What is a BPO Service Level Agreement?

Amy Pattinson
September 15, 2022
|
8
 Mins Read

Breaking geographical barriers for improving business services is also a new and common method within the corporate world. The global BPO market will reach USD 240 billion by 2027 up from USD 180 billion back in 2020. Today, businesses and companies worldwide started noticing the benefits of opting for outsourcing against the in-house team. Outsourcing comes with benefits like cost savings, service delegation, better return on investment (ROI), etc. With an in-house team, expenses pile up, headcount goes up, and the management needs to amp up to meet the requirement. This article on "BPO Service Level Agreement" comprehensively explains everything one should know about BPO SLA.

Businesses no longer need to restrict themselves to the professionals available in their vicinity. Business Process Outsourcing (BPO) has allowed businesses to seek better, more knowledgeable contributors to their business practices without the high and recurring costs to the company.

Project delegation is always an option, but for businesses not keen to invest in running full departments in-house, looking at a BPO vendor is always worth exploring.

What are BPO Services?

BPO Services allows businesses to subcontract business activities to third-party vendors to grow business efficiently. BPO took its shape in manufacturing units to manage their supply chains. However, today's business environment has redefined what BPO services look like.

Businesses, whether small or big, are looking to grow and scale up their operations. Naturally, they will look to outsource their business processes. With a growing number of innovative and new services, outsourcing business processes can optimize their current offerings to stay competitive in the market. BPO services broadly fall into two categories;

Back Office: Back office activities act as the core of the business. They cover IT services, human resources, payment processing, regulatory compliance, and quality assurance. They cover the back-end tasks allowing businesses to focus on the creative, innovative tasks that are critical or central to their business.

Front Office: Front office activities are largely related to the customers of a business. The front office covers any activity involving customer interaction, such as sales, marketing, and technical support. Once the services are chosen, it is up to the company hiring to decide if they want a source in another country, nearshore, or onshore. Again, the agreement between you and your vendor is just as important as the vendor you choose.

How Does BPO Function?

There are many reasons why corporate executives choose to outsource a business process. These factors include market forces, economic conditions, the type, age, and size of the organization.

Startup businesses, for instance, frequently have to outsource back-office and front-office tasks because they lack the internal resources to complete them.

If an established business discovers that a third-party service provider could perform the task more effectively or more affordably than it could, it may decide to outsource it. Management experts advise enterprise executives to identify tasks that can be outsourced and then assess whether doing so makes sense.

If so, the business must choose the best vendor for the job and move it from internal resources to an external supplier. Given that switching to an outsourced provider typically affects staff, established procedures. And current workflows, this calls for effective change management.

The decision to use an external provider has an impact on the organization's finances as well. This is true regarding the costs transferred from internal to external providers and frequently regarding corporate taxes and reporting requirements.

The organization might also need to invest in new technology to facilitate a seamless work transfer to the outsourced provider. The depth of this investment depends on the use case, the outsourced business function, and the technology infrastructure in both companies.

Enterprise leaders typically begin this process by deciding which specific tasks or business procedures to outsource to reduce costs, increase flexibility, boost performance. And reallocate resources to their core business competencies.

The next question for business leaders is whether one vendor should handle all of the outsourcing work or if hiring multiple providers for various tasks would yield the best results. For instance, a business might outsource most of its HR duties and hire one provider to handle all the outsourced tasks or contract with two providers. One for payroll and the other for benefits administration.

These factors ought to result in a list of specifications and a thorough scope of work for outsourcing. Organizations use these to create a request for proposals (RFP) that they then share with vendors to see if they can meet the requirements, at what cost, and with what value-adds.

An organization must choose the type of contract after choosing the provider or providers it wants to hire. These agreements typically fall under one of the following categories:

  • Fixed-price contracts establish an upfront price for the specified work
  • Time and materials contracts detail the payment businesses to need to pay to the service provider for the time they worked and materials used.

What is a BPO Service Level Agreement?

When deciding to venture into a partnership with a BPO vendor, the terms and conditions of the agreement must be discussed and transparent. In addition, the business functions that must be performed are outlined. The metrics used to measure performance are known as KPIs or key performance indicators. When two parties decide on the KPIs mutually, this is known as a service level agreement (SLA). SLAs are tools for measurement that establish the performance levels of the BPO vendor. It contains;

  • A detailed description of services to provide
  • The metrics by which the service provider will be measured
  • The duties and responsibilities of both the hiring party and BPO vendor
  • The penalties and remedies for breach of contract
  • Instructions should amendments or adjustments need to be made to the SLA

SLA Components

Many standard components build an SLA. These are;

The Services Expected from the BPO Vendor

The details outlined in the expected services set the standard for deliverables. This is a sure-shot way to avoid any form of miscommunication or confusion between both parties based on expectations. The hiring organization must outline a clear set of guidelines to ensure the partnership is fulfilling both ways. Without clear and transparent delivery terms, it is easy for one party to raise objections later and even slack on delivery.

Responsibilities of Both Parties

The responsibilities of this agreement do not lie solely with the BPO vendor. Both parties involved must communicate all roles and responsibilities, including the hiring organization. It ensures that parties involved are fully aware of the agreement they are getting into and that no negative surprises crop up along the way. Additionally, it keeps the BPO vendor and hiring party from feeling the agreement is biased or that anyone is being taken advantage of.

Delivery Timetable

Delivery times are critical to both the BPO vendor and the hiring party. If timelines are not met, the business's internal processes not only slow down but are likely to halt. A standard part of all SLAs is detailed and mutually agreed upon outline of when services must be delivered. There must be standardized response timings, and the delivery schedule must be established.

Dispute Resolution Protocols

There is no guarantee of a seamless contractual agreement at any time. Concerns and problems can arise at any time. If they do, it is up to both parties to ensure an agreed-upon protocol is in place when disagreements occur. While there are no standardized formats or subjects for disputes, there need to be systems in place that offer both parties assurance and direction to deal with any conflicts that arise.

Repercussions of Unmet Services

One of the biggest risks that come with outsourcing revolves around unmet expectations. The SLA offers a binding agreement that requires penalties and remedies in case of a breach of contract. Penalties must be offered if service levels are not where they were agreed. This helps the hiring company feel secure and confident that their BPO vendor is more than likely to deliver on agreed-upon terms. Additionally, it helps set an attainable standard for the BPO vendor to work towards. Common repercussions of unmet service expectations include a cut in the owed compensation and covering the costs of relocating to another BPO vendor.

Terms of Payment

The most sensitive and critical component of the SLA agrees on payment terms. Both parties agree on the payment terms. They offer clear guidelines about when to expect payments, where the payment will be transferred. And the repercussions of unfulfilled or delayed payments. This keeps the BPO vendor secure and offers them a solid compensation plan for their services.

Conclusion

BPO service level agreements offer an in-depth understanding of the partnership between the BPO vendor and the hiring organization. Much like other business contracts, the clauses outlined help keep both parties aware of the deliverables and expectations to keep their business venture successful and transparent.

Ensuring clear communication between both parties to decide the terms of the SLA is imperative. It also acts as a great jumping-off point to understand how the BPO provider you would like to work with operates. Do your due diligence before signing any documentation. This runs both ways.

Invensis Technologies is a leading outsourcing provider for companies across the globe. With over 20 years of experience in managing tasks of various top level organizations, we can ensure that your business is not only up and running but also is thriving with the ever changing market trends.

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Article by
Amy Pattinson

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