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Business process outsourcing: What you need to know to do it effectively
In today’s dynamic business landscape, the key to success is the ability to adapt swiftly to changing conditions while maintaining focus on goals. This quality is known as "business agility."
Essentially, business agility involves having flexible processes, systems, and services that can adjust to internal and external changes.
Business process outsourcing (BPO) is gaining traction as a strategy to enhance agility without compromising operational efficiency. In the US and Canada, nearly 30% of businesses plan to increase their outsourcing efforts by 2024.
When executed effectively with thorough research and strategic implementation, outsourcing can help businesses stay agile. It allows for the reallocation of time and resources to core functions and brings specialized expertise into the organization more efficiently than in-house hiring.
This guide will provide you with essential information on outsourcing, including what to look for, what questions to ask, and how to integrate the right resources into your business.
Business process outsourcing (BPO) involves contracting a particular business function to an external provider with specialized skills in that area.
While BPO is often associated with IT services, it actually covers a broad spectrum of business functions. These can range from HR and marketing to telephone answering and scheduling.
Typically, outsourced functions are those that are performed similarly across various organizations and do not necessarily require specialized knowledge of the client's industry, although some functions can be industry-specific.
Business process outsourcing (BPO) is crucial for many organizations, especially those needing specialized skills without the budget to hire full-time experts. By outsourcing these essential functions, businesses can concentrate more on their core activities and strategic goals.
Recently, the emphasis on agility, efficiency, and prioritizing core services has intensified. Companies are now focusing on revenue generation, business development, and long-term planning to navigate future challenges. As a result, non-core activities are increasingly targeted for outsourcing.
When executed effectively, outsourcing can offer numerous advantages to organizations, including:
Recruiting new staff for specific roles can be time-consuming. The process involves advertising the position, conducting interviews, and waiting for the candidate to complete their notice period. Outsourcing allows you to quickly access the required expertise without the delays and uncertainties associated with hiring.
Outsourced services often offer significant flexibility, allowing you to adjust the level of service based on your needs. You can scale up by paying more when required and reduce the service later if necessary. In contrast, hiring internal staff provides less flexibility, as you must cover their salaries regardless of fluctuations in your workload.
Bringing new employees on board can be costly, extending beyond just their salaries. Additional expenses include sick leave, vacation pay, insurance, pension contributions, and training costs. These overheads can divert critical resources from your core business operations and potentially jeopardize your future growth.
Outsourcing tasks that you lack the expertise or resources for, such as call handling, accounting, or marketing, allows you to concentrate more on your core business activities.
While you will still need to oversee the outsourced services to ensure they meet your standards, this management is typically less demanding if you are satisfied with the results.
Conversely, handling these functions in-house requires more direct oversight and can distract you from your main business objectives, potentially jeopardizing your focus and growth.
While remote work has expanded the talent pool for some roles, many businesses still rely on local talent, which can be restrictive. Outsourcing allows you to tap into a much larger pool of specialized skills and expertise, enabling you to find the right services to enhance your business.
Outsourcing eliminates the expenses related to hiring, such as salaries, benefits, taxes, and administrative tasks. Instead, you pay for the expertise you need and evaluate the service based on the results delivered, without the overhead of managing employees or providing training.
A common concern among business owners considering outsourcing is the fear of losing control over certain aspects of their operations. This concern is particularly relevant for customer-facing functions like customer service or marketing, where the outsourced provider's performance directly impacts your brand.
To mitigate this risk, it’s crucial to thoroughly research and choose a provider with the appropriate expertise and a track record that aligns with your expectations. Keep in mind that the reputation of the outsourced company is also at stake, and a well-chosen partner will work diligently to uphold their service standards.
Ultimately, outsourcing can relieve you from the burden of managing these functions closely, allowing you to focus more on your core business activities.
When working with an outsourced provider, you might encounter unforeseen costs. These could include undisclosed minimum monthly fees or additional charges if you exceed a certain usage limit. To avoid surprises, it’s essential to thoroughly research potential providers and clarify all pricing details before committing. Ensure you understand the regular fees and any potential extra costs that could arise.
While security risks are often linked to IT service providers handling sensitive data, any third-party service can pose privacy or confidentiality challenges. If you’re outsourcing customer-facing functions like telephone answering, ensure the provider is well-versed in privacy and confidentiality protocols. Assess how they manage and protect sensitive information to safeguard your business and clients.
One major concern with outsourcing, particularly for customer-facing roles, is maintaining service quality. To ensure the outsourced service aligns with your standards and protects your reputation, review their track record through testimonials and case studies. Additionally, verify if they offer ongoing performance metrics. For instance, a marketing agency should provide data on lead generation, while a telephone answering service should offer call recordings for review. If an outsourcing partner cannot demonstrate their success or quality effectively, it may be worth re-evaluating your choice.
At some point, you may need to switch from your current outsourced provider to a new one. Ideally, this transition will be smooth and amicable. However, it’s important to be prepared for potential challenges. Consider whether there will be penalties for terminating your contract early and if you’ll receive assistance with transferring services to a new provider, or if you’ll need to manage the transition independently. It’s crucial to address these aspects upfront to avoid disruptions and ensure a seamless changeover.
One of the advantages of outsourcing is the ability to adjust the level of service based on your needs. Ideally, you can increase resources when demand is high and scale back when things are quieter, paying accordingly. However, not all third-party providers offer this level of flexibility. It's essential to review your service agreement to ensure it includes the flexibility you need. If it lacks this flexibility, you may want to reassess your choice. For instance, if you use a telephone answering service, check if you can adjust your contract during off-peak times or seasonal fluctuations.
Outsourcing isn't merely about offloading tasks you find undesirable; it should be a strategic decision aimed at enhancing your business. To effectively choose which functions to outsource, it's crucial to approach the process thoughtfully and with a clear goal of improving operations.
Key considerations include:
Determine whether you need a provider to manage an entire function or simply assist with overflow during peak times. Clarifying this will help you select the appropriate provider and avoid paying for unnecessary services.
While it's important to invest in quality outsourcing services, you should avoid choosing functions that could strain your cash flow. Assess your current financial situation thoroughly to determine what you can afford. Ideally, outsourced services should enhance your focus on revenue generation. Consider the potential increase in revenue and compare it with the cost of outsourcing to ensure it aligns with your budget.
To determine which services to outsource, it’s crucial to have a clear understanding of your existing business processes and their performance. This insight will help you identify the functions that could benefit from outsourcing and prioritize them accordingly. While many businesses instinctively outsource finance and accounting due to a lack of in-house expertise, don’t overlook other areas. For instance, telephone answering is a frequently underestimated service that can offer substantial benefits.
Finally, it's essential to evaluate the suppliers available for the services you plan to outsource. Some areas, like accounting and marketing, have a wide range of providers to choose from, making it easier to find a suitable partner. However, other functions may be more specialized, requiring a more thorough search. Understanding the landscape of potential suppliers will help you make informed decisions about your outsourcing options. At this stage, consider the following questions:
This decision ties into your resource planning strategy. For instance, you might handle most of the calls yourself but need extra support for peak times or after hours. Conversely, if the call volume is too high to manage internally, you might consider outsourcing your entire call handling to ensure every call is addressed efficiently.
Evaluating the return on investment (ROI) for outsourced services is crucial when deciding between outsourcing and in-house hiring. While hiring internally might seem cost-effective, considering salaries, benefits, and taxes, outsourcing often proves to be more economical or offers better value.
For example, spending $3,000 monthly on a marketing agency might seem high, but this covers the expertise of a full team handling everything from web development to SEO and content creation. In contrast, a $3,000 monthly salary for a single marketing executive may not offer the same level of skill or comprehensive service.
Similarly, the cost of hiring a receptionist, including salary, taxes, pensions, and other benefits, can exceed $30,000 annually. Outsourcing call answering services, which might be billed by the minute or for a fixed monthly rate, often provides significant cost savings.
Lastly, consider the consequences of not outsourcing and continuing with your current in-house operations. Reflect on the risks of managing everything internally without the specialized expertise that outsourcing could provide.
Think about how sticking to your existing setup might affect your business’s agility and its ability to adapt to future challenges.
We’ve outlined several factors to review when considering outsourcing. To simplify, here’s a list of crucial questions to guide your decision-making:
Certain business processes have traditionally been well-suited for outsourcing due to their specific characteristics. Here’s a brief overview of some common functions you might want to consider outsourcing:
Many businesses, especially small ones, turn to third-party providers for payroll and tax services. Owners often lack the expertise and time to manage these tasks effectively, as their focus is on maintaining revenue and business operations.
Bookkeeping and accounting are well-suited for outsourcing because they require specialized skills and vary in demand throughout the year. Since tasks like tax submissions don’t occur weekly, it’s usually more efficient to outsource these functions rather than maintaining a full-time accountant.
Human Resources is a crucial function within any organization. While it might be necessary to handle sensitive cases internally, many businesses find significant advantages in outsourcing HR tasks. By doing so, you can free up valuable time and reduce administrative burdens, allowing you to concentrate on driving revenue and enhancing customer service.
The time and resources saved from outsourcing HR often deliver a substantial return on investment. Additionally, HR services can be sourced through organizations such as the Federation of Small Businesses or your local Chamber of Commerce.
IT support is one of the most commonly outsourced functions in business, alongside accounting. Given the rapidly evolving nature of technology and the specialized knowledge required—particularly in areas like cybersecurity—it's often impractical for business owners to manage these aspects in-house.
Outsourcing IT support provides access to expertise that may be beyond the scope of most internal teams.
Additionally, you can engage an IT specialist on a part-time or as-needed basis, ensuring you have expert help when technical issues arise without the need for a full-time position.
Some business owners are hesitant to outsource marketing due to concerns that an external agency might not capture their company’s message or unique selling points as effectively as an internal team. While these concerns are understandable, the cost of hiring an in-house marketing team with comparable expertise can be prohibitively high.
For instance, investing $30,000 in a marketing executive might not provide the same breadth of skills in areas like web development, SEO, PPC, content creation, and strategic planning as you could obtain from an agency for the same amount. Thus, outsourcing can offer access to a wider range of marketing expertise at a more manageable cost.
For businesses with seasonal fluctuations or temporary needs - such as event management - utilizing an agency for temporary staffing can be highly advantageous. This approach is often more efficient than hiring a full-time team that may only be actively needed for part of the year.
As remote work becomes more prevalent and traditional office setups become less common, outsourcing call answering services is becoming a cost-effective and popular choice. We'll explore this topic in greater detail later, but it’s clear that this function offers significant benefits in today’s evolving work environment.
Outsourcing isn’t always the best solution for every aspect of your business. Certain functions are crucial enough to warrant keeping them under your direct control. While you might consider outsourcing certain tasks within these areas, maintaining internal expertise is often essential. Here’s what you should avoid outsourcing.
Core competencies are the essential skills and services that define your business. These are specialized areas where deep, specific knowledge is critical and cannot be effectively managed by an external party.
For instance, a garden center might hire temporary staff for summer sales, but the key roles like horticulturists or garden designers would remain in-house. Similarly, a professional specializing in dermal fillers might outsource administrative tasks like call answering and scheduling, but the actual cosmetic procedures would be handled personally.
Every business encounters obstacles and issues. It might seem tempting to rely on an outsourced provider to handle these challenges for you. However, outsourcing fundamental problems is rarely effective, as these issues are often unique to your company.
While you can seek expert advice and support, the ultimate responsibility for solving these core issues rests with you. The expertise provided can assist and guide you, but crafting the solution tailored to your specific situation is essential.
Outsourcing certain HR tasks, such as managing holiday requests, can be efficient. However, for significant HR matters like conflict resolution or serious employee allegations, it's crucial to handle these internally.
While seeking specialized advice is beneficial, offloading these serious issues entirely can be risky. If you appear to neglect important internal problems by outsourcing them, it may have negative repercussions for your organization later.
Outsourcing managerial roles is generally not advisable. It's important to have key staff members within your organization who are familiar with the business's operations and strategic direction. These individuals are crucial for overseeing daily activities and aligning with the company's goals.
As business leaders, we often believe we have the best understanding of our operations. Similarly, key management personnel gain insights from us and contribute to achieving our objectives. Therefore, it’s important to keep these roles in-house to maintain control and continuity.
Finally, if the cost of outsourcing a role or task exceeds what it would cost to hire someone directly, this should be evaluated carefully. While outsourcing might be suitable for short-term needs, it may not be the best option for long-term solutions if it proves to be more expensive.
As your business expands and workloads increase, managing every task and issue on your own can lead to fragmented focus and reduced effectiveness. Trying to handle everything internally may seem like delegation, but it actually means you’re responsible for overseeing these functions and the people involved. This includes managing administrative tasks such as handling holidays, sick leave, recruitment, and HR issues.
If you started your business to focus on your core services and expertise, then taking on additional responsibilities may lead you to become overwhelmed by tasks unrelated to your strengths.
Outsourcing can help alleviate this burden, allowing you to concentrate on what you do best.
Now that you understand the types of functions to consider for outsourcing, along with the benefits and drawbacks, it's time to select the right outsourced service provider. Here are some key factors to keep in mind:
Be specific about what you require from an outsourced vendor. For instance, if you need telephone answering support, clarify the type and level of support you need. Are there specific industry requirements or niche expertise that the provider should have? The more detailed you are, the better the match with the vendor's capabilities.
Assess whether the vendor can deliver the services you need by reviewing their testimonials and case studies. Look for feedback from previous clients on platforms like Google Reviews or on the vendor’s website. If a provider lacks reviews or case studies, it could indicate limited experience or potentially subpar service.
Determine if the vendor has specialized experience relevant to your industry. If your needs are specific or niche, ensure the provider has the necessary expertise. Specialized knowledge can significantly impact the quality of service and may also influence pricing.
Before committing, thoroughly review the contract terms. Pay attention to service details, any minimum service levels, automatic renewals, and early cancellation policies. Clear understanding of these terms will help avoid unexpected issues down the line.
Consider the flexibility of the vendor in terms of service levels. Are the services fixed, or can they be adjusted based on your needs ? For instance, check if the vendor can accommodate increases in service during peak periods or adjust as needed.
By carefully evaluating these aspects, you can find an outsourced vendor that aligns well with your business requirements and ensures a smooth collaboration.
When outsourcing, some functions may involve multiple components or services under a single category. For example, marketing includes various elements such as content creation, SEO, and PPC advertising.
If a provider offers a comprehensive range of services, consider whether consolidating multiple needs with one vendor might simplify management and potentially reduce costs. However, be cautious of providers that attempt to take over every possible function. The most effective outsourcing partners recognize the value of retaining certain services in-house and focus on providing genuine value rather than just maximizing their revenue.
Telephone answering is increasingly becoming a key function for outsourcing, a trend that has always had its merits but is now more relevant than ever.
As many businesses move away from physical offices and traditional reception setups, the need for a full-time receptionist diminishes. Full-time receptionists can cost between $30,000 and $60,000 annually, not including the additional expenses such as benefits, taxes, and administrative overhead.
Moreover, a receptionist can only handle one call at a time, which can be problematic since calls often come in multiple at once.
A virtual telephone answering service offers a practical solution, eliminating these costs while ensuring you never miss a call. Such services can efficiently handle messages, forward urgent calls, and filter out unwanted sales calls, allowing your staff to concentrate on more critical tasks. Additionally, these services can assist with administrative tasks like diary management, further streamlining your operations.
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