Business Process Outsourcing (BPO) or simply Outsourcing, is the business practice of hiring a third party to carry out certain aspects of the business operations of a company in lieu of the business. This practice is widespread and gaining popularity, which has resulted in companies specialising in certain aspects of business to appear and cater to corporates who outsource these activities. The strategic decision to outsource is based on several factors such as the aspect being considered, overall focus of the business, potential gains in efficiency and cost. If the outsourcing decision is taken purely based on cost, it is less likely to be sustainable.
Almost every aspect of a business can be outsourced. Financial services firms handle taxation, internal audit and external audit for businesses, technical support companies and technical infrastructure management companies can manage servers, websites, software etc. for organisations, debt collection and factoring services such as commercial debt collection Brisbane can assist in managing working capital, and security services organisations can provide physical as well as software security to organisations.
Advantages of Outsourcing
Allows businesses to focus on their core strengths while not worrying about other non-core elements of the business. For example, a software development company might not necessarily have the competencies for public relations and marketing which is not necessarily a core business aspect. Therefore, it could choose to outsource it to a more experienced company without risk of deteriorating their core business. Additionally, devoting resources to PR and marketing might not be in the best interests of a newly formed business, as they would need their entire focus to establish themselves in the market.
Outsourcing allows businesses to take advantage of specialist skills without recruitment. A company employing the services of a technical service provider will have access to the competencies of industry specialists without spending company resources to recruit them. They will also have up to date knowledge of any new technologies being developed in the market without having to spend on training and development for their in-house employees. The risk of staff turnover is also passed to the outsourced service provider.
Allows fixed costs to be transformed into variable costs. If an in-house availability of a resource requires a company to maintain it (such as a server), an additional fixed cost is generated that a company has to bear regardless of usage. If the server is instead rented, the company would be able to negotiate rates based on their usage of the server and therefore turn it into a variable cost.
Disadvantages of Outsourcing
The business might be compelled to make the decision to outsource based only on cost. This would not be ideal as the cheaper option is rarely the best. It might also be the case that the in-house facility is more expensive but also more suited to the business in a way a third party would not be able to provide.
Risk of leaking confidential information. Outsourcing relies on trusting the third-party business with some information that would harm the company if it were to be released publicly. Care must be taken to avoid this inherent risk of outsourcing.