In order to determine where businesses stand today, we need to take a look at history to see how certain aspects have developed.
One such aspect is business process outsourcing (BPO), which has deep historical roots. Today, BPO is considered a strategic imperative for most organizations. But it wasn’t always this way.
This is why in this article we explore the history of outsourcing and where this business practice is headed in the future. Keep reading to find out more.
What is business process outsourcing?
Business process outsourcing can be briefly defined as a strategic move where an organization selects a third-party service provider to handle some of its business tasks.
These third-party service providers can be in a different country to the main organization and they usually compete well and are able to secure BPO contracts due to lower labor costs, higher efficiencies, and greater productivity.
In fact outsourcing can increase productivity and competitiveness between 10 and 100 times.
Examples of outsourced tasks include human resources outsourcing, accounting and finance outsourcing, supply chain management, marketing, and more.
With a rising and sharp focus on BPO, it’s worth noting that the industry is on the rise. It’s expected that by the year 2027, BPO will be worth an impressive $405.6 billion.
In addition, the average global manufacturer outsources around 70% to 80% of its finished product. The benefits of this are enormous.
The evolution of business process outsourcing
There are conflicting views about business process outsourcing’s history. However, there is some alignment in terms of the origins of the term and its subsequent evolution. Here is a brief breakdown of the evolution of BPO around the world, with key dates and developments being emphasized.
- Pre-Industrial Revolution: Here, we see outsourcing of stockpiled crops through different distribution channels.
- Middle Ages: The organization of work and trade started to evolve, leading to outsourcing of manufacturing and logistics, in addition to other skilled trades such as transoceanic voyages and military outsourcing.
- Industrial Revolution of 1760 and late 18th century: Ship crews continue to be outsourced for greater productivity.
- 1800s: Japan sought assistance to help modernize its armed forces from Western military missions.
- 1937: It is believed that the term “offshore outsourcing” was coined in a paper published during this year by economist Ronald Coase.
- 1950s and 1960s: Outsourcing continues to gain traction. Developments in science and technology made many organizations rethink their operations, realizing that keeping everything within a single organization would be impossible.
- Early to late 1980s: BPO begins to be perceived as an attractive business strategy, primarily driven by the “focus on core competency” strategy developed in the 1970s. During this phase, non-core activities were outsourced as a method of reducing business costs. It was in 1989 when outsourcing became a legitimate business strategy.
- Early 1990s to early 2000s: The emergence of “strategic outsourcing” arises. This shift indicates a move away from non-core activities to outsourcing strategic business processes, which have a direct impact on a business’ performance and its ability to compete. Through this strategy, businesses focus less on cost optimization and more on accessing external expertise to complement a business’ existing and future capabilities to gain a competitive advantage.
- Early 2000s: The next phase developed into “transformational outsourcing”, providing greater levels of flexibility in adopting new technological advances. The purpose behind this is an entire paradigm shift that seeks to usher in new business models that are highly agile with the aim of increasing profitability, growing market share, and improving shareholder value. This led to diversification of the job market.
- 2020s: Outsourcing objectives have now shifted from agility, quality, and scalability to cost reduction, flexibility, and speed to market. Part of the reasons for this were the Covid-19 pandemic when tough decisions needed to be made quickly and smartly. As such, outsourcing was again a reason behind organizations seeking cost reductions with flexible contracts and the ability to make faster moves. Also, with the rise of modern technology, BPO has been formed, becoming one of the fastest-growing business sectors in the world.
Modern outsourcing practices
Looking at outsourcing’s evolution requires an understanding of modern outsourcing practices.
We already mentioned some of the industries that are taking advantage of BPO, including human resource outsourcing, supply chain management, sourcing and procurement, finance and accounting, data entry, AI enablement services, and content moderation, among others.
However, to be successful, modern organizations need to follow updated and developing outsourcing practices to ensure their continued success. Among these practices include:
- Managing the relationships with BPO vendors
- Maintaining strategic responsibility
- Creating multiple organizational links, promoted at every level of the company
- Holding regular meetings
- Taking advantage of technological developments
- Giving fair incentives and penalties
- Defining the change process
- Honoring the relationship as a strategic asset to your company
The future of outsourcing: global outsourcing trends
As for the future of BPO, some important outsourcing trends are emerging and are worth paying attention to. Among these include the following:
- BPO vendors should focus on providing omnichannel solutions
- Emerging technologies must be leveraged as they augment the skills of people
- Ensure greater capabilities in fostering a stronger alignment with the organization’s customer base
- Add value in contributing to business outcomes
- Hyper-competition will continue to rise and BPOs should be well-prepared for this scenario
- There will be a greater focus on project and process leadership to ensure the business stays on course with the help of their BPO vendor
- Outsourcing is expected to continue to go global and collaboration and global leadership will become the norm
- Organizations are expected to unite external resources and focus them into precise points of action to meet their customers’ needs
Despite its constantly-evolving nature, BPO is here to stay as it helps to make organizations leaner and more agile while introducing cost efficiencies.
It’s time for your business to embrace the future of outsourcing as it will help you stay ahead of the curve in the evolving business landscape.
To make sure we understand your needs and can take you forward while optimizing your outsourcing strategy, don’t hesitate to contact us now.
Let’s collaborate and make your business more competitive than you ever imagined.