Is business process outsourcing (BPO) growing in 2021?
I’m not going to fool you or mislead you. BPO is still going to grow and is still going to expand in 2021 for multiple reasons, even though remote working is now more popular than ever.
We are entering a new work ecosystem where companies are now starting or even getting used to having their employees station remotely. This work arrangement poses a risk of shutting down opportunities to certain types of businesses that normally operate with onsite teams. But regardless, remote companies still need to deal with certain operations and certain types of services that are available as outsourcing solutions.
First and foremost, BPO generally operates in two segments: back office and front office. The former essentially covers logistics, accounting, legal, and others, while the latter takes care of customer support, marketing or sales, and other types of activities.
In any case, both ecosystems are still just as valid. They’re just as needed as they were back in 2019 or 2020, which is why the ecosystem is still going to grow further.
Now, what are the main reasons why companies are going for BPO solutions as compared to building something in-house? If I have to sum them up, these are the most important benefits that you can get from offloading to an external company:
- General know-how of the agency
- Access to talent
- Limited management overhead
Access to talent is not an easy task, especially for large-scale recruitment. Companies also want limited management overhead. And by working with a BPO, you don’t have to carry 10 people or more plus managers. When we consider the difference between offloading work and outsourcing, and actually building an entire department in-house, there is a huge difference in cost. Often, working with a BPO can mean cost-efficiency.
Indeed, there are important reasons why businesses continue to work with business process outsourcing agencies and will not opt for the in-house solution.
Let’s discuss further each of these reasons.
1. Accessibility of Different Experts
Now, imagine you need to build a mobile application and you’re not a technical company. If you don’t understand app development, how would you hire an Android developer or an iOS developer? You can’t vet their skills. You can’t tell whether they’re productive or not. You can’t also tell whether you also need a designer or if you also need to launch for both marketplaces. Or, whether you need a hybrid application or one Android developer, and an iOS developer, and so on.
In both cases, you may need a QA person or technical lead, or someone else. You probably need a team. You can’t vet them. You can’t find the right people. It’s really a little more expensive than just offloading to a company that specializes in development. It’s the same for other types of development.
The same goes for marketing or sales, legal, accounting, or everything else that’s not within your core expertise and within the core expertise of the company.
2. Effective Onboarding
The second thing is when the onboarding process is non-existent. This means that even if you hire someone, even if they are recommended, you trust them, you know them, you know they are capable to do the job, you still don’t have documentation.
You don’t have the right onboarding process. You can’t necessarily tell them how to start within the organization, which is going to be expensive and it’s going to take some time to ramp up.
Not to mention, if you need to hire multiple people, it gets even harder because you need to train and coach each of those people separately. This of course is going to take a little longer because you need to repeat a lot of what you said to number one, to number two, and then number three, and so on.
You don’t have the right processes in place for that corresponding role, unlike most BPO companies do.
3. Availability of a 24/7 Team
Large organizations, on the other hand, need a lot of work done and this requires hiring multiple people.
For example, if you want to launch a 24/7 support department, you probably need at least eight people on board each shift for the continuous operation of the department. Not to mention, each day has three 8-hour shifts with 3 sets of people for seven days, unless you do 12-hour shifts.
Furthermore, you need people to cover for weekends and as a backup for holiday leaves, sick leaves, and so forth. It really isn’t easy just making sure that you can afford the 24/7 operational capacity, as this means that you need to hire people and train them and onboard them and make sure that they catch up with the same speed and with the same pace, understanding the product specifics, the dynamics of the company and priorities.
Are all of them staying on board and are all of them staying around throughout the training period and onwards? It’s a pretty expensive endeavor.
Now, if you account for outsourcing to a business process outsourcing company, which specializes in support, it’s actually a lot cheaper because they already have the staff trained, then the 24/7 support isn’t really fully loaded, so those people are probably not going to start at full capacity. They can offer you a lower fee with people that can juggle three or four or five clients at the same time with a limited workload, especially, for night shifts or depending on when your slow periods are.
So with that in mind, if you have to compare that to building a team, which is another challenge, outsourcing is going to be more cost-effective as compared to hiring.
4. Less Expensive Than Hiring
The alternative to outsourcing is for the company to look for people and hire. Hiring means having to look into at least hundreds of CVs, setting up interviews to 20, 30, 40, or 50 people. You have to vet those people and scrutinize those who fit the company culture and at the same time can work together effectively as a team.
Those people would need their office space. So you need to account for that, the equipment and lots of other things. But you also need a supervisor from this department and someone who’s reporting to your technical team operations. It’s growing into a bigger business pain point than it is supposed to be, which is why outsourcing is a common thing here.
In some cases, of course, you have other duties, such as accounting and legal. It’s a lot cheaper to just hire a legal company on a retainer than hiring a professional lawyer in house full time just so they are available for your legal battles as needed.
The same goes for accounting companies, especially accounting firms that are working with different businesses. They may be pretty handy because they understand certain regulations, and certain changes in the marketplace. In the legal segment, for example, new tax regulations, new tax rules, problems with specific segments of companies like e-commerce or software service or whatever your segment is. They can give advice on the well-known problems that other companies are facing.
5. Hassle-Free Staff Management
Replacing staff is also pretty tricky, and that’s another reason why certain companies are trying to offload externally.
Of course, if you find three or four or five people and they stick around for a while, let’s say, for six or seven months. But if one of them leaves for whatever reason, replacing this talent is an expensive endeavor.
Different studies estimate that the replacement of talent could be anywhere between $50,000 to $120,000, simply because you need to go through the entire process of recruitment companies and headhunters, taxes, onboarding fees, training costs, and whatnot for a new team member. You also consider lost opportunities during the transition period.
So with that in mind, replacing staff is pretty expensive and outsourcing to an external company is actually something that allows you to distribute and delegate this responsibility to the corresponding outsourcing company. They now become responsible for replacing team members if needed, if someone is on sick leave, or someone resigns, or anything like that. It’s on them because you are only renting resources per se and it’s their responsibility. So once again, outsourcing is taking care of this initiative as well.
Setting up a call center at the beginning is actually cheaper when you start with an agency because they can give you a lot more affordable fee as compared to hiring people, in-house supervisor, plus whatnot.
In some cases, especially coming from higher economical standard countries or states, like California or New York or Massachusetts, or even Sweden, Norway, Europe or Japan, or Singapore, for example, then outsourcing may actually be performed for cost-efficiency.
Singapore and Australia are often outsourcing to the Philippines or Indonesia or other places around the world. California may be outsourcing to states with lower economical standards. When it comes to cost efficiency, that’s not necessarily required because sometimes paying for extra expertise may mean that the outsourcing company costs more than hiring in-house. But that, of course, is contingent on your being capable enough to build the team in-house.
For instance, development companies, especially if you work with consultancies and more professional agencies, you can get rates of anywhere between $70 to $400 per hour from an agency. So if we try to use an average of $200 per hour, hiring an experienced developer in California would be $60 to $70 per hour for a full-time employee working on payroll. It’s going to be, roughly speaking, three times cheaper. And in other states, it may be $35 to $45 an hour when you add employment benefits, 401(k), and a bunch of other different things.
In that sense, it may be more expensive to outsource. However, there may be different options of outsourcing, which means that you can say, “OK, I need a part-time person here”, or “I need someone who can allocate 20 hours per month and they are available in a certain time zone”, or I need someone with that specific expertise that you don’t want to hire for and would rather pay for part-time than hiring someone full-time in-house.
The same goes for marketing. If you need to launch specific campaigns, for example, influencer marketing, affiliate marketing, email marketing, someone proficient in conversion rate optimization for landing pages, or SEO, you simply may not have the specific expertise in-house.
Working with a business process outsourcing agency would connect you with a firm that probably has thousands of clients within the same segment, niche, and they can more or less testify for their skills and their expertise in the field. So they’ll probably get better results in a shorter period of time for a comparable view of what you would be paying a team of people that really don’t necessarily know what they do in-house.
So that’s another reason why business process outsourcing is going to grow.
7. Flexibility Across Time Zones
Now, again, the main thing is lots of companies are looking to outsourcing as the main medium of getting the job done, some for cost efficiency, some for distributing across time zones. For example, you’re opening a call center or you’re just branching out into a different country, a different language, and you simply don’t have people in-house not speaking this language.
Let’s say you’re branching out and opening an office in China or France or Qatar, and you simply need people speaking different languages. In that case, business process outsourcing is going to be more than expected, even for recruitment services in a different country and business formation services to found a separate company or rent an office or whatever it is in that specific area.
This is more normal, more expected. And you shouldn’t really shy away from working with an outsourcing firm whenever this makes sense. The only thing that businesses don’t really outsource 90 percent of the time is their core specialty, their core expertise. This means that if you’re a legal company, you’re not going to outsource to remote lawyers, unless you’re working in a specific jurisdiction that you’re not allowed to practice.
If you’re a developer, you’re probably not going to outsource to another development company unless you are into hardware development, programming, microcontrollers, or stuff for cars, then you need a company to handle your website alongside marketing.
But again, in a nutshell, everything else that you’re not specializing at, accounting services, legal, customer support, sales, marketing, and so forth, if you find the right agency, the right company, the right freelancer, it may be more worthwhile for you to start with them and also use them for a while because it makes a lot more sense from a practical standpoint.
8. Knowledge Retention
Now, as a disclaimer: one other thing that I haven’t mentioned that makes a lot of sense for discussing business process outsourcing is knowledge retention. What do I mean here? When you sign a contract with an established vendor in the industry, when you build these partnerships, what ends up happening is that your vendor may stay with you longer than some of your managers working in-house for you.
We’ve got some contracts that were signed back in 2015, which is almost six years ago. And throughout the course of time, some of the product managers, project managers, and directors that we worked with are now no longer employed in the organization.
Mid-sized companies of about 200 people do not necessarily have all of the best practices in terms of knowledge, documentation, documenting how we’re maintaining data repositories, or anything like that, which means that 80 percent of the conversations, 80 percent of planning and strategy are most likely nonexistent on their end.
This is why over time we’ll get more and more requests for information on, backdating certain activities that we’ve done for our partners simply because they don’t have them on the record and they don’t necessarily have all the contacts and conversations, including with other third-party vendors that we work with so that with that, in my knowledge, retention is something that external vendors can help you with, especially if your turnover is a problem for your company or simply in a very dynamic segment and some people are leaving for whatever reason.
You can’t afford to always keep everyone up to date, up to speed with everything. In that case, outsourcing may actually be a sustainable way for you to build partnerships that last for a continuous period of time without your trying to expand the team that tends to leave every now and then.
In a nutshell, outsourcing is going to grow continuously in 2021 and onward, at least for the foreseeable future, simply because it still makes sense for businesses. It’s definitely not necessarily a cost-efficiency area to consider, even though sometimes it is the smarter move, especially from a cost-efficiency standpoint. It’s faster when you find the right talent and the right partner.
You don’t have to deal with recruitment in search of the right people, deal with promotions and employee performance reviews and the day-to-day management, and lots of other things. Essentially, you offload everything to the agency and you just expect the outcome to work and the communication to be flawless.
If you have any questions, or if you have any other topics that you want to discuss, let me know in the comments.