Business process outsourcing

Business Process Outsourcing (BPO) is the practice of outsourcing certain business functions to external providers. These functions may include customer service, data entry, human resources, accounting, and other administrative tasks. The goal of BPO is to improve efficiency and reduce costs by allowing companies to focus on their core competencies while outsourcing non-core functions to specialized providers. BPO can be done onshore (within the same country), offshore (in a different country), or nearshore (in a nearby country).

Use of business process outsourcing allow to increase enterprise value. The use of this type of outsourcing is connected with the transfer of company's processes to external service provider, after critical analysis and the improvement of this process. The process is seen as a set of activities requiring inputs and generating result on the output.

Process is described as a structured, measurable set of actions designed to produce a specific result for a specific client. In BPO the contractor not only assumes responsibility for the implementation of the process, but also commits to the reengineering of this process, including the implementation of new technology or its continuous improvement. Such approach usually requires studies on process changes and their impact on cooperation of service provider with other organizational units in company.

From the point of view of the service provider who is entrusted to the same commitment to improving performance as the company, BPO shows significant similarity to transformational outsourcing.

Business process outsourcing classification

There are several types of Business Process Outsourcing (BPO) including:

• Back Office BPO: This type of BPO involves outsourcing non-core business functions such as data entry, accounting, and human resources.
• Front Office BPO: This type of BPO involves outsourcing customer-facing functions such as customer service, technical support, and sales.
• IT BPO: This type of BPO involves outsourcing information technology functions such as software development, network management, and data center operations.
• KPO (Knowledge Process Outsourcing): This type of BPO involves outsourcing specialized knowledge-based functions such as research and analysis, legal research, and financial analysis.
• LPO (Legal Process Outsourcing): This type of BPO involves outsourcing legal services such as document review, contract drafting, and legal research.
• RPO (Recruitment Process Outsourcing): This type of BPO involves outsourcing recruitment and staffing functions such as candidate screening, interview scheduling, and background checks.
• F&A (Finance and Accounting) BPO: This type of BPO involves outsourcing financial and accounting functions such as accounts payable and receivable, tax preparation, and financial planning and analysis.
• HRO (Human Resource Outsourcing): This type of BPO involves outsourcing human resource functions such as payroll, benefits administration, and employee training.

See also:

• Outsourcing

Examples of Business process outsourcing

• Customer Service: Customer service is a function often outsourced to companies that specialize in providing customer support. Examples of customer service processes that are outsourced include order taking, inbound and outbound calls, email support, and live chat.
• Data Entry: Data entry is a process that involves entering data into a computer system or database. It is often outsourced to companies that specialize in digitizing and entering data quickly and accurately.
• Human Resources: Human resources is a process that involves the management of the people within an organization. Commonly outsourced HR functions include recruitment, payroll, and employee training.
• Accounting: Accounting is the process of recording and classifying financial transactions. Accounting tasks such as bookkeeping, auditing, and tax preparation are commonly outsourced to companies that specialize in these services.
• IT Services: IT services involve the management and maintenance of computer systems, networks, and software. This includes tasks such as web design, software development, and network security.

Advantages of Business process outsourcing

Business process outsourcing (BPO) has a variety of advantages, including increased efficiency, improved scalability, access to specialized expertise, and cost savings.

• Increased Efficiency: By outsourcing non-core functions, businesses can focus on their core competencies and streamline processes by leveraging the expertise of the BPO provider. This ensures that tasks are completed in a timely and cost-effective manner.
• Improved Scalability: Outsourcing allows businesses to scale up or down quickly depending on their needs. This is especially beneficial for seasonal businesses or for companies experiencing rapid growth.
• Access to Specialized Expertise: BPO providers are experts in their field and can help businesses make the most of their resources. This allows businesses to take advantage of specialized skills and experience that would not otherwise be available.
• Cost Savings: Outsourcing can help businesses reduce costs associated with staffing, overhead, and other expenses. This can help businesses improve their bottom line and become more competitive.

Limitations of Business process outsourcing

Business Process Outsourcing (BPO) is a popular strategy for companies to reduce costs and streamline processes. While BPO can be beneficial for many businesses, there are some limitations to bear in mind when considering outsourcing. These include:

• Loss of Control: When you outsource a process, you are essentially giving up control of the task to a third-party provider. As a result, you may have less visibility into the quality and timeliness of the work, and you may not be able to make changes as easily as you would if the process was being done in-house.
• Financial Risks: Outsourcing contracts are often long-term and have high financial commitments. If the third-party provider fails to deliver on their promises or goes out of business, you may be left without a provider or stuck with a large bill.
• Security Risks: When you outsource processes, you are essentially entrusting your data to a third-party provider. This can present security risks, as the provider may not have the same level of security measures as your company.
• Cultural Differences: When you outsource processes to another country, there may be cultural and language barriers that can make it difficult to communicate with the provider and ensure the quality of the work.
• Lack of Flexibility: BPO contracts are typically long-term and inflexible. This can be a problem if your business needs change over time or you need to scale up or down quickly.

Other approaches related to Business process outsourcing

• Automation - Automation is the use of technology to replace manual processes, thereby reducing labour costs and increasing efficiency. Automation can be applied to a wide range of tasks, including customer service, data entry, human resources, accounting, and other administrative tasks.
• Offshoring - Offshoring is the practice of relocating certain business processes to other countries, often involving the transfer of jobs, technology, and capital. Offshoring can help to reduce costs and increase efficiency, although it can also lead to higher labour costs and decreased quality.
• Nearshoring - Nearshoring is similar to offshoring, but is used to move certain business processes to nearby countries. Nearshoring can provide companies with access to lower-cost labour, as well as the same quality of services.

In summary, Business Process Outsourcing (BPO) is the practice of outsourcing certain business functions to external providers. It can be done onshore, offshore, or nearshore. Other related approaches include automation, offshoring, and nearshoring, which can help companies to reduce costs and increase efficiency.

Business process outsourcing — recommended articles

Tactical outsourcing — Computer department — Downsizing — Outsourcing project — Paraplanning — Multi skilling — Service delivery architecture — Contingent staffing — Transformational outsourcing

References

• Click, R. L., & Duening, T. N. (2004). Business process outsourcing: the competitive advantage. John Wiley & Sons.
• Caniglia, J., Ramachandran, K., & Khanna, V. (2005). U.S. Patent Application No. 11/159,819.
• Hanson, M. (2000). Business Process Outsourcing. Strategic Finance, 82(2), 21-21.
• Hammer, M. (2010). What is business process management?. In Handbook on Business Process Management 1 (p. 3-16). Springer Berlin Heidelberg.
• Quinn, J. B. (1999). Strategic outsourcing: leveraging knowledge capabilities. MIT Sloan Management Review, 40(4), 9.