Business process outsourcing (BPO) is the contracting of business processes to a third-party service provider.
However, it is more than just about cutting costs; it can be viewed as a strategic management option. The theory is that a BPO company can take over business processes efficiently, allowing organizations to focus on its operational excellence and developing an edge in the marketplace.
BPO companies often involve making use of offshore services—hiring a company based in another country. It is common for organizations to outsource financial administration processes, human resources functions, customer service call centers and payroll.
With BPO, you will go through an extensive and expensive consulting process. You document your process and then get them to quote on delivering exactly the process as documented. This works well for large enterprises that have repetitive processes performed by dozens or even hundreds of staff.
The concept of outsourcing first became popular when American entrepreneur Ross Perot founded Electronic Data Systems (EDS) in 1962. He wanted to build company that could offer businesses with information technology management services. Today, EDS is ranked as one of the largest service companies in the Fortune 500 list with over 2,000 clients.
BPO also became associated with manufacturing firms such as Coca-Cola, which outsourced large segment of its supply chains. Contact center work is often outsourced to huge BPO companies. Nowadays, when you deal with a company such as Microsoft, Dell or Telstra there is a chance that you are dealing with the employee of a BPO company in a country such as India or the Philippines.