BPO and Outsourcing: What Is The Difference Between Them?

Any project manager knows that taking the load of the entire project on your team’s shoulders is an unsustainable practice.

It’s obvious that some tasks need to be delegated in order to maintain efficiency and ensure your project gets completed on time and up to an excellent standard.

Outsourcing is common practice for businesses across a wide variety of industries. When you outsource, you are essentially hiring another company to complete a specific task or tasks for your business.

This can be done either onshore, meaning within the same country, or offshore, which involves working with a company based in another country.

However the big question remains: how do you know when to outsource or BPO? And what is the difference between the two?

In this article, we will take a closer look at the definition of BPO and outsourcing, the key differences between them, the benefits and drawbacks of each option, and some real-world examples of when to use BPO or outsourcing for your business.

Let’s get going!

What is Outsourcing? Definition

Outsourcing is the process of delegating a company’s business process to a third-party service provider.

Most often, businesses outsource processes that are non-core to their primary operation. This allows businesses to focus on their core strengths, while leaving the management of non-core processes to outside experts.

Definition of BPO

BPO, or business process outsourcing, is a type of outsourcing that involves the contracting of the operations and responsibilities of a specific business function to a third-party service provider.

It is commonly used to refer to the outsourcing of services related to human resources, payroll, finance and accounting, customer relationship management (CRM), and knowledge process outsourcing (KPO).

What is The Difference Between Outsourcing And BPO?

The key difference between outsourcing and BPO is that outsourcing is the delegation of a company’s non-core process to an external provider, while BPO is the delegation of a specific business function to an external provider.

Outsourcing can be used for any type of non-core process, while BPO always refers to the outsourcing of core business functions.

Hence it’s clear to see that BPO is simply a type of outsourcing -  they are not two completely separate concepts but are instead two peas in a pod.

3 Key Differences Between BPO and Outsourcing

1. The type of processes that are outsourced:

With outsourcing, businesses can outsource any non-core process; with BPO, businesses always outsource core functions

2. The level of involvement:

With outsourcing, businesses have the option to be more hands-off; with BPO, businesses are generally more involved in the management of the outsourced process.

3. The geographical location:

With outsourcing, businesses can outsource processes domestically or internationally; with BPO, businesses always outsource processes internationally.

Benefits of BPO & Outsourcing

Outsourcing has a number of benefits associated with it. Here are 5 of the top pros associated with this practice.

1. Cost Reduction

One of the most common reasons businesses outsource is to reduce costs. When done correctly, outsourcing can help you save on labor costs, overhead expenses, and other operational costs.

Not only can this lead to an increase in profits, but it can also free up funds and time that can be reinvested back into your business.

2. Increased Efficiency and Productivity

Outsourcing can also lead to increased efficiency and productivity within your company.

When you outsource non-core processes, it frees up your employees to focus on more important tasks. This can lead to better use of time and resources, and ultimately result in a higher level of quality output from your team.

3. Access to Expert Knowledge

When you outsource, you have access to the expertise of the service provider. This can be especially beneficial if you outsource to a company that specializes in the process you are looking to improve.

The service provider will have a team of experts who are up-to-date on the latest trends and best practices, and they can help your business implement these changes more effectively.

This can help your existing employees be more productive as they focus on tasks that they are already proficient at.

4. Flexibility

Outsourcing can give you the flexibility to scale up or down as needed. For example, if you have a seasonal business, you can outsource additional processes during your busy times to keep up with demand.

Then, when business slows down, you can reduce the number of outsourcing services you use. This can help you save on costs while still being able to meet customer demands.

5. Risk Reduction

Another benefit of outsourcing is that it can help reduce risks for your business.

When you outsource critical processes, you transfer the risk of these processes to the service provider. This can protect your business from potential financial losses if something goes wrong.

Drawbacks of BPO & Outsourcing

Although it has a range of benefits, outsourcing is also associated with its fair share of drawbacks. Let’s go through some reasons why it may not be the best option for your firm.

1. Loss of Control

When you outsource a process, you are essentially giving up some level of control over that process. This can be a major drawback, particularly if the outsourced process is critical to your business.

For example, if you outsource your customer service, you may no longer have direct control over how your customers are being treated.

2. Quality Issues

Outsourcing a process also means you are outsourcing the quality control of that process.

This means that if there are any quality issues with the outsourced process, it is up to the service provider to fix them. This can lead to a further loss of control and significant quality issues.

3. Communication Issues

Outsourcing also means there is potential for communication problems. This is because you are dealing with people who are not in your company and who may not be familiar with your company’s culture or way of doing things.

This can lead to misunderstandings and frustration on both sides.

4. Cost Issues

One of the main reasons businesses outsource is to save money. However, there can be cost issues associated with outsourcing.

For example, if the service provider is located in another country, there may be language barriers and cultural differences that make communication difficult and expensive.

In addition, if the quality of the outsourced process is not up to par, it can end up costing you more in the long run to fix the problems.

5. Dependence on Service Provider

When you outsource a process, you become dependent on the service provider for that process. This can be a major drawback if the service provider is not reliable or if they go out of business.

For example, if you outsource your accounting function and the service provider goes out of business, you will have to find another service provider to take over the accounting function.

7 Real-World Examples on When to Use BPO

Given that the definition of BPO is quite specific, there are certain situations where it definitely makes sense to consider using a BPO provider. Let’s discuss a few of these in further detail:

1. When a company is experiencing high growth and needs to scale quickly

If your company is in a period of high growth, it can be difficult to keep up with the demand without sacrificing quality. In this case, it may make sense to outsource certain business functions so that you can focus on scaling your operations.

2. Entering a new market

Outsourcing can be a great way to quickly establish a presence in a new market. By partnering with a local BPO provider, you can get the help you need to navigate the new market and set up your operations.

3. Reducing costs

One of the most common reasons companies choose to outsource is to reduce costs. In many cases, it is cheaper to outsource a business function than it is to maintain an in-house team.

4. Improving quality

In some cases, a company may outsource a business function in order to improve quality. For example, if you are not happy with the quality of your customer service, you may decide to outsource your customer service operations to a BPO provider that specializes in this area.

5. Focusing on core competencies

Another common reason companies choose to outsource is to focus on their core competencies. By outsourcing non-core functions like time tracking, businesses can focus on the areas that are most important to their success.

6. Reducing risk

Outsourcing can also be used to reduce risk. For example, if your business is heavily reliant on one particular function, you may choose to outsource that function to mitigate the risks associated with this dependence.

7. Gaining access to new technologies or expertise

Finally, companies may also choose to outsource in order to gain access to new technologies or expertise. For example, if you want to implement a new CRM system, you may partner with a BPO provider that specializes in this area.

Final Thoughts

BPO and outsourcing in general can be an excellent way to improve your firm’s operations, by offering a way to complete complicated tasks quickly and without sacrificing on quality.

Have a browse at some benefits and drawbacks associated with these practices, and at some real-life situations where you can use BPO and outsourcing to elevate your business. Best of luck!