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Business process outsourcing (BPO) is a practice in which a third-party provider supplies some of a company's business services, and the BPO industry caters to this practice. The types of activities performed by the BPO industry are generally the customer's non-core business activities, such as central accounting, payroll, tax, pensions or legal services. Companies also may outsource customer services such as call centers, or they may rely on the BPO industry for information technology services. BPO services are often performed offshore, where the company may benefit from lower costs combined with a skilled workforce, an example being Indian BPO providers who may offer skills in information technology combined with English language ability. Business process outsourcing allows the company to concentrate on core business activities while gaining more flexibility in the level of administrative or customer services available.
The company may benefit from the specialist skills of the third-party service provider and may, therefore, be in a position to increase efficiency and save costs through outsourcing. A company may more easily respond to a downturn in business volume or a sudden upturn by adjusting the level of services from the BPO provider, whereas this level of flexibility would not be available if these functions were performed in-house. The outsourcing of certain types of service may, however, be considered a security risk in some cases. For this reason, services involving the handling of sensitive information or security of the assets may be handled in-house. These functions, if they are outsourced, will normally be closely monitored by designated in-house staff.
Another possible disadvantage of services provided by the BPO industry is that the people involved in the outsourced tasks may have a different attitude toward their work compared to in-house staff. This may be detrimental to the company's reputation, especially when customer service functions are involved. A classic example of this problem is the attitude of some call center staff when dealing with customer complaints. The staff member performing the outsourced function does not belong to the company and also are remote in a geographical sense. These factors combine to mean outsourced functions may not be performed in a way that meets the standards of the company.
The decision about which functions to outsource depends on the customer's business objectives. An enterprise that includes customer service as a part of its core business might wish to keep these functions in-house. On the other hand, a business such as an airline, which is mainly concerned with transporting people from one place to another as cheaply as possible, would be more likely to outsource customer service functions and concentrate on its core services.