Business Process Outsourcing (BPO)

As per Wikipedia " Business process outsourcing (BPO) is a form of outsourcing which involves the contracting of the operations and responsibilities of a specific business function to a third-party service provider."

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. BPO that is contracted outside a company's own country is sometimes called offshore outsourcing. BPO that is contracted to a company's neighbouring country is sometimes called nearshore outsourcing.

Use of a BPO as opposed to an application service provider (ASP) usually also means that a certain amount of risk is transferred to the company that is running the process elements on behalf of the outsourcer. BPO includes the software, the process management, and the people to operate the service, while a typical ASP model includes only the provision of access to functionalities and features provided or 'served up' through the use of software, usually via web browser to the customer.

BPO is a part of the outsourcing industry. It is dependent on information technology, hence it is also referred to as information technology enabled services or ITES. Knowledge process outsourcing and legal process outsourcing are some of the subsets of business process outsourcing. 

One of the most important advantages of BPO is the way in which it helps to increase a company’s flexibility. However, several sources have different ways in which they perceive organizational flexibility. Therefore business process outsourcing enhances the flexibility of an organization in different ways.

Most services provided by BPO vendors are offered on a fee-for-service basis. This helps a company becoming more flexible by transforming fixed into variable costs. A variable cost structure helps a company responding to changes in required capacity and does not requisite a company in investing in assets and hereby making the company more flexible. Outsourcing may provide a firm with increased flexibility in its resource management and reduce response times to major environmental changes.

Another way in which BPO contributes to a company’s flexibility is that a company is able to focus on its core competencies, without being burdened by the demands of bureaucratic dictate. Key employees are herewith released from performing non-core or administrative processes and can invest more time and energy in building the firm’s core businesses. The key in this lies in knowing, which of the main value drivers to focus on – customer intimacy, product leadership, or operational excellence. Focusing on one of these drivers may help a company create a competitive edge.

A third way in which BPO increases organizational flexibility is by increasing the speed of business processes. Using techniques such as linear programming is a way to reduce cycle time and inventory levels, which reduces a company’s slack. Supply chain management with the effective use of supply chain partners and business process outsourcing increases the speed of several business processes, such as the throughput in the case of a manufacturing company.

Finally, flexibility is seen as a stage in the organizational life cycle. BPO helped to transform Nortel from a bureaucratic organization into a very agile organization. A company can hereby help maintaining ambitious growth goals, which do not fit with regular incumbent strategies. BPO therefore allows firms to retain their entrepreneurial speed and agility, which they would otherwise sacrifice in order to become efficient as they greatly expanded. It avoids a premature internal transition from its informal entrepreneurial phase to a more bureaucratic mode of operation.

Although the above-mentioned arguments favour the view that BPO increases the flexibility of organizations, management needs to be careful with the implementation of it. Some tends to change their attitudes, personalities and character on how the way they talk to other clients. Although BPO has many potential advantages there are a few stumbling blocks, which could counter these advantages. Among problems, which arise in practice are: A failure to meet service levels, unclear contractual issues, changing requirements and unforeseen charges. When BPO does not work out as planned the company might well experience the way in which BPO makes a company very dependent on a vendor and therefore very inflexible. Consequently, these challenges need to be considered before a company decides to engage in business process outsourcing

According to a recent Nasscom Report, India is at the forefront of the rapidly evolving Business Process Offshoring (BPO) market, having established itself as a “destination of choice.” The sector, that has grown manifold in size and matured in terms of service delivery capability and footprint over the past decade, is now at an inflexion point. Today, it faces a unique opportunity to enhance its role as a full-service, value-adding partner. There is significant headroom in the addressable BPO opportunity for buyers and providers, and there are sizeable untapped areas across a wide spectrum of segments. Also, the Indian BPO sector is favourably positioned to benefit from its established delivery capabilities, which influence buyers’ decision to expand their global sourcing exposure..

The Study shows that going forward, the Indian BPO sector, at its current momentum, can reach around US$ 30 billion in export revenues by 2012. However, the sector can set itself a stretch target of US$ 50 billion (that is, approximately five times its present size) in export revenues by 2012. A five-fold growth in the Indian BPO market will add nearly 2.5 percent directly to India’s GDP from exports earnings and provide direct employment to about 2 million people. This will also spur growth in smaller Tier 2 and 3 cities to enable a six-fold growth in the number of delivery centers that will be required to support the enhanced target for the sector.