Business process outsourcing is a specialized subset of general outsourcing. In the early years, BPO was generally limited to back office functions such as data entry, customer relations, or contact management. By outsourcing these functions, companies were able to focus on core services more fully by reducing the administrative burden of staffing and managing back office functions.
In addition, since BPO services were typically charged on a per use basis, they could be treated as a variable cost for accounting, thereby reducing fixed costs for company operations.
However outsourcing was not without it’s problems. Contract management, quality control, compliance issues, and data security were, and still are, key areas which restrict outsourcing or contribute to the failure of some projects. This was particularly true for offshore outsourcing with limited communication and difficulty moving documents. Outsourcing remained limited to simple tasks that did not require a great deal of oversight.
But as technologies improved over the past decade, competencies improved and offshore BPO has grown to a $135 billion industry. It has expanded from simple data entry and customer call centers, to include more sophisticated operations for financial analysis and even consulting operations. Much of the growth was been made possible with improvements in communication and Internet technologies.
However, BPO service providers themselves have made deliberate moves to add increasingly sophisticated services, leveraging their staff and increasing service revenues.
Offshore BPO Services
Previously offshore BPO services in such countries as India and the Philippines were used solely to take advantage of low wage workers for simple data entry and customer care. More contracts meant hiring more workers. However, the service providers soon recognized that such a linear relationship was not a sustainable business model and they soon began incorporating new technologies to increase services without adding staff.
The next decade in offshore business process outsourcing is going to see continued growth in more sophisticated processes. As businesses become more comfortable with long distance management of these relationships, and improvements in security are made, we expect to see outsourcing of engineering and design services, medical record and insurance policy management, consulting services, and even management of businesses themselves. As hospitals move more toward managed care and standardization of medical diagnosis and insurance reporting, we can expect to see those services performed through BPO service providers as well.
BPO service providers will rely increasingly on automation and smart technologies to improve efficiencies, allowing them to do more with less staff, albeit more highly trained and skilled. Gartner Research has coined the acronym PETS, for Process Enhancement Technologies and Services, to identify those technologies that improve process efficiencies or quality of the service. For example, intelligent voice recognition systems to route callers to specific operators at a call center, or software that integrates with a client’s in-house management software to allow data transfer more seamless. BPO service providers are relying increasingly on PETS to allow them to provide more sophisticated services without additional staffing.
KPO Service Providers
Expect to see the emergence of KPO service providers in the coming decade too. KPO, or Knowledge Process Outsourcing, services require expertise in specific areas and are therefore more specialized services. For example, where a BPO service might provide data entry for an insurance company, a KPO might provide risk analysis and underwriting services. Engineering and medical transcription would also fall under a KPO. Offshore BPO service providers are already looking to KPOs as a way to differentiate themselves and add value to their staffing.
But as business process outsourcing grows, a company’s risk management will need to become more sophisticated too. Outsourcing is not without it problems. When a company outsources certain functions and the program is terminated or fails, the company may no longer have the in-house staffing or expertise to manage the process themselves.
Sourcing Magazine lists three types of risk associated with outsourcing;
- Operational Risks – For example, loss of quality control or production capacity, a drop in customer satisfaction.
- Strategic Risks – For example, loss of intellectual property, privacy violations, loss of security.
- Composite Risks – Associated with long term loss of capabilities, expertise, skilled labor
Some of these risks can be addressed within the terms of the service contract, for example protection of intellectual property or the handling of personal data. But other risks, such as loss of quality control or customer satisfaction, will require ongoing monitoring.
There may also be issues with compliance with various U.S. Regulatory agency directives. A small privately owned BPO service provider may not be obligated to comply with the same regulations as their client company. For example, a small company may be exempt from certain Equal Opportunity Employment law due to their staff size. But if the contracting company is not exempt, they will need to ensure the BPO service provider still complies. These add complexities to the BPO terms of service.
Despite the risks inherent in business process outsourcing, it is clear a growing number of companies are embracing it. Indeed, even large U.S. Companies such as IBM, Hewitt Associates, and Accenture are setting up large outsourcing service providers on foreign soil to prepare for the coming growth.
As technology continues to put more of our lives in a data cloud, we can expect to see more aspects of our lives affected by outsourcing. Indeed, in the future the appliances within your home, and even the usage of utilities, may be monitored and management by technicians half way around the globe.
Victor likes to give his readers insight into the best business practices through analysis of current business trends and examples of good management. He currently focuses on BPO (Business Process Outsourcing) and it’s future prospects.