Business Process Outsourcing (BPO)

What is Business Process Outsourcing?

Business Process Outsourcing (BPO) involves the use of external agency to perform the business activity more cost-effectively and efficiently in the given time frame.

Business Process Outsourcing (BPO) is basically supply chains of domain expertises. Originally, this was associated with manufacturing firms. In the contemporary context, it is primarily used to refer to the outsourcing of business processing services to an outside firm, replacing in-house services with labor from an outside firm.

  • By definition, Business Process Outsourcing (BPO) is a subset of outsourcing Opens in new window that involves the contracting of the operations and responsibilities of specific business functions (or processes) to a third-party service provider, which can be done keeping in mind productivity, cost effectiveness and system efficiency.

BPO is typically categorized into back office outsourcing—which includes internal business functions such as human resources or finance and accounting and front office outsourcing—which includes customer-related services such as contact center services. BPO that is contracted outside a company’s country is called offshore outsourcing Opens in new window.

Five BPO international hot spots have emerged around the globe, although firms from many other countries are specializing in various business processes and exporting services:

BPO Hot SpotsExpertises
India.Engineering and Technical
China.Manufacturing and Technical
Mexico.Manufacturing
United States.Analysis and Creative
Philippines.Administrative

Each of these countries has complex economies that span the range of business activity, but from a BPO perspective they have comparative advantages in the specific functions cited.

Given the proximity of BPO to the information technology industry, it is also categorized as an Information Technology Enabled Service or ITES. Knowledge Process Outsourcing (KPO) and Legal Process Outsourcing (LPO) are some of the sub-segments of business process outsourcing industry.

Goals of BPO

One of the benefits of outsourcing is that a business firm can save on every aspect of the business and increase profits. With outsourcing of non-core processes, the organization will be free to concentrate on its core business, and the firm’s employees can be put to better use and it is possible to have a huge growth in firm’s core business.

Outsourcing can save the organization’s time, effort, infrastructure and manpower. Since an outsourcing firm doesn’t have to invest in infrastructure, it can also save on making unnecessary fixed investments. Outsourcing removes the need for changing or maintaining infrastructure and can also save on capital expenditure.

Outsourcing can help the firm to save on training costs, because of no investment in manpower. As the job is assigned to a vendor who is an expert in his field, the result is high productivity, system efficiency and cost-effectiveness.

The net effect of BPO is the creation of savings that will help bring about an increase in the firm’s revenue and its speed to market. The other important advantage with outsourcing is the cross-pollination of latest technologies which the firm’s vendor may be using for their operations.