Business Process Outsourcing Definition

A method of subcontracting various business-related operations to a third party. Usually, BPO is implemented as a cost-saving measure for tasks that a company requires but does not depend upon to maintain their position in the marketplace. BPO services include payroll, human resources (HR), accounting and customer/call center relations. For instance, an insurance company might outsource their claims processing program or a bank might outsource their loan processing system.

BPO is often divided into two categories: back office outsourcing which includes internal business functions such as billing or purchasing, and front office outsourcing which includes customer-related services such as marketing or tech support. When business process outsourcing began, it applied chiefly to manufacturing entities, such as soft drink manufacturers. However, it is now applicable to the outsourcing of services.

companies that are looking at business process outsourcing are hoping to achieve cost savings by handing the work to a third-party that can take benefit of economies of scale by doing the same work for several companies. The outsourcing of business functions has been an accepted practice in the marketplace for many years now. Or perhaps the cost savings can be achieved because labor costs are lower due to different costs of living in different countries.

These outsourcing deals frequently involve multi-year contracts that can run into hundreds of millions of dollars. Many of these BPO efforts involve offshoring — hiring a company based in another country — to do the work. India is a popular location for BPO activities. It is known as nearshore outsourcing if it is done with a neighboring country and BPO that is contracted with the company’s own county is sometimes called onshore outsourcing.

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