Business process outsourcing (BPO) is a business practice in which an organization contracts with an external service provider to perform an essential business function or task.
An organization typically contracts with another business for such services after it has identified a process that, although necessary for its operations, is not part of its core value proposition. This step requires a good understanding of the processes within the organization and strong business process management.
Many organizations consider processes that are performed the same or similar from company to company, such as payroll and accounting, as good candidates for BPO.
Because these commodity processes do not generally differentiate one organization from another, enterprise executives often determine there is little value in having their staff perform them. Companies calculate that outsourcing these processes to a provider that specializes in them could deliver better results.
BPO has its roots in the manufacturing industry. Manufacturers hired third-party vendors to handle parts of their supply chains after determining that the vendors could bring more skills, speed, and cost efficiencies to those processes than an in-house team could deliver. Over time, organizations in other industries adopted the practice.
Today, the use of BPO has expanded, with for-profit businesses, nonprofits, and even government agencies outsourcing a range of tasks to service providers located in the U. S., throughout North America, and across the world.
Organizations engage in business process outsourcing for two main areas of work: back-office functions and front-office functions.
Back-office functions, sometimes called internal business functions, comprise support operations including accounting, information technology (IT) services, human resources (HR), quality assurance, and payment processing.