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BPO: What It Is, When It Makes Sense

October 08, 2014

Business process outsourcing – BPO – is not a new concept. Companies large and small have been farming out processes that are not critical to their core competencies for years, such as payroll.

Business process outsourcing – BPO – is not a new concept. Companies large and small have been farming out processes that are not critical to their core competencies for years, such as payroll. In recent years however, and especially since the emergence of cloud computing, the range of BPO options available to small and medium-sized businesses has increased significantly. Identifying the right processes to outsource can save you time and money and make your business more competitive.

SMBs can now outsource a wide array of finance and accounting activities, not just payroll, notes Steven Bandrowczak, senior vice president, global business service & business process services at HP. "These activities range from complex decision-making and analytics support to high-resource, low-complexity transaction processing," he says. Candidates for BPO include source-to-pay processes (accounts payable), order-to-cash (accounts receivable), and record-to-report (general ledger and related processes). "Working with a business process service provider can help drastically improve cash flow and reduce errors, while lowering finance operating costs," Bandrowczak asserts.

Michael Salem, co-founder and CEO of Vorex, Inc., a developer of professional services automation (PSA) software for SMBs, makes the case that anything not part of your core business can be outsourced. "Thanks to advances in the Internet arena, SMB executives don't need to worry about whether a process can be outsourced, but rather who is the best vendor to outsource it to," he says. For example, a design company should keep all its creative-related work in house but consider outsourcing just about everything else. "Marketing and sales can be outsourced to an online marketing company or PR firm, and IT should be in the hands of a managed services provider (MSP)." he says.

Human capital management (HCM) is a prime candidate for BPO outsourcing at SMBs, says John J. Murphy, president of consulting firm Venture Management Consultants, Inc. HCM covers everything from recruitment to retirement, including payroll, tax services, insurance and benefits, time and labor, workers' compensation, COBRA and ACA compliance, and more. Dozens of well-known providers (Deloitte and ADP, for example) compete in this space, and most of them focus on cloud-based services. You can pick and choose just the services you want to outsource or sign up for a bundled deal.

Lead qualification and customer support are areas where many SMBs have been limited by staffing capacity and cash. Often, they are unable to afford the use of call centers and lack the time and resources to train staff, develop scripts, and create repeatable processes in house, says Adam Boalt, founder and CEO of LiveAnswer, which provides scalable, dashboard-based business support technology solutions. Outsourcing business functions that have traditionally been call center-based allows SMBs to offer 24/7 sales and customer support at a fraction of the cost of even one employee, Boalt promises. "The phone call is still a very important lead generator for SMBs, and every missed call or customer sent to voicemail represents an opportunity for a potential client to move on to a competitor. SMBs must recognize 24/7 phone support and virtual receptionist services exist that can help them to concentrate on effectively growing their businesses instead of working in their businesses," he says.

The most common driver of BPO outsourcing has been cost savings, mainly through accessing low-cost labor markets via third-party service providers. But when labor arbitrage underpins the entire cost-reduction strategy, savings are not sustainable and innovation suffers, ultimately driving up costs and increasing dissatisfaction, says Cliff Justice, U.S. lead partner, shared services & outsourcing advisory at KPMG LLP. "The true value of outsourcing comes from improvements to operating effectiveness and the ability to better scale the business, improve the technologies, and benefit from a service provider's investment in process and technology innovations." The most successful outsourcing strategies address important improvements to operational and process effectiveness along with access to technological innovations, he adds.

Identifying the right tasks and processes to outsource is critical to maximizing the potential success of a BPO outsourcing strategy. "You want to identify tasks that aren't value-added and are impacting your overall productivity," advises Hunter Hoffmann, head of U.S. communications at Hiscox Insurance. "For example, if you bill your time at $100 an hour and can outsource your administrative tasks for $20 an hour, you've just opened up the opportunity to increase revenues without adding to your work week. Processes that aren't customer-facing are the first ones to consider for outsourcing," he says.

While BPO outsourcing has a lot to offer SMBs, Mac McConnell, vice president of marketing at Bonitasoft, a provider of open source workflow and BPM software, warns against unrealistic expectations. "Don't assume outsourcing is a silver bullet that will solve all your problems," he cautions. Victoria Rittinger, principal consultant in the business advisory services practice at Information Services Group (ISG), adds that SMBs should be wary of high up-front investments and overhead costs associated with some larger BPO projects. They should also be keenly attuned to change management practices, which can be critical, given the smaller number of employees at a typical SMB. Start small, be creative, and leverage cloud-based services to get the best results, she advises.

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