Contributors: Mark Scapicchio, Matthew Finio, Amanda Downie
Business process outsourcing (BPO) is the practice of hiring external service providers to handle noncore business functions or processes.
BPO entails contracting an external service provider to fulfill a business function or process. BPOis sometimes referred to as information technology-enabled services (ITES) because in the modern world, outsourced processes are often reliant on IT.
BPO was first used in the manufacturing industry, where firms gained efficiencies by outsourcing business tasks for supply chain management. Today, BPO services are used in healthcare, asset management, energy, pharmaceuticals, ecommerce, and other industries as companies use new and innovative ways to improve customer experience and gain competitive advantages.
Generally, companies outsource non-core business functions—tasks that, while essential to the business, are not part of its core value proposition—that are similar across companies and industries. These include back-office functions (internal business functions) like accounting, IT services, sourcing, procurement, quality assurance and human resources management. Front-office (customer-facing) roles like sales, marketing or customer support are included as well. These roles are also using newer technologies such as chatbots.
Traditionally, companies have outsourced functions mainly to cut costs, save time and improve performance. These benefits remain the primary drivers of the BPO market, but the trend toward digital transformation has more firms looking beyond cost-saving strategies. There is now an increased focus on access to technology and expertise that are not available in-house.
¡áBenefits of BPO Business process outsourcing offers valuable benefits for organizations and allows for greater focus on highly skilled and specialized roles essential to core objectives. These benefits include:
¡ÜAccess to innovations. As specialists in the services they provide, BPO vendors often invest in the latest technology solutions available to maintain an advantage over competition and offer the greatest value for clients. This allows companies to access cutting-edge technology, like AI, advanced analytics or automation solutions that handle more complex processes, while minimizing costs.
¡ÜEfficient global presence. Outsourcing providers can deliver around the clock service to customers in multiple languages, eliminating the need for an organization to staff a local office. In addition, for organizations looking to expand, a partnership with a BPO vendor in the region can grant a better understanding of local markets and help streamline the expansion process.
¡ÜImproved efficiency and standardization. BPO providers are often specialists in non-core business operations, like payment processing, call centers or accounting. Thus, they can handle these operations with greater efficiency and expertise than if the services were handled in-house.
¡ÜIncreased focus on core business competencies. By outsourcing non-core competencies, organizations free up resources. These can be redirected toward business differentiators that drive value and give the company a competitive advantage.
¡ÜReduced cost. While overhead costs are unavoidable, by outsourcing various functions to third-party vendors, organizations can reduce in-house labor costs related to staffing and training. They can also take advantage of fee-for-service plans that are more cost effective than retaining full-time employees. Through offshore outsourcing, organizations can use lower-cost labor markets and tax advantages to improve the bottom line.