BPO

Business process outsourcing (BPO) is a form of outsourcing that involves the contracting of the operations and responsibilities of a specific business functions (or processes) to a third-party service provider. Originally, this was associated with manufacturing firms, such as Coca Cola that outsourced large segments of its supply chain. In the contemporary context, it is primarily used to refer to the outsourcing of services. BPO is typically categorized into back office outsourcing - which includes internal business functions such as human resources or finance and accounting, and front office outsourcing - which includes customer-related services such as contact center services.


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.