Business Process Outsourcing (BPO) - Meaning, Types & Example

Published by MBA Skool Team, Last Updated: September 02, 2021

What is Business Process Outsourcing (BPO)?

Business Process Outsourcing (BPO) is a kind of outsourcing in which the company outsources specific business processes to third party service providers who can execute or implement those processes on customer's behalf for a cost. The processes could include payroll, HR, technical support, marketing, document processing etc.  BPO allows a company to save cost and also focus on the core activities.

The concept of Business Process Outsourcing (BPO) comes from the fact that the companies want to concentrate on the core competency and can outsource other important but non core processes to third party service providers. Knowledge process outsourcing (KPO) and Legal Process Outsourcing (LPO) are now emerging as important subsets of BPO. BPO uses IT extensively in its operations, hence is referred to IT enabled Services (ITES) also. 

Types of Business Process Outsourcing (BPO)

Business Process Outsourcing can be of 2 types:

1. Back-office outsourcing

it involves outsourcing of internal business functions like payroll, HR, etc. This is called back office as these functions are not directly interacting with customers or are not customer facing. These are critical business processes required to keep a business running hence are frequently outsourced

2. Front-office outsourcing

It involves outsourcing of customer related processes like technical support, maintenance etc. These front office processes are many times very closely monitored as they represent the company's image to the customer. Outsourcing such processes has to be thoroughly analyzed through proper quality control and training.

It can also be classified based on the location:

1. Offshore outsourcing

When the work is contracted to a company that does not reside in the same country. India and China have emerged as popular destinations for offshore outsourcing.

2. Near-shore outsourcing

When the work is contracted to a company that resides in the neighboring country or country which is near or in same continent. e.g. if work is being done in US, Canada can be near shore.

3. Onshore outsourcing

When the work is contracted to a company that is in the same country or performs the work in the same country as the client/customer.

Functions of Business Process Outsourcing (BPO)

BPO can offer lot of services to the customer. Following is a list of services BPO offers in general:

1. Telemarketing

This service covers the marketing through channels like phone, email etc. where in the BPOs contact potential customers on behalf of the client to promote services.

2. Customer Helpdesk

Many times product companies outsource their customer service and support to BPO through trained staff augmentation. This helps them to focus on product development and enabled customer service through outsourcing.

3. Support Services

Other services like even warranty, insurance claims handling or other similar processes can be handled by Business process outsourcing companies.

These require proper quality standard, training and documentation.

4. Lead and Sales Generation

Similar to telemarketing, outsourcing can be done just on the basis of a goal or an objective like lead generation or moving towards different stages in sales funnel.

5. Back Office Operations

Back office operations as discussed earlier are a very good use case for outsourcing. Functions like IT, Admin etc. can very well be outsourced to outsourcing experts.

6. Document Processing

A lot of documents are generated everyday in business processes. Not all documents are electronic or get processed automatically. Many times, it requires manpower to process them, sort them or send them to the correct stage.

7. Data Entry

Data entry is one of the biggest use cases of BPO industry where in a lot of documentation, converting handwritten documents to electronic data etc. is handled through BPO operations.

8. Verification Services

Third party verification services are very commonly outsources to BPO experts for checks, validation, backgrounds etc.

Business Process Outsourcing (BPO)

Advantages of Business Process Outsourcing (BPO)

1. Focus on Core Competency.

2. Reduction in Costs.

3. Increase in efficiency of business process.

4. More Employment generation.

5. Focused teams solving problems.

Disadvantages of Business Process Outsourcing (BPO)

1. Overdependence on third party vendors.

2. Lack of complete knowledge of product/service offering leading to customer dissatisfaction.

3. Less focus on quality because of lower cost offerings through outsourcing.

Examples of Business Process Outsourcing (BPO)

A good example can be technical support services of a product company can be outsourced to a third party call center service provider. The product company need not hire staff for tech support. They also do not require to have contact center software or actual office for such support. They can pay for these service to a BPO provider and outsource the entire technical support and related services like warranties, renewals, repairs. The training and hiring of staff and eventual technical support would be handled by a third party. The main product company would share the business information and product manuals and other details with this BPO company and concentrate on their core competency i.e. making and researching better products.

Second example can be outsourced delivery services to e-commerce websites. There are many companies who provide delivery staff, pick up and drop, reverse supply chain management services to e-commerce websites. The e-commerce company can concentrate on business creation, development, product handling, order and returns management, design, marketing and pricing but outsource the actual physical delivery to a third party logistics provider.

Hence, this concludes the definition of Business Process Outsourcing (BPO) along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

Browse the definition and meaning of more similar terms. The Management Dictionary covers over 2000 business concepts from 5 categories.

Continue Reading:

Share this Page on:
Facebook ShareTweetShare on Linkedin