Business process outsourcing (BPO): pros and cons

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Very popular in Europe, but not much in France in France yet, Business Process Outsourcing (BPO) is a practice that offers many advantages for companies. Flexibility, cost reduction, competitiveness and time saving… Outsourcing certain activities is a real solution to develop one’s company. What does BPO consist of? Why use it? We explain it all here:

 

What is the BPO? Definition

Business process outsourcing is the practice of outsourcing certain business processes. More simply, it is the act of entrusting one or more services of one’s company to an external and specialized service provider. Outsourcing can concern purchasing, accounting, software creation, site maintenance, but also recurring tasks such as call management. These activities are generally covered by a long-term contract and are then delegated to another company external to the company.

A company can then choose a supplier located in the country, or in Europe, or anywhere in the world. Several types of outsourcing then exist: onshore BPO (in the same country), nearshore BPO (in the same geographical area, such as other European country, or next to Europe), or offshore BPO (in a remote country, such as China).

A recent international survey about outsourcing has shown existing contrasts in current practice between American and European companies. US companies are identified as pursuing more «value adding » sourcing strategies, while European companies are more focused on gaining savings through BPO. Despite the different root cause for outsourcing, both European and US companies consider outsourcing as critical to their organizational strategy. For all companies the most preferred relationship between service purchaser and service provider is that of a single provider who has an industry focused, proven track record. Overall, US and European companies report higher than expected levels of satisfaction with outsourcing.

In France, although the practice of BPO is still timid, it continues to develop, particularly in the fields of finance, IT and purchasing, where more and more companies are using it. In the latter case, for example, outsourcing makes it possible to reduce and optimise costs, to reduce the time spent on administrative tasks and also to find efficient suppliers at the international level.

Good to know: be careful not to confuse outsourcing with subcontracting. Unlike the latter, outsourcing involves steering the company and working together over the long term (whereas subcontracting is more of a “task-based” contract).

 

 

Who is concerned with business process outsourcing?

Outsourcing is not limited to large companies: any structure can use outsourcing, regardless of its size. It is possible to outsource repetitive tasks as well as highly qualified activities. A company may want to outsource certain business processes for practical reasons, such as :

  • to free itself from certain low value-added tasks and concentrate on its core business;
  • entrusting certain tasks to companies specialized and expert in their field of activity (particularly in the event of a lack of internal resources);
  • gain flexibility and have a wide choice of service providers;
  • limit personnel costs.

Today, the most frequently outsourced tasks are payroll management, recruitment, purchasing, and sales force. However, with dematerialization and the progress of new technologies, the activities that can potentially be outsourced are now infinite.

 

 

What are the benefits of BPO ?

Business process outsourcing offers many practical and financial advantages. For companies, it is the possibility to :

  • Achieve savings
    When a company outsources certain business processes to an external supplier, especially a foreign one, it can increase its profits thanks to the reduced costs of the tasks. In the case of purchasing outsourcing, for example, the company can obtain better prices on products and – in the long run – increase its margins.

 

  • Gaining flexibility
    By entrusting certain missions to an external service provider, the company has a better reactivity and can react more quickly to changes in the market. It can also – in the event of unforeseen events – quickly turn to other partners.

 

  • Paying less
    Outsourcing allows you to gain flexibility in your workforce and avoid the need to hire. In addition to the legal obligations relating to the employment contract, the company does not have to bear any expenses related to the recruitment of an employee (salary, wage costs, etc.).
  • Increasing its competitiveness
    By delegating certain business processes, the company saves precious time that it can devote to high value-added tasks and strategic missions. On the BPO vendor side, BPO vendors are generally specialized in their industry and offer expertise that the company does not have. The result is faster and more efficient completion of missions, for quality services.

 

The disadvantages of business process outsourcing

Outsourcing part of its services is not without risk for the company. Outsourcing also has its share of disadvantages.

  • IT security
    When a company uses a supplier, it establishes technological connections with the supplier. The risk? Sharing data, sometimes sensitive, and taking the risk of spreading it outside the company. It is possible that this information could be stolen by a third party, or exploited by an ill-intentioned supplier. It is essential to verify the guarantees related to security and data protection.

 

  • Unforeseen costs
    Outsourcing can sometimes involve costs that can be difficult to predict. The company may underestimate the amount of work required, or it may simply not think about calculating costs properly in advance. For an offshore outsourcing, even if it is more abourt IT and communication then goods, delays in delivery can also occur, which penalize the company.

 

  • Communication difficulties
    In case of offshore outsourcing, there is a risk that it may be difficult to communicate with the supplier, or that cultural differences may be encountered. For this reason, it is recommended to choose a supplier nearshore, and that has already a global presence, and especially for purchasing outsourcing. Choosing an organization that speaks natively the main European languages with a minimum of English & French is a best option. German and Dutch employes are used to work  in those 2 languages so it’s a good choice. This is the case for example of ISP Group est which, with its team and the 5 international locations. As a proof of its professionalism and of the quality of its services, ISP Group is certified  ISO 9001 : 2015, an international reference standard that guarantees a perfect quality of service.

 

In conclusion, the use of business process outsourcing is a real growth lever for the company: lower costs, flexibility, access to skills that it does not have, time savings and productivity… but it must be thought through. Intercultural risks, the danger of extended deadlines, or the loss of control over the outsourced activity are all disadvantages that need to be taken into account. Disadvantages that can however be anticipated in a partner that offers the geographical proximity of its decision centre, the competitive advantage of its international competitive locations and the guarantee of a certified quality system, if possible ISO 9001: 2015.

Also read: What is sourcing? Definition!

Would you like to entrust your sourcing activity to a trusted partner? ISP Group is an organisation entirely dedicated to reducing and optimising purchasing and administrative costs. Sourcing, outsourcing your purchasing and administrative management: discover our solutions, reduce your costs and accelerate your performance!