future states as it relates to the definition of requirements, emerging technologies, and/or environmental factors ( Williamson, 1991 ; e.g., Mani et al., 2010 ).

Upward appeals : The tactic of invoking the authority and power of higher management; for example suppliers may bypass client liaisons by appealing to client management (e.g., Bignoux, 2011 ).

Virtual teaming: The extent to which the service provider and the client perceive and behave as part of the same team (e.g., Saxena and Bharadwaj, 2009 ).

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We hope this email finds you well. We coded the entire body of empirical (both quantitative and qualitative) Business Process Outsourcing literature from 1996 to 2011. To ensure the accuracy of our codes, we are randomly selecting a subset of the 87 articles we coded for review by authors. You were selected! We are hoping that you will validate how we coded some or all of the relationships in your paper:

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We also coded the findings between independent and dependent variables. The coding scheme assigns four possible values to the relationship between independent and dependent variables: ‘+1,’ ‘−1,’ ‘0,’ and ‘M.’ We coded a ‘+1’ for positive relationships, ‘−1’ for negative relationships, an ‘M’ for a relationship mattered, and ‘0’ for relationships that were studied but not empirically significant. A more thorough explanation of the codes is included below.

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This appendix shows the relationships between independent variables and the three categories of dependent variables (BPO Decisions, BPO Outcomes, Miscellaneous). For each relationship, a ‘1’ indicates a positive and significant relationship; ‘−1’ indicates a negative and significant relationship; ‘0’ indicates a not-significant relationship; ‘M’ indicates the independent variable mattered when operationalized as a categorical variable (see Table 3 for detailed explanations). The relationships that were examined at least five times are boxed. The relationships that were examined at least five times and met the criteria for consistent results as described in the text are marked with ‘++,’ ‘+,’ ‘−−,’ ‘−,’ and ‘0’

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Lacity, M., Solomon, S., Yan, A. et al. Business process outsourcing studies: a critical review and research directions. J Inf Technol 26 , 221–258 (2011). https://doi.org/10.1057/jit.2011.25

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Published : 27 September 2011

Issue Date : 01 December 2011

DOI : https://doi.org/10.1057/jit.2011.25

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Essay on Outsourcing

In an increasingly competitive, business development depends on the effective management of assets, including by the maximum concentration of resources on the core activity of the organization. However, as a rule, any organization is “burdened” with non-core but no less important services for its functioning: IT, accounting, legal department, etc. In order to successfully exist and develop without wasting resources, organization can eliminate non-core business functions to outsource. Nowadays, the popularity of outsourcing is growing and firmly entrenched in the minds of the global business community.

According to the experts of Outsourcing Institute, outsourcing of business process is an emerging view of the optimization of enterprises, with the largest increase observed in the field of finance and accounting. Statistics gathered in 1997 by the American Management Association showed that already 20% of surveyed 600 firms outsource at least some of the financial and accounting operations, and 80% – part of the administrative functions (Spring, 2010, pp.171-172).

Outsourcing is the transfer of non-core business processes to third parties. The first outsourcing services were a bit different, it was an outsourcing of personnel, ie the involvement of employees of another firm to perform some tasks. Today, outsourcing is used in various fields, but most often it is used in warehousing and logistics.

Advantages and disadvantages of outsourcing

Outsourcing has many advantages, it gives a chance to save on different resources. Organization can focus attention on the processes which are directly profitable and reduced overhead costs. Outsourcing saves training costs. Besides, it eliminates the need to increase the number of staff of the company at the expense of non-core business process. Outsourcing allows the company’s management and key employees to concentrate on their core business. With the help of outsourcing, there is a redistribution of organizational resources, previously involved in minor roles and directions. Outsourcing ensures continuous uptime (no holidays and sickness). Outsourcing is a major time savings (you can buy ready-made solutions, infrastructure). Outsourcing involves greater transparency (result matters, not the process). Changing outsourcer is easier than changing personnel. Using outsourcing, a company significantly reduces its risks (sharing them with outsourcer). Outsourcing leads to an increase in quality due to the professionals in the business, their experience in similar projects. At the same time, in addition to the obvious benefits, outsourcing has a number of “traps” or risks (Srabotic, 2012, p. 205).

Risk 1: Customer’s lack of experience of work with outsourcing on the one hand, and declared experience of the Contractor outsourcer – on the other. This problem can be solved by testing outsourcer, using recommendations and trial stages of interaction.

Risk 2: lack of standards and methodology entails difficulties of measuring the results and quality. You can avoid this by breaking the contract on the result, requirement of measurable standards.

Risk 3: lack of organizational involvement. Avoiding is possible by relaying responsibility for the process on the Contractor.

Risk 4: waiting for incredible results.

Risk 5: failure of the implementation of the project (consideration of potential and non-obvious needs of the organization). You can prepare company to the work with outsourcer in advance.

Risk 6: loss of critical business knowledge within the company (outflow of confidential information).

Risk 7: inexperience in conformity procedures. Companies need a controller in service delivery, which will assess the effectiveness of outsourcing services to the overall business strategy.

Risk 8: lack of effective project management.

Risk 9: possible reduction in productivity of its own staff (loss of motivation, assessment of changes as negative).

Risk 10: possibility of termination of the contract with the outsourcer (bankruptcy of outsourcer, returning functions inside the business). Keep in mind possible alienation, documented system or repossession.

Risk 11: unscheduled time costs – success in the interaction (active participation of the customer: functions of tasks’ producer, monitoring and acceptance of work, introduction.)

Risk 12: tax risks. There are increased risk and interest in contracts of services and the complexity of proving economic benefit (Solakivi, 2011, pp.131-132).

However, apart from “traps” of outsourcing for customers, there are “trap” for performers, ie outsourcers themselves:

• Outsourcing contract is usually signed for a long period, and this means that there is a risk of future costs and risks, as being dependent on the customer, contractor might work for long period without profit, and sometimes at a loss.
• Reorganization of processes within the organization may induce its management to the early completion of the contract and resubmitting maintenance of functions back to internal divisions, but in accordance with the new processes.
• Waiting for incredible results.
• Changing requirements (awareness of opportunities) during the execution of the contract.
• Change of the creditworthiness of the customer with the planned resources and unsaleable unique product (Sauer, 2013, p.8).

Logistics outsourcing

Outsourcing in logistics today for many companies has become the most optimal way to solve logistical problems, such as the delivery of goods or the compilation of transport schemes. It is not possible to debug business processes in logistics without a comprehensive work of highly skilled professionals. Many companies spend considerable sums for hiring a professional to ensure coordination of transport processes, without receiving a good result. That is why currently the most rational decision in this area is considered to be a logistics outsourcing. Services of this kind allow partial or full transfer of organizing business processes to experienced professionals without hiring them to the staff of the company.

It is necessary to clarify that logistics is one of the main tools to improve business efficiency and competitiveness. Its main task is to manage the information, financial and material flow with minimum costs. It is worth emphasizing that the outsourcing services are successfully used in the logistics strategy to minimize investment in logistics, as will significantly reduce the cost of logistics business processes.

The basis of any logistics business lies in an integrated management and optimization of material flows. Therefore, personnel outsourcing allows firms to transfer the logistics function partially or completely. As a result of the release of some of the financial and managerial resources, it becomes possible to focus on core business processes. Thus, outsourcing in logistics helps strengthen the competitive advantages of the company and becomes the key to its future development.

Because of the huge number of offers on the market today, it becomes more difficult to obtain a weighty profit, doing only the development of production and marketing. Outsourcing in logistics enhances profitability by reducing costs. The reduction of logistics costs, if using outsourcing services, is just 1%, which is comparable to 10% increase in sales (Wallenburg, 2010, pp.579-581).

Recently, commercial and industrial companies are increasingly paying attention to the staff outsourcing. The reason is the increasing complexity of conditions and business technologies and the growing importance of its infrastructure components. Naturally, for many industrial and commercial enterprises logistics is not core competencies. Using outsourcing services, such organizations can fully devote themselves to the development of core activities. While the staff outsourcing, who will direct all its potential for development and improvement of logistics processes, ensures the maximum quality of the goods or services of the company.

Many logistics companies that use outsourcing of staff note that finding qualified staff to employ is difficult. The fact that outsourcing allows regular employees not to spend time on ineffective or non-core but necessary processes, provides shortening of time for product development and increase the speed of adaptation to regular changes in market conditions.

Logistics outsourcing services may include the following areas:

• Integrated logistics.
• Optimization of existing and development of new storage schemes;
• Coordination of the procurement and supply of goods, as well as its labeling, packaging, etc.
• Registration of customs documentation and freight;
• Development of optimal transport schemes;

The expediency of company’s use of logistics outsourcing:

• need to focus on what staff members can do the best (“competence concentration”), while outsourcing staff will take care of the rest;
• company’s management understands that the company needs a transformation, the concreteness of which can be determined only by organization providing outsourcing services;
• emergence of new ideas for the realization of which the company must go through some changes. Outsourcing of personnel can help in implementation;
• the need to get a more interesting experience, which can be obtained only through outsourcing staff who will inject new ideas into the company;
• need for quick and quality optimization of the logistics department, without any loss on training new employees, outsourcing will avoid decrease in the overall performance of the company;
• most effective way to transfer minor cost from permanent to variables is logistics outsource;

As practice shows, the firm that provides outsourcing services has a higher motivation for efficiency than own departments of the company. Logistics outsourcing, as in any other sphere of production, is characterized by the fact that the implementing organization has direct financial obligation for the quality of performed work.

Key benefits and advantages of logistics outsourcing:

• reduction of risks associated with the implementation of logistics processes as they are passed on to a company that provides outsourcing services;
• decrease in the percentage of capital investments, which often also go to the contractor company;
• focus on core competencies promotes the improvement of key processes and gaining additional competitive advantage.

Thus, outsourcing of staff, which will take on the implementation of logistics processes, provides a dynamic development of the company, management of which will deal only with strategic objectives. It can be concluded that logistics outsourcing has a strong potential for the development of the modern market.

Eventually, many companies come to conclusion that it is almost unreal to establish the business processes in the logistics field without the complex interaction of experienced professionals. Some companies invest huge sums on the training and hiring large number of staff responsible for the coordination of transport and storage processes, while others believe that outsourcing in logistics is the best way to solve logistical problems. In the first case, it is not always possible to achieve good results, that is why many companies prefer to transfer all or part of the business processes organization to proven professionals without hiring them to the staff (Zavrsnik, 2011, p. 520).

Classification of operators

Professionals in logistics quite often use specific terminology for judging the competence of a particular logistics operator:

• 1PL – independent autonomous logistics. Shipper independently performs all necessary operations;
• 2PL – providing traditional services of warehouse management and transportation;
• 3PL – standard list of services complemented by other operations, such as: overload, storage, handling, etc.;
• 4PL – involves integration of all the firms that are involved in the supply chain. Log provider of this class is responsible for planning, management and control of all logistics business processes of the customer, which allows reaching long-term strategic goals and expand the business of the client;
• 5PL – management of all components included in a single supply chain of products using electronic means of information processing (Hartmann, 2012, pp. 526-527).

Logistics outsourcing means a transfer of logistics processes to a third party. The essence of this service is to reduce the company’s costs, implementation of the supply of products through the involvement of one or more qualified professionals – logistics operators.

Logistics outsourcing services may include the following areas: integrated logistics, optimization of existing and development of new storage schemes; coordination of the procurement and supply of goods, as well as its labeling, packaging, etc.; custom documentation and cargo; development of optimal transport schemes. Outsourcing of logistics services involves transmission of professionals, as part of the functions in this area, and the full scope of authority. When choosing the optimal plan of work for involved specialists, you should take into account the possibility of a private company in organizing logistics. It should be noted that an integrated approach to outsourcing logistics is the most efficient and financially advantageous solution to cope with  various tasks in the area of procurement and supply of products.

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What to expect when you join the Sikich family

Team members at Sikich have a lot in common while also being part of a rich and diverse group of contributors, creating a distinct and thriving culture. Chief among our commonalities is a desire for growth and a shared unity of purpose in our professional lives. We believe that through diverse perspectives, challenging the status quo and rewarding action, we accelerate innovation and drive growth – for our clients, for ourselves and for our communities.

The professional services landscape continues to evolve. For Sikich, this means we have an opportunity to further cement our leadership position in this industry and continue to grow our organization in increasingly exciting ways. This growth is meaningful for every team member at our company because larger companies simply see more interesting client opportunities and can attract impressively talented individuals like you. Through a dedicated focus on key business priorities and intentionally creating a rewarding employee experience, Sikich has developed into a highly regarded provider of professional services and a sought-after employer of choice.

Do you want to work with other skilled practitioners and serve clients in a way that makes a difference? Are you seeking a supportive environment backed by a deep and extensive set of skillsets? Are you ready to make an impact and be acknowledged for your contributions? If you answered yes to these questions, we see a mutually beneficial and gratifying relationship on the horizon!

Are you ready to grow with us?

Position Summary

What will you do in this role?

• Record transactions in journals, classify postings, reconcile amounts, foot and cross-foot entries

• Prepare compilation reports and other related client financial reports • Prepare statistical and account analysis to aid in the preparation of financial statements

•Reconcile accounting work papers to the general ledger

•Assist clients via email and phone conversations

•Help with clients’ general accounting needs

•Work on special projects as assigned

•File and organize accounting work papers

What do you need to succeed in this role?

• Sophomore, Junior, or Senior status at time of internship • Engaged in an accounting, cost accounting, or taxation program at a college or university • Interested in pursuing CPA credentials • Ability to work collaboratively with a diverse team • Experienced in Microsoft Suite • Excellent verbal and written communication skills • Must be authorized to work in the United States without sponsorship now or in the future

About Sikich LLC

Sikich LLC, is a global company specializing in Accounting, Advisory, and Technical professional services. With employees across the globe, Sikich ranks as one of the largest professional services companies in the United States. Our comprehensive skillsets, obtained over decades of experience as entrepreneurs, business owners and industry innovators, allow us to provide insights and transformative strategies to help strengthen every dimension of our clients’ businesses.

Sikich Total Rewards

Our team members enjoy expansive benefits ranging from competitive compensation and insurance options to wellness programs and a flexible time off policy, to name only a few. Sikich also takes pride in prioritizing team members’ health, total wellbeing and time spent with family, friends and in the pursuit of personal goals, hobbies, and endeavors.

Some examples of our many benefits:

• Sikich offers a comprehensive wellness program to engage, challenge and empower team members to take responsibility for their wellbeing. Activities can be tracked through our wellness provider to obtain gift cards and other rewards.

We also offer:

• Flexible work arrangements
• 401(k) with employer contributions
• FORCE – Sikich community volunteer program enabling each team member to use up to four hours of paid time annually to volunteer and make a difference in their local communities

Want to learn more? Visit our Careers website or Glassdoor profile .

Sikich LLC is an Equal Opportunity Employer M/F/D/V

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Sikich currently practices as an alternative practice structure in accordance with the AICPA Professional Code of Conduct and applicable law, regulations, and professional standards. Sikich CPA LLC is a licensed CPA firm and provides audit and attest services to its clients. Sikich LLC has a contractual arrangement with Sikich CPA LLC whereby Sikich LLC provides Sikich CPA LLC with professional and support personnel and other support services to allow Sikich CPA LLC to perform its professional services and Sikich CPA LLC consults with Sikich LLC and shares client information with Sikich LLC with respect to the provision of such services.