13 December, 2010

Business Process Outsourcing

Business Process Outsourcing (BPO) is a division of Outsourcing which includes contracting of operations and responsibilities of a specific area of business functions, to a third party service provider. BPO has been there in the manufacturing industry for many years now. Manufacturing industries typically have big divisions such as suppy chain that require services to handle.

Business Process Outsourcing (BPO) has two types of outsourcing; Back office outsourcing involves functions like human resources, accounting and finance; Front office has services related to customer related and contact center.

BPO that is contracted outside a company’s country is called offshore outsourcing and BPO that is contracted to a company’s neighboring country is called nearshore outsourcing.

Since BPO is close to Information Technology industry, it is generally called as information technology enabled service or ITES. Two segments of BPO are Knowledge Process Outsourcing (KPO) and Legal Process Outsourcing (LPO).

BPO has advantages and disadvantages. One of the advantages is it increases the company’s flexibility. Resources can be freed and a variable cost structure can be imposed giving a company a freedom to make changes as per the requirements. BPO allows a company to focus on its core competencies without being burdened by the demands of bureaucratic restraints. Key employees are released from non core processes and given time to focus on their actual core areas. This creates a competitive edge in the company. BPO can contribute to the increase in speed of business processes. Speed in business processes is another area where the company would benefit due to BPO. Business bottle necks can be avoided by companies and retain their goals in the right perspective. BPO would allow a company to retain their speed and agility which would not have been possible without BPO. A company would be able to grow at a faster pace with the flexibility that a BPO would give.

With many advantages of flexibility in the company operations, management needs to take cautious steps before embarking on a BPO. Areas where problems arise in practice are service levels, unclear contractual issues, changing requirements, and unforeseen changes. These challenges are not conducive to a company’s growth. A dependence on a BPO would reduce flexibility on operations of a company.

Risk is the major drawback with Business Process Outsourcing. Outsourcing of an Information System, for example, can cause security risks both from a communication and from a privacy perspective. Employees no longer feel attached to many functions in the organization. Running costs may be underestimated leading to a major risk.

Risk factors must always be influenced to achieve maximum benefits. A business continuity model (BCM) should be in place to manage outsourcing in a structured way. Threats should be avoided by minimizing risks and maximizing positive outcome. A BCM is a series of steps to successfully identify, manage and control the business processes that can be outsourced.



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