What Is Business Process Outsourcing: 2024 Guide

Companies across various industries are increasingly turning to business process outsourcing (BPO) to not only enhance service quality and boost operational efficiency but also to cut costs and tap into the expertise of external specialists.

BPO involves delegating specific business functions to an external company that specializes in those areas. Common examples of BPO include outsourcing customer service, human resources management, and financial and accounting processes.

In this article, we’ll dive into what BPO is, its key benefits, and how it can drive your company’s success.

Understanding Business Process Outsourcing

BPO involves hiring an external company to handle specific business tasks, saving time and resources. This concept might sound straightforward, but it revolutionizes how businesses operate.

In the 1990s, outsourcing became a prevalent business strategy, with multinational companies relying on third-party providers for logistics, manufacturing, and various other functions.

BPO has expanded to encompass a wide range of industries, including non-profits and government agencies. The essence of business process outsourcing lies in focusing on core business functions while subcontracting non-core tasks to specialized external service providers.

A wide array of business functions, ranging from customer service and accounting to payroll and human resources management, can be supported by BPO services. Companies typically outsource tasks that are essential but do not form part of their core value proposition. This allows businesses to maintain efficiency and focus resources on activities that drive growth and innovation, all while utilizing business process management.

BPO provides a flexible and scalable solution for businesses aiming to optimize their operations. Once companies grasp the fundamentals of BPO, they will be able to utilize its potential more effectively for streamlining processes and boosting overall productivity.

BPO Market – Highlights

According to Statista’s report Business Process Outsourcing – Worldwide, the business process outsourcing market is forecasted to generate $0.39 trillion in revenue by 2024. It is anticipated to grow at a compound annual growth rate (CAGR) of 4.67% from 2024 to 2029, reaching a market size of $0.49 trillion by the end of the period. Globally, the United States is expected to lead in revenue generation, with a projected $146.30 billion in 2024.

In Europe, the BPO market is expected to generate $118.60 billion in revenue in 2024. This market is projected to grow at an annual rate (CAGR 2024-2029) of 4.32%, resulting in a market volume of $146.50 billion by 2029.

Business process outsourcing (BPO) is commonly utilized in several key areas of business operations. According to Statista, the distribution of BPO services is as follows:

Customer service (32.27%): any businesses outsource their customer service operations to call center companies, providing quick and effective support to their clients. These centers often operate 24/7 and can offer multilingual capabilities, ensuring customer needs are always met.
Finance & accounting (27.27%): commonly outsourced finance tasks include bookkeeping & accounting, payroll processing, accounts payble and receiveble, among others. By outsourcing finance operations, companies can reduce overhead costs associated with maintaining an in-house finance team. This includes savings on salaries, benefits, training, and technology investments.
Human Resources (21.82%): companies often outsource HR functions like recruitment, onboarding, and payroll management to ensure accuracy and compliance. This reduces the risk of penalties and allows internal teams to focus on strategic HR initiatives.
Procurement & supply chain (13.64%): outsourcing supply chain management helps businesses control the flow of materials and products, ensuring timely delivery while minimizing costs.
Other services (5%)

BPO companies benefit significantly from the increasing complexities in areas such as supply chain management, finance, and customer care. By partnering with external providers, companies can avoid the need to create or optimize processes internally and reduce the burden of recruiting highly specialized staff or investing in advanced technology.

However, the BPO sector is also facing challenges due to the rise of automation and the implementation of advanced technologies. A study by Mordor Intelligence highlights that BPO providers are under pressure not only to meet customer needs but also to enhance efficiency and reduce costs. As a response, many outsourcing companies are planning significant investments in robotic process automation (RPA).

These technological investments can address issues such as talent shortages, product and service enhancements, and operational costs. Additionally, as noted by straits research, automation solutions are crucial for increasing the capacity to perform tasks more cost-effectively and with greater accuracy.

Types of Business Process Outsourcing

There are three primary categories of business process outsourcing:

Onshore: delegating tasks to a company within the same country. This approach is beneficial for tasks that require frequent face-to-face interactions and easy communication. By keeping operations domestic, companies can ensure better control and alignment with their business culture.
Nearshore: partnering with a company in a neighboring country. This model strikes a balance between cost efficiency and ease of communication. For instance, a U.S. company might outsource to a provider in Mexico or Canada to benefit from similar time zones and cultural similarities while still achieving cost savings. In Europe, companies tend to outsource business processing activities to contact center companies in Poland for the same reason as well as for the access to highly specialized staff.
Offshore: partnering with a company in a neighboring country. This model strikes a balance between cost efficiency and ease of communication. For instance, a U.S. company might outsource to a provider in Mexico or Canada to benefit from similar time zones and cultural similarities while still achieving cost savings.

Key Benefits of Business Process Outsourcing

Cost Savings

Cost reduction in operations is one of the primary motivations for businesses to consider BPO. Outsourcing to BPO providers offers several cost-saving benefits, including:

Eliminating the need for in-house IT infrastructure and additional staff, significantly lowering overhead expenses
cutting costs related to hiring, onboarding, training, and retaining employees
cutting costs down to specific processes such as asset summary and lease abstraction without in-house investment.

Access to Specialized Expertise

Access to specialized skills and knowledge, which may not be readily available in-house, is another substantial advantage of BPO. BPO companies often specialize in particular industries, functions, or processes, offering a level of expertise that can enhance business operations. These providers bring best practices and the latest technology to the table, ensuring that outsourced tasks are completed with high efficiency and effectiveness.

Moreover, BPO allows for quick onboarding of skilled professionals, which can be crucial for businesses needing to fill knowledge gaps rapidly. This access to specialized expertise enables companies to stay competitive and innovate without the long lead times associated with hiring and training new employees.

Increased Efficiency and Productivity

BPO providers offer several benefits, including:

utilizing the latest technology and best practices, resulting in more streamlined and efficient processes
maintaining agility and flexibility, allowing companies to quickly adapt to changing market conditions
filling knowledge and skills gaps as needed.

Choosing the Right BPO Provider

It is vital to choose the right BPO services provider to maximize the benefits derived from outsourcing. Companies need to evaluate their objectives, ensure the provider offers flexibility and innovation, and manage the transition process effectively.

According to our Operations and Client Director, Krzysztof Banaś, one should look at

portfolio
referenced and industry awards
scale of operations
technological infrastructure
information security.

Read the complete guide on how to assess and select an outsourcing company.

When Should You Choose Business Process Outsourcing Services

Optimizing Cost Structures

In highly competitive markets where margins are tight, optimizing cost structures is essential for long-term sustainability. BPO services can offer significant cost savings by reducing overhead expenses, such as salaries, benefits, and technology investments, associated with maintaining in-house teams. Additionally, BPO providers often operate in regions with lower labor costs, allowing companies to achieve the same level of service quality at a reduced cost, ultimately improving profitability.

Scaling Operations Rapidly

When a company is experiencing rapid growth or expansion, scaling internal operations to meet increased demand can be challenging and resource intensive. BPO services allow companies to quickly scale their operations without the need for significant investments in additional infrastructure, technology, or personnel. This flexibility enables companies to respond swiftly to market opportunities while maintaining focus on core business activities.

Navigating Complex Regulatory Environments

Companies operating in industries with stringent regulatory requirements, such as finance, healthcare, or data security, may find it beneficial to outsource certain functions to BPO providers who specialize in compliance. These providers possess deep expertise in navigating complex regulatory environments and can help ensure that the company remains compliant with local and international laws, reducing the risk of costly penalties or reputational damage.

Managing Seasonal Fluctuations in Demand/Traffic

Companies that experience significant seasonal fluctuations in demand, such as retail during holiday seasons or tax preparation services during tax season, can benefit from BPO services to manage these peaks efficiently. By outsourcing certain functions such as customer service during high-demand periods, companies can scale their operations up or down as needed, without the burden of maintaining a larger permanent workforce. This approach ensures that they can handle increased traffic and demand without compromising service quality or incurring excessive costs during off-peak periods.

Meeting the Need for Fast, Advanced Technological Solutions

Companies often require advanced technological solutions, such as voicebots, chatbots, and sophisticated analytical tools, to enhance customer experience, streamline operations, and extract valuable insights from data. However, they may not always have the capacity or resources to develop and implement these solutions in-house.

BPO providers may offer their own cutting-edge technologies and can implement these solutions quickly and efficiently. By outsourcing these technology-driven functions, companies can benefit from the latest advancements without the need for substantial in-house investments in technology infrastructure, ensuring they stay competitive and responsive to market demands.

Increase Efficiency and Productivity with a Reliable BPO Company

In conclusion, business process outsourcing offers numerous advantages, including cost savings, access to specialized expertise, and increased efficiency and productivity. By understanding the different types of BPO and common uses, businesses can make informed decisions about which processes to outsource.

As the BPO industry continues to evolve, staying informed about future trends will help businesses leverage outsourcing to achieve their strategic goals. Embracing BPO can be a game-changer, enabling companies to focus on their core competencies and drive growth.