It takes a lot of “infrastructure” to support a growing business. That word is in quotes because I'm not talking about roads and bridges, but about routine activities that provide a critical foundation to most organizations. Accounting, payroll, recruitment, office management, and many other processes are necessary to keep a small enterprise running – but they may not be the work you’re in business to do. For such support activities, business owners and managers should give serious consideration to business process outsourcing services.
What Are Business Process Outsourcing Services?
Business process outsourcing is the practice of contracting a third-party, external service provider to conduct one or more specific business functions or tasks for a company.
The service the external provider performs varies with a company’s needs. It might include accounting, payroll, marketing, telemarketing, or customer support. Typically, these tasks are essential but not specific to a business or a core part of its value proposition. The key is that once contracted, the external provider completes the tasks for the company, providing the company’s internal employees more time to focus on critical functions that support its core mission.
Common Businesses Process Outsourcing Services
Businesses typically outsource tasks that are performed similarly among companies, such as payroll, accounting, or IT support. Business managers often find that having internal staff perform these common functions adds little value to their organization. Such tasks may also prevent in-house staff from performing more strategic work. In addition, an outside provider may have specialized knowledge and expertise in an area that will ultimately produce better results than if the business had done the work internally.
Organizations typically contract with external vendors for either back-office or front-office operations. Back-office functions might include internal business operations, such as billing, accounting, human resources, or purchasing. Front-office services could involve anything related to the company’s customers, including marketing, customer service, or sales.
Business leaders typically want to focus their limited time on core competencies that differentiate the business, improve competitive advantage, and hold the potential for a solid return on investment. Therefore, outsourcing supporting processes that bog staff down might be an attractive option.
A company may outsource an entire function, such as the human resources (HR) department. Alternatively, it might outsource specific processes, such as recruiting, and have its internal team perform other HR processes. Some business outsourcing process companies provide specific subspecialties such as legal services, travel, research, or data analysis to fill a particular gap within an organization. According to a 2021 report from Deloitte of approximately 600 respondents from 45 countries, the most outsourced functions are IT, finance, and payroll. And as business process outsourcing has become more accepted, it has grown more widespread.
Advantages of Business Outsourcing
As with any change, it’s wise to weigh the pros and cons before moving forward with a business process outsourcing provider. Some of the potential benefits of business outsourcing process include:
1. Time Savings/More Time for Strategic Functions
There are only so many hours in a day. Business leaders typically want to focus their limited time on core competencies that differentiate the business, improve competitive advantage, and hold the potential for a solid return on investment. Therefore, outsourcing supporting processes that bog staff down might be an attractive option.
2. Lower Costs
A business process outsourcing provider can often perform a task at a lower cost than the business itself. That means lower in-house costs, particularly for staffing and training.
3. Higher Quality and Better Performance
A business process outsourcing provider typically focuses on one or two core areas. They are, therefore, generally considered experts in those areas and can often perform work more quickly and accurately than a non-expert. Business process outsourcing services also often stay on top of new developments in their focus areas, which means your business could benefit from technological advances, automation, or other innovations.
Disadvantages of Business Process Outsourcing
Some of the potential risks of business process outsourcing include:
1. Security Issues
Opening business systems or data to an outside provider can introduce security risks, especially when proprietary/confidential data or information systems are involved. Protecting yourself may require upgrading security protocols, negating the potential outsourcing cost savings.
2. Hidden Costs
The price for outsourcing may be higher than expected, especially if, at the beginning, you underestimate how much work needs to be completed. Hidden costs could include things like hardware and software upgrades. Make sure you fully understand the potential cost fluctuations and additions before signing a contract with an outsourcing provider.
3. Overdependence
An outsourcing relationship requires maintenance. Consistent communication is key to ensuring that both sides of the relationship are getting what they need and for business managers to understand how outsourced business processes are being conducted. A business that relies too heavily on an outsourcing provider to run critical parts of the company runs the risk of being caught off guard should that provider suddenly close, raise its prices, or move overseas, requiring your business to quickly move the function in-house or to a new provider.
How to Get Started With Business Process Outsourcing
If you’ve decided to move forward with business process outsourcing, start by asking yourself what type of resources you need and what kind of results you expect. Next, do your research. Look for an outsourcing provider with the expertise, experience, background, and pricing you need.
Once you have a list of potential providers, don’t skimp on diligence. You are potentially turning over key business details and confidential information to this provider, so you want to ensure they are trustworthy. You also want to ensure they can provide the quality work and key performance metrics you need. Don’t be afraid to ask a potential provider for references and to reach out to those references to learn about their experiences. Do your independent research to learn whether the provider is well-regarded in the business world. Finally, conduct interviews with potential providers to fully understand how they work, what’s expected from both sides, and to ensure that your business values align.
The Bottom Line
Business process outsourcing can be a good solution for a company that wants to focus more internal resources on its key business goals and less time on basic business tasks like accounting, payroll, marketing, or IT. A good business process outsourcing provider can help by taking routine tasks off the business’s plate. It may also provide services faster, less expensively, or more effectively than the business can manage itself. However, there are potential downsides to outsourcing. Be sure to understand all the pros and cons of business process outsourcing services before you commit to a provider.
