FAQ

Outsourcing FAQ

Are the terms “contracting” or “contracting out” synonymous to “outsourcing”?

Although these two terms are often interrelated, they represent two different things and therefore must not be interchanged. The concept of contracting is when one company is buying goods and services from a supplier or vendor. In this scenario, the buyer holds the power in the contract and holds control over the process. The buyer, therefore, holds the ability to have the goods or services delivered in the quality or performance that is agreed upon by both parties upon finalizing the contract. It is the supplier’s responsibility to follow the buyer’s instructions or requests and make sure they are efficiently met. If the contract is broken, the buyer has the right to end it and look for other suppliers instead.

When it comes to outsourcing, that control is handed over to the supplier. The only role the buyer has in the process is to provide instructions as to what it wants to be achieved and it is in the sole discretion of the supplier to find ways on how to accomplish those results that will satisfy the buyer. But achieving that is quite easy, knowing that the supplier is an expert in a certain field before they are chosen for the task. The real value of this business scheme therefore lies in the expertise of the supplier and how they can utilize that to satisfy the job assigned for them. The accountability on the part of the supplier is one of the vital elements that make outsourcing challenging yet lucrative at the same time.

What does BPO mean?

BPO is acronym for Business Process Outsourcing, which is a business method wherein outside or remote vendors provide services to a buyer. Some of these services include call centers, accounting, employee payroll, among other types of BPO services.

BPO has greatly evolved during a span of few years since it was first introduced in the market and until today when it has become widely mainstream. Novices might falsely conclude it to be another term for outsourcing but it is not true at all. In BPO, the supplier is not only responsible for doing the job assigned to achieve the buyer’s desired results, but they are also given the power to change the approach done in order to get there. It might even require adding a new technology that will efficiently lead to the accomplishment of results or using existing technology in a different approach. To conclude, it is therefore about changing the ways or processes done in order to produce something. It might even be so massive as to impact the entire company’s functions and other processes in exchange for more beneficial enhancements.

What are the lapses in an outsourcing industry that cause it to fail?

The concept of outsourcing relies on a few basic principles that must be applied on the outset of your working relationship to ensure that both parties communicate and are working together efficiently. Once an agreement is met between the buyer and supplier, it revolves around those fundamental principles. If any one of the agreement is not met, the contract could be easily terminated due to unsatisfactory results.

The most basic principle will identify the scope of the service provided for by the supplier and what are the standards for the performance that is expected of the supplier. Unless that is secured, the buyer will not gain the confidence in the supplier to be able to deliver what it wants and get the value of the money paid for. A certain level of accountability is therefore left on the part of the supplier. All of the terms related to this must therefore be clarified and properly understood by both parties before signing up for the contract. This method will start to fail if the buyer fails to clearly indicate what it wants to achieve from the supplier and they let the latter determine the performance levels to be met. If this is the case and the buyer fails to dictate exactly what is to be achieved, then there is a possibility that the buyer will not be satisfied with the services in the end.

Another reason for failure in an outsourcing industry is when the buyer fails to specify what it expects of the service, including the scope and its individual components. Without the specification, the supplier often takes it upon themselves to provide something that the buyer does not need and yet they will be charged a premium for that service. In the end, the supplier gets the short end of the stick as they are getting paid for less than the scope and quality of service they have provided. A clear job description and scope of services must be properly outlined to avoid the supplier doing services that are not expected of them.

What is a business process?

This covers interrelated tasks that utilize the input and come up with an output that the customer finds of value or to any other business processes. Some of the common business processes are receiving orders, entering transactions, sending purchase order, and receiving invoice.

What is BPM?

BPM is acronym for Business Process Management that involves management of all business processes. The goal here is to produce effective, adoptable, and efficient methods to adapt to changes in the business conditions.

What is Financial and Accounting BPO?

This type of outsourcing service is focused on providing Financial and Accounts scope of work such as Accounts Payable and Receivable, Mortgage Processing, Tax, from a remote vendor.

What is Offshore BPO?

This type of BPO is when you move the center of your business processes from one country into another.

What is Offshore F&A BPO?

As the name implies, this type of BPO focuses on Financial and Accounts type of work that is relocating from one business center into another country.

What is KPO?

KPO is acronym for Knowledge Process Outsourcing. It requires remote vendors to provide services that require advanced degree such as PhD, MS, or MBA in order to secure KPO projects. Among the highly skilled jobs available in a KPO industry involve medical research, stock analysis, financial analysis, and equity research, among others.

What is the difference between outsourcing and offshore outsourcing?

Outsourcing is when you transfer the business process of a company to an external organization, which is often located in a remote location in the same country. But when the external organization is based on a foreign country,  that is when it is referred to as offshore outsourcing.

The external organization often has their parent company established in a different country and the process of transferring work to another branch is called offshoring.

What is the difference between process outsourcing and product outsourcing?

BPO mostly involves process outsourcing, while product outsourcing involve development of a product from end to end through an outside vendor. Offshore product outsourcing is when the vendor is located in a different country or physically distant from the buyer.

What is nearshore outsourcing?

This type of outsourcing happens when the vendor is located at a geographically closer distance from the service or business that is being outsourced. For instance, a UK company decides to outsource services from a vendor located in Scotland or Ireland, then that is considered nearshore outsourcing. As compared to offshore outsourcing, nearshore outsourcing has benefits such as lesser travel expenditure and a nearly similar culture or language.

What is BTO?

BTO is acronym for Business Transformation Outsourcing, wherein a company outsources its entire business process to an outside vendor. Aside from managing the business processes of that company, a BTO vendor has to work together with the company in transforming and enhancing the current business processes to ensure strategic advantage is given to the company’s shareholders. If you want to find out more about how this type of outsourcing method works, you can read a dedicated article on BTO to learn further.