The Difference Between Outsourcing and Business Process Outsourcing
Outsourcing and Business Process Outsourcing (BPO) are sometimes used interchangeably. Although the two terms are related, they aren’t the exact same thing and sometimes it can be important to differentiate between the two.
Outsourcing has many types and forms, but it can be summarized as any circumstance that a company uses external resources, contractors, or third-party providers as part of their company. This can include anything from a janitorial service to make sure the office is clean, to a call center that covers all of their customer service needs, or even to an offshore manufacturer. BPO is a specific form of outsourcing. It is when a non-primary business is handled by a third-party.
Understanding what outsourcing is and how it is used to help companies be more productive and efficient is important to knowing how to use it in your own company. Outsourcing is more than just sending jobs to different countries, and can provide rich benefits to your company.
What Is Business Process Outsourcing (BPO)?
Business Process Outsourcing (BPO) is when specific responsibilities and operations for a business are outsourced to a third-party business. Business process outsourcing examples include HR, customer service, sales, or shipping.
BPO can be broken down into back-office outsourcing and front-office outsourcing. Back office outsourcing includes tasks like data management, data entry, payment processing, account support, and quality assurance. These processes keep the business running smoothly, but they are not the key components to the parent company.
Front-office outsourcing includes services like email, telephone, fax, text, and other interactions with customers. Anything that is dealing with customer communication and interactions is considered a front-office service.
What Is Considered Outsourcing?
Outsourcing is whenever a third party company or vendor is involved in managing or controlling a segment of a company’s operations or services. For many businesses, these include BPO functions like customer service and call service functions, but can reach into other departments and services. BPO is a specific type of outsourcing.
What Is the Difference Between Sourcing and Outsourcing?
Sourcing, or procurement, is the process of locating and selecting either the most talented person or company for a particular role.
Outsourcing is a solution to sourcing. It takes the task of sourcing and focuses on external companies or providers to fill the role.
How Are Call Centers Different From BPO?
Call centers are a BPO solution. BPO is the process of using a third party to fulfill a specific need for your company, which is exactly what call centers provide. The main difference, then, is that call centers are only one type of BPO; there are many others as well.
What Are Examples of outsourcing?
Common examples of outsourcing include having a third party manage a company’s human resources, facilities management, supply chain, accounting, customer support and service, marketing, research, content writing, and content creation.
What Are the 10 Most Common Types of Outsourcing?
There are a wide variety of types of outsourcing, each with their own unique strengths and purposes.
1. BPO
This is a specific form of outsourcing that focuses on outsourcing services for operational activities.
2. IT Outsourcing
This is a form of professional outsourcing and is when solutions for technology-related resources are subcontracted outside of an organization for all or part of an information technology function.
3. Manufacturer Outsourcing
When outsourcing became popular in the US, the overwhelming majority of it was used in manufacturing industries. This involves the transferring of blue-collar jobs to a third party to help reduce costs.
4. Multisourcing
While this term can be applied to any business area, it is most commonly used when dealing with IT outsourcing and IT services. Multisourcing is when more than one subcontractor is used.
5. Nearshoring
Outsourcing is often tied with using a third or second world country for cheaper labor or materials. Nearshoring is when a company still goes outside of the country to reach their needs but moves business functions to a country that is geographically and economically closer to the company’s home country.
Nearshoring still provides cheaper options for labor and manufacturing, while adding the benefits of improving service, greater speed-to-market, and ease of doing business due to shorter travel times and similar work hours.
6. Offshoring
This generalized term refers to any business function that is moved to another country. Sometimes offshoring is used as the coverall term for nearshoring and reshoring.
7. Process-Specific Outsourcing
Where other outsourcing types deal with internal practices or needs, process-specific outsourcing focuses on processes involving a company’s main product. This allows a company to focus on their main strength in their product and customer service. An example of this is a bakery. While the bakery would do all of their internal work and production, delivery of their product would be outsourced to a third party like the postal system or one of any package delivery companies.
8. Professional Outsourcing
This is when key functions in the company that would normally require a skilled professional are outsourced. This can include specialized services like accounting, legal, human resources, or purchasing. The company is able to reduce costs by paying for what it needs, while still being able to have access to high-quality resources.
9. Project Outsourcing
Sometimes companies get overwhelmed with requests or are looking for help with a specific project. In those cases, project outsourcing gives a temporary solution to solve their problem. It is cheaper than having to hire and train a new employee to work temporarily.
10. Reshoring
Outsourcing is always seen as a way to save money. In the past, moving part of your company to a different country would provide cheap labor at a low-cost. However, in today’s economy, when taking into account the cost of shipments and the growing countries that have been traditionally outsourced to, it can be more cost-effective to bring those outsourced jobs back. This is the reversal of outsourcing. Reshoring removes the need to worry about shipping costs and times, customs, duties, tariffs, and international trade laws.
Some companies go one step further with reshoring and start insourcing. Rather than looking for subcontractors and third parties to fill the needs of the company, they hire more employees and make sure that their company’s needs are met entirely in-house.
How Does Business Process Outsourcing Work?
BPO is a contract-based system. Depending on the needs of your company, as well as the third-party provider that you are choosing to work with, the content and terms of that contract can vary drastically. BPO contracts cover both short- and long-term needs in a wide variety of fields and specialties.
Why Do Companies Outsource?
The main reason that companies outsource is because of cost. It is cheaper to have an outside agency or provider to produce, manufacture, or handle key practices, and so it is a fiscal choice to find the best provider for the cheapest cost. Not only can labor be cheaper, but the cost of materials, taxes, shipping costs, and other costs can be reduced by outsourcing.
What Are the Advantages of Outsourcing?
The biggest advantage of outsourcing is cost. It is often cheaper to outsource than to insource.
Another key importance is training and experience. While it might be possible for a company to insource, it might be difficult to find qualified, experienced professionals in the field. Outsourcing gives a company guaranteed access to experienced and trained professionals. If dealing with an outsourcing company, one strength can also come in protecting the parent company against turnover and dealing with employee retention. It is the subcontractor’s job to make sure that they are staffed with knowledgeable and skilled employees.
What Is the Difference Between Outsourcing and Importing?
Outsourcing is moving your company’s processes outside of your company. And this can be through local or even international providers. Outsourcing can consist of more than just product-based processes. It can include HR, legal, and customer service needs. An example of outsourcing is a company choosing to use an outside firm for their L&D, HR, or marketing needs.
Importing is a very different business practice compared to outsourcing. It is the act of purchasing manufactured goods from an international company. It is only focused on buying an already-made product or good and does not apply to skilled labor, talent, or activities.
What Is the Difference Between IT and BPO?
IT and BPO are very different acronyms. IT is an acronym for information technology. It can be used for both hardware and software responsibilities within a company.
BPO is an acronym for business process outsourcing. It is a form of outsourcing where a company contracts a third party to provide non-primary business activities for them. BPO can include activities like payroll, human resources, accounting, customer relations, or even some IT-enabled services.
IT can be the focus of BPO, but it is not the only activity that can be part of BPO.
What Does Business Process Outsourcing Mean in a Call Center?
A call center is a form of a BPO, but not all BPOs are call centers.
BPOs can include phone and email relations with customers, but they can cover more processes than just customer relations.
The difference between outsourcing and business process outsourcing may seem arbitrary, and they’re used interchangeably so often in modern times that many people do indeed use the former while meaning the latter. Language is always evolving, and it could be argued that BPO as a distinction may not exist in the public vernacular ten or twenty years from now. For now, however, the difference is there, it’s easy enough to identify, and whatever it’s called, all sorts of business-related outsourcing is here to stay.
