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Types of Outsourcing for Your Business

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From the point of view SpdLoad company, business Process Outsourcing (BPO) is one of the varieties of outsourcing in which an organization transfers non-core business processes to service another company. Outsourcing of business processes is the deepest form of outsourcing, involving close interaction between the customer and the service provider (outsourcer).

Unlike task outsourcing, which involves the transfer to the side of individual projects with limited time and budget, business process outsourcing may not have time limits and a fixed budget. Within the framework of BPO, an organization transfers to an outsourcer not just individual tasks, but a closed functional area within its business.

BPO definition

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Despite the very clear definition of BPO as outsourcing of any process activity, this term often refers to narrower areas of outsourcing. So, the transfer of industrial production (in fact – a kind of BPO) is often allocated as a separate type of production (or industrial) outsourcing. The term BPO is rarely used to define the outsourcing of service processes, such as housekeeping or food services for organizations.

In most cases, the abbreviation BPO means outsourcing high-level processes, which are usually associated with financial management, personnel, marketing or legal support of organizations. Very often, outsourcing of business processes refers to the transfer of functions related to information technology and the management of corporate information systems.

Advantages and disadvantages of BPO

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The benefits of using BPO are practically no different from the benefits of outsourcing individual tasks. In both cases, the main goal of outsourcing is to reduce costs, which is achieved due to the higher competence of the contractor in the business processes or tasks or processes that are transferred to him. However, unlike task outsourcing, cost reduction in the case of BPO is more significant, it is achieved in the long run and often requires serious initial preparation.

In some cases, the main incentive to use BPO is not even cost reduction, but the desire to make them controllable and predictable. In the case of BPO, cost predictability is achieved through clear financial conditions specified in the contract and the guaranteed service level agreement (SLA).

The main disadvantages of BPO can be attributed to the comparative difficulty in implementation – to transfer to a third-party contractor not just specific tasks, but full-fledged business processes are much more difficult. Thus, this type of outsourcing requires a more serious preliminary analysis when choosing a contractor, as well as the possible adaptation of business processes to outsourcing them.

Since the economic benefits of BPO are achieved due to the higher competence of the contractor in non-core business processes of the organization, BPO is rarely used to transfer specific business processes. In most cases, the BPO transfers to the outsourcer processes specific to all organizations, such as HR, tax or payroll. In general, BPO has a much narrower scope than simpler task outsourcing.

When using BPO, large functional areas are transferred to a third-party outsourcer, and the customer company almost always has concerns about the quality and safety of the services provided. This fact is another limiting factor for BPO, as the high expectations of customers are far from always consistent with the reputation and fame of service providers on the market.

In general, the advantages and disadvantages of BPO almost do not differ from the features of any other types of outsourcing. Being the deepest form of outsourcing, the transfer of business processes can bring the organization maximum benefits, but it has more significant disadvantages and a less wide scope.

BPO Examples

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Today in the world there are many varieties of BPO, many of which are successfully used at Russian enterprises. Depending on the specifics and industry of each particular organization, the processes that are transferred to third-party companies can differ significantly from each other. Nevertheless, there are several typical examples of BPO that are typical for almost all enterprises of a sufficiently large size.

Outsourcing of HR processes

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Any company is forced to solve tasks related to personnel management – hiring employees, calculating compensation and tax reporting. Moreover, the vast majority of organizations are not recruitment agencies, and do not have specific competencies in the field of personnel management. That is why the practice of outsourcing HR processes (HRO, Human Resources Outsourcing) has gained considerable popularity.

In most cases, processes related to the selection and search of employees (as well as staff leasing and outstaffing) are transferred to the side, less often – processes of personnel administration and payroll.

The practice of outsourcing personnel management processes is widespread in Russia. Examples of companies providing recruitment and hiring services are various recruitment agencies. There are significantly fewer providers of comprehensive services for personnel management and personnel administration in Russia, among them UCMS Group and Intercomp.

Outsourcing of customer relationship processes and call center outsourcing

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Another common example of BPO is outsourcing of processes in the field of customer relationship management (CRM) and, in particular, outsourcing of telephone call processing and transfer to call centers. The vast majority of Western companies use this particular type of BPO, placing an expensive call center in places with cheap labor and, often, even in other countries.

It is traditionally believed that the leading provider of call center outsourcing services is India, which is able to provide Western companies with acceptable quality at the lowest possible prices (due to cheap labor). Quite often, offshore call centers are located in countries of Eastern Europe, as well as in some Arab states (for example, in Egypt).

Outsourcing of call centers in Russia is also quite widespread, but it has a slightly different form. The requirements for the Russian language practically exclude the placement of call centers in foreign countries and even some CIS countries. Therefore, many domestic companies prefer to transfer customer service centers to Russian provincial cities with relatively cheap labor. To manage the call center, a separate legal entity is often created that allows you to call this process outsourcing. At the same time, there are independent companies on the market that provide comprehensive call center outsourcing services.

Outsourcing of accounting processes

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The specifics of financial process outsourcing and accounting are in many respects similar to outsourcing of HR processes. In both cases, the contractor is transferred non-specific functions that are characteristic for all companies of all sizes and industries without exception.

Theoretically and practically, an outsourcing company can fully perform all the functions of an enterprise accounting up to the execution of bank payments and issuing primary documents to counterparties. However, this does not exclude the possibility of building sufficiently complex and flexible business processes using external companies and our own employees to achieve maximum efficiency.

One of the obvious drawbacks of outsourcing financial processes and accounting is the concern of customers for the safety of their financial information. As a result, a critical asset of any outsourcing company is its reputation in the market and feedback from already held customers.

IT process outsourcing

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It is safe to say that the widespread penetration of IT systems has led to an increase in the availability of many types of BPO due to a sharp reduction in the time and cost of interaction between the customer and the outsourcer. Moreover, before the information revolution of the 90s, some types of outsourcing (for example, offshore outsourcing of call centers) was extremely difficult to technically implement. As a result, the term outsourcing is often associated with the IT sphere, although these concepts are not directly related to each other.

There are many examples of BPOs within the modern IT industry. So, outsourcing of production, as well as the development of software code, has become very widespread. The traditional leader in the field of IT production is China, and the leading offshore software developer is India, Eastern Europe and Russia. During 2007-08, several leading IT corporations opened their own development centers in Russia.

Quite often, the term IT BPO refers to the outsourcing of IT processes of organizations that are not directly related to the IT industry. Integrated IT outsourcing is widespread in Western countries, within the framework of which the entire IT infrastructure of the customer is transferred to the contractor. In Russia, this approach is rarely used, companies prefer to use limited options for IT BPO, such as application hosting or support for corporate sites. At the moment, the main providers of outsourcing IT services in our country are traditional system integrators, for whom BPO is not the main business. At the same time, the largest global players IBM and HP are actively entering the Russian IT services market.

Outsourcing of the placement of IT systems (Software on-Demand)

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Outsourcing of the placement of IT systems (the “software on demand” model, Software on-Demand, SoD) is a form of outsourcing of IT processes. Unlike conventional hosting, in the framework of the SoD concept, the outsourcer not only provides physical equipment for hosting information systems, but also provides for their installation, support and updates.

Under the SoD model, customers pay not for owning the software as such, but for renting it (that is, using it through a web interface). Thus, unlike the classical software licensing scheme, the customer incurs relatively small recurring costs, and he does not need to invest substantial funds in the acquisition of the system. The periodic payment scheme assumes that if the need for software is temporarily absent, the customer can suspend its use and freeze payments to the developer.

The SoD diagram illustrates the relationship between different types of BPO. A company developing SoD systems for personnel management or accounting can simultaneously be a provider of BPO services in these areas. An example is the UCMS Group, which is developing the Quinyx personnel management system and at the same time providing HR process outsourcing services.

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