What is Business Process Outsourcing? How Does BPO Work?

What is Business Process Outsourcing? How Does BPO Work?

“What is BPO company?” is a question that can be answered in a very simple manner by saying that “it is a company that does BPO work.” 

The answer, expectedly, would then lead to the next question, “what is BPO work?” or even “what is BPO?”

BPO is an acronym for Business Process Outsourcing, the all-encompassing term that encompasses a wide variety of industries and functions in its fold. It offers process outsourcing support services to clients. What it means is that it takes on processing activities on behalf of its clients, for a consideration, a fee. This typically happens when a client has a process which it believes can create greater value if done by a third party for a fee. As in other business engagements, the deal gets consummated when there is a buyer for a service and a seller offering the service and they are able to agree on terms that might be considered mutually beneficial for both parties. 

The ‘O’ part of the term gained currency because there was a third party involved that would be doing the work. Over a period of time, and as process outsourcing matured, many organizations found it worthwhile to set up processing centers of their own. These have come to be known as Global Inhouse Centers (GICs) to differentiate them from BPO companies. In almost all cases, these processing units are set up as independent companies. This means that technically, the usage of the term BPO is still correct since the work is being ‘outsourced’ to a third party.

However, this is more of a ‘letter’ difference and not a ‘spirit’ difference. Though it is a separate company, the overall management is under the same umbrella organization. Besides, this may not be true in all cases.

To overcome this limitation, NASSCOM, the Indian IT and ITES industry body had suggested that people in the industry start using the term BPM (Business Process Management) instead of BPO. BPM is a wider term and would include not only outsourced work but also work being done by a separate unit of the same company. It would also reflect the aspect of ‘managing’ the work instead of just ‘doing it.’ Some people did start using BPM but BPO continues to be the most commonly used term by most people. Hence, the question still is, “What is BPO company?” and not “what is BPM company?”

oWorkers operates from three global locations, and is well known for its capability in providing BPO services to clients around the world. In its chosen area of specialization, offering data services, it has been repeatedly identified as one of the top three providers in the world.

 

Drivers of the decision 

The following could be the drivers of the decision to move work from a client to what is a BPO company:

It is a non-core activity

Every business has a reason for its existence, apart from that of making money for its owners. Each business has a defined way in which that money is expected to be made. 

An insurance company will make money selling insurance at reasonable rates after an assessment of the risks such that their payouts and operational expenses are less than their revenues.

A car maker will make money selling cars that they build, or assemble, with the help of many parts and components that they source from suppliers. Thus, they are already used to outsourcing, though sourcing of parts of product outsourcing and not process outsourcing.

A hotel will make money selling its rooms and F&B products and services such that it earns more than they spend on maintaining their facility and providing the services.

The same is true for many other industries.

From time to time, they will be called upon to perform tasks which run the risk of distracting them from their core activity. This could even be a perennial activity. The insurance company might need to set up a Call Center to service its growing customer base. The car maker might need to  

It does not possess the skill sets

In a way this is related to the earlier point, of being a non-core activity. A manufacturing company might hire engineers, a hospital might hire nursing and medical staff, a legal firm might hire lawyers, an accounting firm might hire accountants as their primary resource. These employees are perhaps adept at the work they have been hired for.

However, should the need arise for activities outside their core skill-set, like data entry in an Excel sheet, or tagging images for Machine Learning, they will be found wanting. Not just wanting, also unwilling. If they were willing, they could be taught, as these skills are taught by what is a BPO company to their staff. So, effectively, the company does not possess the skill-set to do many of these activities inhouse.

A related consideration is the potential impact on its regular business activities. If insurance sales people started doing Excel data entry, who will do insurance sales?  

Others can do it better

This is the value proposition. Inability to do an activity inhouse only holds value when there is an external party who can do it either better, or cheaper or create value in some other form. If none were present, the company with the need would perforce have to create the skills and infrastructure to be able to do it inhouse, blurring the distinction between what is BPO company and what is not.

However, the existence of what is a BPO company comes to the rescue here. These companies are geared to offer services that many large corporations, or even smaller ones, would like to outsource for either or both the reasons shared earlier. They have created an infrastructure for providing these skills. Like oWorkers, for example.

oWorkers is a contributing member of the communities it operates in. This makes it a preferred employer and drives in walk-in jobseekers right through the year. This creates a ready source for fulfilment of manpower requirements of the projects it handles for clients, whether fresh or replacement. It even creates the flexibility to cater to staffing for peaks and troughs in client volumes. This is a significant benefit as it saves the client the expense of carrying peak level staff through the year. The ability to right-staff is supported by its training team that fulfils the skilling requirement for enabling an employee to work on a client project. Their training capability enables them to hire relatively low-skilled staff and train them up, keeping salary costs in control. The knowledge that has been transitioned from the client to oWorkers via the transition or project teams.

With its partnership with a number of IT companies, oWorkers accesses cutting edge technologies and deploys them for client delivery. This way its clients also get the benefit of current technologies. We are GDPR compliant and ISO (27001 :2013 & 9001:2015) certified.

 

What is a BPO company – industry view

One of the definitions used for a Central Bank in an economy is that it acts as a bank for banks. It Takes in deposits from banks and lends money to them. It is kind of a banker of last resort.

From the industry perspective, BPO could be viewed as something similar. Of course, we will need to ignore a fundamental difference that a Central Bank is usually a statutory body, a kind of a quasi- governmental undertaking, while a BPO company is another commercial organization, interacting with other commercial organizations.

As companies in different industries have gone about doing their business, they have realized that they have to perform many activities and tasks that they are not equipped to handle as effectively. Here they have been supported by the emergence of what is a BPO company that specializes in many tasks that they are not able to do. It could be handling their Call Center operations, or monitoring their social media handles, or replying to their chat messages, or converting legacy information into digitized content, there are a host of such activities.

Moreover, since there are many companies who seek to outsource that work, the vendors come into a position where they can consolidate the work across different clients and create excellence in that activity. They could even develop the ability to invest in technology as a result of the application of the technology being across multiple clients. A single client, for that work, would never have been able to invest in technology or process enhancement measures.

So, in the first instance, the services offered by what is a BPO company led to the establishment of an industry, known as the BPO industry. Many such vendors became a part of this industry, distinct from the Shipping, or Banking, or Travel, or Airline, or Pharmaceutical industries that have been in existence for a long time. Some also like to refer to it as the ITES, or Information Technology Enables Services, industry. Either way, it managed to establish an identity for itself. 

In the early days, the identity of these providers used to be fluid. When they spoke to a bank, they became specialists in banking services. When they pitched to a pharmaceutical company, they made themselves out to be specialists in that industry. 

However, with time, and the growth of the industry, has come some amount of crystallisation of identity. This also got coupled with the tendency to create finer and finer niches and segments as something matures. BPO has been no different. It is likely that now we will find BPO providers who specialize by industry. Some might position themselves as specialists in catering to one particular industry and a set of others might specialize in another industry.

 

What is a BPO company – functional view

A similar process has been under way on the functional side. 

As companies in different industries have gone about doing their business, they have realized that they have to perform many activities and tasks that they are not equipped to handle as effectively. They might need to do hiring, which they don’t have much experience in. They would need to comply with financial and taxation related regulations which their engineers and bankers are ill equipped to do. They might need to carry out maintenance of the facilities they operate from, and abide by municipal guidelines on fire safety and other health and safety related issues. These could also give them sleepless nights as this is not something their knowledge and experience equipped them to do.

Here too, they have been supported by the emergence of what is a BPO company that specializes in many tasks that they are not able to do. 

Again, as there are many companies that seek to outsource these services, the provider is well placed to consolidate and invest in technology and process improvement initiatives. There would also be a tendency to create niches based on capability and knowledge, to position themselves more strongly. The trade-off, as usual, is between having a diffused presence in a wide market or a sharply focused presence in a small market. To each their own strategy.

 

How does BPO work

Simply stated, a BPO engagement is like any other business engagement. There are two parties to the arrangement, a client and a provider. As it is a B2B engagement, it often requires several rounds of discussions to come to reach agreement. The client specifies the services they want and in what manner. The competing providers showcase their capability and make an effort to convince the client that they will be able to create the greatest value for their business. The terms and conditions of the arrangement are worked out, the client makes a choice and offers the business to one of the bidders, while keeping one or more as backups for the eventuality that the original vendor agreement does not work out for some reason. Usually there are two levels of contracts. There is one overall, overarching agreement, generally known as a Master Service Agreement (MSA), that defines the main or broad contractual obligations of each party. A second layer of contracts works under the MSA and are known as Statements of Work (SOWs). These are drawn up at the level of a service or a project that is unique to the relationship and defines in greater detail how it will be executed. For every new service agreed, which is unique, a new SOW will be drawn up. 

 

Get the oWorkers advantage

oWorkers is led by a team with over twenty years of hands-on experience in the industry. In the eight years we have been in existence, we have transitioned over a hundred client projects. Our clients from the US and Western Europe report savings of almost 80% after outsourcing to us. 

oWorkers is your answer to the “what is BPO company” question.

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