Outsourcing Back Office Services: Benefits and Best Practices

The current back office process outsourcing stands out loud as an unqualified hit and is one of the most successful outsourcing initiatives that 80% of organizations globally have had. Outsourcing on the other hand is the practice of contracting out functions that are peripheral or not a core competence of the organization to specialized outside firms with an objective of lowering the total cost, increasing efficiency and repositioning of firm’s core capabilities.

The back office is another important part of every organization as it fulfils key functions of transaction processing, verification of documents, management of catalogues etc. However, these functions are frequently very time consuming and tend to demand considerable resources and attention which are not related to the core business.

The purpose of this blog is to explain what makes back office outsourcing worthwhile – why is it profitable to say ‘no’ to costly in-house services? We shall also look in to outsourcing partnership selection and how to ensure outsourcing partnership success.

What are Back Office Services?

Back office services refer to the administrative and support functions that are crucial for the smooth functioning of an organization, but are not directly customer-facing. These include a wide range of tasks such as:

The key benefits of outsourcing back office services include :

However, potential drawbacks include loss of in-house knowledge and inadequate attention from the outsourcing provider. Selecting the right outsourcing partner is crucial to ensure a successful back office outsourcing arrangement.

Benefits of Outsourcing Back Office Services

Many organizations find outsourcing their back office services cheaper than performing the services in-house. In the same respect, economic benefits such as economies of scale and product specialization enable outsourcing providers to deliver services in a more efficient and less costly method than the firm’s internal process. Everest Group conducted a survey and established that firms cut back office expenditure by a third through outsourcing.

Outsourcing also saves on overhead costs since the business is not required to bear a number of expenses that go with having a back office, for instance, salaries, medical benefits, space, and equipment. For instance, a firm that outsourced the accounting operations was able to cut its annual account expense by forty percent.

The outsourcing of BPO may free up more resources as well as focus of companies that can dedicate their time in core activities which enhances the generation of their revenues. According to the Clutch, a survey that was conducted, it was discovered that seventy-two percent of the companies that outsource their back office are able to spend much of their time focusing on their strengths.

Coca- Cola outsourced its finance and accounting services to benefit from image and business reputation and to concentrate on its major business of manufacturing and selling beverages. This strategic change was very helpful to Coca-Cola to realign and focus on the growing of key markets.

Outsourcing is a way to have access to qualified personnel with considerable experience in a particular field of work. BOs procure service delivery and also undergo rigorous training and retaining of the best talents in the market. About the back office functions, the research has it that organizations that outsource experience improvements in quality of 15% and efficiency of 10%.

Though Novartis is one of the prominent pharmaceutical companies, it outsourced its clinical data management. That way, the partnership with the provider helped Novartis to benefit from the expertise of the contractor in the field of data management and analysis, which in turn made it possible to accelerate the debugging of new drugs and their approval.

Outsourcing also means that a business can ask its third party provider to scale up or down depending on the need of the business. By choosing the outsourcing partners, businesses also get flexibility since one can easily increase or decrease their resource leveraging compared to when it’s done internally where one is limited to the internal capacity.

When Airbnb was growing very fast, the firm looked for a provider that could offer massive customer support services to cater for the growing demand of people seeking information from the firm. This flexibility kept Airbnb’s levels of customer satisfaction high during it’s stage of hypergrowth.

With the help of further development of several tools, procedures, and approaches, outsourcing companies are capable of increasing the level of effectiveness in the field of back-office functions. McKinsey’s research identified that those organizations outsourcing functions of their back office can do projects 15% quicker.

Unilever was able to realize 30% in terms of the time required to process the work it outsourced in finance and accounting, whilst at the same benefiting from an overall 20% improvement in productivity. These improvements were realized by outsourcing partner due to their specialized understanding of processes and the application of automation in the same.

Outsourcing can hence be useful in that it enables organizations to avoid different risks including compliance risks, data risks and operational risks. Trusted sources use dependable security solutions, fall-back solutions, and legal standards to shelter their client’s assets.

A specific study from the Information Systems Security Association suggested that companies outsourcing its back office operations were 20% likely to suffer data loss. Through risk transfer, one is assured that the other party is taking the risk hence one is free to concentrate more on central operations.

The first of the criteria for successfully outsourcing the back office is to properly assess which procedures need to be outsourced. Carry out a rigorous assessment of the organization to establish sectors, activities or tasks that can be effected gain through outsourcing. Points that can be taken into consideration are the level of complexity and the load for the particular field and/or current availability of the resources. Hence, it is important to select the right outsourcing provider that would enhance the achievement of your back office outsourcing program. Screen the potential partners by their prestige, experience, services, price and measures taken towards security. Devise a set of criteria that allow for the analysis of conditions like, financial performance, policies regarding data preservation, and organizational culture. Get as much information as possible regarding the provider to be selected in a bid to achieve the set goals and expectations.

Ensure that you lay down communication channels well in advance and know the extent of the outsourcing partner’s capability and capacity. When approaching the third stage, it is helpful to refine the tasks to be performed and to differentiate goals of responsibility, objectives and quantitative measures of productivity expressed in terms of Service Level Agreements (SLAs) and Key Performance Indicators (KPIs). Ensure that there is effective communication upon outsourcing and in the subsequent months so that all atttentionable concerns or problems can be dealt with professionally. It is also important to hold meetings on a weekly basis or at least on monthly basis to assess the kind of relationship that the companies want to foster in their partnership.

Create a clear list of performance indicators as a way of measuring the effectiveness of back office outsourcing strategy. Such measures should always reflect organizational goals and may consist of the following aspects: satisfaction rate, time scale, percentage of error, and amount of money that would have been spent if the task had been done by a professional. This means that you should go through these metrics and share your findings with your outsourcing partner frequently in the bid to improve on them, and guarantee that the intended outcomes are met.

Privacy and legal requirements for the protection of sensitive data and their adherence for back office outsourcing should not be overlooked. Check your outsourcing partner’s policies on data protection concerning encryption, access controls, and contingency plans for information breaches. This includes drafting of guidelines governing the use of the information and schedules for reviewing the levels of compliance.

Always keep tracking on the performance of outsourcing partner and always give your feedback. Undertake regular evaluations that test the current supplier’s efficiency in delivering services, and to establish whether changes in the outsourcing model are required. With this feedback loop in place, it is possible to fine-tune the partnership and guarantee that the collaboration is responsive to your business’s changing needs.

Here are some of the best practices that can applied in back office outsourcing that will help in achieving the optimum result and foster a long term working relationship between an organization and the outsourcing service provider.

Conclusion

Outsourcing of back office services appears to be one of the most effective ways that has served various corporations by increasing cost effectiveness and efficiency of service delivery while allowing organizations to concentrate on activities that are central to the organizations’ goals and bottom line. This way of outsourcing non-strategic operations such as data entry, accounting, and IT support empowers organizations to focus on areas they excel at and areas which can be quickly developed, thus leading to an increase in productivity and growth in companies.

The success of outsourcing is, however, highly dependent on these key factors; choice of the right partner and the following benchmarks including needs analysis, developing of communication protocols and data security. Thus, these guidelines can be used to avoid potential problems and develop a proper and efficient outsourcing partnership.

Read More: Front Office vs. Back Office Support Services: Know the Difference

In an increasingly competitive market, outsourcing back office services is not just a cost-cutting measure but a strategic move that allows businesses to stay agile, responsive, and focused on their primary objectives. As demonstrated by industry leaders, the benefits of outsourcing are substantial and far-reaching, making it a valuable consideration for companies aiming to optimize their operations and achieve sustainable growth.