Business Process Outsourcing (BPO) is transferring the business process of an organization to another company for the accomplishment of a business task. The phenomenon of globalization of services in the form of outsourcing was not so well established before a decade however with emerging technology and success, now BPO encompasses crucial functions like financial and administration (F&A) processes, human resources (HR) functions, call center and customer service activities and accounting and payroll etc.

While cost remains the primary factor, in current business scenario outsourcing is being regarded as strategic planning and business outcomes tool. Here is a closer look at the major benefits of outsourcing:

Cost reductions: The most important advantage of outsourcing is cost savings. BPO companies have competent work force available at low salaries. Cost reduction is done through process improvements, and use of technologies that reduce and bring administrative and other costs under control.

Focus on core business: Outsourcing all non-core yet critical functions like day-to-day back office operations lends the opportunity to the company to identify and focus on its core competencies. Outsourcing gives more freedom to the management to focus more time, energy, and resources on building the company's core businesses.

Access to outside expertise: The business process being outsourced may not be the core competency of any company but outsourcing can provide companies with skilled and proficient work force which is specialized in that particular business process.

Increased Capabilities: Another big advantage outsourcing leads to is increase in capabilities of the employees and the company. Apart from increase in efficiency it gives more scope to invest in infrastructure which results in ability to deliver new products and services to their customer.

Improves overall productivity: An outsourcing provider's cost frame and economic competitiveness can provide your company a significant competitive edge. With more productive time at hand due to off shoring of non core work, management can focus on more important tasks like formulating strategies, exploring new areas for revenues and focusing on their customers.

Improve the HR function: HR processes and transactions outsourcing not only reduces the overall cost of managing HR function, but makes it more efficient. Gradually more companies are getting motivated to outsource their transactions and processes for creating a strategic HR function, and free the HR function to focus on strategic people practices that drive growth and add to add value to their business.

Improved customer satisfaction: Outsourcing can benefit you from increased customer satisfaction with high-quality services and timely deliveries which further helps in building strong relation with your customers.

Gives competitive edge to your company: By outsourcing your organization gets access to specialized services, and thereby provides your customers with best-of breed services. The benefits of outsourcing can give your organization a competitive edge in the worldwide market.

Better management of capital costs: Outsourcing recreates capital by reforming the fixed costs into variable costs. Reduction in capital and operating expenses brings more capital for investment in some other areas of your business. Outsourcing can thus make your company more appealing to other investors, since you're able to provide more capital directly into revenue-producing activities.

The Drawbacks of Outsourcing

Like everything else, outsourcing also has its drawbacks. Below are the drawbacks that outsourcing might pose on your business.

Management & Control Problems: Due to factors like geographical distance, time-zone difference, and lack of face-to-face communication, effectively managing an offshore operation is difficult.

Cross-Cultural Communication Drawbacks: Often off shoring company and outsource service provider belong to different cultures, there is also the possibility of having miscommunications, through the orders, the tasks and through very means of communication.

Exposure: There is always is risk of breach of confidentiality, malicious use of system access, and other vulnerabilities in your organization since outsourcing exposes a certain part of your business to a third party.

Business Implications: As the outsourcing company may leak the valuable process information of an organization to the potential competitor who offers better rates. This can lead to organizations loosing its customers entirely to their competitors.

Failure to deliver the quality: Outsourcing trusts a third party to deliver a task with a certain desirable quality. Should your provider fail to deliver, you are likely to suffer the consequences despite the SLA.

Time differences can also cause a project to run into snags. Lack of coordination between people having different cultural backgrounds and different time zones can also lead to time losses.

Finally a company should not be just enchanted by the merits of outsourcing but should also be considerate of its pitfalls; However, the truth is, if it is managed efficiently, it is one of the best ways for a company to stay competitive, to expand, enhance its growth and minimize the costs.