Businesses are often structured in a complicated manner, with a number of cogs and bolts that have to function smoothly in order for the company to run well.
In order to keep things ticking over without too much hassle, businesses will outsource certain tasks and departments.
However, contrary to popular opinion, outsourcing is not as simple as hiring another firm and expecting them to do the work blindly. As with most areas of business, it is a little more complicated than that!
This is where business process outsourcing (BPO) and shared services come in. But what exactly is the difference between BPO and shared services? In this article, we will discuss both topics in further detail, understand the differences between the two, and see how they could be applied in real-life situations.
Let’s get started!
What is BPO?
BPO stands for business process outsourcing. It is the contracting of a specific business task, such as payroll, to a third-party service provider.
The company will still maintain control over the process and how it is executed, but it will be managed by an external company. This gives the company an opportunity to focus on other areas of the business.
BPO is a popular option for businesses as it can save them time and money. It can also be used to improve efficiency and quality control, as well as giving the company access to specialist knowledge and skills.
There are two types of BPO:
- Offshore outsourcing - this is when the company contracts the work to a third-party service provider in another country. This is often done to take advantage of lower costs.
- Onshore outsourcing - this is when the company contracts the work to a third-party service provider in the same country. This allows the company to maintain control over the process and maintain quality standards as best as possible.
What is Shared Services?
Shared services is the term used to describe the outsourcing of support functions within a company to a centralised team or department, ie. when a company provides certain services to other divisions/subsidiaries within the same organisation.
This means that there is no need for each individual company/division to have their own in-house department or team to carry out these specific tasks.
An example of this would be if a large corporation had its own legal team. Rather than each subsidiary company having their own lawyers, they would all share the same pool of resources, and access them as and when they need to.
This is a cost-effective way of working, as it means that businesses only have to pay for the services they use, rather than shelling out for an entire department that they may not need all the time.
It also helps organisations to streamline their processes and make sure that everyone is on the same page, as they are all using the same resources.
Shared services can be used for a number of different tasks within a business. These functions are often non-core to the business and can be things like HR, IT, finance, and marketing.
Shared services can be either internal or external, but is most commonly used within large organisations.
There are three types of shared services:
- Centralised - this is when the company has a central team or department that manages all the outsourced functions.
- Decentralised - this is when each business unit has its own team or department that manages the outsourced functions for that unit.
- Virtual - this is when the company uses a mix of both centralised and decentralised shared services.
Each type of shared services has their share of advantages and disadvantages.
For centralised shared services, the main advantage is that it can lead to cost savings as there is only one team or department that needs to be managed.
The main disadvantage is that it can be difficult to maintain quality control as the team or department may be located in another country.
For decentralised shared services, each business unit has more control over their own process and procedures — which can be an advantage as it means services will be more tailored to the division’s exact needs.
The key disadvantage is that it can be more expensive to manage as each business unit will have their own team or department.
And for virtual shared services, it offers the best of both worlds — cost savings and quality control. However it can be more difficult to manage as there are two teams or departments that need to be coordinated.
It’s important to pick the one that makes the most sense for your business.
Are you focused more on quality control or cost savings? The answer to this question will give you an idea as to which type of shared services would suit you best.
What is the Difference Between BPO and Shared Services?
The main difference between business process outsourcing (BPO) and shared services is that BPO involves hiring an external company to handle specific tasks or processes, whereas shared services refers to the internal sharing of resources and expertise within a company.
Shared services is a term that is often used in relation to human resources (HR), finance, and IT. It essentially means that instead of each department having its own HR/finance/IT team, there would be one central team that would be responsible for providing services to the entire company.
BPO, on the other hand, involves hiring an external company to handle specific tasks or processes. This could include anything from customer service and telemarketing to data entry and market research.
It is worth noting that BPO and shared services are not mutually exclusive — in fact, they can often be used together.
For example, a company may outsource their customer service to an external BPO provider, but they may also have a shared services team internally who are responsible for providing HR and IT support.
5 Benefits of Shared Services
BPO has some obvious advantages associated it, but what are the advantages of using shared services? Let’s delve into these a little bit further.
Being cost-effective is one of the main reasons companies engage in using shared services. When departments are able to share resources, it leads to a reduction in overall costs.
For example, rather than each department having its own human resources (HR) team, a company may opt for one central HR team that all departments can access. This is significantly cheaper than each department having their own separate HR team.
Shared services can also lead to greater efficiency within a company. It can eliminate duplication of effort and help teams to communicate more effectively with one another.
This can lead to a more streamlined and cohesive company overall.
3. Improved Quality
Improved quality is another key benefit of shared services. When departments share resources with each other, it can lead to a better distribution of knowledge and expertise across the company.
This improved sharing of information can help to raise the overall quality of the company’s products or services, which can massively improve the odds of long-term success for the company.
4) Increased Flexibility
Shared services can also make a company more flexible and agile. It can make it easier for them to adapt to changes in the marketplace or within the company itself.
This increased flexibility can be a major advantage for businesses, particularly in today’s rapidly changing business landscape.
5) Greater Scalability
Another key benefit of shared services is that it can make companies more scalable.
Sharing resources between departments allows companies to expand their operations more easily. This increased scalability can be a major advantage for businesses that are looking to grow in the future.
3 Situations Where Companies Can Use Shared Services
Companies may choose to use shared services in a wide variety of situations. Here are a few of the main ones in further detail:
Situation 1: When a company buys another, they may want to maintain both the original culture and the customer base of the new company.
In this case, they might choose to create a shared services organization that manages both companies’ back-end processes
Situation 2: A holding company might want to create a shared services organization for its different subsidiaries in order to streamline and standardize their operations
Situation 3: A group of companies in the same industry might choose to form a shared services organization in order to share best practices and economies of scale.
Challenges of Shared Services
Although shared services have their fair share of benefits, there are some challenges associated with them.
1) Poor Collaboration
One of the main challenges is that shared services can often be siloed, with different departments not working together as closely as they could. This can lead to inefficiencies and a lack of communication, which can impact the quality of work.
Shared services can also be inflexible, as they are designed to be used by a number of different businesses with different needs. This means that they may not always meet the specific needs of any one company, and this can lead to frustration.
3) Physically Distant
Another challenge is that shared services can be geographically dispersed, which can make it difficult to manage and monitor them effectively.
This can lead to a loss of control for divisions, and it can also make it difficult to build strong relationships with the controlling division.
Finally, shared services can be complex and confusing, as they often involve a lot of different moving parts. This can make it difficult for businesses to understand what is happening, and it can also make it difficult to make changes if needed.
BPO and Shared Services can both be used as ways to outsource certain areas of your business. We have highlighted what each of them are, the differences between them, and some situations where they can both be used.
See what would suit your company best, and go with that option as a way of outsourcing effectively!