Back-Office Outsourcing: How It Transforms Your Business from the Inside Out

Back office operations are the backbone of your business, and with back office outsourcing, these internal processes run smoothly so you can focus on long-term success.

To make it more efficient and productive, 68% of U.S. companies are utilizing back-office outsourcing services from third-party providers, which have expertise across various administrative and support functions. It’s a smart business strategy that enables them to address specific problems, enhance performance, and achieve long-term objectives.

Which Back-Office Services Can a Business Outsource?

The back-office functions you can outsource cover those tasks that don’t require any client interaction.

Here are the tasks commonly delegated to the outsourcing partner and what they can do for you for each.

• Data entry, where they’ll input new or updated information into your database.
• Payroll, where they’ll compute the salaries, benefits, and deductions while ensuring compliance.
• Bookkeeping and accounting, where they’ll track the cash inflows and outflows and provide a report analysis on your business’s financial health.
• IT support, where they’ll monitor your systems 24/7 to reduce IT-related disruptions.
• Human resources support, where they’ll manage personnel—from recruitment to retention—in accordance with employment laws.
• Order processing and management, where they’ll manage customer orders, from the moment they’re received to the moment they’re fulfilled.
• Administrative support, where they’ll manage calendars, meetings, and emails for executives.
• Market research and data analysis, where they’ll conduct research and analysis into your customers’ and competitors’ behaviors and industry’s trends.
• Content management, where they’ll manage the creation, distribution, and monitoring of your content.
• Inventory management, where they’ll keep track of and control your stock to ensure there’s enough for the customers to purchase.

Why Do Companies Outsource Back-Office Operations?

Sixty-five percent of businesses choose to increase their outsourcing investment because it solves the challenges with their back-office operations. And while cost efficiency remains their top reason for doing so, other, more substantial reasons include:

What Industries Benefit Most From Outsourcing Back-Office Services?

The truth is, all industries can benefit from back-office outsourcing services. It’s just that some of them face unique challenges, and delegating these tasks to an outsourcing partner is critical to their overall operations.

Here are some of the industries that find outsourcing their back-office operations a viable business decision:

• Information technology
  Use case: An AI software company outsources its data annotation to train its machine learning models, allowing its developers to focus on coding.
  
• Healthcare
  Use case: A healthcare company outsources its medical coding and billing to ensure insurance claims are filed correctly, speeding up reimbursements from insurance companies.
• Banking, financial services, and insurance
  Use case: A bank outsources its Know Your Customer (KYC) verification to prevent fraud during account openings, keeping the bank safe and compliant.
• E-commerce and retail
  Use case: A growing online fashion brand outsources its product catalog management to keep its product listings fresh and accurate.
  
• Real estate
  Use case: A property management firm outsources lease abstraction to review and extract critical data, like renewal dates and rent increase clauses, so it never misses a deadline.
  
• Manufacturing
  Use case: An automotive parts maker outsources procurement support to monitor purchase orders and communicate with suppliers worldwide, minimizing potential delays.
  
• Market research
  Use case: A research firm outsources survey data processing to read, code, and categorize responses into data points, allowing the research team to spot trends and write the reports faster.
  
• Human resources and recruitment
  Use case: An HR agency outsources resume screening to filter the list to the top 10 qualified candidates, allowing the internal hiring manager only to interview the best talent.
  

What Are the Risks or Challenges of Back-Office Outsourcing?

Outsourcing back-office operations can be a strategic and powerful business decision that gives you a competitive advantage. However, it does have its drawbacks, which you should be aware of so you can plan your actions accordingly.

1. Barriers to Real-Time Collaboration

Communication and cultural differences can affect work results. For example, the language used may lead to misinterpretations, which can hinder work efficiency or slow down decisions.

To address this, you can either assign a dedicated team manager who’ll not only oversee the outsourced team but also serve as your primary point of contact with them. This way, information and expectations are relayed smoothly, and any issues that arise are resolved quickly.

2. Data Security and Confidentiality Concerns

You’re sharing sensitive company information with the outsourcing partner, including employee data, financial records, and customer details. If they are breached, all of these will be compromised and, in turn, severely affect your reputation.

To address this, you must be rigorous in your choice of partner. They must treat information security as their highest priority, as evidenced by their compliance with global standards, the use of data encryption, and the implementation of disaster recovery plans.

3. Regulatory and Compliance Issues

If the work the outsourcing partner has done doesn’t adhere to local and international laws, the legal fallout will be entirely on you.

To address this, ensure you have a well-defined contract that clearly outlines the partner’s compliance responsibilities. You must also audit their work regularly to ensure the processes align with regulations.

4. Loss of Direct Control and Visibility

You have a hard time monitoring the quality of work done by the outsourced team. If errors occur, it’ll probably be too late to correct them.

To address this, you should clearly state in the service-level agreements (SLAs) the specific performance metrics and reports you require. This way, you’ll have transparency on the work they do and how well they do it.

What Is the Step-by-Step Process for Outsourcing Back-Office Operations?

As a first-time user, we recommend that you carefully plan the transition of these functions from in-house to outsourced. Doing so ensures a smooth partnership with the outsourcing provider and delivers measurable results.

1. Identify the Back-Office Task(s) Suitable for Outsourcing

Here are the criteria you can use to know which is which:

• They’re repetitive or process-driven.
• They have low strategic input.
• They require significant manpower.
• They do not affect your revenue-generating activities.
• They can be documented and standardized.

2. Define the Scope of Work for the Back-Office Task(s) to Be Outsourced

You need to establish parameters for each of these tasks to have a clear understanding of the outcomes you expect from outsourcing.

• The problems you’re solving thanks to outsourcing.
• The business objectives you aim to meet in making the back office more efficient.
• KPIs to monitor to ensure the back office is running as expected.

3. Select a Trusted, Reputable Outsourcing Partner

The partner works with you, not for or against you. So, from a pool of potential providers, assess if they’re the best fit with questions like these:

• How many years have they been in the industry?
• How much experience do they have in the back-office task you’re outsourcing?
• What do their clients (past and current) say about their service and its quality?
• What kind of support can they provide to ensure your collaboration is successful and sustainable?

4. Map Out the Processes, Roles, and Responsibilities

You and the chosen partner will discuss and finalize the SLAs, including what each of you will do and the scope of work the outsourced team will handle.

5. Start the Transitioning Process

Gradually integrate your systems and technology with the outsourcing partner’s systems and train the outsourced team in your back-office processes.

The ultimate goal is to equip the team with the necessary knowledge to perform the task accurately and with minimal supervision.

6. Monitor Operations and Performance

Regularly review the outsourced team’s performance to ensure the outcomes remain aligned with your expectations.

Communicate with them as well to identify any challenges that need addressing and the opportunities for improvement.

How Much Does It Cost to Outsource Back-Office Services?

The exact cost you’ll pay highly depends on the complexity of the back-office task, its work volume, and the outsourcing model you opted for. For this reason, we can’t give you an accurate figure.

However, we can provide you with the breakdown of outsourcing costs so you have an idea of how it’s calculated.

Empower Your Back-Office Operations

Outsourcing your back-office operations strengthens the foundation of your business. By delegating repetitive, resource-intensive tasks to a trusted outsourcing partner, you free your administrative staff to focus on processes, innovations, and strategies that help propel the front office (the revenue-generating departments) forward.

When you’re ready to build a stronger, more efficient back office, you’re welcome to reach out to us. Logix BPO’s expert advisors will meet with you to understand your needs so we can build a streamlined, agile internal operations for you.