Aaron Wall is an incredibly smart guy who talks about subjects much bigger than just SEO.  In a recent article, he had a negative view of the future of business process outsourcing.  While he made some valid points, I think the issue of business process outsourcing is being muddled with some other issues like offshoring, which are related, but different topics.

The Difference Between Business Process Outsourcing and Offshoring

Business process outsourcing, or BPO for short, is "the transmission of processes along with the associated professional activities and responsibilities, to a third party".  In essence, you are paying another company to take over the operation of part of your business.  This can be done onshore or offshore.  The idea is that you hand over the keys from a portion of your business to a company that specializes in that activity.

Offshoring describes the relocation of business processes from one country to another.  Quite often it’s associated with sending work to Indian workers who are paid a fraction of their onshore counterpart. 

The Cost Advantages of Offshoring are Eroding

One of the arguments against the future of low-end outsourcing is that price differences are eroding (the numbers quoted in his article are from 6:1 to now 3:1).  I’m not sure about the accuracy of these changes but the price efficiencies are definitely disappearing and will continue in that direction.  Simple supply and demand.

However, the price differences are for offshoring and not outsourcing.  That is a key difference and you can’t cite arguments against offshoring to be the reason for problems with outsourcing.  Offshoring is becoming less appealing but that doesn’t mean that firms cannot deliver inexpensive business process outsourcing (onshore or offshore).

Quality is Always an Issue with BPO

Cost of poor quality is always an issue when you outsource part of your business.  The key is keeping this value low enough so that it doesn’t wipe out any of your cost savings.  It might cost you $100K to operate a part of your business in-house but someone will operate it for you for $50K.  There are going to be issues with quality that will cost you time and money.  It’s the reality of business process outsourcing and as long as that isn’t more than $50K, the economics of comparative advantage say that you should outsource those processes.

I’ve talked with a lot of people in the big consulting world who work with big corporations that do business process outsourcing at a big level.  And without fail, they always have problems with the outsourcers.  It’s a reality of the activity.  However, they keep up the relationships because the economic advantages on not having to keep that work in house outweigh the quality issues that arise.

The Ebbs and Flows of Business Operations

One of the overlooked advantages of Business Process Outsourcing is it allows you to handle the ebbs and flows of business.  For almost all business activity, there is no constant flow of work.  Some areas require more work some months while requiring almost nothing the next month.  If you had to keep that in house, the overhead to keep employees on staff would add tremendous costs to your business.  But by going through an outsourcer, you can "hire and fire" as much as you need.  The prices are higher for when you need their work but over the long run, it’s much less expensive.

If Your Business Isn’t Consistent, It Will Be Tough to Get Good Quality

Training people is a reality of business, whether it’s an employee or a vendor.  Anyone who thinks that they can hire someone or some firm and they will come in on day one and be a rock star, is fooling themselves.  If you’re constantly coming up with new projects and new ideas, your business process outsourcing will not be successful.  The idea of business process outsourcing is that you’re hiring someone to run part of your business.  You’re not hiring a vendor to execute on some ideas.  They need time to get up to speed and introduce their efficiencies to the business.  And if they’re doing something for a few months, you’re not really outsourcing anything - you’re just hiring a vendor.

And I think that’s the fatal flaw in the argument outlined in the article - it is not correctly defining what business process outsourcing is.  The tasks in the article are single tasks or project based.  That is not business process outsourcing.  That is hiring a vendor to fulfill a task.  This is something that has existed as long as businesses have been working with each other and vendor disagreements are going to arise.   Don’t throw the baby out with the bathwater and miss out on some great opportunities to make your business more efficient and profitable because you’re confusing hiring a vendor with business process outsourcing.