Business process outsourcing (BPO) is a business practice in which an organization contracts with an external service provider to perform an essential business process. BPO is a method of subcontracting various business-related operations to third-party vendors. It involves outsourcing entire business functions, such as marketing or accounting, to external companies. BPO is a subset of outsourcing that involves the contracting of the operations and responsibilities of a specific business process to a third-party service provider.
BPO that is contracted outside a companys country is called offshore outsourcing, while BPO that is contracted to a companys neighboring (or nearby) country is called nearshore outsourcing. Often, the business processes are information technology-based, and are referred to as ITES-BPO, where ITES stands for Information Technology Enabled Service. Knowledge process outsourcing (KPO) and legal process outsourcing (LPO) are some of the sub-segments of the business process outsourcing industry.
Business process outsourcing enhances the flexibility of an organization in different ways:
- Allows an organization to focus on its core competencies
- Reduces the need for large capital expenditures in non-core business areas
- Provides access to the providers expertise and economies of scale
- Improves the speed and quality of business processes
- Increases the organizations flexibility to respond to changing business environments
However, there are also challenges that need to be considered before a company decides to engage in business process outsourcing:
- Loss of control over the outsourced process
- Risk of exposing confidential data
- Dependence on the provider
- Cultural differences
- Communication barriers
Business process outsourcing is a fast-growing sector of the economy, which makes it attractive as a career path or startup opportunity. According to industry research, the BPO market was valued at nearly $250 billion in 2021, and is projected to grow at 9% per year over the next decade.
