As your business grows, certain tasks can become difficult to manage internally. For instance, if your company is expanding rapidly, you may not have the resources to correctly oversee things like recruiting or legal services.
This is where business process outsourcing (BPO) can help. BPO is contracting out specific business functions to a third-party service provider, freeing up some of your workforces and allowing more specialized or knowledgable companies to handle some of the things your company isn’t well-suited for.
In 2019, the global BPO market already amounted to $26 billion. It can take many forms, but the three most common are knowledge process outsourcing (KPO), legal process outsourcing (LPO), and recruitment process outsourcing (RPO).
In this article, we will answer:
- What is BPO?
- What are the benefits of BPO?
- What is KPO?
- What is LPO?
- What is RPO?
- What are the differences between KPO, LPO, and RPO?
- How do you choose a BPO partner?
- What are some common mistakes?
Ready to learn how to outsource? Let’s dive right in!
What is BPO?
Before we get too far, we need to have a full understanding of what BPO means.
Simply put, BPO is the method of using third-party service providers for some of your important business processes. Some examples might include:
- Outsourcing your payroll to a company that specializes in that field.
- Hiring a recruitment agency to help you find the best candidates for an open position.
- Having a marketing firm to help create and execute your marketing strategy.
This will likely look different for every business but can be valuable no matter the size of the enterprise. There are countless BPO providers out there, each specializing in different functions. It’s important to do your research and find the right partner for your specific needs.
What are the benefits of BPO?
While the real impact of BPO will be unique for each business, there are a handful of key benefits that are almost universal:
- Cost savings: By outsourcing certain tasks to a third-party provider, you can often save money on things like salaries, benefits, and office space.
- Increased efficiency: When tasks are handled by specialists, it leads to faster turnaround times and fewer errors.
- Improved focus: By outsourcing non-core activities, you can free up your team to focus on their strengths and strategic goals.
- Access to specialized skills: By working with a BPO provider that specializes in a particular area (like HR or accounting), you gain access to skills and knowledge that would be difficult or impossible to replicate in-house.
- Reduced risk: By outsourcing sensitive tasks, you can mitigate the risks or liability associated with them.
- Increased scalability: BPO providers can often ramp up or down their services very quickly in response to changes in demand, which can be helpful for businesses that hope to stay agile.
In more specific circumstances, BPO can provide several other benefits, including:
- Improved customer service
- Reduced environmental impact
- Greater focus on innovation
- Enhanced competitive advantage
However, it’s important to remember that not all BPO providers are created equal. Do your research and find a partner that can offer the specific benefits your business needs.
Before helping you choose which partner will be right for your situation, let’s take a look at the different parts of BPO categorization.
What is KPO?
Knowledge process outsourcing (KPO) is contracting service providers that offer specialized knowledge and skills. KPO providers typically have more experience and expertise in these areas than the companies who contract them, giving you access to years of finely tuned teams that you would otherwise have to build from the ground up.
KPO can be a great way to get high-quality work done quickly and efficiently. It can also be helpful for companies who want to focus on their core competencies and leave the specialized tasks to the experts.
Some of the things that KPO providers can offer include:
- Market research
- Data entry and analysis
- Medical and legal transcription
- Accounting and bookkeeping
- Software development
It is important to note that KPO providers typically charge more than other types of BPO providers. So if cost is a major concern, you may want to explore other options.
What is LPO?
Sometimes considered a sub-class of KPO, legal process outsourcing (LPO) is contracting out certain legal tasks to a third-party service provider. This can include activities like contract review, due diligence, intellectual property (IP) management, and more.
For example, if your company is considering moving to a new manufacturing plant, you may need to consider LPO to review all the contracts involved in the deal.
As with any legal services, it is extremely important to make sure the LPO you contract can provide:
- Confidentiality: Anything you share with your LPO provider must remain confidential.
- Compliance: Make sure your LPO provider is familiar with the laws and regulations of the countries in which they will be working.
- Expertise: The LPO provider you choose should have extensive experience in the specific legal tasks you need to complete.
If you’re looking for LPO, make sure to ask for references and do your research to ensure the company is reputable.
What is RPO?
One of the most common branches of BPO is recruitment process outsourcing (RPO) which is, as the name suggests, the outsourcing of a company’s recruitment process. RPO providers take over all or part of the recruiting process for their clients, from sourcing and screening candidates to conducting interviews and making offers.
RPO can be a great solution for companies that are struggling to keep up with their human resources needs. It can help reduce costs, improve efficiency, and get better-quality candidates.
Providers have access to a larger pool of candidates than most companies do on their own, and they can also help speed up the recruitment process by using specialized tools and techniques.
There are two main types of RPO: on-demand and full-service. On-demand RPO is a more limited service where the provider only provides recruitment services when they are needed. Full-service RPO is a more comprehensive, ongoing solution where the provider takes over all or most of the human capital management for their clients.
Research Process Outsourcing
Sometimes, RPO can also refer to research process outsourcing, which is the outsourcing of a company’s market research activities. In this case, it is usually used for activities like data collection and analysis, report writing, and consulting.
Recruitment and research are very different, so make sure that you’re contacting the right kind of RPO provider for your needs.
What are the differences between KPO, LPO, and RPO?
BPO categorization can get confusing, but if you know what the first letter stands for — knowledge, legal, or recruitment — you’ll remember in no time. Here are the one-line definitions for each, so that it sticks in your head.
- KPO refers to the outsourcing of high-level, knowledge-based tasks, like research, data analysis, and report writing.
- LPO is focused on the outsourcing of legal services like document review, contract negotiation, and trademark filing.
- RPO is all about finding qualified candidates for open positions within a company and then onboarding them, including activities like candidate screening, interviews, and testing.
Not so hard now, is it? Let’s move on to some simple tips on how to select the best provider for your needs.
How do you choose KPO, LPO, or RPO partners?
So you understand the benefits of BPO but you’re still not sure which parts of your business could be improved by outsourcing. Let’s take a closer look at some tips for hiring each branch.
Figuring out which tasks could use knowledge outsourcing can be difficult, so be sure to ask yourself the following questions:
- What are the core skills of my team?
- What are the areas in which my team is weakest?
- What tasks could be performed by a specialist?
- What can I outsource without compromising the quality of my product or service
- How can I mitigate the risk of outsourcing?
Answering these will help you determine which areas would be best suited for knowledge process outsourcing.
Once you’ve identified a task that could use KPO, it’s important to find the right partner. When looking for a KPO provider, make sure to ask about their:
- Expertise: Are they specialists in the area I need? Do they have experience working with businesses like mine?
- Team: What is the composition of their team? Do they have the skills and experience I need?
- Processes: How do they work? Can they provide me with a process flowchart or a detailed explanation of how they would handle my project?
- Track Record: Have they worked on projects similar to mine in the past? What was the outcome?
- Price: How much will this service cost me? Are there any hidden fees?
Finding a provider that meets your needs can be hard enough, but you also need to create a detailed contract that outlines the responsibilities of both parties. This will help avoid any misunderstandings down the road if conflict ultimately arises.
As discussed above, finding the right legal partner can be a difficult task. First, you’ll have to be able to answer these questions:
- What specific services do you need?
- How much experience does the law firm have in your industry?
- Can they provide a detailed plan of action?
- Are they able to adhere to your budget restraints?
Once you’ve answered these questions, it’s time for the next step: interviewing firms. Don’t just jump into the first car that offers you a ride! During this process, make sure to ask about their past experiences with similar cases and get references from other businesses that have used their services.
It’s also important to be aware of common LPO scams. For example, some companies may promise quick and easy legal solutions but fail to provide the proper protections for you or your company. Always do your research before choosing a law firm to outsource your legal work.
- What is their experience with your specific industry?
- Do they have a good understanding of local and national labor laws?
- Can they provide a detailed plan for the entire recruitment process, from start to finish?
- Do they have access to a large pool of qualified candidates?
- How do they ensure that only the best candidates are interviewed and hired?
If you can answer yes to all these questions, then you’re likely in good hands.
Still, you’ll need to consider some other things including budget and company culture. It’s important that the RPO provider you choose is a good cultural fit for your business, or you could risk alienating your current employees.
Common mistakes to avoid
Managing projects and controlling recruitment can feel like things that need to be done in-house, so attempting to outsource them can seem like an overwhelming idea. That commonly leads to simple mistakes, which in turn become big problems. Make sure to avoid some of these pitfalls of BPO:
- Not knowing what you want: This is probably the biggest mistake businesses make when outsourcing. Without a clear idea of what you need, it’s impossible to accurately communicate with potential providers or evaluate their proposals.
Worse yet, you may wind up entrusting important business functions to a company that can’t deliver on its promises.
- Not doing your research: Just as important as knowing what you want is knowing who you’re dealing with. Do some digging on potential BPO partners and make sure they have a good track record of success. Check reviews and speak with other businesses that have worked with them.
- Not planning enough: Outsourcing is not a one-time event — it’s a long-term relationship. So make sure you plan out all the details of what you expect from your provider and how they can help your business grow. Failure to do so can lead to misunderstandings down the road.
- Not managing expectations: This goes hand in hand with planning, but it’s worth mentioning separately. One of the main benefits of outsourcing is that it can free up your team to focus on more important tasks.
However, that only happens if everyone is clear on what the outsourced tasks are and what results are expected. Otherwise, you’ll just be putting more work on your own team’s plate.
- Not budgeting for it: Outsourcing can be expensive, so it’s important to estimate and set aside a budget for it. Make sure to factor in not only the cost of the provider but also the time and effort required from your team to manage the relationship.
- Going into it blindly: It’s natural to be nervous about outsourcing your business functions, but don’t make the mistake of going into it without doing any research or planning. That will only lead to headaches and wasted money.
If you can avoid these common pitfalls, you’re on your way to a successful BPO relationship — whether it’s KPO, LPO, or RPO!