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Business process outsourcing (BPO). Image Credit: Shutterstock.com/Panchenko Vladimir

Outsourcing vs. Business Process Outsourcing: The Key Differences

Xomety X
By Team Xometry
December 27, 2023
 9 min read
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Modern business techniques include outsourcing and business process outsourcing (BPO), both of which play important roles in the operations of organizations. The term "outsourcing" generally refers to assigning work to outside parties, whereas "BPO" focuses on hiring outside service providers to handle full business process outsourcing. 

This distinction is important because, although BPO concentrates on full process management, outsourcing might involve a variety of services. We examine the subtle differences between these two ideas in this investigation, illuminating their respective effects, uses, and factors to take into account in the ever-changing corporate world.

What Is Outsourcing?

Outsourcing is the general term used for many forms of external cooperation. It entails hiring outside parties to carry out operations or generate products—tasks that were previously completed internally. This tactical method, commonly employed to cut costs, transfers operational duties to specialized organizations. This diverse practice improves the adaptability and effectiveness of the organization. Essentially, outsourcing uses outside relationships to optimize operations and create a dynamic company environment by utilizing outside resources and knowledge.

To learn more, see our guide on What is Outsourcing.

How Does Outsourcing Work?

Outsourcing functions as a strategic alliance that prioritizes relationship management over practical concerns. Entrusting duties to outside partners is part of the process, which prioritizes cooperation and partnership over transactional thinking. Successful outsourcing depends more on building long-term connections and trust than it does on a simple purchasing project. This complex dynamic illustrates the difficulty of upholding strong and long-lasting cooperation in the field of outsourcing and extends beyond service-level agreements.

What Are Examples of Outsourcing?

Here are some examples of outsourcing:

  1. Customer Service: Many businesses use external support services for customer-support duties like: email, live chat, and social-media messaging support. Benefits of this strategy include: increased availability, flexibility in responding to service requests, and availability of highly skilled support representatives around the world. The variety of firms listed on sites such as Clutch, on which organizations can engage top-rated contractors for as little as $1,000, is a prime example of how affordable outsourcing customer service can be for businesses of all sizes.
  2. IT Services: In IT outsourcing, major companies like: Starbucks, Slack, and WhatsApp leverage external expertise for specific tasks. Starbucks entrusts cybersecurity responsibilities to external entities, ensuring the security of its digital infrastructure. Slack opts for third-party vendors to enhance its app design, while WhatsApp collaborates with external contractors for the development of its iOS applications. These examples highlight the scalability and flexibility of IT outsourcing, making it accessible not only to large corporations but also to businesses of varying sizes.
  3. Accounting: Accounting outsourcing is the practice of assigning an organization's financial responsibilities to outside parties while emphasizing efficiency and cost reduction. Small businesses particularly profit from the highly specialized accounting services offered by outside businesses since they may reduce their costs associated with payroll, software, and taxes. The type and volume of services that businesses need to outsource determine how they collaborate, emphasizing the value of knowledge and experience in overseeing intricate financial operations from an external perspective.

What Are the Advantages of Outsourcing?

Outsourcing functions offer several advantages:

  1. Cost Efficiency: Lower labor and production costs in outsourcing destinations.
  2. Access to Specialized Skills and Technology: Enhances product quality and innovation.
  3. Scalability: Allows quick adjustments to production volumes.
  4. Time Savings: Outsourcing partners often have streamlined processes.
  5. Risk Mitigation: Sharing responsibilities with outsourcing partners.
  6. Focus on Core Competencies: Companies can concentrate on their primary strengths.
  7. Strategic Growth: Enables companies to foster strategic growth in the global market.

What Are the Disadvantages of Outsourcing?

Outsourcing presents drawbacks including:

  1. Loss of Control: Delegating tasks relinquish direct control over operations.
  2. Quality Concerns: Varied service quality from external providers may impact overall performance.
  3. Communication Challenges: Distances and cultural differences can lead to misunderstandings.
  4. Security Risks: Sharing sensitive data poses potential security threats.
  5. Dependency: Relying on external entities creates vulnerability related to their stability and internal changes.

What Is Business Process Outsourcing?

Business process outsourcing (BPO) is a strategic business practice within the broader realm of outsourcing. It entails delegating specific operational functions of a business process to an external service provider. This third-party entity assumes responsibility for executing and managing the delegated tasks, allowing the contracting company to streamline operations, achieve cost efficiencies, and focus on core business activities. BPO commonly spans diverse areas such as: customer service, finance, and human resources, contributing to enhanced overall organizational efficiency.

To learn more, see our article on Business Process Outsourcing.

How Does Business Process Outsourcing Work?

Business process outsourcing (BPO) involves assigning certain parts of a company's operations to outside vendors or subcontractors. BPO began in supply-chain management for big manufacturing companies and has expanded to include a variety of industries, including services. Businesses intentionally assign work to outside parties to take advantage of their efficiency and area of expertise. Businesses may maximize resource allocation, increase efficiency, and focus on core capabilities with this collaborative strategy.

What Are Examples of Business Process Outsourcing?

Business process outsourcing is found across industries including:

  1. Customer Support: Companies often contract with specialized service providers like Teleperformance and Alorica to handle their customer-support needs. These businesses are excellent at handling consumer engagement and experience on a worldwide basis. Companies may ensure effective handling of inquiries, issue resolution, and overall satisfaction by entrusting customer assistance to such professionals, freeing them up to concentrate on their primary company operations.
  2. Finance and Accounting: Genpact stands out as a prominent player in the realm of finance and accounting outsourcing. Companies leverage BPO services from Genpact to streamline financial processes, including: bookkeeping, payroll, and other accounting functions. This strategic partnership enables businesses to benefit from the expertise and efficiency of specialized outsourcing providers in managing their financial operations.
  3. Human Resources: One of the top suppliers of outsourcing solutions for human resources is ADP, which is a prime example of using BPO for HR tasks. Companies that want to outsource payroll, HR administration, and workforce-related tasks go to ADP. Businesses can improve HR efficiency and reallocate internal focus to strategic core activities by using outsourcing partners' specialized knowledge and resources.

What Are the Advantages of Business Process Outsourcing?

Business process outsourcing (BPO) yields numerous advantages, shaping it as a pivotal strategy for business efficiency and growth. Key benefits include:

  1. Maximizing Savings: Cost-effectiveness with expert contractors, minimizing labor, infrastructure, and technology expenses.
  2. Increasing Productivity: Access to skilled professionals enhances efficiency and productivity, freeing up resources for strategic focus.
  3. Attracting Top Talent: Recruitment process outsourcing (RPO) facilitates hiring excellence with the latest technology and scalability.
  4. Providing 24/7 Support: BPO ensures round-the-clock customer service, boosting customer satisfaction and market reach.
  5. Focus on Core Business Processes: Outsourcing non-essential functions allows concentrated efforts on core competencies, fostering rapid growth.

What Are the Disadvantages of Business Process Outsourcing?

Some disadvantages of BPO include:

  1. Disruption of Corporate Culture: Outsourcing can disrupt the existing corporate culture, leading to job losses when tasks are transferred to a third party, impacting employee morale and job security.
  2. Communication Barriers: Language and cultural differences can hinder effective communication.
  3. Requires Extensive Planning: Successful BPO implementation demands thorough planning. Organizations need designated individuals to manage the outsourcing relationship, and careful consideration is essential when selecting a service provider, requiring meticulous planning and analysis.
  4. Hidden Costs: Beware of hidden costs associated with BPO, such as legal expenses. Ensuring comprehensive details in the agreement is crucial to avoid unexpected financial surprises during the outsourcing process.
  5. Dependency on Service Providers: Relying on external providers may lead to issues if they fail to meet expectations.

What Are Things To Consider in Choosing Between Outsourcing and BPO?

Deciding between outsourcing and business process outsourcing (BPO) involves key considerations:

1. Assess the Task's Strategic Value

Comprehending the task's importance in accomplishing organizational objectives is necessary for strategic value assessment. Assessing the task's degree of alignment with the main business activities is critical. Business process outsourcing (BPO) tends to be a better option if the activity is essential to your strategic vision and calls for close integration. It could be better to use traditional outsourcing for less-central activities.

2. Take Cost Into Account

Cost considerations play a pivotal role in decision-making. Analyze the nature of the task to determine cost-effectiveness. BPO typically offers savings for repetitive, high-volume tasks, making it suitable for routine operations. On the other hand, outsourcing may provide better value for specialized tasks requiring unique expertise.

3. Determine the Task's Nature and Qualities

It is essential to comprehend the characteristics and nature of the activity. Conventional outsourcing might be more suitable if the work is project-based, specialized, or one-time. BPO is more appropriate for continuous and repetitive processes because of its emphasis on routine, continuous tasks.

4. Consider Flexibility and Growth

Evaluate the flexibility and scalability offered by both options. Ensure that your chosen solution can adapt to changing business needs. BPO and outsourcing can both offer flexibility, but the choice depends on the specific requirements outlined in your contract. Assess the provider's ability to accommodate growth and changing circumstances.

5. Indicate the Level of Control and Engagement

Think about your ideal degree of participation. Traditional outsourcing might be a better option if you want a hands-off strategy in which the third party assumes total control. On the other hand, business process outsourcing (BPO) offers a more involved collaboration if you want to keep more control over the operations.

How Do Outsourcing and BPO Affect the Economy?

Outsourcing and business process outsourcing (BPO) can have a positive effect on the economy by lowering expenses for businesses and promoting international economic interdependence. But they might also result in job losses in specific industries, which would impact employment locally. Government policies that influence how outsourcing activities integrate with the domestic workforce and industries, as well as skill development and innovation, all have an impact on the economy as a whole.

Summary

This article presented outsourcing and business process outsourcing, explained each of them, and discussed their key differences. To learn more about outsourcing and business process outsourcing, contact a Xometry representative.

Xometry provides a wide range of manufacturing capabilities and other value-added services for all of your prototyping and production needs. Visit our website to learn more or to request a free, no-obligation quote.

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Xomety X
Team Xometry
This article was written by various Xometry contributors. Xometry is a leading resource on manufacturing with CNC machining, sheet metal fabrication, 3D printing, injection molding, urethane casting, and more.