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4 better alternatives to Business Process Outsourcing

When management teams and company boards look for ways to cut back costs, gain efficiency and drive savings, an often-heard term is Business Process Outsourcing (BPO). As you may know, BPO refers to the situation where companies outsource business processes to a third-party (i.e. external) company.

It can apply to many types of industries and to both front office and back office tasks. But what are these companies actually getting from outsourcing? And aren’t there better alternatives nowadays, using technology to automate processes? With OCR for invoices, for example, you can replace a lot of manual tasks with just one software solution.

This article aims to answer these questions and present you 4 better alternatives to BPO.

 Why do companies outsource?

In the last decade, outsourcing has been the go-to solution for companies wanting to gain operational efficiencies. We list the 3 most mentioned reasons why companies turned to outsourcing below:

  • Cost savings
  • Focus on core business
  • Increased flexibility

 Cost savings

Saving costs is the primary reason most companies outsource business processes. Over half of the respondents in our survey indicated that cost reduction was the primary reason to outsource.

Instead of running an expensive team in-house, outsourcing processes to countries such as India and the Philippines provides companies with skilled talent at a fraction of the cost compared to countries in Europe, the U.S. or Australia.

 Focus on core business

Money is not the only resource that is freed up when outsourcing, it also frees up more time for organizations to focus on their core business. 

When non-core areas of the business, such as payroll or finance and accounting, are completely outsourced, companies have more time to focus on building and developing partnerships, increasing sales, innovating products and services, and so on.

 Increased flexibility

With the aftermath of COVID and the uncertainty surrounding today’s global economy, businesses need to be able to expand or downsize quickly. Due to tight labor markets or fixed contracts, this might not always be possible in their home country.

Outsourcing provides more flexibility because companies can change an outsource vendor if required, or only hire them when needed. Changing a vendor in case of poor performance is also much easier than replacing a full-time employee.

4 better alternatives to Business Process Outsourcing

 Commonly outsourced business processes

 

Not all processes are suitable for outsourcing of course. To give you an idea of the type of tasks that companies outsource, we list the most outsourced functions below:

  • Accounting and bookkeeping
  • IT services
  • Human Resources

 Accounting and bookkeeping

Accounting is a textbook example of a task that can be outsourced because it involves a standardized methodology that professionals all over the world know.

Most small businesses don’t have the capacity to handle the level of attention and detail required by an internal accounting department. By outsourcing accounting and bookkeeping tasks to a third party, they can save time and money, and make sure those important accounting details don’t slip through the cracks.

 IT services

IT is one of the largest outsourcing industries around. In fact, according to statistics from Statista, the global market for outsourced IT services reached $85.6 billion in 2021. 

Companies can outsource processes to a managed service provider or work with a firm that offers on-demand assistance to handle any IT issues or initiatives they may have.

 Human Resources

Human Resources encompasses any tasks related to hiring, onboarding and managing employees. Think of tasks such as payroll, recruiting and training, all of which can be very very time consuming.

The most common type of outsourcing in this area is to work with a recruiting service to bring in qualified candidates for a new position. Nonetheless, there are options to outsource training and payroll management as well.

4 better alternatives to Business Process Outsourcing

The disadvantages of Business Process Outsourcing

Just like any other business activity, outsourcing is not all moonlight and roses. Let us briefly discuss its drawbacks, before we shift our attention to better alternatives:

  • Lower quality standards
  • Less control
  • Miscommunication
  • Hidden costs
  • Uncertainty
  • Security risks

 Lower quality standards

Outsourcing vendors are often not driven by the same standards and mission as the company that hires them. They are driven by profit, instead of quality metrics that would be in place if the process stayed in-house.

Since the price in the outsourcing contract is fixed, the only way for an outsourcing provider to increase its profits is to lower costs. More often than not, this leads to a lower quality of the service delivered.

 Less control

When companies outsource business processes to external agencies or freelancers, they lose control over how those tasks are being monitored and performed. In addition, they lose the ability to rapidly respond to changes in the business environment because there is now an extra layer of people and processes to work through.

Miscommunication

Different languages, dialects, cultural nuances and technological difficulties can make it hard to work together efficiently. In fact, language barriers have even been found to be the most common communication barrier causing misunderstanding and misinterpretations between people.

 Hidden costs

Although outsourcing business processes is generally considered cheaper, there are situations in which companies face hidden costs. Some outsourcing companies require companies to sign lengthy contracts that cover the details of the service provided. Anything not covered in the contract will be the basis for additional charges.

Also, there will be legal fees involved in getting a lawyer to review all contracts and make required changes.

 Uncertainty

Turning over business processes to an external company, ties a business to the financial well-being of that company. You can predict the health of the outsourcing company by performing due diligence and a review of the company’s financial statements, but this is never bullet proof.

One of the worst things that can happen is that the vendor underperforms financially and therefore defaults on their contractual obligations. Or even worse, they file for bankruptcy and seek protection from their creditors.

Security risks

Data protection and GDPR are hot topics nowadays. When companies use privacy-sensitive data (e.g. payroll or medical records) that will be transmitted or used by an outsourcing company, they must be extremely careful and need to have proactive safeguards to protect this information.

Just imagine the impact it may have when this kind of data is lost or fraudulently used by an offshore company…

That’s quite a lot to digest, right? Luckily, there are many better alternatives to outsourcing, which will be discussed in the last section of this article.

4 better alternatives to Business Process Outsourcing

 Better alternatives to Business Process Outsourcing

Forty years ago it made perfect sense that companies started outsourcing tasks that didn’t require specific skills or didn’t add a lot of value. Fast forward to today, and it seems a bit outdated and old fashioned. That’s all because there is a big game-changer in the industry: technology!

More and more companies are starting to automate tasks instead of outsourcing them. With the help of different technologies they are able to minimize the workload for their employees. They benefit from the same things as they would with outsourcing, because both costs and time are saved, but now there is no external company involved.

Below are four better alternatives to outsourcing that drive the move towards automation:

  1. Low-code platforms
  2. Optical Character Recognition (OCR) software
  3. Robotic Process Automation (RPA)
  4. AI and Machine Learning

 1. Low-code platforms

Low-code platforms allow people without coding expertise to create applications that can help them do their work more efficiently. A large player in this area is Mendix, which offers a low-code platform to develop mobile and web apps. 

With these platforms, you don’t have to write code line-by-line. They allow you to draw a flowchart and the code will then be created. In addition, low-code platforms offer a wide variety of plugins that you can use to embed certain functionalities in your application.

The Klippa OCR API, for example, is available as a plugin for Mendix, with which you can easily integrate Optical Character Recognition (OCR)  and AI into your own application. It works perfectly for data extraction and verification on receipts, invoices, contracts, passports and more.

2. Optical Character Recognition (OCR) software

OCR is a widely used technology for recognizing text on documents, such as scanned documents or photos. OCR technology is used to convert virtually any type of image containing written text (i.e. typed, handwritten or printed) into machine-readable text data.

Many companies consider OCR as an essential technology for automating their workflows. It helps people work faster with minimal errors in document verification, invoice management, contract processing and identity document processing.

Klippa takes OCR to the next level by combining its OCR software with machine learning and AI. This leads to huge improvements in accuracy rates of multiple formats and languages. The AI-based OCR is even able to differentiate between handwritten text and scanned documents and extracts information from graphic formats like posters and brochures.

3. Robotic Process Automation (RPA)

Robotic Process Automation (RPA) refers to software that can be easily programmed to do basic, repetitive tasks across applications. RPA creates and deploys a software robot with the ability to launch and operate other software.

A well-known RPA provider is UiPath, which provides a complete software platform to help organizations efficiently automate their business processes. Just as with low-code platforms, you can use RPA plugins to include exciting features into your solution. With the Klippa plugin, for example, you can extract and process data from documents, PDFs, emails and other forms within a matter of seconds.

 4. AI and Machine Learning

AI and Machine Learning are the brains behind most of the technologies listed above.  Machine learning algorithms empower software to automatically learn and improve from experience without being explicitly programmed for it.

It relies on a constant stream of data to learn from and requires an extensive data set to train its algorithms. If the volume of data is too small, machine learning technologies would not be able to function with a high level of accuracy. It may be quite hard to train a model yourself, but luckily you can benefit from the expertise of others.

Every technology has its own strengths and the good thing is they can all be combined to create an even more powerful tool. All the components can be integrated in low-code and RPA solutions as well, so there’s literally no limit to the application possibilities.

So prepare yourself for the future and start thinking about ways to automate business processes rather than outsourcing them.

Author name: 

Yeelen Knegtering

Author bio: 

Yeelen Knegtering, CEO & Co-founder of Klippa, is passionate about developing digital products that help people to save time on administrative hassle and spend time on the things they love. With a degree in Information Technology at the University of Groningen, he started Klippa with the idea that there had to be a better way to organize and manage receipts. Now, Klippa is a document digitization company with a focus on digitizing and automating document streams for companies.

Source: Plato Data Intelligence

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