BPO (Business Process Outsourcing): Meaning and Definition

Last Updated on: 22nd November 2023, 05:02 am

BPO, or Business Process Outsourcing, refers to delegating whole business functions to an external company – a BPO service provider responsible for managing, administering, and optimizing the selected processes based on defined performance metrics.

How does business process outsourcing (BPO) work?

The process of how BPO works can vary depending on the type of service and the service provider. However, in general, the basic process involves the following steps:

1. Define The Process To Be Outsourced

The organization identifies the specific business process or operation they wish to outsource.

2. Select A Service Provider

The organization selects a service provider based on expertise and experience in the chosen process or industry.

3. Negotiate a Contract

The organization and service provider negotiate a contract that outlines the scope of work, pricing, service level agreements, and other terms and conditions.

4. Transition the Process

The service provider sets up the necessary infrastructure, processes, and systems required to perform the outsourced process, including hiring and training staff, setting up technology and communication systems, and establishing workflows and procedures.

5. Deliver the Service

Once the process is transitioned, the service provider begins to deliver the service as outlined in the contract. They manage and optimize the process to meet the agreed-upon service level agreements.

6. Monitor and Evaluate Performance

The organization monitors the service provider’s key performance metrics and provides feedback as needed. The service provider delivers regular reports and updates on the process’s performance.

BPO: Benefits and Pitfalls

While outsourcing can offer several benefits, there are also potential pitfalls. Here’s a breakdown to carefully evaluate outsourcing needs, plan and execute outsourcing strategies effectively, and avoid common pitfalls to realize the benefits of BPO fully.



Outsourcing for Efficiency
Focus on core competencies while saving on operation costs

Loss of Control 

Leads to a need for more transparency, increased risk, and potential legal issues.

Expertise without Infrastructure
Access talent and tools to grow quickly without investing in costly infrastructure

Communication Problems

Language, time zone, and cultural differences lead to delays and mistakes

Agile Scaling Support
Ramp-up operations in response to new opportunities

Hidden Costs

Setup fees, training costs, and additional fees for services not included in the contract

Flexibility for Adaptation
Adapt to new markets, regulatory environments, or customer demands fast

Lack of Flexibility

Changes may require renegotiation of the contract, delays and additional costs

Remote Workforce Support
24/7 assistance for companies with customers in different time zones

Data Security Risks

Risk of sensitive data shared with third-party vendors, data breaches, theft, or loss

Operational Resiliency
Navigate disruptions and emergencies to maintain business continuity

Quality Issues

Lead to customer dissatisfaction, reputational damage and financial losses.

Examples of BPO

BPO services can be classified into two categories: horizontal and vertical-specific services. Horizontal services, like back-office work for example, can be applied across various industries, whereas vertical-specific services require specialized knowledge of specific industry verticals. Many other types of BPO services fall into these categories. Below are just a few examples –

Horizontal BPO Services

Vertical BPO Services

Customer Service and Support

Data Entry and Management

Finance and Accounting

Human Resources Management

IT and Technical Support

Marketing and Sales Support

Insurance Claims Processing

Legal Process Outsourcing

Banking and Mortgage Processing

Supply Chain Management

Delivery and Logistics

Manufacturing and Production

Global companies that outsource back-office functions in HR, finance and IT support to horizontal BPO service providers ( Accenture, IBM, Infosys, Wipro  )


General Electric

Procter & Gamble (P&G)

Global companies that outsource logistics, manufacturing and production to vertical BPO service providers (Forbes, The Verge, CNBC )





The effectiveness of BPO may surprise you, as almost every sphere can benefit from the services of BPO providers. Whether you need to outsource banking, communication, transportation, retail, insurance, education, or IT, you can easily find a company with great BPO potential. This strategy applies to healthcare services, process manufacturing, consumer and recreational services, resource industries, state and local government, and many more. Even if your industry is not listed, you can still optimize your workflow by contacting the right BPO company.

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