6 Reasons Using Back Office Services Will Save Your Office Headaches, Time, and Money
Back office business process outsourcing (BPO) is the practice of outsourcing supportive and administrative business processes like accounting, bookkeeping, data entry, human resources management or information and technology to an external company, rather than developing these critical business departments in-house.
Companies across several industries have begun to outsource their back office services in an effort to stay competitive in the global marketplace – but how exactly does outsourcing back-office business processes help companies to save time and reduce costs?
That’s exactly what we’re exploring in this week’s article. We’ve identified the top six ways in which back office service providers are delivering value to their clients around the world. Keep reading to understand the full benefits of outsourced back office services.
Companies Save on Costs with Outsourced Back Office Services
The most important reason that companies outsource their back office functions is cost reduction. Think about the differences between the front office and back office of an organization: the front office has all of the roles that drive revenue, while the back office functions do not make any money for the company. The front office is the profit center and the back office is the cost center. While companies are optimizing and refining their front office processes to maximize revenue, the goal of business process optimization in the back office has to be cost reduction.
So how do companies save so much money by outsourcing? Firms that provide back-office services operate in cities with lower real estate costs and countries with lower labor costs. As a result, it costs significantly less for these firms to leverage greater amounts of human capital.
Outsourcing in this way makes sense when you consider the many costs of running back office services in-house. Companies have to recruit, hire and train employees, lease an office space, provide furniture, equipment and software, and more, all for a business department that doesn’t actually make money for the company. All of these costs can be mitigated through offshore outsourcing companies that pay cheaper rent and lower labor rates.
Companies Benefit from Flexible Resource Management
Flexible resource management is one of the key value-adds associated with outsourcing back office services. To understand the benefits, let’s use the example of a health insurance company that hires back-office staff to process claims. The company invests money in leasing an office space, recruiting and hiring employees, training them and providing them with the software and equipment needed to do their jobs. Sometimes there are hundreds of claims that need processing throughout the day, and the back-office has to pay inflated wage costs in the form of over-time. Sometimes, the office isn’t so busy and with few claims coming in, claims processors spend their day browsing the internet with no work to do.
Fluctuations like this are normal for all businesses – sometimes you’re busy and sometimes you’re not – but the reality for most companies is that they can’t just lay off people when the business is slow for a week, nor can they avoid paying huge over-time costs when there’s plenty of work to do.
Not only can back office service providers offer outsourcing at a cheaper rate than in-house, they offer their customers the flexibility of only paying for work that is completed. Your company can stop paying people to be unproductive at work, and reduce labor costs from overtime wages.
Companies Can Reduce their Risks
Back-office employees must be kept busy, otherwise the money spent to recruit, hire and train them is wasted. This represents a significant risk to the hiring company, as labor regulations may complicate the process of terminating excess employees. Here’s an example:
Your company acquires a major client, requiring you to hire three additional back-office employees to manage the increased load of paperwork and processing. After you have paid to recruit, hire, train, and equip your new workers, they start fulfilling work orders in relation to your newest client. However, three months later, the client jumps ship. You no longer have work available for your new employees, and you’ve already invested significant cash in training these people.
If you had expanded your back-office team through an outsourced back office service provider, you would have saved all of the money spent on office space, recruiting and hiring, and you would be able to easily scale back your service to the exact level that your business requires. Back office service providers help you reduce risk by dramatically reducing the cost and increasing the convenience of expanding or contracting your back-office operations.
Companies Gain Enhanced Access to Services and Technology
Often, companies that choose to contract their back-office services to an outsourcing company can save money on capital investments, directly benefiting from the existing capabilities of the outsourcing firm.
Let’s take the example of a health insurance company that needs to build a claims processing department. Paper health insurance claims are processed using a special software that does Optical Character Recognition (OCR). OCR software costs can range between $100-500 per license. Instead of purchasing the software in-house, the health insurance company can outsource its claims processing function to a firm that already processes thousands of health insurance claims each day. The outsourcing company has already hired and trained its employees to process claims, and it already has all of the technological capabilities needed to facilitate the process.
Companies Can Expand their Business and Service Offerings
Access to outsourced back-office services frequently opens new doors for businesses that can leverage 24-hour access to a flexible-demand, low-cost labor force. Investment firms that outsource equity research can leverage the low costs to collect data on hundreds of more companies than they could afford to if the research was conducted in-house, leading to even more detailed reporting and better identification of investment opportunities for clients.
Many organizations that have traditionally kept paper records are beginning to digitize their record-keeping with document scanning services, actualizing benefits like easier document searching, enhanced data security, and minimized risk of data loss. While regular office scanners may work well with standard documents, outsourcing companies have invested in industrial scanning tools that can digitize maps and drawings, books, bulk paper and large format documents.
Managers Can Focus on Building the Core Business
The most important benefit of outsourcing back office services is that it enables company managers and executives to focus on building the core business rather than managing daily operations. When companies choose to manage their back office processes in-house, there is an administrative overhead associated with that – someone is in charge of human resources, managing resources and coordinating tasks and personnel for the department.
In most businesses, managers are best deployed to the front office where they can focus on leveraging the company’s core business model to maximize revenue and profit. While daily repetitive tasks can easily be managed be an outsourced team, the business management team can focus on product development, expanding into new markets, gaining more customers and increasing revenue.
Outsourcing back office services can provide firms with a number of competitive advantages in the global marketplace. Firms that outsource their data entry and back-office tasks to a reliable outsourcing partner can benefit from reduced rent and labor costs, flexible resource management, better access to new services and technology and opportunities to expand their service offerings. Outsourcing also helps companies mitigate risk by limiting the capital investment traditionally associated with expanding operations. Finally, when companies outsource their daily operational tasks, managers can focus on growing the core business, hitting revenue targets and driving growth.
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