Business Process Outsourcing
Advantages and disadvantages
Business process outsourcing (BPO) involves the contracting of the operations and responsibilities of a specific business process to a third-party service provider. BPO can be 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 call centre services.
Main advantages of any BPO:
- Enables the company to focus on its core business competencies.
- Transforms fixed costs into variable costs so the company does not need to invest in assets.
- Increases quality control.
- Reduces costs.
- Key employees are released from performing non-core or administrative processes.
- Increases the speed of business processes such as the output of a manufacturing company.
- Allows firms to retain their entrepreneurial speed and agility and grow at a faster pace.
Potential problems with BPO implementation include:
- A failure to meet service levels.
- Unclear contractual issues.
- Changing requirements and unforeseen charges.
- Dependence on the BPO which reduces flexibility.
- Risk increases. For example, outsourcing of an information system can cause security risks both from a communication and from a privacy perspective.
- Underestimation of running costs.
- Risk of losing independence.
BPO can provide huge benefits to businesses if two things occur. Firstly, that the right processes are outsourced, and secondly the BPO is managed to ensure quality standards are maintained.