Business process outsourcing, or BPO, is the delegation of specific business functions to an external service provider to manage and execute daily tasks. There are a variety of reasons to consider business process outsourcing for your business. The primary reasons most firms do so is to save money, and to focus on their core business. Some prominent names come to mind, such as ADP looking after your payroll and QuickBooks Online from Intuit, allowing for the remote processing of accounting. Some large organizations outsource to themselves in the form of the “shared services” office that supports the whole company from one location rather than replicating the processes at branch locations.
When deciding which components of your business to outsource, we suggest dividing your processes into four categories:
- High value to your business and well managed internally
- High value to your business and not well managed
- Low value to your business, but executed well
- Low value to your business and poorly maintained.
According to this McKinsey report, 45 percent of work activities could be automated using already demonstrated technology.
If that portion of your business is low value and poorly managed internally, then it is likely the right candidate for outsourcing or perhaps stopping the work entirely. Components that are vital to your business but require significant capital expenses, or people management skills that have been done poorly within the organization, are prime candidates.
Once you’ve identified potential functions for outsourcing, we recommend asking your management team some critical questions. Is outsourcing in line with your vision and mission? Would outsourcing help you to achieve these goals? Does your company have the financial management and governance processes in place to manage an outsourcing project? If you decide to proceed, has the business case been clarified concerning existing assets and staff?
Give due consideration to contract management between you and the outsource provider. Your firm must have some benchmark numbers from which to gauge if the outsource provider is doing a good job compared to your current management of the process. Outsource providers must make a reasonable profit margin; otherwise, the relationship will not last long. Also, we discourage you from being like a “helicopter parent,” always hovering around the supplier, managing small details. We are not suggesting that you abdicate your responsibilities to reach desired outcomes, but to thoroughly plan the engagement in advance and then let the outsource provider do their work. Professional outsource providers will welcome meetings with you at predetermined intervals to review all aspects of engagement, but also be flexible enough to meet with you irregularly to discuss issues that may have been unforeseen.
Plan with the end in mind
And finally, thought should be given to the ending of a contract. Winding up an outsourcing relationship can take some involvement, but can be worth the planning. Consider exit strategies with transition plans in place for staff affected by the decision. Planning for the end of the contract with the provider ensures there are no surprises for anybody. Please remember that while the notion of outsourcing may seem attractive at the beginning, if it is not well planned and executed, it can become a public relations nightmare.