What a great question! Business Process Outsourcing (BPO) has generated several definitions. Before I tell you my definition, I want to describe the history of outsourcing to show how the term “business process outsourcing” came about.
I define outsourcing as when a buyer transfers the ownership of a non-core business process to a supplier. Gartner refers to Business process outsourcing (BPO) as the delegation of one or more IT-intensive business processes to an external provider that, in turn, owns, administrates, and manages the selected processes based on defined and measurable performance metrics. This is similar to how Forbes describes BPO.
What is a core process? A core competency forms the soul of a company. It differentiates the company from its competitors in the marketplace. It pays the rent and makes a big difference in the bottom line. It is the crucial process that demands most of your attention and capital.
Most business people can’t grasp the intricacies of computers and networks. They don’t want to worry about software patches, network maintenance, or help-desk services, so they got their first taste of outsourcing by handing over their technology needs to a company that understood it far better than they did.
About ten years ago, executives in the boardroom, pleased with their IT outsourcing, decided to experiment by outsourcing other corporate functions. If the idea worked with computers, why wouldn’t it work for accounting or real estate? Outsourcing with AI is now a game changer for non-IT and BPO outsourcing functions. Even IBM is in the game with its own BPO operation.
Non-Core Processes
What other processes can a company outsource? Any non-core process is a good candidate. Please note that non-core does not mean “not important.” Finance and accounting, for example, form the cornerstone of any business. However, few companies make their mark in the marketplace because of their unique accounting skills. It is a perfect function to outsource to professionals who like number crunching all day.
What non-core processes lend themselves to successful BPO? In addition to finance and accounting, I’d add:
- Human Resources. Today, attracting and retaining talent is one of the most complex challenges for businesses.
- Logistics. Let them organize the warehouse and do the shipping. Inbound and outbound goods become their responsibility.
- Contract manufacturing. Someone else builds the plant and operates it.
- Supply chain management. Web exchanges are changing the way corporations buy goods. Outsourcers are assembling the participants of these sites.
- Medical underwriting. Outsourcers have experience handling risk.
- Real estate management. Let them mow the grass and recharge the air conditioning.
Why do these processes produce as good or better results than IT outsourcing? Because they are processes that buyers can accurately describe and measure. Also, companies tend to outsource the entire process, which is comparable to IT outsourcing, where buyers keep part of the IT process in-house. Outsourcing to include offshore outsourcing solutions always works better when the buyer outsources the entire process, not just a piece. Outsourcing the whole process prevents both parties from pointing angry fingers at each other when something doesn’t work instead of rolling up their sleeves and finding a fix.
Until recently, companies that were happy with their IT outsourcing turned to BPO outsourcing to increase their profitability. Today, start-up companies are outsourcing these non-core areas from the get-go.
Globalization Fuels BPO Growth
Today, two economic trends are accelerating BPO’s growth rate. The first is globalization. For the first time since the days of sailing ships, trade barriers are coming down. The Internet, of course, is enabling this trend. Doing business on the Web is easy and becoming more manageable. A Web site makes your products available to customers around the corner and halfway around the globe. Geographic boundaries disappear in a Web browser.
The Internet has made the world increasingly competitive, the second economic trend affecting corporations. Product cycle times that used to take months now can take hours. This frantic pace forces companies to harness all their resources to concentrate on their core competencies. They can’t afford to because today’s competitive world is not as forgiving of mistakes. Outsourcing is becoming the only way to prosper and succeed in a world moving at Web speed. Even generally laggard industries like https://www.outsourcing-center.com/why-energy-utilities-companies-should-consider-outsourcing/
What complicates business today is that successful companies must have even better core processes to stay in the game. Outsourcing becomes the only way a company can concentrate its scarce resources of time and money on its core competencies and still get better performance for its non-core functions. Also, consider the six key reasons for outsourcing.
Suppliers Can Do It Better
Transferring the ownership of a process to a supplier allows a buyer to take advantage of the supplier’s leverage, economies of scale, and expertise. A seasoned supplier can often perform the process cheaper and faster than your in-house team. Suppliers can give you a sustainable advantage, something every company needs today.
So, here’s my definition of BPO outsourcing: BPO outsourcing encompasses the transfer of ownership of any non-IT process to a capable supplier. And here’s my prediction. BPO outsourcing will grow exponentially as the Internet becomes integral to every corporation and consumer’s business.
Lessons from the Outsourcing Primer:
- BPO outsourcing is transferring a non-core, non-IT business process to a supplier.
- The Internet has sparked two trends causing BPO to grow exponentially: the globalization of commerce and the compression of business cycles. These two trends force companies to outsource their non-core processes to stay competitive.
- Suppliers can complete the process faster, cheaper, and better than buyers who can do it in-house. This type of service also helps companies compete in a Web-based marketplace.
- Also, look at lessons in the rise of Global BPO Outsourcing.
Questions and Answers to help you on your journey
1. What is Business Process Outsourcing (BPO), and how does it benefit companies?
Business Process Outsourcing (BPO) is when a company contracts specific business functions to a third-party provider. This approach helps companies reduce costs, improve efficiency, and focus on their primary goals. Companies can access specialized skills and benefit from scalable operations by outsourcing areas like finance, HR, or customer service.
2. How is BPO different from IT outsourcing?
While BPO covers a variety of non-core business processes, IT outsourcing specifically involves technology services such as software development, network maintenance, and tech support. BPO allows companies to outsource broader functions beyond IT, enabling them to focus on core activities while the outsourced provider handles specialized tasks.
3. Why do companies choose offshore outsourcing for BPO?
Offshore outsourcing is popular because it offers cost savings by accessing skilled labor in lower-cost regions like India and the Philippines. It also allows companies to operate 24/7 due to time zone differences, which can improve customer service. This approach enables companies to reduce expenses while maintaining high-quality service.
4. What are common non-core processes outsourced through BPO?
Companies frequently outsource non-core functions like finance and accounting, human resources, logistics, and supply chain management. These areas, though essential, are not central to the company’s primary operations. By outsourcing these tasks, companies save resources and can better focus on growth and innovation.
5. How does globalization contribute to BPO’s growth?
Globalization has accelerated BPO growth by reducing trade barriers and increasing cross-border business opportunities. The internet enables global business interactions, while competitive pressures push companies to focus on core competencies. Outsourcing non-core processes helps companies remain competitive and efficient in today’s fast-paced global market.