Advantages and Disadvantages of Business Process Outsourcing

Advantages and Disadvantages of Business Process Outsourcing

Business process outsourcing to reliable vendors brings benefits as well as disadvantages. Here’s a look at some of them.

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Business process outsourcing is one of the most flexible processes that involve a close partnership between outsourcing provider and the customer. Today businesses, from start-ups to large companies rely on BPO services to be efficient and innovative, and to stay ahead of competitors. With every year the demand for outsourcing in rising as it ensures improved productivity, better utilization of resources and human resource allocation and cost minimization. As James Wanyama mentions in his book Business Process Outsourcing (BPO) Strategy: a Conceptual Approach, outsourcing can be strategic or tactical. The former involves outsourcing essential tasks that are normally performed by an in-house team, thereby allowing firms to optimize the use of its assets and ensuring more opportunity to achieve their goals. Tactical outsourcing involves outsourcing certain processes for short durations – when there is limited availability of specific resources and skills to complete a certain project; or when there is a deadline to meet and the project has to be brought back on track. Now outsourcing has become so popular on a global level and there has been a steady increase in the intricacy of outsourced processes and the degree of value added by the BPO Company providing the service. In business process outsourcing for instance, outsourcing has migrated from pure data/transactionoriented tasks to decision making and other complex processes.

Before going on to the advantages and disadvantages of outsourcing, let us look at the kind of outsourced services. ✓ Horizontal services: These are typically back-office processes that are most commonly outsourced. These include human resources; finance and accounting; customer service; transaction processing such as sales order data

entry,

claims,

loans,

cheques,

applications,

credit

card

and

reconciliation; content development and financial research. ✓ Vertical services: These include services that are specific to particular industries, and these services are used most by the financial services industry, healthcare, insurance, and securities.

Outsourcing to an external provider, whether onshore or offshore, comes with certain advantages and disadvantages.

Advantages

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✓ Better access to experienced workers: Outsourcing allows businesses to access skilled workers who can provide service efficiently and quickly.

With outsourcing, your business is not restricted to a local pool of workers; you can extend your horizon and expand your business. They will have knowledge of all the latest methodologies and innovations to get the best from diverse IT systems. ✓ Access to advanced equipment and data security: Outsourcing vendors focus on providing very specific areas of IT and they have the best quality and up-to-date equipment and software for this work. Their security standards are also very high and confidential. ✓ Achieve better flexibility and expand global presence: Companies that outsource their activities can act quickly and

effectively and also

manage the risks associated with introducing new products or services.

The internal resources can be reassigned to perform other critical functions and work towards better productivity. It can also leverage a company’s presence in multiple countries. ✓ Minimize

costs:

Outsourcing

helps

to

minimize

costs

for

the

organization, especially costs involved in hiring workers, training them, providing workspace and so on. But outsourcing helps businesses to use variable cost models like fee-for-service instead of fixed cost models. ✓ Better focus on core activities: Outsourcing allows businesses to focus on their main offerings instead of those that are that are not directly connected with the central processes. When the activities are outsourced, they need not be monitored. Instead, the business can focus on highlighting its business differentiators and maximize overall growth.

Disadvantages ✓ Less control or communication: Outsourcing can be problematic if there is no control on overseas business functions especially IT functions.

So, close monitoring can be difficult in the case of outsourcing. Similarly, when activities are outsourced, communication may become difficult. By using advanced technology like video call, this problem can be reduced. ✓ Quality

expectation

gap:

Quality

expectation

is

a

problem

in

outsourcing and anyone can fall prey to it. This can be avoided to some

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extent by verifying the provider’s previous standard of work, or consider talking to some of their previous clients. ✓ Negative influence on company culture: Replacing an in house team with outsourced team can have a detrimental effect on employee morale.

It increases anxiety among workers who worry about their job being replaced and this can affect productivity and employee satisfaction. To avoid this, have a clear discussion with the employees about outsourcing and how it will work without compromising their job.

In this technology-driven age, the BPO sector is also witnessing a transformation with digitization and cloud driving the resurgence of BPO. Along with outsourcers, the BPO service providers are also reviewing their operational efficiency and considering ways to optimize the use of technology to positively impact business savings and overall performance. In fact, as studies show, businesses that use technology as a source of innovation and advantage are those that deliver value. Business process outsourcing to reliable vendors enables business owners to reduce in-house workload and deploy their resources and skills on other core activities of the business.

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