Business process outsourcing (BPO) is a subset of outsourcing that involves the contracting of the operations and responsibilities of specific business functions (or processes) to a third-party service provider. Originally, this was associated with manufacturing firms, such as Coca Cola that outsourced large segments of its supply chain.. In the contemporary context, it is primarily used to refer to the outsourcing of services.
BPO is typically categorized into back office outsourcing – which includes internal business functions such as human resources or finance and accounting, and front office outsourcing – which includes customer-related services such as contact center services.
BPO that is contracted outside a company’s country is called offshore outsourcing. BPO that is contracted to a company’s neighboring (or nearby) country is called near shore outsourcing.
Given the proximity of BPO to the information technology industry, it is also categorized as an information technology enabled service or ITES. Knowledge process outsourcing (KPO) and legal process outsourcing (LPO) are some of the sub-segments of business process outsourcing industry.
An advantage of BPO is the way in which it helps to increase a company’s flexibility. However, several sources which? have different ways in which they perceive organizational flexibility. Therefore business process outsourcing enhances the flexibility of an organization in different ways.
Most services provided by BPO vendors are offered on a fee-for-service basis. This can help a company becoming more flexible by transforming fixed into variable costs. A variable cost structure helps a company responding to changes in required capacity and does not require a company to invest in assets, thereby making the company more flexible. Outsourcing may provide a firm with increased flexibility in its resource management and may reduce response times to major environmental changes
Another way in which BPO contributes to a company’s flexibility is that a company is able to focus on its core competencies, without being burdened by the demands of bureaucratic restraints. Key employees are herewith released from performing non-core or administrative processes and can invest more time and energy in building the firm’s core businesses. The key lies in knowing which of the main value drivers to focus on â customer intimacy, product leadership, or operational excellence. Focusing more on one of these drivers may help a company create a competitive edge
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