Business process outsourcing
Overview
Business process outsourcing (BPO) is a method of subcontracting various business-related operations to third-party vendors. Although BPO originally applied solely to manufacturing entities, such as soft drink bottlers that outsourced large segments of their supply chains, BPO now encompasses a variety of functions such as human resources or finance and accounting.
History
The concept of outsourcing business processes can be traced back to the manufacturing industry in the early 20th century. However, it was not until the late 1980s that BPO began to emerge as a distinct business strategy. This was largely driven by the rise of the Information Technology (IT) industry, which made it possible for businesses to digitize and remotely manage a wider range of tasks.
Types of BPO
BPO is typically categorized into 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.
BPO that is contracted outside a company's home country is called offshore outsourcing. BPO that is contracted to a company's neighboring (or nearby) country is called nearshore outsourcing, and BPO that is contracted with the company's own county is referred to as onshore outsourcing.
BPO Services
BPO services can be divided into two broad categories: horizontal and vertical. Horizontal BPO covers function-centric services such as payroll, HR, or accounting that can be applied across various industries. Vertical BPO, on the other hand, involves industry-specific services such as healthcare billing.
Advantages and Disadvantages
BPO offers several advantages such as cost reduction, focus on core business, access to more knowledge, talent and advanced technologies, and increased flexibility and competitiveness. However, it also has potential disadvantages including loss of control over the outsourced function, decreased employee morale, threat to security and confidentiality, and potential quality problems.
BPO and Technology
The evolution of BPO is closely linked to the development of technology. With the advent of cloud computing, big data, artificial intelligence, and automation, the BPO industry is undergoing a significant transformation. These technologies are enabling service providers to offer more sophisticated, value-added services and achieve greater efficiency and productivity.
Future Trends
The future of BPO is likely to be shaped by technology, particularly automation and artificial intelligence. These technologies offer the potential to automate routine tasks, freeing up human workers to focus on more complex and strategic tasks. This is likely to lead to a shift in the nature of BPO, with a greater emphasis on strategic, knowledge-based services.