The Difference Between Outsourcing and BPO

Businesses cater to various solutions to their vendors by outsourcing the work to other businesses. From varying business sizes- be it big or small- the growth of the outsourcing industry has grown exponentially.

Sometimes businesses opt for the third-party because it is more feasible but in other instances, outsourcing or BPO (Business Process Outsourcing) are opted since third party providers are relatively more well-versed in the respective field to execute the task more proficiently. While the two terms are used interchangeably, it is vital to note that both have different meanings. Outsourcing refers to an instance when a company makes use of a third party and employs external resources to execute tasks. For example: customer service, marketing, and business development.

In contrast, BPO is when certain operations and responsibilities are outsourced to a third party. Examples of this can include HR, accounting, and sales. After discovering that third-party suppliers can offer more expertise, speed, and cost efficiency to the process as opposed to an in-house team manufacturer, companies engage with third-party providers to handle sections of their supply chains. Business process outsourcing is used by companies for two types of tasks: back-office and front-office services. Accounting, information technology (IT) services, human resources (HR), quality assurance, and payment processing are examples of back-office operations, often known as internal business functions. Customer service, marketing, and sales are all examples of front-office responsibilities. There are 3 types of BPO: onshore, nearshore, and offshore outsourcing. Onshore BPO is when a company engages a service provider in the same country, nearshore is when a company hires a service provider in a neighboring country, while nearshore is when a company hires a service provider in another country.

As in the domain of BPO the transition to an outsourced provider typically affects employees, established procedures, and existing workflows, it necessitates a substantial degree of change management. BPO possesses great benefits: it lowers expenses by eliminating overhead costs such as purchase of new equipment as it hires service providers instead. In addition to this, it stimulates efficiency as it makes use of the best BPO practices which henceforth, engenders productivity. However, a company employing this method can face unforeseen costs in the case of underestimating the work as well as bear communication problems with regards to offshore outsourcing due to language barriers.

In comparison to BPO, traditional outsourcing is commonly practiced for various reasons, some of which include bearing risks with external parties and forming meaningful relationships to reduce risks, increasing efficiency and flexibility by delegating responsibilities and repurposing internal resources. Drawbacks of outsourcing include loss of control of management, increased risk of losing sensitive data to other parties and decline in quality of the product or service as outsourcing companies are more profit-oriented than quality-oriented.

In conclusion, there are key differences that can be found between outsourcing and BPO which a company can assess and make the ultimate strategic decision of which method it wants to employ for its company in terms of profitability, growth and feasibility.

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