What is Back Office Business Process Outsourcing?
To stay competitive in the global marketplace, companies must always be looking for ways to improve service and reduce costs for their customers. That’s why an increasing number of companies are moving towards an outsourcing model for their back office business processes. When companies outsource their back office business processes to a reliable partner, they can benefit from reduced labor costs, rapid turnaround, increased versatility and access to infrastructure and the same or better levels of accuracy and quality.
In this article, we explain the difference between the back office and the front office and give examples of some common back office business processes. Then, we’ll explain in detail how back office business process outsourcing (BPO) works and highlight some exceptional use cases across industries around the world.
Back Office vs Front Office – What’s the Difference?
The terminology of back office vs front office comes from the earlier days of business where companies would divide their physical offices into two separate parts. All of the client-facing employees whose roles directly generate revenue for the company would sit in the front office – that way, they’d always be the closest on-hand when the clients came to visit.
The back office was populated by all the employees who weren’t directly client-facing. The roles in the back office were typically administrative and supportive – they didn’t directly generate revenue for the company, but they were still necessary for the business to function.
Businesses today are less likely to follow this traditional structure – most probably don’t organize their physical offices into a “back office” and a “front office”, but the departments that make up the front and back offices still exist in every company today. The front office is the profit center of the company where it conducts its core business. The back office is the cost center of the company – it supports the front office by carrying the supportive and administrative workload, allowing managers to focus on the core business and driving profits.
What is Back Office Business Process Outsourcing?
Back Office BPO describes the practice of outsourcing administrative and supportive functions normally associated with the back office to an external company. The exact nature of businesses process being outsourced can vary widely between companies, something we’ll discuss later on when we look at use cases, but back office processes that can be outsourced effectively have a few things in common:
- They are Repetitive
- They are High Volume
- They are Labor Intensive
Businesses that generate high volumes of repetitive, labor-intensive data entry tasks can generate significant benefits from outsourcing these tasks to an external company rather than managing them in-house. Here are just a few of the benefits:
Reduced Overhead – The role of a company that provides back office business process outsourcing is to minimize costs for its customers. These companies are optimized to perform a versatile range of back-office functions for the lowest prices – something that could be impossible for your company to achieve on its own. Outsourcing service providers operate in cities where rent is cheap and in countries where labor rates are low. If your company is headquartered in a city with high rent and high labor costs, you stand to save a bundle by outsourcing.
Save Office Space – In areas with high rent, office space comes at a premium. Imagine you pay $3000 per month for an office that holds 10 people, half of whom are back office staff. If you outsourced all of those positions, you could save $1500 per month on your rent immediately. Even better, you could add more sales and support staff to those seats and generate an even greater return on your office space. Back office BOP allows businesses to optimize their offices for driving profits and make the best use of their expensive office lease agreements.
Focus on Core Business – Additional employees place an additional load on a business. Imagine a health insurance company that needs to process 250,000 claims per month. If it wants to do that in-house, it has to interview, recruit, and train the employees, hire managers for them, lease an office space for them, purchase equipment, and pay them the going local rate. On top of that there are all other overheads: insurance, taxes, compliance, etc. If outsourcing, all the company has to do is write a check (and it costs less). Now, all of that effort and attention can be focused on growing the core business and generating more revenue.
Use Cases for Back Office Business Process Outsourcing
Applications for back-office business process outsourcing are extremely diverse – and that’s a great thing for business owners who can leverage cost -savings for many different types of business functions. The finance and health insurance industries along with real estate professionals and the public sector all make use of back-office outsourcing to minimize costs and reduce administrative overhead. The following are some highlights of use cases for back office BPO.
Data Entry & Conversion
Data entry & conversation services are commonly provided by business process outsourcing companies who can consistently deliver a high volume of labor. Firms that specialize in data migrations employ competent typists that facilitate data entry tasks for client companies. Outsourcing is often used to digitize written documents, especially those written in cursive, such as credit card applications, rebate forms, and paper surveys.
Our team achieved commendable results in digitizing handwritten documents for the American Genealogical Lending Library – read our case study here.
Title Search and Real Estate Centric Services
Outsourcing firms with adequate resources can offer very short turnaround times for real estate research tasks, including analysis of property information, mortgage documents, tax records, and more. These services are leveraged by mortgage, home and real estate title insurance companies to access critical data in significant volumes with short turnaround times.
Equity Research and Financial BPO Services
The financial industry has used outsourcing successfully to conduct equity research and other structured and repetitive financial analysis tasks. Equity researchers gather and analyze information from hundreds of companies, enabling account or fund managers to make informed decisions on how to invest money for their clients. Outsourced financial research helps financial planners and investment firms focus on strategic decisions and planning while getting their hands on more relevant information and opportunities.
Medical Claims Processing
Health insurance companies in the United States receive hundreds of millions of claims each year, some electronically and some on paper, and all of which must be processed in a reasonable time and either accepted or rejected. Some health insurance choose to save time and money by outsourcing their claims process to an external company. A well-equipped back-office BPO firm can receive electronic and paper claims, digitize the claims using Optical Character Recognition (OCR) technology, accept or reject the claim based on the insurance plan terms and the health insurance company’s criteria and maintain accurate account records for customers. The ownership of back-office processes by the outsourcing firm allows health insurance companies to focus on product development and revenue growth.
The front office is the profit center of the business while the back office is the cost center. The front office includes the processes that make money for the company, while the back office includes the supportive and administrative functions that make up the business operations. Back-office BPO is the practice of outsourcing back office functions to reduce rent, labor and overall overhead costs and allow key personnel to focus on building the revenue of the business rather than managing daily operations.
Use cases for back office BPO include medical claims processing for health insurance company, equity research for the financial industry, real estate research for real estate title insurance firms and data entry and conversion for a host of financial and other commercial industries.
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