Business process outsourcing (BPO) involves contracting out business activities to third party service providers. It can be categorized as back office outsourcing (e.g. manufacturing, human resources, accounting and administrative work) as well as front office outsourcing, which includes things like customer support via phone, live chat, email, etc. BPO can leverage resources from foreign countries like India (known as offshoring) as well as those of nearby countries (nearshore outsourcing) in an effort to save costs.

Examples of business functions that are contracted out in business process outsourcing include payroll, call center, managing benefits for employees and other activities that aren’t at the core of a company’s strategic vision. BPO has many ties to information technology and consequently it’s also known as information technology enabled services (ITES).

Knowledge process outsourcing

Knowledge processing outsourcing (KPO) is a part of business process outsourcing that deals with outsourcing skilled work that demands a high level of knowledge, training and expertise. For example, menial tasks such as data entry would constitute a BPO effort while advanced processes such as R&D, data analytics, business research and investment research would be considered KPO. The work may be performed by employees in a parent company’s subsidiaries or in entirely different companies. Offshoring KPO activities is often done to save money.

Legal process outsourcing

A close cousin to KPO that also falls under the BPO umbrella is legal process outsourcing (LPO) which is when a law firm outsources legal tasks and support services to an external provider. Legal writing, patent services and reviewing documents are some of the services offered.

How to use business process outsourcing effectively

Leveraging BPO is a tool that companies can use to stay agile and competitive. Developing an outsourcing strategy first involves determining things like what needs to be outsourced, why it should be outsourced and the risks involved. The relationship your company develops with a business process outsourcing provider has implications on profitability, operating expenses and how processes are enhanced as a result.

Once your business has found a need for BPO, the next step is to evaluate and choose a specific vendor. One of the easiest ways is to simply release a request for proposal (RFP) to solicit competing bids. Deciding whether to use offshoring services is part of this phase. Achieving significant cost savings with offshoring isn’t always the best approach; there may be special expertise that your company is seeking that isn’t available in foreign countries.

Contract development follows the selection of a services provider. Creating a service level agreement (SLA) formally establishes the services and timelines relating to the BPO activities and measures performance.

The duration of the BPO contract involves many variables that affect your business. Companies invest a lot of time into planning and executing business process outsourcing; if things don’t work out it will also cost you valuable time to withdraw from the services of a BPO vendor. You want to find the right balance between longer contract duration to allow for a meaningful impact on your company and shorter contract duration to allow for flexibility. Being tied down to a contract for an extended period of time may result in missed opportunities elsewhere.

Assessing the degree of risk in a business process outsourcing partnership is a key component to your strategy. Mitigate risk by keeping a level of control over the outsourced activities and verify whether your BPO provider has the means to meet your expectations.