Business Process Outsourcing (BPO)

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Definition: Business Process Outsourcing (BPO)

Business Process Outsourcing (BPO) is a kind of outsourcing in which the company outsources a specific activity/process related to its business to a third party service provider. e.g. of the process could include payroll, HR, technical support to the customers.  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.


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.

2. Front-office outsourcing: It involves outsourcing of customer related processes like technical support, maintenance etc.

 

It can also be classified as:

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 neighbouring country.

3. Onshore outsourcing: When the work is contracted to a company that is in the same country.


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.


Disdvantages 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.

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