Business Process Outsourcing (BPO): Definition & Examples

A business process refers to a set of activities or tasks that are carried out in order to complete a specific business goal. These processes can be core to the business or they can be support processes.

Often businesses delegate or outsource specific processes to third-party organisations to focus on their core competency or to reduce costs. This process of outsourcing business processes is known as Business Process Outsourcing (BPO).

What Is Business Process Outsourcing (BPO)?

Business process outsourcing (BPO) is a business practice of contracting a specific business operation or process to a third-party provider.

Usually, a company opts for business process outsourcing when it wants to focus on its core business competencies and reduce operational costs.

Also known as subcontracting or externalisation, business process outsourcing was initially adopted by manufacturing firms that outsourced their non-core processes such as payroll and logistics.

Nowadays, the BPO industry has expanded to include a wide range of services such as customer care, human resources management, finance and accounting, marketing, and technological support. The global Business Process Outsourcing (BPO) market is forecasted to reach $215.9 Billion by 2026.

Services Offered By BPO Companies

BPO companies excel in providing recurring services that can be easily defined and measured. They usually provide the following services:

  • Customer-related services: These include processes such as customer care, technical support, telemarketing, and product information.
  • Finance and accounting-related services: Accounts receivable, accounts payable, bookkeeping, and tax return processing are some of the services falling under this category.
  • Human resources-related services: Services such as payroll processing, employee recruitment, and training come under this category.
  • Marketing and sales-related services: Services such as lead generation, market research, and sales support come under this category.

The Types Of BPO

BPOs can be categorised into several types based on:

  • Geographical location,
  • Services offered,
  • Types of functions

Based On Geographical Location

With the advent of the internet and improved telecommunications, businesses can now outsource their processes to service providers located in any part of the world.

This has given rise to three types of business process outsourcing — onshore, offshore, and nearshore BPO.

  • Onshore Business Process Outsourcing: When a company outsources its processes to service providers located in the same country, it is called onshore business process outsourcing.
  • Offshore Business Process Outsourcing: When a company outsources its processes to service providers located in a different country, it is called offshore business process outsourcing.
  • Nearshore Business Process Outsourcing: When a company outsources its processes to service providers located in a neighbouring country, it is called nearshore business process outsourcing.

Based On Services Offered

BPOs can also be classified based on the type of services they offer. The two most common types of services are:

  • Horizontal services: When a BPO provides a single service to multiple clients in different industries, it is known as a horizontal service. The most common type of horizontal service is customer support. For example, a customer support BPO can provide its services to ecommerce, banking, and telecommunications companies.
  • Vertical services: When a BPO provides different kinds of services to clients in the same industry, it is known as a vertical service. The most common type of vertical service is back-office support for banks. For example, a banking BPO can provide services such as loan processing, customer support, and fraud detection to different banks.

Based On Types Of Functions

BPOs can also be classified based on the type of functions they perform. They are:

  • Front Office BPOs: Front office services are client-facing services such as customer support, sales, and marketing.
  • Back Office BPOs: Back office services are non-client facing services such as accounting, data entry, IT, and payroll.

Advantages Of BPO

Outsourcing a business process can provide many benefits to a company. Some of the most important benefits are:

  • Cost savings: Outsourcing can help a company save money on labour, infrastructure, and technology costs.
  • Improved quality: When a process is outsourced to a specialist service provider, the quality of the process is usually improved.
  • Increased efficiency: BPOs can help a company become more efficient by streamlining its processes and eliminating waste.
  • Focus on core activities: Outsourcing non-core activities can help a company focus on its core activities and become more competitive.
  • Risk reduction: When a company outsources a process, it can transfer the associated risks to the service provider.
  • Increased competitive advantage: Outsourcing can help a company gain a competitive advantage by accessing the service provider’s expertise and technology.

Disadvantages Of BPO

While outsourcing can provide many benefits to a company, there are also some risks associated with it. Some of the most important risks are:

  • Loss of control: When a company outsources a process, it can lose some control over the process. This could lead to problems such as poor quality, delays, and cost overruns.
  • Dependency on the service provider: The company can also become dependent on the service provider. This dependency can lead to problems if the service provider goes out of business or is unable to meet the company’s expectations.
  • Hidden costs: There can be hidden costs associated with outsourcing, such as communication difficulties and cultural differences.
  • Security risks: When a company outsources its processes, it can also expose itself to security risks. For example, the service provider may not have adequate security measures in place to protect the company’s data.
  • Job losses: Outsourcing can lead to job losses within the company. This can be a problem if the company is unable to find new jobs for the affected employees.

BPO Vs KPO

Business process outsourcing (BPO) and knowledge process outsourcing (KPO) are often confused with each other. But there is a difference between the two.

BPO is the outsourcing of business processes, while KPO is the outsourcing of knowledge-based processes.

Business processes are repetitive and well-defined, while knowledge-based processes are complex and require expert knowledge. For example, data entry is a business process, while financial analysis is a knowledge-based process.

BPO is usually less expensive than KPO because it does not require expert knowledge. Also, BPO can be outsourced to countries with lower labour costs, while KPO is usually outsourced to developed countries.

Basis
BPO
KPO
Definition
A business process is outsourced to an external service provider.
A knowledge-based process is outsourced to an external service provider.
Complexity
The task is recurring and well defined.
The task is complex and requires expert knowledge
Type
Done in both front and back office services
Mostly done in back office services.
Driven By
Driven by volume 
Driven by knowledge

BPO Vs Call Centres

BPO is often confused with call centres. But there is a difference between the two.

A call centre is a type of BPO that deals with customer service and support. Call centres can be either inbound or outbound. Inbound call centres handle calls from customers, while outbound call centres make calls to customers.

BPO is not just limited to call centres. It can also include other business processes, such as accounting, data entry, and payroll.

BPO Companies Examples

There are many companies that provide BPO services. Some of the most famous ones are:

  • Accenture: It is one of the largest companies specialising in consulting technology services which is involved in providing BPO services like technology consulting, digital marketing and analytics, IT services, cloud services security as a service, Supply chain services, etc.
  • IBM: International Business Machines Corporation is another well-known American multinational technology corporation rendering BPO services like procurement services, HR services, finance transformation, automation, etc.
  • Wipro: An Indian multinational company that provides information technology, consulting, and business process services. BPO services provided by Wipro are Digital workspace solutions, data analytics, cloud, blockchain, DevOps, etc.
  • Cognizant: Another U.S.-based company also deals in providing IT and consulting services along with outsourcing. Outsourcing services like AI, digital strategy, IoT, digital engineering, enterprise services, etc.

Role Of Business Process Outsourcing

The role of business process outsourcing has evolved over the years. Initially, BPO was used to outsource simple and routine tasks. But now, BPO is used to outsourcing complex and strategic processes.

Today, BPO is used to improve operational efficiency, reduce costs, and focus on core competencies. It is also used to gain access to world-class capabilities and tap into new markets.

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Business Process Outsourcing (BPO): Definition & Examples

by Aashish Pahwa