Business Process Outsourcing (BPO) can be hugely beneficial to your organization and allow for it to reach levels of success that would otherwise not be possible with restricted resources. It is, however, not a decision you want to take lightly.
Chances are, you started your business because of a passion for your trade. Perhaps you even saw a better way of serving customers with your services or products. Yet many business owners find themselves bogged down in endless paperwork and administration, often related to non-core activities such as billing, accounts receivable, payables, payroll, bookkeeping and other finance and accounting functions, that takes them away from focusing on growing the business and the core purpose of why they started it in the first place.
Business Process Outsourcing (BPO) ultimately frees up time for employees and business owners to focus more on core related activities and on doing what they do best: to serve their customers, gain a competitive edge in an increasingly competitive marketplace, and ultimately grow the organization.
What exactly is Business Process Outsourcing?
BPO refers to a practice whereby business owners would outsource an entire process, such as accounts payable or payroll, to a third party provider with perhaps better resources in the target area.
Outsourced processes are typically not a core function to the business activities, but still critical to its success. Benefits to BPO can include reduced costs, reduced business risks, time savings, improved process efficiencies and others which we’ll discuss in more detail below.
That said, it is important to fully understand your needs, and to develop a well-defined plan before you engage with a third-party service provider. Proper planning will help clarify exactly what processes you want to outsource, how you will manage the relationship with the outsourced service provider, and what parameters need to be in place to measure the success of the work that is being completed.
The benefits and risks of Business Process Outsourcing and other points to consider
The biggest attraction to BPO and by far the most talked about benefit is cost saving. This can be in the form of decreased labor charges if outsourcing to a region with lower labor-related costs. It could also be in the form of greater automation, especially if the outsourced service provider uses the latest technologies, such as ReceiptBank and Beanworks that reduces the need for manual processes in accounting and bookkeeping. BPO providers often work on a fee-for-service agreement instead of a fixed package basis that enables further cost savings when these fee structures are able to react to changes in work volume at different business periods.
Time savings and improved efficiencies are also benefits that are closely tied to the cost-savings mentioned above. You might be an expert baker, brewer or clothes designer and your customers come to you specifically because of your superior products or services. However, payroll, bookkeeping, and other accounting tasks might not be your forte. Outsourcing these non-core activities to expert providers means you can save significant time and improve process efficiencies, which will most likely translate into additional cost savings.
Outsourcing non-core processes to expert providers mean these processes are better managed and lead to greater quality and accuracy in the work produced. It also allows you and your team to focus more time on the core functions of the business. Not having to worry about the accounts receivable or payables at the end of every month means that energy and time can be invested into core related activities to improve your competitive advantage, such as improving or expanding your product offerings, landing that big project or client, or simply planning an employee event to boost staff morale and coherence.
In an increasingly globalized world, BPO can also help you to expand internationality at a lower cost by engaging with local service providers that speak the language and are more familiar with the business environment of the host country. It will also help you to greatly expand your customer base by enabling you to serve more clients in different languages and in different time zones.
What are the risks?
There are of course also risks attached to Business Process Outsourcing.
One of the main risks is becoming over-dependent on a third-party company over whose internal processes you have no control. If something goes wrong or services are not delivered as initially expected, it could affect your own workflow and customer satisfaction levels. This is why it is crucial to do proper due diligence (see below) before engaging with an outsource provider.
Security can also be a major risk when trusting the outsourced provider with sensitive business or customer information. This risk is heightened if they are located in a foreign country whose local security regulations and measures are perhaps more relaxed than those in your own country.
Other points to consider include potential language barriers that could complicate partnerships and the flexibility of the provider to take on future tasks that might go beyond the complexity and scope of the initial requirements as your business grows.
These risks can, however, be reduced by making sure you choose the right outsourcing provider.
So how do you choose the right partner?
The first step is to fully understand exactly which processes your company will benefit from outsourcing and which tasks are better kept in-house. You want to be very specific on the type of work that is required, how long it should take and the criteria for success. The more specific and clear you are about what you need, the easier it will be to narrow down the list of potential providers.
Now that you are clear on the requirements, you can complete your due diligence to shortlist potential outsourcing providers. Based on the information provided in your initial discussions, you will be in a good position to determine which providers are a good fit for your company. Make sure your decision is not based on cost alone (although this will play a factor). The cheapest ones might be the most expensive in the long-run.
Once you’ve chosen your outsourced partner, it’s time to draft, negotiate and finalize the contract with the specific terms, KPI’s and service level agreements in place. It is important to ensure that the terms of the contract are feasible, executable and actually adding value to the company as opposed to causing more work for your employees.
All that’s left to do now is to agree on a project “Go-Live” date and begin the transitioning process. The timeframes will vary greatly depending on the size and complexity of the outsourced processes.
Long-term management of the BPO engagement
Some control and monitoring from your side will be necessary in order to ensure that the goals and objectives you initially set for the outsourcing initiative to achieve, are being met. Your ‘supervision’ might decrease over time as you get more and more comfortable with the quality and punctuation of completed tasks but work should always be compared to the predefined KPI’s and service level agreement to ensure targets are consistently met.
Ongoing improvement should also be a key objective and increased process efficiencies should always be a top priority. Ultimately, as time goes by, you want to continuously make sure that the partnership is still adding value to your business and has not become a drain on resources.
Outsourcing non-core business processes can be a game-changer for any SME if researched, planned, executed and managed correctly. It can potentially catapult your business to greater levels of success in a shorter time frame.
At Enkel, we provide premier outsourced accounting and back-office services, specifically relating to accounts payable, accounts receivable, payroll and bookkeeping. We can help your SME improve its accounting processes and deliver consistent results on an ongoing basis. Get in touch and talk to us about your unique business goals and find out how our outsourced financial services can help you to achieve them.