Outsourcing key company functions to a BPO (Business Process Outsourcing) firm is a major business decision that is fraught with great risk, considered against the upside of tremendous cost savings and increased profitability. Outsourcing for even non-core company functions can dramatically alter the landscape of your business so it is advisable to consider the decision carefully. Here are three of the primary reasons why businesses choose to outsource, along with the benefits gained by each practice.

Advantage #1: Lowering Costs:

Of course, this benefit is the most obvious, and the one that most managers are thinking of when they begin to investigate options for outsourcing work outside of the company. The primary reason costs are lowered from outsourcing is because the BPO firm, which is often located overseas, has much lower labor costs on an individual basis. Also, if a BPO firm is large enough, it can realize and economy of scale by amortizing functions across different clients in a way that the main client could never achieve.

Advantage #2: Releasing “Premium” Resources.

The principle here begins with the given that any company includes people who are being paid a premium wage, but whose time is split between core premium functions and non-core nonpremium functions. This is inevitable, as human beings are imperfect, however when contracting with a BPO firm a business manager has a greater ability to identify and specify which resources are considered premium and how much they should occupy within the total package. In this way, outsourcing creates a more “a la carte” option to establish the balance of work, and price labor according to its value.

Advantage #3: Risk Mitigation.

While outsourcing to a BPO firm can increase certain risks such as those that occur due to the management of a remote workforce, or the numerous cultural or language differences from those workforces that may impede the normal flow of business, other risks can be mitigated. Outsourcing work in the long-term means that there are a number of investments, both human (workers’ salaries) and capital (hardware, software, etc.) that are now being made by the BPO firm instead of its clients. Risk is reduced for the client, and even on the BPO firm side, risk is spread across a number of clients and therefore mitigated.