What is the difference between outsourcing and business process outsourcing?

What is the difference between outsourcing and business process outsourcing?

Questions are often asked about the difference between outsourcing and business process outsourcing. Questions like:

  • Are outsourcing and business process outsourcing one and the same thing?
  • Is business process outsourcing not included in outsourcing?
  • Does outsourcing mean IT outsourcing only or does it mean IT and BPO outsourcing?
  • Is business process outsourcing different from business process offshoring?

As we can perhaps make out from these questions, many of them arise because of a lack of clarity on what each of the terms mean, as well as the multiplicity of terms that might be in use but actually have the same meaning.

An effort at understanding these terms in greater details will, hopefully, also result in a better understanding of the difference between outsourcing and business process outsourcing.

As an established player in the business process outsourcing (BPO) space, oWorkers helps clients understand how outsourcing can create value for them. We are uniquely positioned to do so thanks to our standing as one of the top three providers in the world of data related services.

 

What is outsourcing?

Let us begin with outsourcing.

Outsourcing should be looked upon as the umbrella or ‘mother’ term that encompasses all forms of outsourcing.

According to Investopedia, outsourcing is the business practice of hiring a party outside a company to perform services or create goods that were traditionally performed in-house by the company’s own employees and staff.

The term outsourcing is laden with meaning and is often picked upon by people as the source of their troubles.

Is that true? Is outsourcing the cause of the troubles faced by many.

Outsourcing is a way of life for most of our activities. Even if we were to confine it to the sphere of business, which business does everything itself? Perhaps not a single business. Even high security and high technology activities like sending rockets into space use outsourcing. The rockets and satellites sent by NASA into space are manufactured with material supplied by other companies.

Is that outsourcing?

Of course, it is.

Should NASA be manufacturing the metal sheets that are required for making the spacecraft, themselves? Should they be manufacturing the nuts and bolts that perhaps bind those sheets together? Should they be drilling themselves for the fuel required to propel the rockets? Should they be manufacturing the pills that astronauts consume in lieu of food when they are in space?

The list is endless. With so many diverse things to do, perhaps they will say goodbye to their core work of exploring space.

And that is the joy of human interdependence. The same works for business as well. Some of it could be classified as buying input materials or raw material and some of it could be classified as outsourcing. When a soft drink maker gets a local business to bottle their drink, is that outsourcing, or partnership, or something else? Think about it.

Whatever be the classification we choose, businesses leverage the expertise of other businesses in order that greater value be created overall.

With deep roots in the communities it works with, oWorkers creates value for clients in many ways, one of the more prominent being the creation of access to hitherto unreachable talent pools. As a preferred employer, we attract a steady stream of job applicants which enables us to select the right candidates for various client projects. It keeps hiring costs low as we don’t need to advertise to attract candidates, which eventually gets passed back to clients through the pricing model.

 

Benefits and disadvantages

Outsourcing exists because of some very good reasons. Companies that use outsourcing find that it delivers far more value than the costs it entails. And there are a huge number of companies who are of that opinion. Of course, it does not mean that it will benefit everyone. But, given its popularity, it is worth a consideration and evaluation before a decision is taken. It must be noted that with regard to benefits and disadvantages, there is perhaps no difference between outsourcing and business process outsourcing.

Benefits

Cost reduction is a common benefit. The outsourcer understands that functional area, and also on account of scale as well as the partner’s ability to source lower cost labor in lower cost locations.

oWorkers operates from some of the most highly regarded BPO delivery locations around the world, giving your business access to the best support system.

Better technologies and processes can result from an outsourcing relationship. With aggregated volumes, an outsourcing partner is better placed at investing in technology and processes that will eventually deliver benefits to the client. Also, for the partner it is the primary business, the revenue source, hence it gets adequate attention.

The partnerships oWorkers has forged with leading technology providers enables us to access the latest technologies and tools for client projects.

Outsourcing helps moderate the impact of seasonal fluctuations in volumes. With a partner, a company can arrange such that capacity keeps varying with season. The partner is able to provide such an arrangement because it has other similar business where the excess could be absorbed and it accesses talent pools from where it can hire at short notice.

With our access to talent, oWorkers can scale up and down at short notice. As an indication, we have the capacity to hire a hundred additional resources in 48 hours.

The client can focus on its core business, which can get neglected if senior management attention is taken up by the support functions.

Access to hitherto untapped talent pools and locations becomes available to an outsourcing company, that they otherwise may not have been able to access. It is a bit like two heads being better than one; there are now two companies thinking about improving a certain business process. Untapped technologies can also be a benefit of outsourcing.

oWorkers works with hired staff, and not freelancers and contractors, like some of our competitors do. This gives us flexibility in deployment. It has also enabled us to create a trained team of supervisors.

Response times can improve. This is for two main reasons. Often the outsourcer is located in a vastly different time zone. This provides a natural advantage of a processing window during the time the client is asleep so that work is finished by the time they begin work the next day. The other is that most outsourcing providers set themselves up to operate in a 24×7 environment for clients who may need that window.

All delivery centers of oWorkers are equipped to operate on a 24×7 basis.

Disadvantages

Security is a concern many clients continue to have. Access to proprietary data to the partner becomes inevitable in many cases, increasing the likelihood of misuse.

As part of its efforts at providing a secure environment for client work, oWorkers operates out of Super secure facilities & protocols with ISO certifications (27001 :2013 & 9001:2015). We are also GDPR compliant.

The outsourcing company’s alignment with the ethos of the client can sometimes become a stumbling block. This is particularly true when the partner has a role that interacts with the external world, such as customers and regulators.

Our services can be provided in over 20 languages and generally cover the global requirements of most clients.

Lack of familiarity with the business could create errors and consequent challenges.

At times, the client could feel a lack of control. While in general turnaround times may improve, if they want an exception for a transaction, that may become difficult to push through if not already defined in the contract.

 

Types of outsourcing

Outsourcing can also be understood by looking at the various types of outsourcing which is likely to facilitate the process of understanding the difference between outsourcing and business process outsourcing.

oWorkers pays social and local taxes for their employees. That we get rated 4.6, on a scale of 5, or above, on external platforms like Glassdoor, by both existing as well as past employees, is a matter of pride for us.

Outsourcing of manufacturing

In a way this is the original business outsourcing. In an era when services were not an important player in the global marketplace, businesses were mostly about manufacturing or trading. While the scope may have gradually expanded over time, with greater visibility to the developments all over the globe, outsourcing has always been a necessary tool in the arsenal of companies.

Today, we might know of large companies like Nike and Apple outsourcing the manufacturing of key components of their products, in some cases the complete product as well, to partners many thousands of miles away.

Outsourcing is also often used as a strategy. It has been used as a strategy by small companies, unable to invest in state-of-the-art facilities, to compete with bigger rivals. It enables them to leverage better facilities and also deploy the ‘as and when needed’ principle.

Professional outsourcing

This category of outsourcing refers to the many types of services that are necessary for a business, but are not their core business. For example, all businesses have to keep accounts and file tax returns. All businesses have to comply with employment guidelines such as depositing the correct retiral contributions into the right account. All businesses today need digital and social marketing support, some more and some less.

Like with many other types of outsourcing, this is of immense value for small companies. While big corporations may have the scale and money to justify retaining the best talent, smaller companies may not. They can, however, access the best talent by outsourcing some of their requirements through the professional outsourcing route.

Rather than a difference between outsourcing and business process outsourcing, this might actually be a similarity as some of the categories of professional outsourcing are also categorized under BPO, such as Finance and Accounting and Human Resources outsourcing.

Project or Process based outsourcing

This model is typically used for specialized, and non-core activities. It is understood that the requirement is one that the client has no expertise in and needs a partner. An example of such outsourcing could be the development of a new office space. An architectural or interior designing firm may be outsourced the project, and they, in turn, will liaise with other agencies to ensure that they are able to deliver in a timely manner and with the right quality.

IT outsourcing

Being a specialized function, requiring specific skills and knowledge, IT outsourcing has been popular for a long time, as organizations have tried to keep pace with the rapidly developing technology landscape.

The two big categories under which IT outsourcing has historically been classified are:

  1. Outsourcing of infrastructure – This includes security services, network operations, data center operations, service desk management, hardware maintenance, etc.
  2. Outsourcing of applications – This includes the development and ongoing maintenance of software applications, software installation, testing and QA services, and related services.

There is a third category which is gradually coming into its own as a unique proposition under the IT outsourcing umbrella, and that is cloud services, which is already estimated to be more than a third of the IT outsourcing market, and rapidly growing.

Engagement models

IT outsourcing is rapidly transitioning from the traditional ‘time and material’ and ‘fixed cost’ models to models that are more partnership and value oriented.

Some of the exciting partnership models include:

Unit pricing: Price determined by vendor but charge based on usage

Cost Plus: The vendor gets all costs recovered, with an added incentive based on the value delivered based on a pre-agreed formula.

Variable pricing: A fixed minimum with an add-on variable based on usage beyond a predetermined threshold.

Performance pricing: This is one of the partnership models where the fee is determined by the value added to the business of the client. Also similar to the gain-share model.

Shared rewards: An investment-oriented approach where both parties have a skin in the game and follow an ROI approach.

Business Process outsourcing

As the name suggests, the outsourcing of business processes is referred to as business process outsourcing, or BPO. It has come to occupy an increasingly prominent place in business, especially considering the greater contribution of services in the GDP of nations, in which BPO plays a key supplier role.

As we are trying to understand the difference between outsourcing and business process outsourcing, as a starting point, it should be stated that business process outsourcing is a form of outsourcing and is not separate from it. The advantages and disadvantages of outsourcing that we discussed, for example, apply to BPOs, just as they do to IT outsourcing and manufacturing outsourcing.

Most of the clients of oWorkers vouch for our capability and often mention saving almost 80% of pre-outsourcing costs. They also appreciate the choice between input and output based pricing offered by oWorkers at the time of contracting.

 

Is there a difference between outsourcing and business process outsourcing?

To conclude, any case of using an external provider could be considered as a case of outsourcing. Outsourcing is a legitimate business opportunity that millions of companies around the world leverage to create value. A specific form of outsourcing is business process outsourcing, also known as BPO, that deals with the outsourcing of business processes. It has been growing steadily and most analysts are predicting continued growth of the industry.

oWorkers is led by a team of professionals with over 20 years of hands-on industry experience. We work for many technology companies as well as unicorn marketplaces and support their global requirements.

Recommended Posts