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How business process outsourcing works

Business process outsourcing is a widely popular practice when a company is hiring third-party vendors to perform a process task which the hiring company needs to operate successfully. Big companies have been outsourcing part of their jobs profitably for years. But it is not for huge enterprises only. Small businesses and start-ups are turning to BPO to increase efficiency and reduce costs. Due to many of its benefits, business process outsourcing is getting more and more popular. However, not many companies, that seek to outsource, know how business process outsourcing works. In this article, we will cover what steps do companies take to outsource their business activities and guide you through the process.

How does business process outsourcing work?

1. Deciding to outsource

The process of outsourcing starts when company executives decide that third party vendor can perform specific tasks more effectively and with a lower budget. Companies of different size and profile might choose to outsource for various reasons. For example, start-ups usually do not have enough resources to have in-house teams for all the processes. Hence, they often outsource back-office or front-office functions. Big companies opt to use offshore outsourcing to reduce their operational costs. In many cases, businesses use outsourcing as it gives them access to niche experts on an international scale.


At the stage of decision-making, executives carefully review the advantages and disadvantages of outsourcing. Once they identify that outsourcing is more beneficial for them than having an in-house team, executives need to decide what tasks they are outsourcing, what is the scope of work and what resources do they need.

2. Defining the scope of work and resources

Before management starts searching for the right company to outsource to, they need to define the scope of work. Identify what processes will the company shift from the in-house team to the outsourcing vendor. What are the key objectives that the company wants to reach with outsourcing (quicker turnaround, increasing delivery capacity, cost-saving, better quality etc.)


Managers also need to consider what changes will they implement on the managerial level and how. Generally, outsourcing affects established processes and workflows that already exists in the company. Thus, it might require some amount of changes in management. The management team might have to adjust these workflows and process to accommodate the outsourcing of the activities. Usually, outsourcing offers management services, so the hiring company does not need to bother with it.


It is a crucial part of how business process outsourcing works. The identification of the scope of work will help companies determine the criteria for the future vendor they will hire. It will enable managers to find the most suitable outsourcing company for their needs. And will serve as a basis of the contractual obligations between the company and a vendor.

3. Finding the right outsourcing vendor

Next step on the list is to find the right outsourcing vendor, that can handle the work the best. At this stage, companies already have identified the scope of work and set the criteria for the vendor.


There are many different channels where businesses can find outsourcing vendors in the digital world. Managers usually apply the set criteria to the list of the vendors they find to make the right decision. Apart from it, they need to consider the qualification and credibility of the vendor. For some companies, location also plays a role, due to the differences in time zone, work-culture and sometimes, language.

4. Cost estimation

Once companies do the initial research for the outsourcing partner, they end up with several prospective vendors. At this stage, executives start approaching these companies to find out more about their services and prices. Many outsourcing companies offer free consultations and project estimation. In this process, companies provide information about the scope of the work. Vendors analyze it to find the best possible solution for the company and provide an initial estimation of the project.


For example, the company wants to outsource the web development project or wants to hire dedicated developers team for their internal or external projects. The company management provides necessary information about the project, scope of work, average duration, timeline, and job description for the required positions. Based on this information and the complexity of the task, the vendor provides estimated costs. The vendor also takes into consideration the specific set of skills, qualification and seniority of the needed candidates when evaluating costs.

5. Onboarding and KPI definitions

How does business process outsourcing work once companies find the right vendor? When a company outsources business processes an outsourcing vendor is responsible for finding the right people for the tasks, recruiting and onboarding them. Let's review this process in more details.


Once a company hires an outsourcing vendor, it is assigned an account manager. An account manager is working closely with the client throughout the whole period. First, the account manager, alongside the company representative creates a profile of suitable candidates for the task. An outsourcing vendor has access to a bigger talent pool, often in different locations of the world. The vendor can easily find a niche and highly-skilled experts in the field and recruit them.


Outsourcing vendor conducts the process of searching the right people by itself. Needless to say, that documentation and administrative work are handled by the vendor as well. So the company does not have to deal with it. However, in some cases, companies prefer to take part in the final interview process too.


When the recruitment phase is complete, the outsourcing vendor starts onboarding the team. It is one of the critical stages of the process, as the team should be able to work well with each other and as a whole team to deliver the performance that the company expects.

At the same time, onboarding is for accommodating the team and making sure that the communication process and workflow is smooth.


Depending on the work that company outsources, there might or might not be training. For example, when a company outsources IT project or a whole department, usually team an start working process right away.

When outsourcing customer care or an outsourcing team needs to work alongside the in-house team training sessions are conducted. It ensures that the team knows the know-how of the company. At the same time, understands the needs of the clients or the processes that the hiring company has.

6. Management and performance

When it comes to the performance and its management, it is how the business process outsourcing works: the team is working independently from the hiring company. Meaning that the company can take its focus on core activities, rather than manage or micromanage the team.


It is one of the main benefits of outsourcing, while the company focuses on core activities, the team is performing the tasks and is delivering the results. However, it does not mean that the company is not involved in the management at all. In most cases, the team reports directly to the client. The vendor can set KPIs, can track the performance of the team and apply adjustments to satisfy the client further.


The account manager has frequent communication with the company representative. Usually, the company and vendor representatives decide the means and frequency of communication upfront, depending on the nature and scope of the work.


When it comes to outsourcing, companies might have their own approach to it. However, no matter what the company is outsourcing, single task, longtime project or a whole department, this is how business process outsourcing works, and what steps executives take to outsource company functions.

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