HR Glossary

Business Process Outsourcing (BPO)

Business process outsourcing is a term which refers to a process of hiring other companies to do the set of business activities or a single function related to the company’s business.

what-is-business-process-outsourcing-bpo

Definition of Business process outsourcing (BPO)

Business process outsourcing is a term which refers to a process of hiring other companies to do the set of business activities or a single function related to the company’s business. It allows companies to save cost and focus on core activities.

When the company taking over responsibility for a function is located abroad a term ”offshoring” may be used.

Types of business process outsourcing

1. Back-office outsourcing: outsourcing of internal business functions like payroll, HR, etc.

2. Front-office outsourcing: outsourcing of customer related processes like technical support, maintenance etc.

Pros and cons of business process outsourcing

Pros:

1. Focus on core competency

2. Cost reduction

3. Business process efficiency increasement

4. Focused teams solving problems

Cons

1. Third party vendors dependance

2. Lack of complete knowledge of product/service

3. Less focus on quality due to lower cost offerings through outsourcing

How do you pay for outsources work?

When a company hires another company to handle part of their work, such as customer service, the payment structure can vary based on the agreement between the two parties. Common payment models in these outsourcing arrangements include:

Fixed Fee or Flat Rate: The outsourcing company is paid a set amount for the services provided. This fee is agreed upon in advance and is typically not dependent on the volume of work. This model is often used for services with predictable workloads.

Per-Hour Rate: Payment is based on the number of hours worked by the outsourcing company’s employees. This model can be preferred when the workload is variable and difficult to predict.

Per-Transaction or Per-Interaction Fee: In customer service, this model involves paying for each interaction handled by the outsourcing company (e.g., per call, per email, per chat session). This is common in environments where the volume of interactions can fluctuate significantly.

Performance-Based Pricing: Payment is tied to the achievement of specific performance metrics or outcomes, such as customer satisfaction ratings, resolution times, or sales targets. This can be done by defining specific OTEs. This model aligns the outsourcing company’s incentives with the client’s goals.

Retainer Model: The client pays a regular, recurring fee (monthly, quarterly, etc.) for a set package of services. This model can provide stability for both the client and the provider.

Combination Models: Often, a hybrid approach is used, combining elements of the above models. For example, a fixed fee might cover a base level of service, with additional costs for extra hours worked or bonuses for achieving performance targets.

The choice of payment model depends on various factors, such as the nature of the work, the predictability of the workload, the desired level of control over costs, and the importance of performance metrics. The agreement is usually detailed in a contract, which outlines the scope of services, payment terms, performance expectations, and other relevant conditions.

See TalentLyft in action

Applicant Tracking, Recruitment Marketing, Sourcing and Talent CRM software are powerful alone, but unstoppable when used together!


Related content

  • 360 Degree Feedback is a method which gives employees the opportunity to receive  anonymous performance feedback from their coworkers and superiors.Definition of 360 degree feedback360 Degree...

  • Candidate is a job seeker who has been pre-qualified for a specific position or category of jobs and has been through the application processWhat's a candidate?A...

  • Competency modeling is a framework for defining the skills, knowledge and behavior requirements of a job. Competency modeling definitionCompetency modeling is a framework for defining the skills,...

  • Developmental counseling is a type of shared counseling where employers work together with employees to identify strengths and weaknesses, resolve performance-related problems and determine and create...

Explore more topics

  • HR Software

    Let HR technology make your work life easier! Streamline your HR processes, from payroll and benefits to talent management and recruitment, with powerful HR software. Save time, reduce manual tasks, and focus on strategic initiatives by working smarter, not harder.

  • Internal Recruitment

    Your organization's most valuable assets are the talents you already have. Maximize the potential of your existing workforce and learn how to use internal recruitment to build a stronger, more agile, and highly skilled team that's ready to tackle the future.

  • Employee Referrals

    Boost your hiring success with employee referrals. Leverage the power of your existing workforce to recommend top talent, reducing time-to-hire and improving candidate quality. Learn how to create an effective employee referral program that incentivizes employees, enhances engagement, and strengthens your recruitment pipeline.

  • Training and Development

    Training and development of your existing and new employees is what drives organizational success in the long term. By giving your people opportunities to educate themselves and improve their skills and expertise, you create a culture of learning, reducing turnover and improving productivity. Learn all the best practices and set up your employees for success!

  • Job Advertisement

    Learn how to craft compelling job postings that attract top talent. Discover the best platforms to publish your job ads and effective promotion strategies to reach a larger pool of high-quality candidates. Maximize your job ad's visibility and ensure you get the right candidates for your open roles.

  • Employer branding

    Employer Branding: Strengthen your company's reputation as an employer of choice. Learn how to showcase your culture, values, and work environment to attract top talent. Build a strong employer brand that sets you apart from competitors, enhances candidate attraction, and boosts employee retention for long-term success.

Simple and affordable recruitment software