Business process outsourcing has come a long way since it started in the 1900s. It has become incredibly popular for both small companies and large corporations. In the last two decades, BPO allowed companies to outsource non-core processes. These help them apply more resources to their core business functions. A business process outsourcing involves contracting a third-party service provider to perform business-related operations and responsibilities. These include accounting, bookkeeping, customer service, data entry, IT, marketing, payrolling, sales, social media, and technical support. The cost efficiency and higher flexibility they offer make them imaginably a part of every company all over the world.
However, the fundamental changes in the work process offered by BPO companies accompany a series of risks that should not be left forgotten. Outsourcing companies can, in many ways, undertake steps to prevent them. These may include careful planning, controlled process implementation, and continuous evaluation of the processes. Below are the top 4 risks of business process outsourcing and how to minimise them.
Higher Cost Risks
Most business process outsourcing services can be easily quantified. Their cost can readily be captured in the accounting system. Some services are decision-relevant and may be hard to quantify. For example, customer service management cannot be measured in just a few weeks or months. The company will gain from outsourcing this service in the long run. They will need to wait at least a year to see if the third-party vendor has delivered efficiently. If the third-party vendor failed to reach their key performance indicator, it will only result in higher costs than the company expected.
This mainly concerns the potential interruption of quality and efficiency. Contracting a third party to fulfil customer obligations on their behalf is the riskiest to outsource. Even though the number one priority of a BPO company is customer satisfaction, the company does not have any idea yet how they fulfil it. This boils down to the loss of control. One example of such risk is hiring a contact centre from another continent with a different culture. The company has no control over how the agents’ answer, interpret customer queries, or react to customers on the phone based on their local culture. Another risk is to outsource bookkeeping services where you won’t be able to keep a close eye on how your finances are going on or how much payroll you are paying every cut-off. The key to minimising this risk is open communication. Start everything right by clearly laying down the results you expect and how you want to achieve them. As you go along regularly communicate with your third-party vendor to keep track of what’s happening.
Risks of Losing Innovation
Outsourcing support services like information technology, software development, and website management may impair innovation in the company. Hiring external providers for their expertise in technology keeps the company away from getting the best talents they need for expansion and growth. They need to hire a highly qualified support team to focus on research and development for the company. Such a need is usually left out because the focus has been diverted to outsourcing. Therefore, companies should balance hiring in-house teams and outsourcing. Better yet, they should aim for an in-house staff to handle key positions and supervise their outsource team.
One big gamble in business process outsourcing is data privacy. Companies hiring external service providers will need to share information with them to function as an in-house team. These include billing, financial data, protocols, proprietary rights, etc. The company has little control over the architecture and internal security of the infrastructure that the third-party service providers are using. Signing a confidentiality agreement may not be a good enough guarantee for private information not to spill out. To mitigate security risks, companies should carefully assess the security protocols of BPO companies before entering into an agreement. During the partnership, there must be a continuous audit on the privacy and security of information among set processes. This is to identify any loopholes or oversights.