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Business Process Outsourcing (BPO)

Learn how Business Process Outsourcing helps organizations cut costs, maximize core competencies, and gain competitive advantages by outsourcing operations

What is business process outsourcing (BPO)?

Business process outsourcing (BPO) is the practice of contracting an external service provider to manage and execute one or more of a company’s business operations and processes. BPO involves outsourcing business functions like finance, accounting, human resources, customer service, and supply chain management to a third-party vendor. The vendor handles the operations and processes on the client’s behalf from their own facilities, typically located offshore in countries with lower labor costs. Outsourcing non-core business functions and processes allows companies to focus on their core competencies and strategic priorities. It enables access to expertise, technology, and efficiencies that may not be available internally.

How does business process outsourcing work?

There are several steps involved in outsourcing business operations to a BPO provider:
  • Identifying processes to outsource: Company stakeholders analyze their workflows to determine which are suitable for BPO based on factors like strategic importance, cost, required expertise, and more. Common outsourced processes include payroll, IT services, call centers, and finance functions.
  • Selecting a BPO partner: Companies evaluate potential vendors based on services offered, expertise, delivery capabilities, security protocols, and costs. An RFP outlines the company’s requirements.
  • Transitioning processes: The company and vendor plan the transition of workflows, data, and staff (if applicable). SLAs outline expected timeframes, quality, costs, and other performance metrics.
  • Ongoing management: The client monitors the vendor’s work quality, efficiency, security, and adherence to SLAs. Performance reviews inform decisions on contract renewal.

Benefits of BPO

Outsourcing business processes and operations provides companies several advantages:
  • Cost savings through lower labor expenses and overhead
  • Improved efficiency from the vendor’s expertise and specialization
  • Access to advanced technology like automation and analytics
  • Increased focus on core business activities that drive growth
  • Scalability to support changing business needs
  • Business continuity through geographic risk distribution
Finance, IT services, human resources, and call centers are some of the most commonly outsourced business functions.

Types of BPO

There are several models of business process outsourcing:

BPO by location

  • Offshore outsourcing: Vendor is located in a foreign country like India or Philippines
  • Nearshore outsourcing: Vendor is in a nearby country, often with a similar time zone
  • Onshore outsourcing: Vendor is located in the same country as the client

BPO by type of service

  • IT outsourcing: Contracting IT functions like help desk, app development, infrastructure.
  • Finance and accounting: Outsourcing billing, payroll, tax compliance, bookkeeping.
  • Human resources outsourcing: Handling recruitment, onboarding, training, benefits admin.
  • Call center outsourcing: Managing sales, customer service and technical support.
  • Procurement outsourcing: Vendor sourcing, vendor management, purchasing admin.

Choosing a BPO Provider

Selecting the right BPO partner is crucial to realize the benefits of outsourcing business processes. Here are best practices:

Define Requirements

  • Gather input from all stakeholders on their needs
  • Identify must-have services, technologies, and SLAs
  • Consider future plans like international expansion

Develop Selection Criteria

  • Services offered and areas of expertise
  • Industry experience and client examples
  • Quality and security certifications
  • Infrastructure, staffing, and scalability

Issue an RFP

  • Provide detailed requirements and selection criteria
  • Require information on experience, services, security, quality control
  • Specify pricing models, implementation plans, transition support

Evaluate Proposals and Select a Partner

  • Compare capabilities, experience, and costs
  • Validate certifications, infrastructure, and staff expertise
  • Conduct site visits for shortlist
  • Choose the vendor that best fits requirements

Negotiate an Agreement

  • Finalize services, pricing, performance metrics, and timelines
  • Include clear SLAs for quality, response time, system uptime, etc.
  • Address security protocols, compliance, auditing, and legal terms
  • Build in offboarding provisions to protect proprietary data

Transition to Outsourced Services

  • Gradually transition workflows, data, and staff (if applicable)
  • Provide training and access to systems and documentation
  • Start with non-critical functions first to test capabilities
  • Maintain open communication channels during onboarding
Key steps in selecting a BPO partner include defining requirements, issuing an RFP, evaluating vendors, negotiating contracts, and properly onboarding the chosen provider.

Risks and Challenges of BPO

While outsourcing business processes can provide many benefits, there are also potential risks to consider:
Loss of Operational Control
  • Vendor priorities may not fully align with client goals
  • Changes to vendor processes can impact client operations
  • Lack of client oversight into day-to-day operations
Hidden Costs
  • Unexpected transition and management expenses
  • Currency exchange fluctuations (for offshore BPO)
  • Frequent process changes drive up service fees
Security and Compliance Risks
  • Offshore vendors may have weaker data security controls
  • Meeting regulatory compliance across countries is difficult
  • Protecting client intellectual property and data is challenging
Service Quality Issues
  • High attrition leads to frequent employee turnover
  • Lack of direct contact with agents impacts client service
  • Vendors overpromise capabilities during sales process
Termination and Switching Costs
  • Transitioning large operations from vendor to vendor has risks
  • Offboarding processes may be complex and time-consuming
  • Retaining IP and data during transitions is difficult
Companies should perform due diligence on vendor security, service quality, and contract flexibility when evaluating BPO providers.

BPO Industry Trends and Innovations

The business process outsourcing industry continues to evolve through new technologies and shifting client needs:
  • Intelligent automation – BPO providers are adopting artificial intelligence, machine learning, and robotic process automation to improve efficiency, quality, and insights.
  • Cybersecurity – Advanced security technologies like blockchain, biometric authentication, and cyber forensics help mitigate outsourcing data risks.
  • Analytics – Providers are leveraging big data analytics to derive actionable business insights for clients from outsourced operations data.
  • Industry-specific BPO – Niche providers offer tailored outsourcing solutions for healthcare, banking, retail, and other verticals.
  • Cloud-enabled services – Cloud platforms help providers rapidly scale to support changing business needs.
  • Outcome-based pricing – Some BPO contracts tie vendor fees to performance metrics like caller satisfaction scores or processing accuracy.
  • Micro BPO services – Outsourcing specific tasks rather than entire processes provides greater flexibility.
The BPO industry is innovating with intelligent technologies, advanced analytics, and vertical expertise to meet evolving client demands.

The Future of Business Process Outsourcing

BPO is likely to evolve in the coming years as follows:
  • More impact from intelligent automation, amplifying productivity and efficiency gains.
  • Increased focus on cybersecurity and compliance as data privacy regulations tighten.
  • Greater demand for analytics and business insights from outsourcing engagements.
  • Expansion of outcome-based pricing models to align provider incentives with client goals.
  • Regional shifts as maturing economies offer attractive outsourcing destinations.
  • Specialization in industry niches and rising micro-outsourcing of specific tasks.
  • Co-innovation partnerships between clients and providers to create value.
  • Stiffer competition imposing pressure on vendor margins.
  • Continued growth for offshore and nearshore engagements despite geopolitical risks.
The BPO industry will continue advancing through new technologies while facing challenges from regulations, margins, and location variability. Business process outsourcing allows companies to focus on core competencies while accessing specialized skills, technologies, and efficiencies through external providers. Selecting the right outsourcing partner, managing contracts effectively, and closely monitoring vendor performance are key to mitigating the risks of outsourcing business-critical operations. Intelligent automation, advanced analytics, and other innovations will shape the next phase of evolution for BPO. Companies that leverage these capabilities while prioritizing security, quality control, and flexibility will be poised to maximize the strategic and economic benefits of business process outsourcing.

FAQs Related to BPO

What is Business Process Outsourcing (BPO)?
Business Process Outsourcing, commonly known as BPO, is the practice of contracting specific business operations and processes to a third-party organization. These third-party organizations, also known as BPO companies, are specialized in handling and executing these operations efficiently.
What are the different types of BPO companies?
BPO companies can be categorized into various types based on the kind of services they provide. Some common types of BPO companies include customer support, back-office support, front-office support, knowledge process outsourcing, information technology-enabled services, and legal process outsourcing.
What are the advantages of business process outsourcing?
There are several benefits of business process outsourcing. Companies can focus more on their core competencies and strategic initiatives while relying on specialized BPO vendors to handle non-core activities. BPO also provides cost savings, access to specialized skills, improved operational efficiency, flexibility, and scalability.
What are the disadvantages of business process outsourcing?
While business process outsourcing has many benefits, there are also some potential disadvantages. These include the risk of losing control over certain processes, potential data security concerns, language and cultural barriers, dependency on third-party vendors, and the need for effective communication and coordination.
What is a BPO call center?
A BPO call center is a type of BPO company that specializes in providing customer support and handling various customer interactions. These call centers are equipped with trained agents who handle phone calls, emails, chats, and other communication channels on behalf of the outsourcing company.
How can a company benefit from using BPO?
Companies can benefit from using BPO in several ways. It allows them to focus on their core competencies while outsourcing non-core activities. BPO provides access to specialized skills, saves costs, improves operational efficiency, enhances customer service, and enables scalability.
What are BPO services?
BPO services refer to the specific operations and processes that are outsourced to BPO companies. These services can include customer support, data entry, financial and accounting services, human resources, IT support, telemarketing, and many other functions that can be performed remotely.
What is the BPO market like?
The BPO market has been consistently growing over the years due to the increasing demand for cost-effective and specialized services. Many companies outsource their business processes to BPO vendors, both local and offshore, to leverage the benefits of outsourcing.  
Why do companies choose to outsource to BPO companies?
Companies choose to outsource to BPO companies to reduce operational costs, access specialized skills and expertise, improve efficiency, streamline business processes, gain a competitive advantage, and focus on core business areas.  
What role do BPO companies play in startups?
BPO companies can play a significant role in startups by providing cost-effective solutions for various business processes. Startups can leverage the expertise of BPO vendors to handle administrative tasks, customer support, data entry, IT support, and other operational functions, allowing them to focus on their core business and growth.

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