The Internet Revolution started off a series of cascading effects in Information Technology; Business Process Outsourcing (BPO) is one of them. The term refers to the method of using third-party services to take care of your own business operations that require fine-tuned skills. In its earliest form, business process outsourcing applied mainly to manufacturing companies for e.g. soft drinks manufacturers who used outsourcing for their supply chain systems; however, since technology practically took over the world, it now applies to a host of services chiefly using the Internet to complete tasks.
The word ‘Outsourcing’ became a much used buzzword in corporate circles in the mid 1990s. Outsourcing means the process where the services of a third-party service provider are contracted for various business operations. Coinciding with the Internet revolution, BPO came to indicate the process of ‘leveraging the skills and expertise of technology vendors in low-cost economies to accomplish internal tasks that were once the responsibility of a particular business enterprise’. Simply put, it denoted the process of shifting internal job functions or delegation of non-core operational jobs to an external company (contractor or sub-contractor) to an external company in a different geographical location which specialized in a particular process or operation. Outsourcing helped businesses focus more on core competencies and gain advantages by saving on infrastructure and staffing costs. These vendors established ‘call centers or help centers’ in their own countries equipped with infrastructure and staffing; the entire setup was contracted to the company providing the job. The processes outsourced as part of BPO included data entry, billing, medical transcription, payroll processing etc. The outsourcing process suited first-world nations like the USA, UK and Europe that transferred jobs to third-world countries primarily in Asia like India, China, Malaysia, Philippines etc. By outsourcing, they benefitted from paying low wages and salaries to contracted labor rather than pay high cost salaries and benefits to in-house or local employees.
Business Process Outsourcing (BPO) is also generally referred to as ‘offshore outsourcing’ as the outsourcing process is sent to another country. The term ‘near shore outsourcing’ is used to refer business operations outsourced to a neighboring country.
Business Process Outsourcing (BPO) used to be known as a subset of the outsourcing process which involved the operations and responsibilities of specific business applications and processes to a contracted third-party service provider; it is now used more in the context of Information Technology Enabled Services (ITeS).
Typically, BPO is categorized as front-end outsourcing to denote areas involving customer-centric services like contact centers, billing centers etc.; the back-end outsourcing indicates internal business area functions of a company like accounting, finance, human resources etc.
Quite often, BPO services involve IT and ITeS; two important sub-segments of the BPO industry are Knowledge Process Outsourcing (KPO) and Legal Process Outsourcing (LPO).
Benefits and limitations
• Improves company’s organizational flexibility
• Transforms fixed costs into variable costs
• Increases focus on core competencies
• Speeds up business processes and retains entrepreneurial agility
• Maintain growth goals by avoiding business bottlenecks
• Less capital expenditure and outlays
• Failure to meet service levels
• Unclear contractual issues
• Unforeseen changes in requirements and changes in costs
• Dependence on outsourcing which may affect internal functions