business process outsourcing definition essay

What Is Business Process Outsourcing (BPO)?

Updated: Jun 10, 2024, 9:47am

Table of Contents

What is business process outsourcing, how business process outsourcing works, 9 common benefits of business process outsourcing, 6 common disadvantages of business process outsourcing, examples of business process outsourcing, frequently asked questions (faqs).

Business process outsourcing (BPO) happens when a company outsources entire business functions to be handled by another company. For example, companies can outsource their marketing, payroll, human resources (HR), customer service and supply chain management functions. In this article, we discuss what business process outsourcing is, how it works, its benefits and disadvantages and examples of what it looks like in today’s businesses.

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Business process outsourcing involves the outsourcing of business functions to external companies. To clarify, many companies outsource tasks to external providers. An example may be hiring a freelancer to do video editing. BPO is different in that whole business functions, such as marketing or accounting, are outsourced. Traditionally, BPO was used by manufacturing companies but it has more recently spread to a variety of industries.

Business process outsourcing can include outsourcing back-office or front-office functions. Back office functions include those that are not customer-facing, such as accounting and human resources. Front-office BPO involves outsourcing customer-facing functions like sales or customer service.

Three types of BPO exist. “Offshore” BPO means hiring an overseas company to run a business function. For example, a company in the United States may hire a BPO company in the Philippines. “Nearshore” outsourcing means hiring a BPO company in a nearby country, such as a Canadian company outsourcing to a U.S. company. Finally, “domestic” or “onshore” BPO means hiring a company within the company’s own country.

Business process outsourcing begins when a company determines it can gain a benefit from outsourcing a business function, such as marketing, accounting or supply chain management, to an external company. The company then begins researching different companies that specialize in performing the needed business function. Often, the searching company will contact more than one BPO company to determine the best fit.

Once a company has reached out to a considered BPO company, a conversation begins. Many BPO companies determine the needs of the client company, then tailor a solution to those unique needs. In this way, often, no BPO-client relationship is exactly the same. The BPO company will then draw up a contract, often called a master service agreement (MSA) or a service-level agreement (SLA) that gives a broad overview of the terms of the agreement.

Once the client company receives these broad contracts from considered BPO companies, its decision-makers decide which BPO company offers the best value and hires one. A backup BPO company may also be selected in case the primary BPO company is not able to deliver as expected.

Once a BPO company is hired, more granular agreements may be drawn up to cover how each project will be handled by the BPO company. Such a granular contract is often called a statement of work (SOW). The relationship then continues based on the specifications in the MSA, SLA and/or SOW. In particular, the SOW may be revisited and revised when needed to ensure an optimal ongoing relationship between the client and BPO provider.

There are numerous potential advantages to hiring a BPO company. Among them are greater operational flexibility, access to innovative technologies and top talent, cost savings, access to advanced and quick reporting, reduced risk, a better ability to respond to change and, ultimately, a competitive advantage. Here is a closer look at each of these benefits.

Greater Operational Flexibility

By outsourcing noncore competency functions within your business, such as marketing and HR, your personnel are free to focus exclusively on core competencies. In turn, this gives them time to be innovative and adaptive in their work.

Access to Innovative Technologies

To compete for clients against other BPO companies, most BPO companies specialize in one business function and invest in the latest and best technologies in that specialization. This often means companies that outsource to them gain access to the most innovative and best technologies in the industry, technologies they may not otherwise have the budget to implement internally or may not even know exist.

Access To Top Talent

Many BPO companies hire talent with extensive backgrounds and credentials in the area in which they specialize, such as HR or payroll. Hiring top talent means they can compete for clients against other BPO companies. It also means the businesses that hire them gain access to the expertise within that top talent.

Cost Savings

Many BPO companies exist or hire within countries with lower corporate income tax and acceptable incomes. As funds are saved by hiring from other countries, those savings are often passed along to businesses that outsource through them. In addition, many other costs can be saved by hiring a BPO company, including office rental costs, employee-used software fees and other overhead costs.

Access to Advanced and Quick Reporting

Access to advanced technologies like artificial intelligence (AI), machine learning (ML)and automations via BPO companies allow businesses to gain access to more advanced and quick reporting, including financial and cash flow forecasting.

Better Change Responses

By accessing top talent, innovative technologies, cost savings, greater internal flexibility and advanced reporting, companies are better able to adapt when their industries quickly or customer demands change. They may even be able to adapt before the changes hit to stay ahead of demand. For example, access to advanced reporting can help outsourcing companies forecast coming changes so they can adapt before they are forced to.

Specialized Risk Management

Companies that outsource business functions can potentially reduce risks by putting those areas of their businesses in the hands of tried and true experts who know how to avoid relevant risks. For example, if a company outsources its information technology (IT) function, the hired IT experts may know ways to mitigate risks with greater attention to detail than the outsourcing company’s current employees.

A Greater Competitive Advantage

With access to innovative technologies, specialized expertise, cost savings, advanced and quick reporting, specialized risk management and opportunities for greater operational flexibility, companies are better able to develop competitive edges against competitors that may not have such access.

Despite the numerous and impressive benefits to BPO, the disadvantages can be equally impressive if not managed correctly. Common disadvantages include public backlash, loss of control, communication breakdowns and hidden costs. Here is a closer look at these disadvantages.

Public Backlash

Some outsourcing companies hire talent from across the globe (offshoring) or nearby countries (nearshoring). In doing so, public perception may negatively affect an outsourcing business as customers or community members perceive the business is sacrificing domestic jobs. In addition, customers sometimes perceive lower-quality services or products when those services or products are fulfilled via nondomestic talent.

A Learning Curve

A hired BPO company must learn about the client company, its customers and what needs are to be fulfilled. This learning curve can create a disruption in the client company’s product or quality services, creating concerns among customers, shareholders or directors. For this reason, it is important to start slow with the outsourcing process and ask any BPO companies you’re considering hiring how they plan to mitigate this risk.

Loss of Control

When functions are run internally, managers can be put in place to ensure consistency and quality control. When outsourced, companies lose control over this oversight. For this reason, it is important to hire a well-vetted BPO company you can trust with your company’s reputation. Interviewing past customers before hiring a BPO company can help you learn about the quality control process that’s typically offered by the BPO company.

Communication Breakdowns

If not managed carefully, BPO can create a more siloed company. It is more difficult, for example, for internal engineers to talk to marketing talent if marketing is outsourced. That communication may not take place as fluidly, creating breakdowns in information flow that could hinder marketing’s ability to deliver what audiences need. If you outsource, a communication plan should be used to ensure the most fluid communication possible.

Hidden Costs in Contractual Agreements

When hiring a BPO company, outsourcing companies are required to sign a lengthy contract with much fine print around contingencies that may occur. Some of that fine print will likely include fees should certain circumstances arise or expected actions be performed (or not performed). Those fees can add up quickly. It is imperative to look over contracts thoroughly and with a legal understanding to avoid hidden costs that could pose a problem later.

Shared Reputational Risks

If a hired BPO company becomes entangled in a public relations nightmare, the reputation of the companies that hire them may suffer by association. For example, if a BPO company relies on grossly underpaid labor, its clients’ reputations may suffer due to the benefits they received via immorally outsourced labor. Before hiring a BPO company, vet its business practices thoroughly and include a commitment to moral practices in mutually signed contracts.

The following section offers three examples of business process outsourcing, including payroll, call center customer service and supply chain management. However, business process outsourcing can be helpful with a long list of business functions, including HR, marketing, accounts payable (A/P), research and development and sales, among others.

Payroll involves calculating and disseminating wages and taxes to workers and government agencies. In a nutshell, it starts with a list of employees and their status as a contractor or employee. Wages are calculated based on employment status, tax withholdings, paid time off (PTO) and more. Wages are often paid via direct deposit and pay stubs are provided to employees. Records are kept, estimated taxes are paid quarterly and taxes are often filed yearly .

Clearly, a lot of time and process goes into processing payroll. It requires not just paying talent but hiring experienced payroll talent to execute the ongoing work and avoid financial risk. Companies can outsource this process to save time, money and resources that can then be dedicated to their core competencies. By putting this process in expert hands, companies can also reduce the risk of penalties for payroll errors.

Call Center Customer Service

Call centers often work with customers to ensure they have the best experience with company services or products. The process involves answering customer questions and helping to resolve issues related to the company’s products or services. For the best outcome, call center personnel should be professional (even with upset customers), knowledgeable, personable, clear and able to balance meeting customer needs against company interests.

Because we live in a 24/7-on world, the greatest customer satisfaction is often achieved with a constant presence to support them. Many small businesses do not have the time, resources or funds to support customers 24/7. In addition to the constant demand for customer support, many companies don’t have the talent to meet other customer needs, like multilingual support. Call centers are often equipped with talent and resources to meet such needs.

Supply Chain Management

Supply chain management controls the process and flow involved in making products. For example, to make shoes, raw materials are sourced, sometimes from multiple sources across the globe. Next, the raw materials are sent to the company that makes the shoes. Then, the shoes are sent to the companies that distribute them to customers. All the while, inventories are managed so resources arrive on time but don’t cost extra storage, labor or other costs.

Supply chain management is a complex process that, if not done precisely, can cost companies their profit margins. The chosen partners in the supply chain can make or break a company’s legal and moral standing. Its management involves legal counsel, payment processing, sourcing partners, quality control, accounting procedures, specialized software and more. An experienced BPO company can manage these complexities while reducing risk.

Bottom Line

Business process outsourcing is outsourcing business functions to an external company. In doing so, companies can enjoy benefits, such as lowering overhead costs, gaining access to advanced reporting and innovative technologies, reducing risk, accessing specialized talent and better adapting to changing customer demands. However, it must be managed carefully to avoid pitfalls like siloed company communication, hidden costs and reputational damage.

What does business process outsourcing do?

Business process outsourcing (BPO) occurs when a business hires an external company, called a BPO company, to handle a business function that is traditionally handled internally. The hired BPO company may manage hiring talent, paying vendors, sourcing resources, handling legal compliance issues, monitoring for quality control, serving customers, implementing technology or other such tasks involved in the everyday duties of the business function.

What's an example of business process outsourcing?

An example of business process outsourcing (BPO) is when a company hires an external company to run its customer service call center. The BPO company hires and manages customer service professionals who learn about the client company’s offerings, then answer questions and provide support to its customers. This frees the client company to focus on its core competency while offering 24/7 support and lowering overhead costs.

What are the types of business process outsourcing?

Front-office business process outsourcing (BPO) means outsourcing customer-facing functions, such as marketing. Back-office BPO means outsourcing noncustomer-facing functions, such as accounting or HR. Offshore BPO means outsourcing a business function to a distant country. Nearshore BPO means hiring a BPO company from a neighboring country. Finally, domestic or onshore BPO means hiring a BPO company from within one’s own country.

Is business process outsourcing known by any other names?

Although the process is the same, business process outsourcing is sometimes referred to as managed services.

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Everything You Need to Know about Business Process Outsourcing

By Kate Eby | January 17, 2017

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In today’s connected world, a successful business is often an efficient one, and the difference can come down to smart, innovative processes, with suitably adept management to match. Novel, modern process management techniques can take your business from good to great. One outgrowth of BPM, business process outsourcing (BPO), can enable just such a change if enacted in a careful, conscientious manner and with a quality vendor.

This article has everything you need to know about business process outsourcing: what it is, what types of processes and functions BPO vendors support, the current state and future outlook of the industry, and how to choose a vendor that’s right for your company. Along the way, BPO experts weigh in, and we even provide a vendor scorecard template to make that decision easier for you.

What Is Business Process Outsourcing?

Business process outsourcing (BPO) is the practice of contracting a work process or processes to an external service provider. BPO fills supplementary business functions like payroll, accounting, telemarketing, data recording, social media, customer support, and more.

From fledgling startups to massive Fortune 500 companies, businesses of all sizes outsource processes, and the demand continues to grow, as new and innovative services are introduced and businesses seek advantages to get ahead of the competition. BPO can be an alternative to labor migration, allowing the labor force to remain in their home country while contributing their skills abroad.

BPO is often divided into two main types of services: back office and front office. Back-office services include internal business processes, such as billing or purchasing. Front-office services pertain to the contracting company’s customers, such as marketing and tech support. BPOs can combine these services so that they work together, not independently.

The BPO industry is divided into three categories, based on the location of the vendor. A business can achieve total process optimization by combining the three categories:

Offshore vendors are located outside of the company’s own country. For example, a U.S. company may use an offshore BPO vendor in the Philippines.

Nearshore vendors are located in countries that neighbor the contracting company’s country. For example, in the United States, a BPO in Mexico is considered a nearshore vendor.

Onshore vendors operate within the same country as the contractor, although they may be located in a different city or state. For example, a company in Seattle, Washington, could use an onshore outsourcing vendor located in Seattle, Washington, or in Huntsville, Alabama.

Why Do Businesses Outsource Processes?

Outsourcing is a part of many successful business models, especially for companies who do not have the resources and services they need available internally. Businesses often outsource to decrease costs, expand their presence, or increase flexibility.

Some people believe that businesses are only after the tax break associated with outsourcing jobs, or “shipping jobs overseas” as some political ads claim. According to PolitiFact , this is a flawed notion. PolitiFact concedes that there are tax breaks for a company when it relocates, whether out of country or to a different state, but there is no specific tax break or loophole in the U.S. tax code related to outsourcing.

What is relevant to this argument, however, is that the U.S. corporate income tax is one of the highest in the developed world (39.1 percent). Therefore, U.S. companies benefit from outsourcing operations to countries with a lower income tax because businesses pay the rate of their host country. In addition, businesses cite many other reasons to engage in outsourcing:

To decrease costs : Outsourcing cuts down on costs for in-house labor, particularly for staffing and training, and for the work space to accommodate local employees. An outsourcing company physically located in a developing country leverages lower-cost labor markets. Finally, outsourcing enables businesses to use variable-cost models, like fee-for-service plans, instead of fixed-cost models that are required when retaining local employees.

To concentrate on key functions : Outsourcing allows businesses to hone in on their main offerings instead of company functions that aren’t directly tied to their core processes. For example, when outsourcing, the company won’t have to monitor the payroll accountant’s performance. Rather, it can focus its energies on highlighting its business differentiators and maximizing overall growth. In turn, these actions can boost a company’s competitive advantage and enhance its interactions with the value chain. Ultimately, the company can enjoy improved customer satisfaction and increased profits.

To achieve better results in noncore functions : Outsourcing companies specialize in what are considered noncore functions of other businesses, delivering world-class capabilities for its clients. In fact, an outsourcing company that invests in specialized processes and technologies can deliver cutting-edge breakthroughs to its clients. For example, a gaming design company may not want to pay for the latest payroll program on the market, but an outsourcing business that offers payroll services would likely make that investment to benefit its own performance, as well as that of its clients.

To expand their global presence : Some outsourcing companies can serve customers in multiple languages, around the clock, thus relieving the local company of the responsibility. Outsourcing companies can leverage their presence in multiple countries and keep the local company’s redundant divisions to a minimum. For example, WNS Global has 37 “delivery centers” across the world and specializes in business process management.

To enable flexibility : Companies that outsource their noncritical functions can act more quickly and more efficiently when managing the risks associated with introducing new products or services. They can also reassign their internal resources to more critical functions to help ensure better coverage and allocate responsibility.

To improve speed and efficiency : Companies that outsource processes are opting to let specialists handle those tasks, thus saving time, improving accuracy, and increasing their capacity. For example, a BPO that specializes in records management can automatically index documents, making them available for retrieval and keeping a company in compliance with legal requirements. This replaces manual data entry and storage.

Ryan Fitzgerald, owner of and realtor at Raleigh Realty , has extensive experience with BPOs. He says, “There are both pros and cons to creating an outsourcing process for your business. The obvious pros are that it saves you time and effort, which likely saves you money. There are only so many hours in a day, so you will want to focus the limited time you have on the work that makes you the greatest ROI (return on investment) on your best work.

“Another pro is that there is a good chance the person you're outsourcing your projects to is armed with a better skill set for the specific goal you're trying to accomplish. By outsourcing your work, you allow yourself the opportunity to be more productive and grow your business faster.

“One of the biggest cons is that you leave yourself exposed if you don't do the work yourself. What happens if the person you're outsourcing to moves away? What if they take your ideas and give them to other businesses you're competing against? We had an instance where we bought a lot of video marketing equipment and decided to outsource our projects to a video professional. That video professional is now reaching out to our competitors to ask if they would like the same work done. That means one of our competitive advantages is potentially lost if other real estate companies see the value.

“There are a lot of benefits to business process outsourcing, but make sure you keep an eye on how it could come back to hurt you as well.”

What Types of Services Do Outsourcing Companies Support?

BPO providers support a number of services to help fill gaps within companies. Some of the participating industries include healthcare, pharmaceuticals, energy, business services, retail and e-commerce, telecom, automotive, utility companies, banking, supply chain, capacity solutions, and asset management.

In fact, the growth in BPOs has resulted in the emergence of subspecialties, including everything from information technology-enabled services (ITES) to travel:

Information technology-enabled services (ITES) BPO : This form of BPO leverages information technology (IT) over the internet or data network to deliver services. Some examples of ITES BPO jobs are service desk analyst, production support analyst, and IT analyst.

Knowledge process outsourcing (KPO) : KPO has changed BPO a bit. Some KPO vendors support functions that are considered core in business, although they may not be core functions in the particular business that hires them. KPO firms offer more than process expertise; they may also provide business and domain-based expertise. Some examples of KPO services include research, analysis, or Microsoft Word and Excel work. KPOs may be capable of making low-level business decisions if they do not conflict with higher-level business policies, but those decisions may be undone easily. KPO vendors are usually linked to the business’s value chain, and they hire people who are competent in a specific field.

Legal process outsourcing (LPO) : LPO is a subset of KPO and encompasses a huge range of higher-level legal work, not merely lower-level legal transcription. LPO firms can draft patent applications and legal agreements, as well as perform legal research. Some LPO firms even advise clients. In-house legal departments usually retain LPOs. Experienced paralegals using industry-standard databases do the work.

Research process outsourcing (RPO) : A subset of KPO, RPO specializes in research and analysis functions. RPO companies perform research and analysis work that supports business, investment, biotech, and marketing firms.

Travel : This pertains to all the operations a business needs to support its travel logistics, from reservations to hotel and vehicle bookings. Travel BPO saves money for the company because it cuts costs while increasing customer satisfaction. Airline and travel companies also engage in BPO for either front- or back-office process streamlining. For example, an airline could outsource its ticketing process.

Each BPO company will specialize in specific services. They may be grouped as follows:

Customer interaction services : The BPO company would cover a business’s voicemail services, appointment schedules, email services, marketing program, telemarketing, surveys, payment processing, order processing, quality assurance, customer support, warranty administration, and other customer feedback.

Back-office transactions : This includes check, credit, and debit card processing; collection; receivables; direct and indirect procurement; transportation administration; logistics and dispatch; and warehouse management.

IT and software operations : These technical support functions include application development and testing, implementation services, and IT helpdesk. For example, manual data entry can be replaced with automated data capture, increasing data intake and reducing cycle time.

Finance and accounting services : These functions include billing services, accounts payable, receivables, general accounting, auditing, and regulatory compliance.

Human resource services : BPOs can help address workforce challenges. They can also cover payroll services, healthcare administration, hiring and recruitment, workforce training, insurance processing, and retirement benefits.

Knowledge services : These higher-level processes may include data analytics, data mining, data and knowledge management, and internet and web research, as well as developing an information governance program and providing the voice of customer feedback.

The Risks of Business Process Outsourcing

The global market size of services outsourced from the United States was $88.9 billion in 2017 and is expected to hit $140.3 billion by 2022, as reported by Statista and The BPO Services Global Industry Almanac 2017 Company Report . This was after steady growth of 4.4 percent compounded annually from $45.6 billion in 2000. For U.S. companies, India and the Philippines perform a large portion of the outsourcing services. India in particular is a leader in BPO for the United States because its labor force is highly skilled, educated, English-speaking, and economical.

Not only are these countries geographically disparate, they are different cultural entities as well, which may constitute a risk for the contracting company. In fact, hiring any outside vendor to perform business processes for your company comes with inherent question of efficiency and quality. This is especially concerning because the industry has seen reported shortages in skilled workers, increased trade protectionism, and gridlocks due to political issues. Other risks include the following:

Security : In outsourcing, especially when information systems (IS) are involved, companies face communication and privacy risks. Security is more difficult to maintain when the business taking care of your IS is not in the same country, especially one with different security requirements. Potential data privacy breaches and vulnerability disclosures are a real threat, particularly with the current prevalence of hacking. The internet, which makes BPO for IT feasible, also may offer a portal through which hackers enter.

Underestimating the costs of services : Companies that employ BPO vendors often underestimate the running costs, especially in upgrades and contract renegotiation. Other hidden costs include vendor selection, currency fluctuations, hardware and software upgrades, internal transitions, layoffs, and the potential decrease in individual worker productivity.

Overdependence on service providers : Once a company designates a vendor for specific processes, the vendor becomes a part of the workflow. The company can incur extraneous costs and decreased productivity when the vendor encounters problems or lapses in its work — for example, when the cost of hiring workers increases. Vendors often replace veteran employees with less experienced workers to keep costs down, and quality suffers as a result.

Communication issues : Language barriers can limit activities when your company hires individual service providers spread across the globe. This can result in delays in new processes and curbs on feedback from different departments, and it can potentially magnify current problems in your business operations. Further, customer-facing services may present language barriers to third-party vendors.

When outsourcing your processes and parts of your business, you face significant risks, depending on the type and structure of your company. For example, in very large segmented companies, outsourcing only the back data entry can carry a low risk. But for a small business that is reliant on BPO as part of its manufacturing, the risk increases. Other possible risks associated with outsourcing include:

Data breaches

Quality control

Operation restoration

Nonlocal employees

Maintenance of strategic alignment

Political instability

Changes in technology and exposure to hacking

Specialization to the point that the niche demand is no longer necessary

On the other side of the equation, BPO companies face risks as well. These include:

Robotic process automation (RPA) : RPA uses bots or artificial intelligence (AI), a form of cognitive computing. These robots operate on a user interface in the same way a human worker would. Due to the demand for increased cost efficiency and innovation, robots are becoming more widespread. According to the Institute for Robotic Process Automation , RPA creates 25-50 percent cost savings. Robots cost between one-fifth to one-ninth of a full-time equivalent (FTE) worker in the United States, and about one-half of an FTE in a developing country. Some experts postulate that BPOs may adopt RPA in limited use or that BPOs will still have contracts, but their role will change to become more of a consultant.

The Business Process Outsourcing Industry

Globally, the BPO sector is worth over $300 billion. BPO vendors employ more than 3 million people in India, and more than 1 million people in the Philippines. Millions more are employed by BPO companies in Europe and the United States. BPO vendors are located all over the world, especially in developing nations with low income tax. South Africa has shown recent dominance in the BPO market, notably in call centers.

In the past five years, the BPO industry has exploded due to shifts in social media use and the concurrent demand for multichannel communication. Consumer behavior has changed too. Browsing social media is now the third most popular online activity, and 81 percent of the U.S. population has at least one social media account.

Before 2000, companies provided customer service through websites and by transferring calls via interactive voice response, and the BPO industry was primarily composed of call centers. But with the growth of social media and, according to Rightscale , the majority (95 percent) of small to medium-sized businesses’ dependence on cloud technologies, BPOs now provide more professional and technical services such as web design, human resources, and accounting services. This has led to increased investment in BPO, with $462 million poured in by startups in 2014.

Another iteration of the BPO industry is business transformation outsourcing (BTO). BTO offers strategy consulting services, not only in-the-box, traditional supportive business functions. BTO consultants help businesses revamp their processes through outsourcing. In other words, BTO consultants review your business as part of their services and find the opportunities to implement BPO where it makes sense and is most beneficial for the company.

The Future of Business Process Outsourcing

The future of BPO is similar to that of many industries in that automation will be key. Many experts point to RPA as the main avenue through which BPO will change. For example, data entry work and image recognition can be automated easily. However, experts report that certain functions, like handwritten data and telemarketing, will resist automation.

All industries, including BPO, will likely leverage emerging technologies, such as cloud services, social media, and machine learning, to reduce costs and accelerate growth. One business model, the productized service, combines software and an outsourced staff member. An example of productized services is a package that bundles cutting-edge accounting software and accounting services, with both services billed to the contracting company monthly. Startups in particular are becoming more dependent on this type of service, so there is mutual dependence with BPOs.

The trend of providing and supporting improvements in social media management tools is expected to continue. Investments in cloud computing will also persist, as it becomes a more mature platform. In addition, BPOs will invest in diversifying their workforce. As BPOs get more competitive and are forced to lower their prices, they will move to lower-cost alternatives such as software automation and AI. With the threat of losing workers to AI and automation, governments and business leaders are educating them so they can meet the newer demand for highly skilled positions.

With businesses expecting BPOs to fill their gaps or even becoming dependent on them, BPOs are required to be more transparent so that they may build and maintain trust. In the 2016 U.S. presidential election, BPO providers were concerned that they would lose their ability to work for U.S. companies if the new administration changed policies on trade, tax laws, and visas. However, experts do not believe that changing political tides will negatively affect BPO or KPO. Because KPO in particular requires higher-level skill sets or higher education, experts believe that individual country politics will be less apt to disrupt the businesses.

Our experts weigh in and provide their opinions of the future of BPO, and some have recommendations for hiring BPO vendors:

According to SEO expert and business advisor Alex Genadinik, Founder and CEO of Problemio.com , “Moving forward, I fear that there will be a decline of quality as the market saturates with more and more companies and freelancers that do essentially the same relatively low-quality work. The challenge is that if you hire high-quality companies, they typically do great work, but are costly. As a business owner, this means that you must either get to the point where you can hire costly companies on a long-term basis or allocate resources to SEO in-house. If done intelligently, it doesn't have to require many resources, but at least you will have control and transparency of what the SEO work is being done. This ensures that your employees are not cutting corners or doing something that will get your website penalized by Google.

“I have experience outsourcing to a BPO for my business Problemio.com, and I have been hired by SEO marketing agencies to train their staff. What I can say is that if you are hiring on a budget, you will get very low-quality work. Only the top tier of the BPO companies actually do good work that I as an SEO expert would deem acceptable. So for the long term: Hire high quality or don't hire at all.”

Thomas Wooldridge, who specializes in web design, social media, and PR at Relamark Web Design & Marketing, advises, “BPO is something that will never go away. It's like saying you want to bring back encyclopedia books or Blockbuster videos. Our world has never gone backward from technology. The internet has made it much easier to bring the whole world together.

“There will always be a need for low-skill and low-wage workers who would be difficult to hire in the West, although many countries such as India, the Philippines, or China will gladly do it on your behalf. On the other hand, the same country you used to hire the low-wage workers will eventually get smarter. The local economies and workers’ skills will improve to where they are demanding higher pay. So then you have to look into another third-world-type country to attract.

“For example in the 1990s, India was the prime location for BPO services. Because of this, education and middle-class incomes rose to the point that they have nearly surpassed that of workers in the United States. Now U.S. companies have to nearly import those same workers to take the jobs that Americans couldn't fill. That is why there is a tremendous growth in Indian medical doctors and IT people in the United States.”

Pete Abilla, Lean Six Sigma expert turned entrepreneur and owner of  FindATutorNearMe , a tutoring marketplace with over 100,000 private tutors, says, “During my career, I've spent a lot of time improving the processes of clients. One trend I'm seeing is that organizations are more interested in training their own employees in the techniques of Lean manufacturing and Six Sigma. However, for some processes, such as call centers and primarily back-office operations, it might be more cost effective to outsource those to a BPO entity. Another trend I'm seeing is that BPO organizations are best to use for departments that are primarily cost centers and not revenue generators for the company.”

Ben Walker, the CEO of Transcription Outsourcing , LLC, says, “We work with all kinds of companies, small, medium, large, public, private, and many different government agencies, on a daily basis. They use my company because they don’t have the internal personnel to do what we do for them. Transcription is not something a lot of people do any more, so by utilizing us and our teams of transcriptionists we can help them get what they need much faster and cheaper than they could do it themselves. I don’t think companies like mine will be going anywhere any time soon because we do highly specialized work that you can’t replace at the drop of a hat and start filling cubicles next week.”

Derric Haynie , CEO of Vulpine Interactive , says, “By the end of 2017 or early 2018, I'm planning on opening up my own counterpart agency in Asia (Bali or the Philippines are front-runners right now). The reason I'm doing this is because my business relies heavily on systems and processes, things that technology can't quite do, but doesn't require significant strategy or high-level employees either. By opening up our own business, we can ensure quality and continuity while simultaneously keeping costs very low.

“While I don't think all companies will move toward this model, I do see it as highly viable and would expect more ‘outsourcing’ to actually be done in-house as even small companies like mine can open up their own in-sourced shop in another country.

“In the short term, I see BPO being easier to access and utilize by all companies, but I also see AI and technology eliminating many BPO jobs in the short- and long-term future. It's the same venture, not a new venture. We will just be opening an office in Asia to handle all of our low-level processes. I imagine there will be many problems starting a business in another country. I have yet to assess all of them properly. I’m not looking forward to that.”

FInally, the new BPO destinations expected to emerge in 2018 include Bulgaria, Romania, Egypt, Mexico, and Columbia. Due to fierce BPO competition, oversaturation, and reduced business growth, these five countries may become alternate low-cost locations.

Business Process Outsourcing Commercial Providers

Below you’ll find links to lists of BPO companies throughout India, Asia, the U.S., the U.K., Australia, and Europe. A BPO company usually specializes in one service or group of services, such as back-office support or, in the case of RPOs, biotech research. These lists are not comprehensive, as new companies crop up weekly, and companies frequently merge.

You can also try service companies that can help you find the right BPO vendor for your needs. Through the contracting process, these service companies can help ensure that all of your needs are covered. Many also use e-procurement services (supplier exchange) to keep the costs constant. E-procurement is a system that allows business-to-business management of services. Here are some useful resources:

eBook directory through the IT and Business Process Association of the Philippines

A commercial company lists of BPO contact information

BPO service providers listed by region and functional area through 123outsource

How to Choose a Business Process Outsourcing Vendor

It’s no easy task choosing a vendor to support your outsourcing needs, but you’ll need to review many details prior to settling on one company and getting an appropriate agreement in place. Experts recommend a formal, extensive process to choose a vendor that has the best outsourcing experience and can meet your company’s goals. The following is a list of tasks to perform in sequential order for companies considering hiring a BPO vendor:

Define your requirements and review potential vendors : Start by defining your key stakeholders, and engage them in the process from the beginning. Set all key stakeholder expectations early and engage them often. During this step, your company must also figure out the key objectives, risks, and scope for BPO. This is your business case scenario, so this step should take the longest and include a full review of your company processes, not only those initially considered for outsourcing. During this step, you should start to source potential vendors and develop a scorecard to determine the most important criteria. You can find a template for developing a scorecard here.

‌ Open Vendor Selection Scorecard Template - Google Sheet

Put together a request for proposal (RFP), and source vendors : In concert with your company stakeholders, determine the most crucial elements of a BPO provider. Develop and send out an RFP from your market research. At this stage, define what service management model your company will use.

Choose the right vendor for your company : Evaluate the proposals. Start analyzing the change that will result from contracting with a third-party vendor. What are the risks and benefits determined from the shortlist of potential vendors?

Negotiate the contract : This is the most important step in the process of acquiring a third-party service provider. Both parties must reach an agreement not only on the service parameters, but also on the contract schedule. It’s critical to ensure buy-in and agreement by all stakeholders.

Transition the work and processes to your chosen vendor : This is the actual “go” step. Develop and put in place a plan for transitioning to the new model. Ensure that your business has open communication internally and with the service provider.

Manage your relationship : Verify proper governance during the life of the contract with your service provider. Performance monitoring is key for ensuring that your company reaps the expected benefits of outsourcing. Expect a collaborative relationship and plan to renegotiate your contract and its scope at the end of its term.

Additional tips that can help you choose the right BPO:

A good outsourcing company should help you decide which parts of your business you need to keep in-house. Beware of a company that tries squeezing core processes out of you.

A good outsourcing company values the work of every employee. This enables a better connection between their company and your organization and can help increase productivity.

A good BPO company’s objective is to help your organization boost sales without consuming too much money.

Choose your BPO company carefully. Look for evidence that it can deliver the task well and on time.

Ask two questions when looking for a BPO service provider: (1) How can I find the right candidate? and (2) How do I manage the outsourcer after I settle their contract?

The key to a successful BPO experience is to do your research beforehand, lay out clear expectations and deliverables with your selected vendor, and stick to what both parties agreed upon.

Overall, the company should choose a BPO vendor carefully and conscientiously. The relationship should be defined formally, and managed and considered regularly.

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Business Process Outsourcing (BPO)

Type of outsourcing wherein a third-party service provider is employed to carry out one or more business functions in a company

What is Business Process Outsourcing (BPO)?

Business process outsourcing (BPO) is a type of outsourcing wherein a third-party service provider is employed to carry out one or more business functions in a company. The third party is responsible for carrying out all operations related to the business function.

BPO is also known as subcontracting or externalization. It was originally used in the manufacturing industry but is now used for numerous business processes.

• Business process outsourcing (BPO) is a type of outsourcing wherein a third-party service provider is employed to carry out one or more business functions in a company.
• Organizations contract with BPO vendors for back office and front office operations.
• BPO offers several benefits, such as lower costs, global expansion, and higher efficiency, while some of the drawbacks include security issues, hidden costs, and overdependence.

What is BPO Used For?

Organizations contract with BPO vendors for two main areas:

• Back office operations : They include payment processing, information technology services, quality assurance, etc.
• Front office operations : They include marketing , sales, customer relations, and grievance redressal.

In many cases, organizations outsource one or more functions. For example, instead of outsourcing all HR functions, the company will outsource just the payroll processes.

Over the years, the BPO industry’s expanded considerably and offers a wide range of services and functions to organizations.

Types of BPO

BPO companies can be divided into several types based on their location:

• Onshore outsourcing : When an organization hires a service provider that is located in the same country. It is also called domestic outsourcing.
• Nearshore outsourcing : When an organization hires a service provider in a neighboring country.
• Offshore outsourcing : When an organization hires a service provider in a different country. It is also called offshoring.

Making the BPO Decision

Transferring in-house work to a BPO company requires change management as it impacts employees, workflow practices, and business operations as a whole. The outsourcing decision-making process involves the following:

• Company executives arrive at the decision to outsource a business process or a part of it.
• They weigh the pros and cons of the decision and decide whether it makes strategic sense to the organization.
• They identify the best BPO for the work and shift the work from in-house to the external services provider.

Benefits of BPO

1. lower costs.

One of the main reasons organizations outsource is cost reduction. Instead of buying IT equipment and hiring more employees to do different tasks, they can outsource the tasks to a service provider, reducing or even eliminating overhead costs .

2. Higher efficiency

BPO companies are experienced in different fields and perform at the highest level. They also adopt best practices and use the latest technology. It naturally results in higher efficiency and greater productivity.

3. Focus on core business functions

Many companies, usually start-ups, encounter a difficult time with ancillary business activities. Transferring non-core processes to a BPO company gives the organization more time to focus on its main business activities.

4. Global expansion

If an organization decides to enter an overseas market, some activities that require local market knowledge, national law expertise, or fluency in a foreign language can be assigned to a BPO company. It helps in boosting efficiency and quicker expansion.

Drawbacks of BPO

1. security issues.

There is the possibility of a security breach while working with a BPO company as sensitive data needs to be shared and processed.

2. Overdependence on the BPO company

When work is outsourced to a BPO company for a long period, an organization can become accustomed to the way they work and tend to get overdependent on them. It leads to the organization paying higher than the usual costs if demanded.

3. Communication problems

When working with an offshore BPO company, the language barrier may turn out to be a hindrance to efficiency. Outsourcing work such as development or IT services, where a lot of people are involved, can lead to mistakes due to miscommunication. It can be extremely costly sometimes.

4. Unforeseen or hidden costs

As work is not always hard and fast, the organization may underestimate the quantity of work, and it can lead to costs that are higher than expected. Working with a BPO company can lead to legal expenses in case of a dispute or disagreement. Delay in delivery of work can also result in indirect costs.

Related Readings

Thank you for reading CFI’s guide to Business Process Outsourcing (BPO). To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

• Outsourcing
• Business Operations
• Capitalized Cost
• Cost Structure
• See all management & strategy resources

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Updated: 4 June 2024 Contributors:  Mark Scapicchio, Matthew Finio, Amanda Downie

Business process outsourcing (BPO) is the practice of hiring external service providers to handle noncore business functions or processes.

BPO entails contracting an external service provider to fulfill a business function or process. BPO is sometimes referred to as information technology-enabled services (ITES) because in the modern world, outsourced processes are often reliant on IT.

BPO was first used in the manufacturing industry, where firms gained efficiencies by outsourcing business tasks for supply chain management . Today, BPO services are used in healthcare, asset management, energy, pharmaceuticals, ecommerce, and other industries as companies use new and innovative ways to improve customer experience and gain competitive advantages.

Generally, companies outsource non-core business functions—tasks that, while essential to the business, are not part of its core value proposition—that are similar across companies and industries. These include back-office functions (internal business functions) like accounting, IT services, sourcing, procurement, quality assurance and human resources management. Front-office (customer-facing) roles like sales, marketing or customer support are included as well. These roles are also using newer technologies such as chatbots .

Traditionally, companies have outsourced functions mainly to cut costs, save time and improve performance. These benefits remain the primary drivers of the BPO market, but the trend toward digital transformation has more firms looking beyond cost-saving strategies. There is now an increased focus on access to technology and expertise that are not available in-house.

Explore the 2023 Gartner® Magic Quadrant™ for Finance and Accounting Business Process Outsourcing.

The proliferation of new technologies like Robotic Process Automation  (RPA) and artificial intelligence (AI) has impacted BPO processes. These advancements have ushered in unparalleled levels of efficiency, accuracy and scalability, making BPO a competitive advantage  for many organizations.

RPA automates repetitive and rule-based tasks traditionally performed by humans. By deploying software bots programmed to replicate human actions, RPA simplifies processes, enabling human workers to focus on more complex tasks. This streamlining of workflows reduces errors and accelerates process execution.

Integrated analytics, which connect data insights solutions to everyday workflows and applications, are enhancing business intelligence. Machine learning (ML) , a subset of AI, is dedicated to using data and algorithms to mimic human learning processes. This continuous refinement of accuracy over time represents a significant leap forward in data processing and analytics. ML can extract valuable insights from vast amounts of structured and unstructured data, leading to better decision making.

Predictive analytics, another branch of AI, employs mathematical and statistical models to identify data patterns and generate predictions. Integrated analytics offer deeper visibility into operations and aid in identifying emerging trends. This empowers organizations to make informed, data-driven decisions to stay ahead.

With technology playing such a pivotal role in business success, organizations are looking for BPO partners with expertise in AI, automation and emerging technologies. These partners can bridge the technology gap and help organizations remain competitive within their industries.

Identifying the appropriate functions for BPO requires strong business process management and a complete understanding of organizational processes. Typically, the outsourcing of a function or process will involve the following steps:

Organizations base this decision on many factors, including company size and industry, market size and economic forces, and overall needs and goals. For example, startups or small businesses might decide to outsource any number of functions because they lack the in-house expertise or do not have the staff to do them. Larger organizations might decide to outsource because a third-party vendor can complete the task more efficiently or effectively.

The organization must choose the business functions best suited for outsourcing and consider the impact outsourcing will have on technology requirements and current processes. Organizations must evaluate how this new business model affects the company, from processes and workflows to finances and taxes to company culture.

Organizations must determine which vendors offer the best outsourcing services at reasonable rates and turnaround times. Depending on an organization’s needs and their assessment of service providers, an entire business operation might be contracted to one vendor. Alternatively, the operation might be divided among multiple vendors. Comparing vendor offers against requirements and expectations helps make this decision.

An organization must decide whether to offer a vendor a fixed-price contract or a time-and-materials contract. If the service provider agrees to a fixed-price contract, they are paid a fixed amount regardless of the amount of time and resources expended on the outsourced role. For a time-and-materials contract, the provider is paid based on the amount of time and resources used during the work.

Alternatively, the contract may be based on performance outcomes. Whatever the contract type, service-level agreements (SLAs) should be established to simplify the evaluation of the quality of service provided.

Develop and implement a plan for moving the workload to the vendor. Communication, both internally and with the vendor, is crucial for a smooth transition.

The organization should regularly assess the vendor’s performance against the objectives and goals outlined in the contract, usually on a quarterly or annual basis. This evaluation should include metrics to gauge aspects such as efficiency, accuracy and customer satisfaction. This helps the organization decide whether to renew, amend or terminate the contract.

Business process outsourcing offers valuable benefits for organizations and allows for greater focus on highly skilled and specialized roles essential to core objectives. These benefits include:

Access to innovations. As specialists in the services they provide, BPO vendors often invest in the latest technology solutions available to maintain an advantage over competition and offer the greatest value for clients. This allows companies to access cutting-edge technology, like AI, advanced analytics or automation solutions that handle more complex processes, while minimizing costs.  

Efficient global presence. Outsourcing providers can deliver around the clock service to customers in multiple languages, eliminating the need for an organization to staff a local office. In addition, for organizations looking to expand, a partnership with a BPO vendor in the region can grant a better understanding of local markets and help streamline the expansion process.

Improved efficiency and standardization. BPO providers are often specialists in non-core business operations, like payment processing, call centers or accounting. Thus, they can handle these operations with greater efficiency and expertise than if the services were handled in-house.  

Increased focus on core business competencies. By outsourcing non-core competencies, organizations free up resources. These can be redirected toward business differentiators that drive value and give the company a competitive advantage.  

Reduced cost. While overhead costs are unavoidable, by outsourcing various functions to third-party vendors, organizations can reduce in-house labor costs related to staffing and training. They can also take advantage of fee-for-service plans that are more cost effective than retaining full-time employees. Through offshore outsourcing, organizations can use lower-cost labor markets and tax advantages to improve the bottom line.

Business process outsourcing can be classified according to the location of the hired outsourcing company and the type of service rendered.

BPO based on location:

• Near-shore outsourcing. Here, the contracted vendor operates in a neighboring country, like a firm in the United States of America outsourcing to Mexico.
• Offshore outsourcing. This is when an organization contracts a provider in another non-neighboring country. For example, a German firm hiring a vendor in the Philippines.
• Onshore outsourcing. Also referred to as domestic or local outsourcing, this is when both the organization and the service provider operate in the same country.

BPO based on the type of service:

• Knowledge process outsourcing (KPO). This is the outsourcing of core, information-related business activities to a third party, or to a different group within the same organization with expertise in that particular area. Examples of KPO services include research and development (R&D), data and technical analysis, and consulting services.
• Legal process outsourcing (LPO). LPO is a subset of KPO involving the outsourcing of higher-level legal work. Examples include the drafting and revision of legal agreements and patent applications, legal research and client advising.
• Research process outsourcing (RPO). Another subset of KPO, this is the outsourcing of research and analysis functions. Organizations that commonly engage in RPO include biotech and investment companies.

Choosing a BPO industry service provider to meet an organization’s outsourcing needs requires thorough planning. The goal is to choose an affordable vendor with the right mix of expertise and experience. The following are general steps to follow when evaluating and choosing a BPO provider:

Define the requirements. All relevant stakeholders should be involved from the outset in choosing a vendor. Each department should outline requirements and expectations as they relate to the functions to be outsourced. The key objectives and foreseeable risks of outsourcing these functions should also be counted.  

Publish a request for proposal (RFP). An RFP is a document that describes a job and invites bids from qualified vendors. The expectations for the role and the contract terms are often stated in an RFP.  

Select a vendor. Evaluate the proposals. Assess the strengths and weaknesses of the shortlisted vendors and compare against stated requirements and objectives, weighing any value-adds offered by vendors.  

Negotiate the contract. Once a vendor has been selected, begin to finalize the contract. Because the contract terms have already been detailed in the RFP, most of the terms should already be agreed upon. Make sure that the service parameters and delivery timelines are clearly understood by all stakeholders.  

Transfer the workload and regularly evaluate performance. Follow the pre-established plan for the transition of services to the vendor. Communicate regularly with relevant in-house teams as well as with the external service provider to maintain efficient business operations and foster a collaborative relationship. Monitor and evaluate vendor performance against the key performance indicators (KPIs) outlined in the SLA, and use these evaluations to determine whether a contract should be renewed.

Though it offers many benefits, BPO exposes an organization to some risks as well. Outsourcing your organization’s business processes to an external service provider raises questions about work quality, data security and work culture compatibility, especially when the provider is located in a different part of the world. BPO can introduce the following risks:

• Communication barriers. Language barriers can restrict business activities in offshore outsourcing, leading to poor communication and delays in service delivery.
• Increased potential for disruption. When outsourcing to other countries, issues like political instability and natural disasters in a provider’s country of operation can interrupt an organization’s business activities.
• Over-reliance on external service providers. Working with one BPO vendor for a long period of time can lead to an over-reliance on that vendor. The vendor becomes more or less a part of the organization and, if necessary, replacing them is not always easy. A vendor might take advantage of this knowledge to use the situation.
• Regulatory compliance issues. Despite being third parties, BPO companies still must comply with the client organization’s regulatory requirements. An organization risks sanction from relevant authorities when there is regulatory non-compliance. Different workplace cultures and norms might increase the chances of falling out of compliance, especially when compliance is outsourced to other countries.
• Security issues. Business process outsourcing often requires the sharing of sensitive information with vendors, which increases security risk. Most communication and information sharing is done over the internet, which is a viable entry point for bad actors. Also, despite best efforts to align security standards, it can be more difficult to ensure that a third-party vendor is adhering to data privacy protocols and security measures than it is with an in-house team. Different countries have different security requirements and data privacy policies, which can pose a threat to data security for organizations that outsource to other countries.
• Unforeseen costs. Organizations do not always accurately estimate the cost of an outsourced service. Some unforeseen and indirect costs can be incurred due to, for example, currency fluctuations, hardware or software upgrades, and delayed delivery. It’s important to consider these hidden costs when evaluating the financial implications of outsourcing.

Create business continuity for better intelligent workflows that boost agility and resiliency.

Streamline HR processes, improve productivity and help positively transform your workplace culture.

Learn how companies are creating efficiencies while also modernizing processes rather than relying on offshore outsourcing.

Read why 92% of polled executives agree that their organizations' workflows will be digitized and will leverage automation by 2025.

See what supply chain leaders should do—and stop doing—to capture the generative AI opportunity.

Discover why Gartner named IBM a Leader in its Magic Quadrant for Finance and Accounting Business Process Outsourcing report.

Learn about BPM and how it can help you continuously optimize and automate your business processes to improve efficiency and reduce costs.

Learn about how we're partnering with Deluxe to leverage our enterprise-focused Al expertise and technologies like watsonx.ai to help propel their customers and enterprise forward into the next century.

Our BPO experts can help you create business continuity for intelligent workflows that boost the agility and resiliency of your enterprise. To date, we have transformed the BPO and Business Process as a Service (BPaaS) processes of over 100,000 BPO practitioners worldwide.

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Business Process Outsourcing (BPO): How It Works, Types, and Services

Business process outsourcing, or BPO, is when a company hires another company to handle certain parts of its business. For example, a company might get help with marketing, payroll, human resources, customer service, or managing its supply chain.

In this article, we'll talk about what business process outsourcing is, how it works, the good and not-so-good sides of it, and some examples illustrating its application in various business contexts.

.css-2xf3ee{font-size:0.6em;margin-left:-2em;position:absolute;color:#22445F;} .css-14nvrlq{display:inline-block;line-height:1;height:1em;background-color:currentColor;-webkit-mask:url(https://assets.xometry.com/fontawesome-pro/v6/svgs/light/link.svg) no-repeat center/contain content-box;mask:url(https://assets.xometry.com/fontawesome-pro/v6/svgs/light/link.svg) no-repeat center/contain content-box;-webkit-mask:url(https://assets.xometry.com/fontawesome-pro/v6/svgs/light/link.svg) no-repeat center/contain content-box;aspect-ratio:640/512;vertical-align:-15%;}.css-14nvrlq:before{content:"";} What Is Business Process Outsourcing (BPO)?

Business process outsourcing (BPO) is a business practice in which a company contracts out certain non-core tasks or business functions to external service providers. The goal of BPO is to allow the company to focus on its core competencies and strategic functions while delegating routine, time-consuming tasks to specialized third-party service providers. Examples of business process outsourcing (BPO) include: companies outsourcing customer support to call centers, hiring external firms for payroll processing and human resources management, and contracting specialized agencies for data entry and analysis tasks.

What Is the Goal of Business Process Outsourcing?

The primary goal of business process outsourcing (BPO) is to save money, free up time, and for companies to concentrate on their core competencies by entrusting non-core, routine, or specialized tasks to external service providers. By outsourcing functions such as: customer support, data entry, finance, human resources, and IT services, businesses seek to achieve cost savings, access specialized skills, improve operational efficiency, and enhance overall flexibility. 

Why Is BPO Important to a Company?

BPO allows organizations to direct a greater share of their resources toward activities that set them apart in the market. This results in higher quality and better overall performance. BPO providers, specializing in business processes as their core business, are positioned to execute tasks with greater accuracy, efficiency, and speed.

How Does the BPO Industry Affect a Country's Economy?

The BPO industry significantly impacts a country's economy by: creating job opportunities, reducing operational costs for businesses, contributing to GDP through foreign exchange earnings, and fostering economic growth. The industry's cost-effective solutions attract global businesses, resulting in: increased employment, improved operational efficiency, and enhanced economic stability for the host country. Additionally, BPO activities, such as customer service and IT outsourcing, contribute substantially to a country's export earnings, further strengthening its economic position on the global stage.

The industry's impact is reflected in its significant growth, with a projected compound annual growth rate (CAGR) of 9.4% until 2030. Major players in the BPO sector, such as in India and the Philippines, contribute significantly to their countries' economies. India's BPO industry alone contributes 7.3% to the country's GDP, showcasing the industry's economic influence.

Is Business Process Outsourcing the Same as IT Outsourcing?

How does business process outsourcing work.

Businesses usually initiate the BPO process by identifying specific areas that could benefit from external expertise. After identifying these areas, the next steps involve reaching out to specialized BPO providers. The beginning of the BPO relationship is all about talking and figuring out how to tailor solutions that perfectly fit the client's unique needs. Formal agreements like master service agreements (MSA) or service-level agreements (SLA) are put in place to make things official. These agreements lay out the basic terms of the engagement. More detailed contracts, like a statement of work (SOW), come into play once a BPO provider is chosen. These documents get into the nitty-gritty details of the project, making sure everyone is on the same page for a successful collaboration. This careful and detailed approach right from the start sets the stage for a partnership that works well for both the client and the BPO provider.

How Does BPO Differ From Other Types of Outsourcing?

BPO differs from other types of outsourcing in that entire business processes or functions are outsourced to external service providers, differentiating it from task-specific outsourcing models. This distinction lies in the scope and depth of outsourcing, where BPO involves the delegation of entire departments, such as: customer service, IT support, or finance, rather than isolated tasks.

What Are the Different Types of Business Process Outsourcing?

Listed below are five different types of BPO:  

1. Front-Office BPO

Front-office BPO involves outsourcing customer-related services such as: technical assistance, customer service, and sales. Companies often engage third-party vendors, like call centers, to provide specialized support. This type of outsourcing aims to enhance customer interaction and satisfaction, allowing businesses to focus on core operations.

2. Back-Office BPO

Back-office BPO involves outsourcing essential business functions to a third-party company. These functions typically do not involve direct customer interaction. Examples of back-office BPO services include: administrative tasks, information technology (IT) support, human resources management, payroll processing, and accounting. Companies opt for back-office BPO to streamline operations, allowing them to concentrate on business development while saving time and resources associated with hiring and training for administrative roles. This approach enhances efficiency and enables organizations to allocate resources strategically to areas critical for their growth and success.

3. Nearshore BPO

Nearshore BPO involves outsourcing to neighboring countries, providing geographical benefits such as shared time zones and language. For example, an Indian company might outsource tech support to an agency in Bangladesh. 

4. Onshore BPO

Onshore BPO, or domestic BPO, refers to outsourcing within the same country. Companies may engage vendors in different cities, states, or union territories. Factors influencing onshore BPO decisions include: cost differences between regions, specialized skills, and ease of collaboration, including: training, support, and face-to-face interactions.

5. Offshore BPO

Offshore BPO occurs when a company outsources operations to a foreign country, often driven by lower labor costs. For instance, a US-based company might hire a business in India to manage payroll or IT services. Offshore BPO allows organizations to reduce expenses while leveraging the skills and expertise of international service providers, albeit with potential challenges like time-zone differences and language barriers.

What Are the Examples of BPO Services?

Listed below are a few common examples of some popular BPO services:

1. Accounting

Accounting outsourcing is a common practice in which companies hire third-party accountants or firms to manage various accounting tasks. This helps businesses ensure accurate financial management while focusing on their core activities. The outsourcing provider handles tasks such as: cost accounting, accounts receivable/accounts payable management, tax reporting, bookkeeping, financial statements, and planning. The cost of accounting outsourcing varies, with models ranging from hourly fees to monthly retainers. It's an effective strategy for businesses seeking financial expertise, cost savings, and compliance with tax regulations.

2. Human Resources Management

Human Resources (HR) outsourcing involves the delegation of human resources functions to external agencies, a practice that has become increasingly popular. This industry is expected to reach $43.8 billion by 2024. Recruiting process outsourcing (RPO) vendors—key players in this trend—assist companies throughout the entire hiring process. These dedicated recruitment process outsourcing (RPO) firms play a crucial role in simplifying the recruitment procedures for businesses by reviewing CVs, conducting interviews, and narrowing down potential candidates, guaranteeing a streamlined and successful hiring process. In addition to recruitment, HR BPO vendors offer services such as training new hires to facilitate quicker integration into the organization. 

3. Insurance

Insurance BPO is a cost-effective strategy in which insurance companies delegate key functions to external providers. With a focus on cost reduction, this approach streamlines critical activities such as: underwriting, claims processing, payroll, and policy renewals. The benefits include: reducing paperwork, efficient data management, cost-effective alternatives to hiring agents, and access to expertise. Outsourcing to specialized providers enhances insurance companies’ operational efficiency, cuts down on costs, and ensures expert handling of key processes.

4. Customer Service

Customer-service business process outsourcing involves outsourcing customer-support functions to external service providers. This ensures a seamless customer experience, with external call centers handling inquiries, complaints, and support services efficiently. Businesses streamline operations, reduce response times, and effectively manage peak service demands by outsourcing these tasks. Key activities include: call handling, email support, live chat services, and social-media engagement. 

5. Digital Marketing

Digital marketing as BPO involves outsourcing various aspects of a company's online marketing efforts to third-party service providers. In marketing outsourcing, companies, especially SaaS (software as a service) providers, often delegate services to third-party agencies such as: advertising, event management, digital marketing, and strategic management. This includes: market and competitive research, marketing strategy, content creation, design, CRM, marketing automation, social media marketing, SEO, and public relations. Some companies combine sales and marketing outsourcing, hiring specialized agencies to handle sales processes and after-sales services, particularly common among startups or smaller businesses. 

Payroll BPO is a key solution for businesses aiming to streamline payroll management without in-house expertise. A payroll service provider, also known as a payroll vendor, offers services to businesses lacking the knowledge or capacity for internal payroll processing. Payroll providers offer services ranging from basic processing and tax withholding to compliance advice and paycheck processing. This approach ensures accuracy, compliance, and efficiency in managing employee payments.

Ideal for managing multi-country payrolls, outsourcing to professional payroll companies frees up resources, allowing businesses to focus on growth. According to a Global Payroll Management Institute survey, a notable 26% of businesses rely on international payroll providers for global payroll processing.

Choosing a payroll provider compensates for internal knowledge gaps, significantly reduces compliance risks, streamlines processes, and ensures accurate and timely payroll. With various service models available, businesses can select the payroll service that aligns best with their specific needs and operational preferences.

7. Procurement and Sourcing

Procurement outsourcing, a subset of BPO, has become a key strategy for companies looking to optimize their procurement processes. Businesses are increasingly entrusting external partners with their procurement functions, allowing them to focus on core competencies and strategic initiatives.

This outsourcing trend has evolved from routine transactional tasks, such as order processing and invoice management, to include more higher-end activities like: supplier selection, contract negotiation, and specification management. Companies engaging in procurement outsourcing seek to gain various advantages, including: cost savings, access to specialized expertise, and enhanced efficiency in their procurement operations.

To Which Countries Do Companies Outsource Business Process Services?

Companies outsource business process services to various countries, and the choice depends on factors like: cost, expertise, and language proficiency. Common outsourcing destinations include:

• India: Known for IT and customer-support outsourcing.
• Philippines: Often chosen for customer service and back-office tasks.
• China: Mainly for manufacturing and some IT services.
• Eastern European countries: For IT services and software development.
• Latin American countries (such as Mexico and Brazil): For customer support and software development.
• United States and Canada : Onshore outsourcing for certain functions.
• Western European countries: For specialized services and language proficiency.
• Southeast Asian countries (like Vietnam and Malaysia): For software development and customer support.

What Are the Advantages of Business Process Outsourcing?

BPO offers a lot of benefits and advantages. Some of these include:

• Companies can get the job done at a lower price, and the job is often done in a shorter time frame and more effectively. 
• Allows companies to access specialized expertise without the financial commitment of hiring full-time employees. Outsourcing on a contractual, as-needed basis typically incurs a fraction of the cost compared to managing specific business processes in-house with dedicated staff.
• Allows companies to dedicate their time and efforts towards their key competencies. 
• Provides flexibility to scale resources up or down based on business needs, allowing for agility in response to market fluctuations.
• Enables companies to establish a global presence and operate in different time zones, providing 24/7 service availability.
• When a company is thinking of expanding into a foreign market, they can hand over tasks that need knowledge about the local market, understanding of national laws, or proficiency in a foreign language to a BPO company. This move helps make things more efficient and speeds up the expansion process.

What Are the Disadvantages of Business Process Outsourcing?

Even with all the advantages, BPO still has some disadvantages that companies should consider before they pursue this business strategy:

• Estimating the quantity of work accurately can be challenging, potentially leading to higher-than-expected costs. Legal expenses may arise in the event of disputes, and delays in project delivery can result in indirect costs.
• Introduces a potential language barrier, particularly in tasks involving development or IT services with numerous stakeholders. Miscommunication can lead to errors, affecting efficiency and incurring unexpected costs.
• Long-term outsourcing relationships may lead to over-dependence on the BPO provider. This reliance can result in increased costs if the BPO company demands higher fees, which can impact the organization's budget.
• Companies that outsource can open themselves to the risk of security issues. Sharing sensitive data with a BPO company poses a risk of security breaches during processing. 

What Is the Origin of Business Process Outsourcing?

Business process outsourcing originated as a cost-cutting solution in the 1960s and 70s, initially within national borders. The shift to global outsourcing occurred in the late 1980s when Eastman Kodak outsourced its IT systems, signaling the legitimacy of outsourcing as a business strategy. The 1990s saw the rise of Asia, particularly India, China, and the Philippines, as preferred BPO destinations due to cost advantages and skilled labor availability. Technological advancements in telecommunications and the internet allowed BPOs to expand their services globally, managing everything from accounting to human resources.

By the mid-2000s, BPO enterprises had matured, prompting them to reassess their role in the global supply chain. They transitioned from handling non-core and back-office operations to becoming strategic partners for their clients. Adopting methodologies like Lean and Six Sigma, BPOs enhanced their efficiency and expanded their competencies to offer complex, high-value processes, such as financial research and cybersecurity.

How Big Is the Industry of Business Process Outsourcing?

The business process outsourcing (BPO) industry is experiencing significant growth, with an estimated value of US$0.33 trillion in 2023. According to projections, the market is expected to expand further with a compound annual growth rate (CAGR) of 9.4%, reaching about US$586.92 billion in 2030.  

Is Business Process Outsourcing a Good Strategy?

Yes, BPO can be a good strategy for many companies. It allows organizations to focus on core competencies, reduce costs, access specialized skills, and enhance efficiency by delegating non-core functions to external experts. However, the success of BPO depends on careful vendor selection, clear communication, and a strategic approach to outsourcing specific tasks or processes.

What Is the Future of Business Process Outsourcing?

The future of BPO is quite dynamic, and several trends are influencing its path. The BPO industry has grown significantly, hitting $261.9 billion in 2022, and is expected to expand further with a projected CAGR of 9.4% from 2023 to 2030, reaching $586.92 billion by 2030. Key factors driving this growth include: adapting to global challenges, expanding operational capabilities, prioritizing quality, and reducing operating costs.

Several trends are reshaping the landscape of BPO in 2023. Automation and AI integration are at the forefront, streamlining operations, reducing costs, and enhancing efficiency. BPO providers are moving beyond basic tasks, focusing on value-added services that require domain expertise. Trends like nearshoring, onshoring, and cloud-based outsourcing are gaining traction, reflecting changes in the global economy.

Data analytics and insights are becoming crucial for BPO providers, offering valuable information for decision-making, trend identification, and operational efficiency. Security and compliance are top priorities, with a focus on robust cybersecurity measures and adherence to data privacy regulations. Hybrid work models, emphasizing flexibility and seamless communication, are adapting to the evolving post-pandemic work dynamics.

What Is the Difference Between BPO and Outsourcing?

This article presented business process outsourcing, explained it, and discussed how it works and its various types. To learn more about business process outsourcing, contact a Xometry representative .

Xometry provides a wide range of manufacturing capabilities and other value-added services for all of your prototyping and production needs. Visit our website to learn more or to request a free, no-obligation quote .

The content appearing on this webpage is for informational purposes only. Xometry makes no representation or warranty of any kind, be it expressed or implied, as to the accuracy, completeness, or validity of the information. Any performance parameters, geometric tolerances, specific design features, quality and types of materials, or processes should not be inferred to represent what will be delivered by third-party suppliers or manufacturers through Xometry’s network. Buyers seeking quotes for parts are responsible for defining the specific requirements for those parts. Please refer to our terms and conditions for more information.

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The Essential Guide to Business Process Outsourcing (BPO)

May 27, 2020

by Daniel Corin Stig

Business process outsourcing is a growing sector, and for good reason. 

Most companies are outsourcing something , even if they are not thinking about it as outsourcing. Besides knowing what business process outsourcing is and how it works, companies should consider what benefits they are hoping to win, and what services are core to their businesses before they get started themselves.

What is business process outsourcing?

Business process outsourcing, or BPO, is a form of outsourcing where one company delegates one or more of its business processes to another company. The most common type of business process outsourcing deals with administrative work, such as accounting, IT infrastructure, HR, and payment processing. Together these are referred to as “back-office functions”. Another type of outsourcing deals with the customer facing “front-end functions,” such as customer service, sales, and marketing.

The outsourcing industry has been growing fast since it first appeared as a term in the 1970s . Back then, large manufacturing companies sought to lower the costs of non-essential processes. Today, it’s common practice in most industries and new technology and globalization have made outsourcing available to smaller companies as well.

Marketline reported that the global revenue for the BPO industry grew by an average of 3.3% between 2013 to 2017. The total revenue for BPO services in 2017 was $144.9 billion according to the report, with the US being the largest market.

Advantages and disadvantages of BPO

There are several advantages of business process outsourcing. The first that comes to mind is cost savings from outsourcing to countries with lower labor costs. However, today there are many more benefits to outsourcing that companies seek to leverage. With processes contracted out to vendors rather than kept in-house, companies enjoy more flexibility in both their budgets and in the way they operate. They can also focus more internally on their own competitive advantage, and source new innovations from strategic outsourcing partners .

On the flipside, there are also disadvantages of business process outsourcing. Some have to do with the costs of finding the right vendors and managing the relationships, others with the risks of getting a substandard quality result and the consequences of that. There are also potential strategic disadvantages, such as becoming too dependent on the outsourcing partner–especially if the outsourced processes are critical to the business or create lock-in effects with the vendor.

5 reasons businesses outsource their processes

There are several reasons companies decide to outsource their processes. For some, it’s a strategic decision to gain competitive advantages. For others, it just makes the most sense for a particular function of the business.

1. Decrease costs

BPO started as a way to decrease cost for processes that were non-essential to the business. With globalization and access to emerging economies, companies have been able to get jobs done for less offshore. Vendors in markets with lower labor costs and better tax conditions can offer better prices due to lower costs alone. Add to that the competitive pressures of being a supplier among many for a commodity service, and you have a market that’s working at its best to keep prices down.

2. Expand global presence

In the front-end functions especially, outsourcing can help with reaching customers across the globe. Call centers that operate overseas make it easier to support customers in different time zones, and local presence can help larger companies get access to new markets.

Additionally, companies that seek strategic outsourcing partners to drive innovation can tap into business clusters in regions where science has advanced further than anywhere else. Silicon Valley is a good example of where the business infrastructure, ecosystem and talent give access to innovations that may not be available for companies in other parts of the world.

3. Become more flexible

It’s a well-known fact that companies tend to stay in their wheel tracks for longer than they should when the winds of change are blowing. Inertia and internal resistance makes strategic changes a slow process. When outsourcing processes on the other hand, it’s normally easier to both scale the amount of resources used, and to adjust the operative direction of how those processes are performed. If the current vendor has the same problems with adjusting to new requirements, there’s always the possibility of changing vendors.

4. Enhance speed and efficiency

When outsourcing a process to an outside vendor, it’s likely that they have invested time and resources in perfecting the specific services that they offer. With more experience, specialized machines and optimized processes, they should be able to perform tasks faster and more efficiently than in-house teams working in companies where the process would be non-essential to the business.

5. Focus on core competencies

To be competitive in a global market, it’s necessary for companies to find and continuously improve on the most essential skills, products and services that they offer. With non-critical processes out of the way and handled by vendors, companies find more room for doing just that–improving on what they can do best.

Different companies within the same industry define their core differently. Among digital agencies, some see web design as one of their core strengths and outsource only web development . Others focus on customer journey and advertising and outsource both web design and web development.

Core BPO categories

BPO is often categorized according to the proximity of the vendor to the buying company, which affects the types of benefits and relationships that are available.

Offshore vendors

Offshore BPO vendors are located in countries that are far away from where the buying company is located. Normally, this would indicate that the outsourcing vendor can offer something that is not available domestically or in any of the neighboring countries, such as lower labor costs.

In the early days of outsourcing, this option was only available to the large companies that could afford to travel and learn to do business where the cultures and regulations are different. Today it’s not only a luxury of large companies, thanks to communication technology and the fact that most markets are welcoming foreign business.

Nearshore vendors

Outsourcing processes to vendors in neighboring countries is referred to as “nearshoring”. Nearshore vendors can be assumed to be more similar to local vendors in terms of culture, labor costs and tax regulations than offshore vendors.

Onshore vendors

The final category of vendors is onshore vendors, that are located in the same country as the buying company. Labor costs and regulations are likely to be similar, except for differences between states. Hence, the main benefits of outsourcing to an onshore vendor are specialization, both internally and for the vendor, and flexibility.

5 examples of companies that outsource services

Most companies today work with business process outsourcing in one way or another. Here are a few business process outsourcing examples to illustrate its reach across different sectors.

1. Coca-Cola

Coca-Cola is an interesting example of how outsourcing can help both with global presence and focus. Production is not the key to their success, so they’ve outsourced that process via franchising to companies closer to each market. The syrup and its recipe are kept internally, but the bottling and distribution is performed by other companies.

2. United Airlines

United Airlines and many other airlines outsource the low-wage jobs that are needed on the ground within the airports. It helps decrease the costs, but the lower wages paid by contractors as compared to what the airlines normally charge have sparked protests from labor unions. In a comparison reported by Travel Weekly , the average salary of contracted workers was approximately 64% of what airline employees were paid for similar jobs. Not surprisingly, the share of contracted workers has increased by 50% since 2002.

About half of all smartphone owners in the US can see proof of another outsourcing example right in their pockets. The text on the back of the iPhone reads “Designed by Apple in California. Assembled in China”, and there are several reasons why Apple has production in China and not in the US. One important reason is to be able to cope with the volume of products , which requires both an ecosystem of suppliers in the area and access to workers.

4. Spikeball

Smaller companies make use of the benefits of BPO as well. The sporting equipment company Spikeball uses Bill.com to manage payments , claiming that they otherwise would have needed a full-time person doing that internally. Such back-end functions are especially useful for startups and smaller companies to outsource. Either because they don’t want to, or or because they cannot afford to, keep people on the payroll to handle non-core processes like administrative work.

An outsider in this list is Tesla, as they have decided not to outsource dealerships and charging stations like most other auto manufacturers do. Instead, they are betting on vertical integration of these businesses to keep closer control over them. Surveys have shown that customers are very satisfied with the services provided by Tesla on those services, but it has been an expensive investment and it remains to be seen how it pays off in the long run.

Complexity of BPO relationships

If you consider setting up a BPO agreement with a vendor, it’s good to analyze what characteristics the partnership will have before you choose a vendor and draft a contract. Three key dimensions to analyze are independence, complexity and strategic importance . “Strategic BPO” and “hands-off BPO” are two common archetypes of those three dimensions.

Strategic BPO relationships

Working with strategic BPO partners or BPO agencies means rich interaction around a non-trivial business function. For instance, it could be a service development project, or the manufacture of a product where the product design and production process require mutual adaptations.

Such high-complexity and strategically important partnerships need to be carefully managed from both sides. The interaction between the parties will focus on coordination of activities , such as process development and planning.

Hands-off BPO relationships

For standardized services, there’s less need for coordination within the outsourcing partnership. The outsourcing vendor knows what to do, the buyer knows what to expect and the communication and managerial priorities will revolve around negotiating price and making sure delivery dates and quality standards are met.

The relationship can be kept at an arm's-length distance, meaning less costs involved from the buyer’s side as the outsourcing vendor enjoys more independence, and less need for the two parties to make a good cultural fit.

Business process outsourcing success factors

Before rounding off the topic, we wanted to leave you with a quick teaser to inspire you to learn more about BPO. After learning what it is and how it works, you’re probably eager to learn how to successfully do it.

In their book ”Nine Keys to World-Class Business Process Outsourcing,” Mary Lacity and Leslie Willcocks draw on over 2,500 interviews with executives across the globe to define ways to improve the chance of success in an outsourcing setup.

Here’s a quick summary of the “nine keys” that they identified:

• The leaders responsible for the relationship in each organization
• Focusing on more benefits than just cost efficiency
• Change management capabilities
• Managing the relationship as a partnership
• Setting up the remaining organization correctly after outsourcing a part of it
• Effective conflict resolution practices
• Use of technology for coordination and optimization
• Using the vendor’s domain expertise to improve analytics and thereby performance
• Incentivizing and pursuing innovations

As seen from this list, many skills and processes are required to master BPO. If it’s core to your business, knowing how to outsource processes exceptionally well could become a competitive advantage in itself. If not, perhaps you can outsource the process of outsourcing, too.

Finally, let’s see what Leslie Willcocks, one of the authors of the book about World-class BPO just mentioned, has to say about the future of outsourcing. Two things he projects are that there are going to be “digital businesses” supported by outsourcing, and that knowledge work will also become automated by outsourcing providers that can manage unstructured data:

Business process outsourcing has allowed many companies to invest more resources in their core businesses, lower their costs and be more agile in their operations. It’s been a growing industry for many years, and there’s no change to be seen on that horizon anytime soon.

The concept of outsourcing spans many types of industries, services, and purposes, so the examples of how companies make use of outsourcing are very different. Large companies like Coca-Cola and Apple are dependent on strategic partners for producing their products. Many others like United Airlines benefit from contracting lower-wage jobs instead of hiring internal staff.

To be successful at outsourcing business processes, it’s important to consider what type of relationship is required. Choosing a partner that you have difficulty communicating with may be alright for a hands-off style partnership, but if you’re co-investing in a complex process you need to make sure that there’s mutual trust and the right conditions for good coordination between the parties. 

With knowledge in hand about BPO, find the right business process management solution  to help you along the way. 

Daniel Corin Stig is a board member and former CEO of White Label Agency , a WordPress outsourcing company that helps digital agencies get more development capacity for their web projects. Daniel has a PhD in Technology Management from Chalmers University of Technology in Sweden.

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To help companies large and small get more out of their business processes, this comprehensive guide to BPM explains what it is, its benefits, the challenges it poses and best practices for using it effectively. You'll also find examples of business process automation and process improvement projects, an overview of the latest BPM tools and insight on what the future of BPM might look like. Throughout the guide, there are hyperlinks to related articles that cover these topics in more depth, so be sure to click on them for additional expert advice. The links also connect readers to detailed definitions of important concepts in BPM, such as business process mapping, Business Process Model and Notation (BPMN) and workflow management.

Business process outsourcing (bpo).

• Alexander S. Gillis, Technical Writer and Editor
• Mary K. Pratt
• Emily McLaughlin, Coravin

What is business process outsourcing (BPO)?

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 similarly from company to company, such as payroll and accounting, as good candidates for BPO.

BPO typically offers flexibility and cost efficiency to organizations that implement it. Companies calculate that outsourcing these processes to a provider that specializes in them could deliver better results.

This article is part of

What is business process management? A guide to BPM

• Which also includes:
• How AI is radically changing business process management
• 10 trends shaping the future of BPM in 2024
• 12 top business process management tools for 2024

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.

What is business process outsourcing used for?

Organizations engage in business process outsourcing for two main areas of work: back and front-office functions.

Back-office functions, sometimes called internal business functions , comprise support operations, including accounting, IT services, human resources (HR), quality assurance and payment processing.

Front-office functions are processes and business operations that serve or relate to existing and potential customers, such as customer relation services, marketing and sales.

Some organizations outsource an entire function, such as the HR department, to a single vendor. Other companies outsource only specific processes within a functional area, such as payroll processing, while having their own team perform all other HR processes.

Commonly outsourced processes include the following:

• Payroll and accounting.
• Administration.
• Customer support.
• IT management and services.
• Manufacturing.
• Shipping and logistics.

Some companies also outsource strategic tasks, such as data mining and data analytics, both of which have become essential elements for maintaining a competitive advantage in a digital economy.

How does business process outsourcing work?

Enterprise executives opt to outsource a business process for a variety of reasons. Those reasons vary based on the type, age and size of the organization, as well as market forces and economic conditions.

Startup companies, for example, often need to outsource back-office and front-office functions as they do not have the in-house resources to perform them.

An established company may opt to outsource a task that it had been performing after determining that a third-party service provider could do the job better or cheaper. Management experts advise enterprise executives to identify functions that can be outsourced and then determine if shifting that task to an outsourcing provider makes sense.

If so, the organization must go through the process of not only identifying the best vendor for the work, but also shifting the work from in-house to the external provider. This requires a significant amount of change management , as the move to an outsourced provider generally affects staff, established processes and existing workflows.

The shift to an outsourced provider also affects the organization's finances -- not only in terms of shifting costs from the internal function to the outsourced providers, but often in terms of corporate taxes and reporting requirements.

The organization may also need to invest in new technology to enable the smooth flow of work to the outsourced provider. The extent and cost of that technology depend on the scope of the function being outsourced and the maturity of the technology infrastructure in place at both enterprises.

This process typically starts with enterprise leaders identifying specific functions or business processes to outsource as a way to save money, gain flexibility, improve performance and redirect resources to core business capabilities.

Business leaders then consider whether one vendor should handle all the work being outsourced or whether contracting multiple providers for the various tasks delivers the best value. For example, a company could decide to outsource most of its HR functions and then either contract for a single provider to perform all the outsourced processes or hire one for payroll and another for benefits administration.

Those considerations should lead to a list of requirements, as well as a detailed scope of work, for outsourcing. Organizations use those to shape a request for proposal ( RFP ) to share with vendors that determine whether they can meet the requirements, at what price and with what value-adds.

Once an organization has selected the provider or providers it wants to hire, it must determine the type of contract. Such contracts generally fall into one of the following categories:

• Time and materials contracts , in which the business pays the provider for the time worked and the materials used.
• Fixed-price contracts , which set an upfront price for the specified work.

Additionally, organizations must, with their vendors, draft the service-level agreement detailing the quality of the provided services and the metrics for determining success.

Depending on the needs and nature of the outsourced work, some organizations also negotiate with providers on whether to have the following:

• Specific workers on teams dedicated to their outsourced work.
• Workers located only onshore or, conversely, globally distributed.
• Workers available 24/7 or only during set hours.

What are the benefits of business process outsourcing?

Benefits of BPO typically cited by proponents include the following:

• Financial benefits. BPO providers can often perform a business process at lower costs or save the company money in other ways, such as in tax savings.
• Improved flexibility. BPO contracts can offer the ability to modify how an outsourced business process is done, enabling companies to react more nimbly to changing market dynamics.
• Increased competitive advantage. BPO enables an organization to focus more of its resources on operations that distinguish it in the marketplace.
• Higher quality and better performance. Because business processes are their core business, BPO providers are well positioned to complete the work with greater accuracy, efficiency and speed.
• Access to innovations in the business process. BPO providers are more likely to know about advances in the process areas they specialize in. That means they are more likely to invest in new technologies, such as automation, that can improve the speed, cost and quality of the work.
• Expanded coverage. Organizations that need 24/7 call center operations can often quickly gain that capability by contracting with a BPO company with around-the-clock capabilities and multiple geographic locations, enabling a follow-the-sun business model .

What are the risks of business process outsourcing?

BPO risks include the following:

• Security breaches. The technology connection between the hiring company and the BPO provider creates another point of entry for bad actors , as organizations often need to share sensitive and regulated data with their service providers.
• Regulatory compliance requirements. An organization's regulatory requirements extend even to outsourced work, so it must ensure that the vendors it hires align with the laws the organization must follow. It must also ensure that the vendors adhere to the rules that govern the organization's outsourced work.
• Unanticipated or higher costs. Organizations can underestimate the amount of work that needs to be done, which can lead to higher-than-anticipated costs.
• Relationship challenges. Organizations can face communication problems with their outsourced providers, or they might find that there are cultural barriers.
• Overdependence on the external provider. An organization that outsources a function or service is tethered to the partner that performs the work. The organization must manage that relationship to ensure key objectives are met at the agreed-upon cost. If not, the organization may find it difficult to bring the operation back in-house or even move the contract to another outsourced provider.
• Increased potential for disruption. An organization must monitor for issues that could interrupt or permanently end the relationship with an outsourced provider. These include financial or workplace problems at the outsourced provider, geopolitical instability, natural disasters or changes in economic circumstances. Organizations must consider such risks and devise strategies on how to cope, which, in turn, adds complexity to their business continuity and disaster recovery .
• Public backlash. The public perception of an organization might negatively change if the public views that an organization is sacrificing domestic jobs for a better bottom line.

What are the different types of BPO?

BPO is often divided into the following types based on the service provider's location:

• Offshore outsourcing occurs when an organization contracts for services provided with a company in a foreign country.
• Onshore outsourcing , or domestic outsourcing , happens when an organization contracts for services provided by a company that operates in the same country as the hiring organization.
• Nearshore outsourcing is when an organization contracts for services provided by companies based in neighboring countries.

Research firm Gartner categorized BPO as either horizontal offerings or vertical-specific offerings. Horizontal offerings are functions that are used across multiple industries, while vertical-specific offerings are those that are industry-specific.

KPO, LPO and RPO

Business process outsourcing is sometimes categorized by the types of services being provided; the following three categories are commonly cited:

• Knowledge process outsourcing (KPO) is when the outsourced service provider is hired not only for its capacity to perform a particular business process or function , but also to provide expertise around it. KPO is ideal for receiving high-quality work that is quick and efficient.
• Legal process outsourcing (LPO) is a type of KPO that is specific to legal services; these range from drafting legal documents and performing legal research to offering advice.
• Research process outsourcing (RPO) -- another type of KPO -- refers to outsourcing research and analysis functions. Biotech companies, investment firms and marketing agencies are among the types of organizations that engage in RPO for services.

RPO can also refer to recruitment process outsourcing , which outsources an organization's recruitment process, including sourcing, screening, interviewing and finalizing offers.

Business process outsourcing examples

One example of an organization using BPO might be if it's struggling to maintain its HR department. In this example, it might need more skilled HR workers to keep up with this core business function. The organization can partner with a BPO provider that specializes in HR. It can begin to focus on its main work, while the outsourcer handles HR-related tasks, such as payroll, recruitment and benefits administration.

Another example is a business that hires a BPO provider for call center services. A small business might not have the time or resources to dedicate to investing in a call center. It can, instead, invest in a BPO provider that specializes in providing that business process.

How to choose a business process outsourcing provider

Enterprise executives should select BPO providers that can support their business objectives, as well as help them be more flexible, innovative and competitive. As such, organizations should consider more than just the price of a BPO contract when choosing a provider. They must also consider how well the provider can deliver on those other points, evaluating each provider to determine whether it has the following:

• An adequate understanding of the organization's business and industry.
• The capacity to meet current requirements, as well as to scale to meet future needs.
• An understanding and ability to meet compliance and regulatory requirements, as well as data privacy needs.
• Reporting metrics to demonstrate it is delivering on contractual standards.
• The geographical locations to meet business needs and regulatory requirements.

Organizations should conduct their own needs assessment to identify business processes that would benefit from outsourcing. They should then get in contact with different BPO providers to determine which one best suits their needs and which creates the best RFP. After it picks one and agrees to the terms of the RFP, the organization should begin the transition process of shifting agreed-upon processes.

Business process outsourcing market size

Research firms predicted that the global business process outsourcing market will continue to grow through the coming decade.

For example, in 2021, Grand View Research valued the global BPO market at $245.9 billion. A more recent report by GlobalData valued the BPO market at $329.9 billion in 2022. The same GlobalData report expects the market to experience a compound annual growth rate of 2.8% from 2023 to 2026.

The growth of the BPO market is driven by an increasing demand for outsourcing various business functions, like HR, customer services, data entry and other core competencies .

Future directions of the BPO industry

Executives continue to identify and reorder what they need and want from the vendors they contract with to handle their business processes.

Service provider CGS, which surveyed more than 200 business leaders and decision-makers about what they used to evaluate their BPO providers in 2021, found the following:

• 6% put data privacy and compliance as their top priority.
• 9% want their providers to be knowledge partners with advanced technology capabilities.
• 3% evaluate BPO providers on their technology platform capabilities.
• 3% want BPO providers with in-depth experience in the organization's own industry vertical.

Current trends involved in BPO include the following:

• Cloud-based BPO offerings. BPO vendors are increasingly offering cloud-based services that save on cost when compared to traditional models. This model also offers benefits such as added flexibility, real-time data and reporting.
• Hybrid working models. BPO vendors that provide traditionally outsourced business processes, such as call centers, are now able to work remotely.
• Nearshoring operations becoming more popular. Technology such as video conferencing, AI-enabled tools and robotic process automation ( RPA ) is driving down costs, enabling vendors that nearshore business processes to become more cost-effective.

BPO vendors, however, are contending with disruption as well, as the practice of business process outsourcing could be at least partially displaced in upcoming years by technology .

RPA and AI can handle some of the business processes now frequently outsourced, and these technologies can often perform those functions at lower costs and higher speeds.

Organizations are deploying RPA at increasing rates in an effort to boost efficiency and accuracy. Learn how RPA is adding AI to make it even more resilient and nimble.

Continue Reading About business process outsourcing (BPO)

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Home · Blog · A Definitive Guide: What Is Business Process Outsourcing (BPO)?

Unity Communications

• September 30, 2022

A Definitive Guide: What Is Business Process Outsourcing (BPO)?

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How-to guides, tips and actionable advice on how to manage your BPO team like a pro.

Written by Allie Delos Santos

Business process outsourcing (BPO) is a hot topic today, and for a good reason. Outsourcing is one of the leading strategies businesses use to guarantee success and scale faster. 

However, business owners often have questions about it, such as: 

• What is a business process outsourcing service?
• What is the best business process outsourcing strategy for my company?
• How do I find a good provider?
• What’s the best way to manage my outside team?
• How can I identify tasks to outsource?

This article addresses all these questions and more. In the end, you’ll know what business process outsourcing is, how it can help you, and how you can manage it properly.

What Is Business Process Outsourcing?

Business process outsourcing (BPO) is the process of delegating one or more non-core functions to a third-party provider. The service provider manages and administers the selected activities based on measurable and predefined performance indicators. 

BPO offerings fall under two categories: 

• Horizontal offerings involve role-focused outsourcing where the vendor specializes in managing specific functions leveraged across specific industries.
• Vertical offerings provide several functional services that require specific industry process knowledge. Financial services, retail, healthcare, and manufacturing are vertical BPO domains.

Businesses use BPO practices in these two primary areas of operations:

• The front office involves managing customer-facing activities. The BPO company manages customer service, technical support, marketing, and sales activities. 
• The back office manages back-end processes such as IT services, accounting, human resources, quality assurance, regulatory compliance, and payment processing. The external provider makes sure that all processes run smoothly. An example of this is outsourcing finance and accounting services.

The History of Business Process Outsourcing

Many people believe that business process outsourcing emerged at the same time call centers did. However, its first use was for manufacturing. The business processes that companies outsourced then included large segments of their supply chain, often involving production, raw materials, and disbursement of goods.

Before The Coca-Cola Company had become a global brand, it started in the U.S. in the 1880s, slowly rising in popularity. After about three decades, Coca-Cola decided to outsource.

In 1921, the company partnered with a local business in the Philippines, establishing its first-ever international bottler. A series of positive business process outsourcing results emerged. With Coca-Cola outsourcing its manufacturing to the Philippines, it saved costs and garnered a strong presence around the Asia Pacific region.

Early Stages of Business Process Outsourcing

Subcontracting call center services to foreign providers predominantly started in the 1990s, when companies in the United States hired vendors from countries such as the Philippines and India to save on labor costs.

However, unknown to many, BPO was widely used for data entry tasks back in the 1980s. BPO companies provided outsourced data entry for microfilming companies, law firms, and other conglomerates as early as 1988 to reduce costs.

Fast forward to the late 1990s up to the early 2000s. The internet was not quite what it is now, but it allowed BPO to transform into what we have come to know. Still focused on maintaining cost-efficiency, more businesses started handing over nonessential functions to offshore BPO companies.

The number of back-office support providers and call centers increased, resulting in greater flexibility among companies that outsourced, enabling their in-house employees to concentrate on core processes.

How the Internet Changed Business Process Outsourcing

The internet became a game-changer for BPO, just as it did with many other industries. It widened the possibilities for BPO, allowing companies to outsource functions such as accounting, accounts payable (AP) processing, IT services, mailroom, and other processes vital to daily operations.

The internet dates back to 1983 , but the transformation of companies and organizational capabilities, processes, and activities from analog to digital started in the 1990s. At that point, communication and information moved from physical documents to digital formats.

From microfilm to floppy disks and CDs to cloud servers, the internet significantly changed how businesses extract, process, keep, and share data. Since then, businesses have gained a competitive advantage, improving customer care and reducing costs by handing over non-essential processes.

How Companies Use BPO Today

Today, businesses of all sizes automate and outsource different processes across various departments, from front-facing customer support to back-end operations. BPO makes running a company easier, increasing quality assurance, streamlining compliance efforts, helping mitigate risk, and reducing operating costs and storage.

Now, almost 60% of businesses outsource to save on costs .

For instance, companies can use data entry outsourcing services to save more money, meet tight turnaround times, ensure privacy, and reduce risk. The BPO provider oversees critical transactional data extractions, digitization, processing, and storage.

A study on accounts payable firms discovered that best-in-class (BIC) companies spend only $2.87 on invoice processing . Meanwhile, their competitors spend $15.38 on average. To even out this massive discrepancy, finance firms outsource accounts payable processing to expedite evaluation and approval from three to five days to one to two days.

The Future of Business Process Outsourcing

Beyond automating tasks, BPO will include highly technical processes in the future. One potential area of growth is knowledge process outsourcing (KPO). It is a subset of BPO that requires expertise in areas such as banking, healthcare, and digital marketing.

Experts believe that the market growth momentum of BPO can accelerate even more. Technavio, a global market research firm, states that the benefits of business process outsourcing services will drive market growth further. BPO has an expected compound annual growth rate (CAGR) of more than 4% between 2020 and 2025 , its market share reaching over $39 billion.

Today’s Most Commonly Outsourced Services

Now that you know what business process outsourcing is , it’s time to look at the most commonly outsourced services.

• Accounting and Finance

Outsourcing accounting and finance is a good solution for many small to medium enterprises. If you don’t have enough experience managing finance, it can take a while to get up to speed or hire the right person for the position. Alternatively, you can outsource accounting to experts, giving you the freedom to concentrate on more pressing business matters.

• Customer Support

The quality of your customer service directly impacts sales. One unsatisfied customer might lead to losing multiple business transactions. You can eliminate this pressure by outsourcing the function to a call center. You gain better customer service and save money by outsourcing to BPOs with low labor costs.

• IT and Help Desk

Information technology takes up a considerable portion of the BPO industry. It is not surprising given the cybersecurity threats and security risks prevalent in the digital realm. With IT outsourcing, you receive robust privacy and security infrastructure that experts design and maintain.

• Human Resources

Maintaining an in-house HR department can be expensive. If you want to have the best talent working with your company, the first order of business is to have the best recruiters on your team. Luckily, outsourced HR provides an affordable but efficient solution with the full spectrum of services from recruitment and training to payroll and benefits administration.

Marketing is another business process that needs specialized knowledge and skills. A professional marketing team can approach your strategies appropriately, giving you unbiased advice. However, you can be an active participant in the process since your marketing team will ask for your approval before pursuing a plan.

• Shipping and Logistics

You can’t neglect shipping and logistics management because it can jeopardize the reliability of your delivery schedule, leading to poor customer experience and, ultimately, decreased sales. Outsourcing logistics to a reliable provider ensures the safe transport of your goods from the manufacturing or storage facility to your client’s doorstep.

Reasons Companies Use Business Process Outsourcing

With outsourcing, companies can increase their operational efficiency, reduce bottom-line expenses, distribute accountability, and gain access to growth opportunities. These benefits are more than empty proclamations spread by BPO agencies but declarations worthy of serious consideration and supported by data.

In 2020, 70% of businesses will use outsourcing for cost reduction. It’s safe to say that outsourcing is prevalent, especially in the IT industry, where 94% of businesses outsource at least one area of operations .

Consider the popularity of contact centers in the Philippines, where outsourcing is responsible for at least 10% of the country’s economy . BPO continues to expand as an industry, implying companies’ continued and growing trust in the service.

How Business Process Outsourcing Works for a Company

The decision to outsource depends on the size, age, type of organization, economic conditions, and market forces. For instance, a startup can use BPO since it doesn’t have the internal resources to manage back-office functions. Conversely, a large enterprise can outsource after learning that a third-party vendor can do the task better and cheaper.

Management experts advise companies to identify functions they can outsource and see whether the decision makes financial sense. If so, the hiring company must carefully select the right vendor for the work.

Many companies don’t know that BPO needs a significant amount of change management. Moving to a third-party service provider affects existing workflows, established processes, and staff. 

Here are some considerations for outsourcing business processes:

• The shift to a BPO firm affects the hiring company’s finances, including shifting costs, reporting requirements, and corporate taxes.
• Hiring companies must invest in new technologies to allow better workflows and collaboration with the BPO company. The cost and extent of investment depend on the maturity of the infrastructure in place and the scope of processes being outsourced.
• The outsourcing process begins with executives identifying the function of outsourcing as a growing business strategy to improve performance, redirect resources, save money, and gain flexibility.
• Leaders must identify whether one BPO provider should manage all outsourced functions or if hiring multiple firms for different tasks makes the most sense. For instance, a company can outsource all HR functions to one provider or hire one firm for benefits administration and another for payroll.
• The hiring company can use a list of non-negotiable demands and a detailed scope of outsourced work to draft a request for proposal (RFP). An RFP determines whether the BPO agency can manage all required tasks and meet requirements at specific costs and with specific value add-ons.
• Determine the appropriate type of contract to sign with a provider. Outsourcing agreements can be fixed, can set an upfront price for specified services, or can be time- and materials-based, wherein you pay for the production time and materials used.
• The hiring company and the BPO provider need to draft service-level agreements explaining the metrics for determining success and the required quality.

If you want to know more about outsourcing, check out this BPO learning center with learning materials from subject matter experts. 

Things to Do When Selecting a BPO Partner

Most hiring companies use BPO for long-term planning . So they must pick a good service provider to ensure success.

Outsourcing business processes require vetting, hiring, and onboarding. Here are some things to do when choosing an outsourcing firm: 

• Research and interview multiple providers. Make a list of your primary needs, such as time difference, language, and capabilities, and use this as your benchmark when researching for providers.
• Do your due diligence. Look for reviews online. Check forums and look for employees’ comments to learn more about how the provider operates.
• Check service-level agreements. Make sure to set KPIs and goals such as case time, call wait time, and work deadlines for critical activities. Additionally, you and your provider should agree on tracking the quality of work and time.
• Conduct a security audit before onboarding. This is to ensure that the provider will not get unauthorized access to private company data and that your customers’ data will be safe.
• Perform a comprehensive legal review. Ask your legal team to review all pertinent laws and documents in your home country and the provider’s location.
• Assign a specific staff member to oversee the partnership. Designate a primary point of contact to manage and liaise with your service provider.
• Create a project team. Treat collaborating with a BPO company as a project, designating employees to perform tasks such as creating reports, providing day-to-day oversight, and making accurate training documentation.
• Deploy software. Use monitoring and time-tracking software to organize tasks, ensure productivity, share files, and keep track of productive hours.

What You Need to Maintain a BPO Agreement

BPO requires continuous work. Selecting the best BPO firm is only the first step. You need to manage and collaborate with the service provider well to reap the full benefits.

The truth is that without good management, BPO has a limited impact on your organization. Worse, it might cost you more money and decrease employee productivity and performance. 

Here are some things you need to manage your BPO team effectively:

Communication

Communication makes or breaks your business process. You must establish clear communication channels, points of contact, and expectations. You should not miss your vendor’s messages just because you haven’t agreed on the channel to use. 

Have a primary communication channel that will serve as your one source of back-and-forth communication.

Clear Policies and Instructions

The clearer the brief, the easier it is to understand, and the better the outcome will be. So it pays to create comprehensive policies and instructions for your service provider.

Your instructions should offer a step-by-step guide for accomplishing the task you want the provider to complete. Include all details for the awareness of the third party.

Transferring responsibilities to third parties can be quite scary, especially at first. Will they use the right procedures? Can they be trusted with your information?

Although initially feeling this way is normal, having processes and systems that foster trust is important. If you can’t trust your provider, you’ll end up micromanaging them, which defeats the purpose of hiring them in the first place.

Trust is built on strong contractual agreements, standard operating procedures, and ongoing feedback. With all these in place, you will see better results, and trust will develop over time.

Management Tools

Your BPO provider most likely has its own productivity monitoring tool, but this shouldn’t stop you from using your own for an extra layer of oversight.

Good management software allows you to control, improve data security, and ensure production. With an effective monitoring tool to manage your outsourced team, you can answer questions such as:

• What is the best way to track business process outsourcing projects?
• How do I ensure agent productivity?
• How can I keep track of hours worked?

In addition to that, productivity software enables you to see points of improvement in your BPO provider’s performance and share this information with them.

The Bottom Line

What is amazing about business process outsourcing is its many advantages. In addition to workload reduction, access to a bigger and global talent pool, increased company capacity, and cost savings, BPO can enhance performance and improve the quality of work.

The hyper-specialization of BPO companies allows them to deliver higher-quality work, whether it be web development, customer service, or data entry. Excellent work gets done faster when workers focus on a single task at a time.

We Build Your Next-Gen Team for a Fraction of the Cost. Get in Touch to Learn How.

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Business process outsourcing studies: a critical review and research directions

• Research Article
• Published: 27 September 2011
• Volume 26 , pages 221–258, ( 2011 )

Cite this article

• Mary C Lacity 1 ,
• Stan Solomon 1 ,
• Aihua Yan 1 &
• Leslie P Willcocks 2  

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Organizations are increasingly sourcing their business processes through external service providers, a practice known as Business Process Outsourcing (BPO). Worldwide, the current BPO market could be as much as $279 billion and is predicted to continue growing at 25% annually. Academic researchers have been studying this market for about 15 years and have produced findings relevant to practice. The entire body of BPO research has never been reviewed, and this paper fills that gap. We filtered the total studies and reviewed 87 empirically robust BPO articles published between 1996 and 2011 in 67 journals to answer three research questions: What has the empirical academic literature found about BPO decisions and outcomes? How do BPO findings compare with Information Technology Outsourcing (ITO) empirical research? What are the gaps in knowledge to consider in future BPO research? Employing a proven method that Lacity et al. (2010) used to review the empirical ITO literature, we encapsulated this empirical literature on BPO in a way that is concise, meaningful, and helpful to researchers. We coded 43 dependent variables, 152 independent variables, and 615 relationships between independent and dependent variables. By extracting the best evidence, we developed two models of BPO: one model addresses BPO decisions and one model addresses BPO outcomes. The model of BPO decisions includes independent variables associated with motives to outsource, transaction attributes, and client firm characteristics. The model of BPO outcomes includes independent variables associated with contractual and relational governance, country characteristics, and client and supplier capabilities. Overall, BPO researchers have a broad and deep understanding of BPO. However, the field continues to evolve as clients and suppliers on every inhabited continent participate actively in the global sourcing community. There is still much research yet to be done. We propose nine future paths of research pertaining to innovation effects, retained capabilities, environmental influences, global destinations, supplier capabilities, pricing models, business analytics, emerging models, and grounded theory development.

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http://www.strategy-business.com/media/file/Outsourcing_for_Virtuosos-webinar.pdf

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Willcocks, L. and Lacity, M. (2012). Outsourcing Practices Reconsidered: From IT to cloud services, London: Palgrave Macmillan.

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Master codes

Absorptive capacity – Client : A client organization's ability to scan, acquire, assimilate, and exploit valuable knowledge (e.g., Grimpe and Kaiser, 2010 ; Reitzig and Wagner, 2010 ).

Absorptive capacity – Supplier: A supplier organization's ability to scan, acquire, assimilate, and exploit valuable knowledge (e.g., Luo et al., 2010 ).

Access to expertise/skills: A client organization's desire or need to access supplier skills/expertise (e.g., Currie et al., 2008 ; Lam and Chua, 2009 ).

Access to global markets: A client organization's desire or need to gain access to global markets by outsourcing to suppliers in those markets (e.g., Van Gorp et al., 2007 ).

Adaptability: The extent to which a party is able to adapt a business process to meet changes in the environment (e.g., Sia et al., 2008 ).

Asset specificity : The degree to which an asset can be redeployed to alternative uses and by alternative users without sacrifice of productive value ( Williamson, 1976 ; Sia et al., 2008 ).

Business process management capability – Client : The ability of a client organization to efficiently and effectively manage a business process using in-house resources (e.g., McIvor et al., 2009 ).

Business process management capability – Supplier : The ability of a supplier organization to efficiently and effectively manage a business process (e.g. Saxena and Bharadwaj, 2009 ).

Business process performance improvement : A client organization's desire or need to engage a supplier to help improve a client's business, processes, or capabilities (e.g., Gewald and Dibbern, 2009 ).

Business strategic type : An organization's strategy to address three fundamental business problems – entrepreneurial, engineering, and administrative. Categorized under the Miles and Snow typology as Defenders, Prospectors, Analyzers, and Reactors ( Miles and Snow, 1978 ; Shih et al., 2005 ; Kenyon and Meixell, 2011 ).

Career development of employees: A client organization's desire or need to provide better career opportunities for employees (e.g., Lacity et al., 2004 ).

Centralization of department: The degree to which the department's decision-making is concentrated within a particular group or location (e.g., Delmotte and Sels, 2008).

CEO personality: The attributes of a CEO's personality, including conscientiousness, emotional stability, agreeableness, extraversion, and openness to experience (e.g., Nadkarni and Herrmann, 2010 ).

Change catalyst : A client organization's desire or need to use outsourcing to bring about large scale changes in the organization (e.g., Gospel and Sako, 2010 ).

Change management capability : The extent to which a client organization effectively manages change (e.g., Lacity et al., 2004 ).

City size: The size of a city in which a client or supplier is located (e.g., Rajeev and Vani, 2009 ).

Client age : The age of a client organization in years (e.g., Delmotte and Sels, 2008).

Client dependency : The degree to which a supplier depends on a client (e.g., Gainey and Klaas, 2003 ).

Client experience with outsourcing: A client organization's level of experience with outsourcing or offshoring (e.g., Mani et al., 2010 ).

Client experience with multiple governance modes: A client organization's level of experience with multiple governance modes, such as captive centers, offshore outsourcing, etc. (e.g., Hutzschenreuter et al., 2011 ).

Client management capability : The extent to which a supplier organization is able to effectively manage client relationships (e.g., Howells et al., 2008 ).

Client outsourcing readiness : The extent to which a client organization is prepared to engage an outsourcing supplier by having realistic expectations and a clear understanding of internal costs and services compared to outsourced costs and services (e.g., McIvor et al., 2009 ).

Client size : The size of a client organization usually measured as total assets, sales, and/or number of employees (e.g., Wahrenburg et al., 2006 ).

Client/supplier alignment : The degree to which client and supplier incentives, motives, interests, and or goals are aligned (e.g., Sen and Shiel, 2006 ).

Client-specific knowledge required : The degree to which a unit of work requires a significant amount of understanding/knowledge about unique client systems, processes, or procedures (e.g., McKenna and Walker, 2008 ).

Client-supplier interface design : The planned structure on where, when, and how client and supplier employees work, interact, and communicate (e.g., Sen and Shiel, 2006 ).

Coalition : A strategy in which an agent enlists the aid or endorsement of other people to influence a target to do what the agent wants (e.g., Bignoux, 2011 ).

Commitment : The degree to which partners pledge to continue the relationship (e.g., Levina and Su, 2008 ).

Communication : The degree to which parties are willing to openly discuss their expectations, directions for the future, their capabilities, and/or their strengths and weaknesses (e.g., Gainey and Klaas, 2003 ).

Concern for security/intellectual property : A client organization's concerns about security of information, transborder data flow issues, and protection of intellectual property (e.g., Wüllenweber et al., 2008a , 2008b ).

Concern for regulatory requirements: A client organization's concerns about complying with regulations (e.g. Howells et al., 2008 ).

Configurational approach – The client firm matches multiple factors in configurations that maximize their chances of BPO success. For example, matching strategic intent with contractual governance, matching transaction attributes with contractual governance (e.g., Sen and Shiel, 2006 ; Saxena and Bharadwaj, 2009 ).

Conflict resolution : The degree to which clients and suppliers quickly, fairly, and meaningfully resolve disputes (e.g., Wüllenweber et al., 2008a , 2008b ).

Contract detail : The number or degree of detailed clauses in the outsourcing contract, such as clauses that specify prices, service levels, key process indicators, benchmarking, warranties, and penalties for non-performance (e.g., Luo et al., 2010 ; Handley and Benton, 2009 ).

Contract duration : The duration of the contract in terms of time (e.g., Willcocks et al., 2004 ).

Contract flexibility : The degree to which a contract specifies contingencies and enables parties to change contractual terms (e.g., Sia et al., 2008 ).

Contract management capability : The extent to which a client organization is able to effectively manage contracts with suppliers, including the ability to track service levels and verify invoices (e.g., Sanders et al., 2007 ).

Contract size : The size of the outsourcing contract usually measured as the total value of the contract in monetary terms (e.g., Gewald and Gellrich, 2007 ).

Control mechanisms : Certain means or devices a controller uses to promote desired behavior by the controlee (e.g., Daityari et al., 2008 ).

Convenience : A client organization's desire to select a sourcing option based on ease of use, convenience, and less frustration (e.g., McKenna and Walker, 2008 ).

Cooperation : The degree to which client and supplier employees are willing to work together in common pursuit (e.g., Wüllenweber et al., 2008a and 2008b ).

Corporate social responsibility capability-supplier – A supplier organization's ability to behave in a socially responsible way, such as promoting environmental responsibility and promoting fair labor practices (e.g., Brown, 2008 ).

Cost reduction : A client organization's need or desire to use outsourcing to reduce or control costs (e.g., Borman, 2006 ).

Country: Outsourcing outcomes – Success – Offshore : A client organization's general perceptions of success and satisfaction with offshore outsourcing (e.g., Vivek et al., 2008 ).

Partnership view : A client organization's consideration of suppliers as trusted partners rather than as opportunistic vendors (e.g., Willcocks et al., 2004 ; Sen and Shiel, 2006 ).

Persistence of expectatio ns: ‘The tendency for prior beliefs and expectations to persevere, even in the face of new data or when the data that generated those beliefs are no longer valid’ (e.g., Lewin and Peeters, 2006 ).

Political reasons/influences : A client stakeholder's desire or need to use an outsourcing decision to promote personal agendas (e.g., Maelah et al., 2010 ).

Prior client/supplier working relationship : The situation in which the client and supplier organizations have worked together in the past (e.g., Mani et al., 2010 ).

Prior firm performance – Client : Client firm performance usually measured as net profits, return on assets, expenses, earnings per share, number of patents, and/or stock price prior to an outsourcing decision (e.g., Dunbar and Phillips, 2001 ; Gilley et al., 2004 ).

Prior firm performance – Supplier : Supplier firm performance usually measured as net profits, return on assets, expenses, earnings per share, and/or stock price prior to an outsourcing decision. (e.g., Gewald and Gellrich, 2007 ; Nadkarni and Herrmann, 2010 ).

Proactive sensemaking : The extent to which executives proactively create awareness and understanding in situations of high complexity or uncertainty in order to make decisions (e.g., Sia et al., 2008 ).

Process complexity : The degree to which a task requires compound steps, the control of many variables, and/or where cause and effect are subtle and dynamic (e.g., Ventovuori and Lehtonen, 2006 ; Penfold, 2009 ).

Process integration : The degree to which clients and suppliers are able to integrate processes (e.g. Sen and Shiel, 2006 ).

Process interdependence : The level of integration and coupling among tasks; processes that are highly integrated are tightly coupled and difficult to detach (e.g., Sanders et al., 2007 ).

Process interoperability : The extent to which a business process can operate on many supplier platforms (e.g., Sia et al., 2008 ).

Process standardization : The degree to which a process is standard (e.g., Tate and Ellram, 2009 ).

Public perceptions of outsourcing : The degree to which the public has a negative perception of outsourcing or offshoring (e.g., Sen and Shiel, 2006 ).

Public awareness : The degree to which there is publicly available information about outsourcing or offshoring (e.g., Hutzschenreuter et al., 2011 ).

R&D spend : The amount of money an organization spends on R&D (e.g., Calantone and Stanko, 2007 ; Grimpe and Kaiser, 2010 ).

Rapid delivery : A client organization's desire or need to engage in outsourcing in order to speed up delivery (e.g., Bandyopadhyay and Hall, 2009 ; Lam and Chua, 2009 ).

Relational governance : The unwritten, worker-based mechanisms designed to influence inter-organizational behavior ( Macneil, 1980 ; e.g., Kim, 2008 ).

Relationship quality : The quality of the relationship between a client and supplier (e.g., Sia et al., 2008 ; Saxena and Bharadwaj, 2009 ).

Relationship-specific investment : Specific investments made over time, which discourage opportunism, reinforce signals of the client firms, and create extendedness of the relationships (e.g., Tate and Ellram, 2009 ).

Risk management capability – Client : A client organization's practice of identifying, rating, and mitigating potential risks associated with outsourcing (e.g., Borman, 2006 ).

Risk management capability – Supplier : A supplier organization's practice of identifying, rating, and mitigating potential risks associated with outsourcing (e.g., Borman, 2006 ).

Risk – The extent to which a transaction exposes clients to a chance of loss or damage (e.g., Wüllenweber et al., 2008a , 2008b ).

Scalability : The ability to scale volume of service up or down based on demand (e.g., Currie et al., 2008 ; Redondo-Cano and Canet-Giner, 2010 ).

Security, privacy, and confidentiality capability – Supplier: The proven ability of a supplier to protect client data through investments in technology, training, process controls, audits, and other management practices (e.g., Sen and Shiel, 2006 ).

Senior leadership: The extent to which the senior executives of an organization are effective leaders (e.g., Lacity et al., 2004 ).

Service quality : The quality of a service, frequently measured as a client's perception of a satisfactory service performance by the supplier (e.g., Lewin and Peeters, 2006 ).

Social capital: Cognitive dimension: Social capital arising from the sharing representations, interpretations, and systems of meaning among parties ( Nahapiet and Ghoshal, 1998 ; e.g., Willcocks et al., 2004 ).

Social capital: Relational dimension: Social capital arising from personal relationships people have developed with each other through a history of interactions ( Nahapiet and Ghoshal, 1998 ; e.g., Willcocks et al., 2004 ).

Social capital: Structural dimension : Social capital arising from the patterns of linkages between people or units including network ties, network configuration, and network appropriability ( Nahapiet and Ghoshal, 1998 ; e.g., Willcocks et al., 2004 ).

Social norms : An individual's perceptions of the social pressures put on him or her to perform or not to perform the behavior in question .’ ( Ajzen and Fishbein, 1980 ; e.g., Raman et al., 2007 ).

Sourcing capability – Supplier : Expertise in procurement and the ability to leverage aggregate purchasing power (e.g., Lacity et al., 2004 ).

Stakeholder buy-in : Gaining commitment and support from all parties involved in outsourcing related decisions (e.g., Tate and Ellram, 2009 ).

Stakeholder resistance : The degree to which stakeholders oppose an outsourcing decision (e.g., Ventovuori and Lehtonen, 2006 ).

Strategic flexibility : An organization's ability to precipitate strategic changes and adapt to substantial, uncertain, and rapidly occurring environmental changes (e.g., Nadkarni and Herrmann, 2010 ).

Strategic intent : A client organization's desire or need to outsource for strategic reasons, such as developing new capabilities that can be leveraged in the marketplace (e.g., Sanders et al., 2007 ).

Subcontracting : The practice when the primary supplier engages another supplier for contracted work, either with or without the client's knowledge or approval (e.g., Kuruvilla and Ranganathan, 2010 ; Luo et al., 2010 ).

Supplier age : The age of a supplier firm in years (e.g., Lahiri and Kedia, 2009 ).

Supplier business growth: A supplier increases revenues by extending services to existing clients, obtaining new clients, or through mergers and acquisitions (e.g., Saxena and Bharadwaj, 2009 ).

Supplier competition : The presence of multiple, reputable, and trustworthy service providers, which can provide a range of choices for the clients (e.g., Levina and Su).

Supplier dependency : The degree to which a client depends on a supplier (e.g., Borman, 2006 ).

Supplier employee performance : The client's perception of the performance of individual supplier employees (e.g., Daityari et al., 2008 ; Lam and Chua, 2009 ).

Supplier employee turnover : The percentage of the workers that are replaced in a given time period (e.g., Budhwar et al., 2006 ).

Supplier management capability : The extent to which a client organization is able to effectively manage outsourcing suppliers (e.g., Sanders et al., 2007 ).

Supplier ownership : The supplier's ownership structure; private, public, jointly owned with primary client (e.g., Kuruvilla and Ranganathan, 2010 ).

Supplier reputation : The public's perception of a supplier's capabilities based on past performance and financial status (e.g., Gewald and Gellrich, 2007 ).

Supplier size : The size of a supplier organization usually measured as total assets, sales, and/or number of employees (e.g., Nadkarni and Herrmann, 2010 ).

Switching costs : The costs incurred when a client organization changes from one supplier or marketplace to another (e.g., Wahrenburg et al., 2006 ).

Task structure : The degree of clarity and structure pertaining to tasks (e.g., Daityari et al., 2008 ).

Technical and methodological capability – Client : A client organization's level of maturity in terms of technical or process related standards, and best practices such as component reuse (e.g., Bardhan et al., 2007 ).

Technical and methodological capability – Supplier : A supplier organization's level of maturity in terms of technical or process related and best practices such as component reuse (e.g., Sia et al., 2008 ; Bharadwaj and Saxena, 2009 ).

Time zone differences : The difference in local times between two locations as measured in hours (e.g., Mehta et al., 2006 ).

Top management commitment/support : The extent to which senior executives provide leadership, support, and commitment to outsourcing (e.g., Tate and Ellram, 2009 ).

Training : The nature or extent of supplier employee training by either the client or supplier organization (e.g., Raman et al., 2007 ; Malik, 2009 ).

Transaction costs : The effort, time, and costs incurred in searching, creating, negotiating, monitoring, and enforcing a service contract between buyers and suppliers ( Williamson, 1991 ; e.g., Levina and Su, 2008 ).

Transaction frequency : The number of times a client organization initiates a transaction, typically categorized as either occasional or frequent (e.g., Wahrenburg et al., 2006 ).

Transaction size : The size of a transaction in terms of dollar value or effort (e.g., Luo et al., 2010 ).

Transition management capability – Client : The extent to which a client organization effectively transitions services to outsourcing suppliers or integrates client services with supplier services (e.g., Luo et al., 2010 ).

Transition management capability – Supplier : The extent to which a supplier organization effectively transitions services from a client organization to the supplier or integrates client services with supplier services (e.g., Saxena and Bharadwaj, 2009 ).

Trust : The confidence in the other party's benevolence (e.g., Gainey and Klaas, 2003 ).

Uncertainty : The degree of unpredictability or volatility of future states as it relates to the definition of requirements, emerging technologies, and/or environmental factors ( Williamson, 1991 ; e.g., Mani et al., 2010 ).

Upward appeals : The tactic of invoking the authority and power of higher management; for example suppliers may bypass client liaisons by appealing to client management (e.g., Bignoux, 2011 ).

Virtual teaming: The extent to which the service provider and the client perceive and behave as part of the same team (e.g., Saxena and Bharadwaj, 2009 ).

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Lacity, M., Solomon, S., Yan, A. et al. Business process outsourcing studies: a critical review and research directions. J Inf Technol 26 , 221–258 (2011). https://doi.org/10.1057/jit.2011.25

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What is outsourcing? Definitions, benefits, challenges, processes, advice

Outsourcing can bring big benefits, but risks and challenges abound when negotiating and managing outsourcing relationships. here’s what you need to know to ensure your it outsourcing initiatives succeed..

Outsourcing definition

Outsourcing is a business practice in which services or job functions are hired out to a third party on a contract or ongoing basis. In IT, an outsourcing initiative with a technology provider can involve a range of operations, from the entirety of the IT function to discrete, easily defined components, such as disaster recovery, network services, software development, or QA testing.

Companies may choose to outsource services onshore (within their own country), nearshore (to a neighboring country or one in the same time zone), or offshore (to a more distant country). Nearshore and offshore outsourcing have traditionally been pursued to save costs.

Outsourcing services

Business process outsourcing (BPO) is an overarching term for the outsourcing of a specific business process task, such as payroll. BPO is often divided into two categories: back-office BPO, which includes internal business functions such as billing or purchasing, and front-office BPO, which includes customer-related services such as marketing or tech support.

IT outsourcing is a subset of business process outsourcing, and it falls traditionally into one of two categories: infrastructure outsourcing and application outsourcing. Infrastructure outsourcing can include service desk capabilities, data center outsourcing, network services, managed security operations, or overall infrastructure management. Application outsourcing may include new application development, legacy system maintenance, testing and QA services, and packaged software implementation and management.

Today, however, IT outsourcing can also include relationships with providers of software-, infrastructure-, and platforms-as-a-service. These cloud services are increasingly offered not only by traditional outsourcing providers but by global and niche software vendors or even industrial companies offering technology-enabled services.

For more on the latest trends in outsourcing, see “ 7 hot IT outsourcing trends — and 7 going cold .”

Outsourcing pros and cons

The business case for outsourcing varies by situation, but the benefits and risks of outsourcing often include the following:

IT outsourcing models and pricing

The appropriate model for an IT service is determined by the service provided. Most outsourcing contracts have been billed on a time and materials or fixed price basis. But as outsourcing services have matured to include strategic transformation and innovation initiatives , contractual approaches have evolved to include managed services and outcome-based arrangements.

The most common ways to structure an outsourcing engagement include:

Outsourcing vs. offshoring

The term outsourcing is often used interchangeably — and incorrectly — with offshoring, usually by those in a heated debate. But offshoring is a subset of outsourcing wherein a company outsources services to a third party in a country other than the one in which the client company is based, typically to take advantage of lower labor costs. This subject continues to be charged politically because offshore outsourcing is more likely to result in layoffs.

Outsourcing of jobs

Estimates of jobs displaced or jobs created due to offshoring tend to vary widely due to lack of reliable data. In some cases, global companies set up their own captive offshore IT service centers to reduce costs or access skills. Some roles typically offshored include software development, application support and management, maintenance, testing, help desk/technical support, database development or management, and infrastructure support.

In recent years, IT service providers increased investments in IT delivery centers in the US, according to a report from Everest Group. Offshore outsourcing providers have also increased their hiring of US IT professionals to gird against potential increased restrictions on the H-1B visas they use to bring offshore workers to the US to work on client sites.

Some industry experts point out that increased automation and robotic capabilities may actually eliminate more IT jobs than offshore outsourcing.

Outsourcing risks and challenges

The failure rate of outsourcing relationships remains high, ranging from 40% to 70%. At the heart of the problem is the inherent conflict of interest in any outsourcing arrangement. The client seeks better service, often at lower costs, than it would get doing the work itself. The vendor, however, wants to make a profit. That tension must be managed closely to ensure a successful outcome for both client and vendor. A service level agreement (SLA) is one lever for navigating this conflict — when implemented correctly . An SLA is a contract between an IT services provider and a customer that specifies, usually in measurable terms, what services the vendor will furnish. Service levels are determined at the beginning of any outsourcing relationship and are used to measure and monitor a supplier’s performance.

For more on outsourcing contracts, see “ 11 keys to a successful outsourcing relationship ” and “ 7 tips for managing an IT outsourcing contract .”

Another cause of outsourcing failure is the rush to outsource as a “quick fix” cost-cutting maneuver rather than an investment designed to enhance capabilities, expand globally, increase agility and profitability, or bolster competitive advantage.

Generally speaking, risks increase as the boundaries between client and vendor responsibilities blur and the scope of responsibilities expands. Whatever the type of outsourcing, the relationship will succeed only if both the vendor and the client achieve expected benefits.

See also: “ 9 IT outsourcing mistakes to avoid ” and “ 10 early warning signs of IT outsourcing disaster .”

Types of outsourcing

Many years ago, the multi-billion-dollar megadeal for one vendor hit an all-time high, but wholesale outsourcing proved difficult to manage for many companies. These days, CIOs have embraced the multi-vendor approach , incorporating services from several best-of-breed vendors.

Multisourcing, however, is not without challenges. The customer must have mature governance and vendor management practices in place. In contract negotiations, CIOs need to spell out that vendors must cooperate or else risk losing the job. CIOs need to find qualified staff with financial as well as technical skills to help run a project management office or some other body that can manage the outsourcing portfolio.

The rise of digital transformation has initiated a shift away from siloed IT services. As companies embrace new development methodologies and infrastructure choices, many standalone IT service areas no longer make sense. Some IT service providers seek to become one-stop shops for clients through brokerage services or partnership agreements, offering clients a full spectrum of services from best-in-class providers.

How to select a service provider

Selecting a service provider is a difficult decision, and no one outsourcer will be an exact fit for your needs. Trade-offs will be necessary.

To make an informed decision, articulate what you want from the outsourcing relationship to extract the most important criteria you seek. It’s important to figure this out before soliciting outsourcers, as they will come in with their own ideas of what’s best for your organization, based largely on their own capabilities and strengths.

Some examples of the questions you’ll need to consider include:

• What’s more important to you: the total amount of savings an outsourcer can provide you or how quickly they can cut your costs?
• Do you want broad capabilities or expertise in a specific area?
• Do you want low, fixed costs or more variable price options?

Once you define and prioritize your needs, you’ll be better able to decide what trade-offs are worth making.

Outsourcing advisers

Many organizations bring in a sourcing consultant to help establish requirements and priorities. Third-party expertise can help, but it’s important to research the adviser well. Some consultants may have a vested interested in getting you to pursue outsourcing rather than helping you figure out if outsourcing is a good option for your business. A good adviser can help an inexperienced buyer through the vendor-selection process, aiding them in steps like conducting due diligence, choosing providers to participate in the RFP process, creating a model or scoring system for evaluating responses, and making the final decision.

For more advice, see “ Outsourcing advisors: 6 tips for selecting the right one .”

Negotiating the best outsourcing deal

Balancing the risks and benefits for both parties is the goal of the negotiation process , which can get emotional and even contentious. But smart buyers will take the lead in negotiations , prioritizing issues that are important to them, rather than being led around by the outsourcer.

Creating a timeline and completion date for negotiations will help rein in the process. Without one, discussions could go on forever. But if an issue needs time, don’t be a slave to the date.

Finally, don’t take any steps toward transitioning the work to the outsourcer while in negotiations. An outsourcing contract is never a done deal until you sign on the dotted line, and if you begin moving the work to the outsourcer, you will be handing over more power over the negotiating process to them as well.

Outsourcing’s hidden costs

Depending on what is outsourced and to whom, studies show that an organization will end up spending at least 10% percent above the agreed-upon figure to manage the deal over the long haul. Among the most significant additional expenses associated with outsourcing are:

• the cost of benchmarking and analysis to determine whether outsourcing is the right choice
• the cost of investigating and selecting a vendor
• the cost of transitioning work and knowledge to the outsourcer
• costs resulting from possible layoffs and their associated HR issues
• costs of ongoing staffing and management of the outsourcing relationship

It’s important to consider these hidden costs when making a business case for outsourcing.

The outsourcing transition

Vantage Partners once called the outsourcing transition period — during which the provider’s delivery team gets up to speed on your business, existing capabilities and processes, expectations and organizational culture — the “valley of despair.” During this period, the new team is trying to integrate transferred employees and assets, begin the process of driving out costs and inefficiencies, while still keeping the lights on. Throughout this period, which can range from several months to a couple of years, productivity very often takes a nosedive.

The problem is, this is also the time when executives on the client side look most avidly for the deal’s promised gains; business unit heads and line managers wonder why IT service levels aren’t improving; and IT workers wonder what their place is in this new mixed-source environment. The best advice is to anticipate that the transition period will be trying, attempt to manage the business side’s expectations, and set up management plans and governance tools to get the organization over the hump.

Outsourcing governance

A highly collaborative relationship based on effective contract management and trust can add value to an outsourcing relationship. An acrimonious relationship, however, can detract significantly from the value of the arrangement, the positives degraded by the greater need for monitoring and auditing. In that environment, conflicts frequently escalate and projects don’t get done.

Successful outsourcing is about relationships as much as it is actual IT services or transactions. As a result, outsourcing governance is the single most important factor in determining the success of an outsourcing deal. Without it, carefully negotiated and documented rights in an outsourcing contract run the risk of not being enforced, and the relationship that develops may look nothing like what you envisioned.

For more on outsourcing governance, see “ 7 tips for managing an IT outsourcing contract .”

Repatriating IT

Repatriating or backsourcing IT work (bringing an outsourced service back in-house ) when an outsourcing arrangement is not working — either because there was no good business case for it in the first place or because the business environment changed — is always an option. However, it is not always easy to extricate yourself from an outsourcing relationship, and for that reason many clients dissatisfied with outsourcing results renegotiate and reorganize their contracts and relationships rather than attempt to return to the pre-outsourced state. But, in some cases, bringing IT back in house is the best option, and in those cases it must be handled with care .

For more on repatriating IT, see “ How to bring outsourced services back in-house .”

More on outsourcing:

• 7 hot IT outsourcing trends — and 7 going cold
• Top 10 IT outsourcing providers
• 9 outsourcing myths debunked
• The hidden costs of outsourcing
• 11 keys to a successful outsourcing relationship
• 9 IT outsourcing mistakes to avoid
• 10 early warning signs of IT outsourcing disaster
• 12 signs your strategic partnership has gone wrong
• 7 keys to transformational outsourcing success
• SLA guide: Best practices for service-level agreements
• 10 dos and don’ts for crafting more effective SLAs
• How to contract for outsourcing agile development

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What Is Outsourcing?

Understanding outsourcing, special considerations.

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Outsourcing: How It Works in Business, With Examples

Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

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Outsourcing is the business practice of hiring a party outside a company to perform services or create goods that were traditionally performed in-house by the company's own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. As such, it can affect a wide range of jobs, ranging from customer support to manufacturing to the back office.

Outsourcing was first recognized as a business strategy in 1989 and became an integral part of business economics throughout the 1990s. The practice of outsourcing is subject to considerable controversy in many countries. Those opposed argue that it has caused the loss of domestic jobs, particularly in the manufacturing sector. Supporters say it creates an incentive for businesses and companies to allocate resources where they are most effective, and that outsourcing helps maintain the nature of  free-market economies on a global scale.

Key Takeaways

• Companies use outsourcing to cut labor costs, including salaries for their personnel, overhead, equipment, and technology.
• Outsourcing is also used by companies to dial down and focus on the core aspects of the business, spinning off the less critical operations to outside organizations.
• On the downside , communication between the company and outside providers can be hard, and security threats can amp up when multiple parties can access sensitive data.
• Some companies will outsource as a way to move things around on the balance sheet.
• Outsourcing employees, such as with 1099 contract workers, can benefit the company when it comes to paying taxes.

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Outsourcing can help businesses reduce labor costs significantly. When a company uses outsourcing, it enlists the help of outside organizations not affiliated with the company to complete certain tasks. The outside organizations typically set up different compensation structures with their employees than the outsourcing company, enabling them to complete the work for less money. This ultimately enables the company that chose to outsource to lower its labor costs.

Businesses can also avoid expenses associated with overhead , equipment, and technology.

In addition to cost savings, companies can employ an outsourcing strategy to better focus on the core aspects of the business. Outsourcing non-core activities can improve efficiency and productivity because another entity performs these smaller tasks better than the firm itself. This strategy may also lead to faster turnaround times, increased competitiveness within an industry, and the cutting of overall operational costs.

Companies use outsourcing to cut labor costs and business expenses, but also to enable them to focus on the core aspects of the business.

Examples of Outsourcing

Outsourcing's biggest advantages are time and cost savings. A manufacturer of personal computers might buy internal components for its machines from other companies to save on production costs . A law firm might store and back up its files using a cloud-computing service provider, thus giving it access to digital technology without investing large amounts of money to actually own the technology.

A small company may decide to outsource bookkeeping duties to an accounting firm, as doing so may be cheaper than retaining an in-house accountant. Other companies find outsourcing the functions of human resource departments, such as payroll and health insurance, as beneficial. When used properly, outsourcing is an effective strategy to reduce expenses, and can even provide a business with a competitive advantage over rivals.

Criticism of Outsourcing

Outsourcing does have disadvantages. Signing contracts with other companies may take time and extra effort from a firm's legal team. Security threats occur if another party has access to a company's confidential information and then that party suffers a data breach. A lack of communication between the company and the outsourced provider may occur, which could delay the completion of projects.

Outsourcing internationally can help companies benefit from the differences in labor and production costs among countries. Price dispersion in another country may entice a business to relocate some or all of its operations to the cheaper country in order to increase profitability and stay competitive within an industry. Many large corporations have eliminated their entire in-house customer service call centers, outsourcing that function to third-party outfits located in lower-cost locations.

First seen as a formal business strategy in 1989, outsourcing is the process of hiring third parties to conduct services that were typically performed by the company. Often, outsourcing is used so that a company can focus on its core operations. It is also used to cut costs on labor, among others. While privacy has been a recent area of controversy for outsourcing contractors, it has also drawn criticism for its impact on the labor market in domestic economies.

What Is an Example of Outsourcing?

Consider a bank that outsources its customer service operations. Here, all customer-facing inquiries or complaints with concern to its online banking service would be handled by a third party. While choosing to outsource some business operations is often a complex decision, the bank determined that it would prove to be the most effective allocation of capital, given both consumer demand, the specialty of the third-party, and cost-saving attributes. 

What Are the Disadvantages of Outsourcing?

The disadvantages of outsourcing include communication difficulties, security threats where sensitive data is increasingly at stake, and additional legal duties. On a broader level, outsourcing may have the potential to disrupt a labor force. One example that often comes to mind is the manufacturing industry in America, where now a large extent of production has moved internationally. In turn, higher-skilled manufacturing jobs, such as robotics or precision machines, have emerged at a greater scale.

While outsourcing can be advantageous to an organization that values time over money, some downsides can materialize if the organization needs to retain control. Outsourcing manufacturing of a simple item like clothing will carry much less risk than outsourcing something complex like rocket fuel or financial modeling. Businesses looking to outsource need to adequately compare the benefits and risks before moving forward.

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Outsourcing: Benefits and Challenges Essay

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Introduction

Thesis statement, the challenges of outsourcing, benefits of outsourcing.

Outsourcing is a business practice in which a company enters into a contract with another company to provide certain services essential for the operations of the client organization (Duran & Duran, 2009).This practice has increased in the recent past, and the increase can be attributed greatly to the increased use of information technology that has improved communication.

In most instances, the firms contracting other companies for a given task also have the capacity to carry out the tasks domestically. These firms, ranging from small through medium-sized to large organizations, are driven into outsourcing for a number of reasons. It has emerged that services that did not appear to be tradable are now in high demand and form the basis for outsourcing.

All functions needed to run a company can now be obtained off shelf (Engardio, 2006). Firms contract other organizations for services like data management, accounting or editing, data analysis and processing, call center services, or e-mails among many others. The supplying firms are highly specialized in the respective areas and are able to offer the services at cheaper costs as compared to the whole costs that would be incurred by a company performing the tasks in-house.

Outsourcing has increased considerably, particular in the developed countries like the US. In the article ‘Fair exchange: Who benefits from outsourcing?’ (In ‘The Blair Reader: Exploring Issues and Ideas ’ by Kisser and Mandell),Barrera (2004) focuses on the benefits of outsourcing and asserts that the practice is beneficial to both the parties involved and their respective countries.

However, the author also points out that the practice has some weaknesses that have to be addressed by the policy-makers to ensure its effectiveness. This view forms the basis upon which this paper is developed. The paper provides a comparison of Barrera’s views and views provided by other authors in relation to outsourcing.

Outsourcing has been criticized for displacing the local employees and shifting employment opportunities to overseas. However, this practice is beneficial to the two parties involved, both the outsourcing firm and the service suppliers and their respective countries.

Outsourcing happens to have certain challenges to the operations of the outsourcing firm and the economic development in the country of origin of the firm. The practice is blamed for the rising level of unemployment in the United States. Wadhwa (2009) terms it a dirty word that involves relieving full-time employees in an organization of their duties to look for these services elsewhere.

The United States is seen as a destination for outsourced jobs, a move that agonizes most of the jobless citizens. The companies outsource these services since the costs of the services are lower compared to performing the tasks by the employees of the organization.

Besides, the rate at which new jobs are created is also not high enough to meet the demands of those rendered jobless due to outsourcing. Barrera (2004) observed that employees in the developed countries lose their jobs due to outsourcing and yet similar well-paying jobs cannot be created at the same rate.

There is often a large time interval between the destruction of jobs and creation of other opportunities. The employees may be forced to seek employment in new fields in new geographic locations. This would necessitate additional training to acquire the relevant skills and adaptation to the new work-environment. Outsourcing is also characterized by increased use of high-tech and occupational services that have rendered many employees jobless.

Outsourcing also appears to be a threat to the proper management of an organization in some sense. Organizations that outsource services may not be in touch with some of their key stakeholders. The poor relationship may be developed between the suppliers or consumers and the business organization that impedes its smooth operations.

Similarly, the company becomes so much dependent on outsourced services that it may fail in case there is a sudden withdrawal from the contract by the supplying firm. In this regard, it has been pointed out that a firm should evaluate the other organization providing outsourcing services before contracting it (Duran and Duran, 2009). Different aspects like cost, time, and quality of the services have to be considered.

The increasing rate of outsourcing as witnessed in the United States can be supported by several observations. Various developments have been witnessed in the business industry that justifies the use of outsourcing. The current international trade that involves shifting of resources to gain a comparative advantage is the fundamental building block behind outsourcing.

Firstly, outsourcing is cost-effective and helps increase the profits of organization. It is aimed at minimizing cost and time for a given task (Duran and Duran, 2009). Outsourcing is not a recently developed idea in the United States. The idea has been in existence whereby the country obtained goods from other countries where they could be produced cheaply. The companies manufactured products from these goods and sold the finished product to other countries.

Barrera (2004) supports this practice and asserts that it is needless to produce some products using many resources when similar products could be obtained elsewhere at cheaper prices. These resources could be channeled to the production of other products that are of high value to the organization. Similar scenario is witnessed in the outsourcing of services. Increased global competition and the economic pressure caused by developing countries calls for replacing full-time employees with contractors (Wadhwa, 2004).

The firms that offer outsourcing services do not incur huge operations costs like consumer benefits or other overhead expenses. The firms make use of few employees with highly specialized skills. As such, they are able to provide the services at relatively cheaper costs to the client organizations.

Thus, outsourcing allows the developing and the developed countries to develop on the products and services that are of the highest possible benefits to the country (Barrera, 2004). The US companies that outsource services have a lean organizational structure that allows improved operations to gain competitive advantage in the international market.

Secondly, the quality of outsourced services is often high. The quality, time, and cost should be the major focus of an outsourcing company (Duran and Duran, 2009). It has been observed that small business organizations need certain technology services and yet they are not equipped to perform the tasks (Wadhwa, 2009).

The firms offering these services often streamline their operations towards specialized lines. The companies can employ the modern technology and machinery that may not be available in the client organization. This implies that if the firms withdraw their services for the client organizations then the latter can suffer consequences of poor quality services.

Besides, in as much as outsourcing is criticized to cause unemployment in the industrial nations, the practice improves the lives of the poor in the developing countries. There is increased level of employment in these developing nations that contribute significantly towards social and economic development in the countries. This helps alleviate poverty and improve the lives of the citizens of the country thereby contributing towards the desired global development.

This is advantageous to the large international organizations that operate across several countries. Outsourcing has the advantage of ‘multi-local benefits administration program, scalable technology, and a consistent employee experience, a single point of contact for managers and members, and cost efficiencies’ (Miller, 2011, p.24). The developing countries provide competitive emerging markets for such huge organizations.

Outsourcing is growing at considerable rate and its positive impacts on economic development at the local and international scene are evident. It is very necessary for organizations that want to extend their operations across different nations. This is essential owing to the current globalization.

It provides a cost-effective way of building strong foundations in one country before settling to operate on the country. After contracting some firm, the management of an organization may focus on other operational strategies as the experts work on the problems at hand. The practice is not without some challenges. However, the challenges can be managed through effective trade policies.

Duran, D., & Duran, I. (2009). Process outsourcing benefits. Annals of DAAAM & Proceedings , 945-946. Web.

Engardio, P. (2006). The Future of Outsourcing: How it is transforming whole industries and changing the way we work. Web.

Miller, J. (2011). The Touchstones of Successful Global benefits Outsourcing. Benefits Quarterly , 27(2); 24-27.

Kisser, G., & Mandell, R. (2011). The Blair Reader: Exploring Issues and Ideas. Seventh edition. Boston: Prentice Hall.

Wadhwa, V. (2009). Outsourcing Benefits U.S. Workers, Too. BusinessWeek Online , 5. Web.

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IvyPanda. (2018, June 13). Outsourcing: Benefits and Challenges. https://ivypanda.com/essays/outsourcing-benefits-and-challenges/

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1. IvyPanda . "Outsourcing: Benefits and Challenges." June 13, 2018. https://ivypanda.com/essays/outsourcing-benefits-and-challenges/.

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Business process outsourcing (BPO): pros and cons

Outsourcing

Very popular in Europe, but not much in France in France yet, Business Process Outsourcing (BPO) is a practice that offers many advantages for companies. Flexibility, cost reduction, competitiveness and time saving… Outsourcing certain activities is a real solution to develop one’s company. What does BPO consist of? Why use it? We explain it all here:

What is the BPO? Definition

Business process outsourcing is the practice of outsourcing certain business processes. More simply, it is the act of entrusting one or more services of one’s company to an external and specialized service provider. Outsourcing can concern purchasing, accounting, software creation, site maintenance, but also recurring tasks such as call management. These activities are generally covered by a long-term contract and are then delegated to another company external to the company.

A company can then choose a supplier located in the country, or in Europe, or anywhere in the world. Several types of outsourcing then exist: onshore BPO (in the same country), nearshore BPO (in the same geographical area, such as other European country, or next to Europe), or offshore BPO (in a remote country, such as China).

A recent international survey about outsourcing has shown existing contrasts in current practice between American and European companies. US companies are identified as pursuing more «value adding » sourcing strategies, while European companies are more focused on gaining savings through BPO. Despite the different root cause for outsourcing, both European and US companies consider outsourcing as critical to their organizational strategy. For all companies the most preferred relationship between service purchaser and service provider is that of a single provider who has an industry focused , proven track record . Overall, US and European companies report higher than expected levels of satisfaction with outsourcing.

In France, although the practice of BPO is still timid, it continues to develop, particularly in the fields of finance, IT and purchasing, where more and more companies are using it. In the latter case, for example, outsourcing makes it possible to reduce and optimise costs, to reduce the time spent on administrative tasks and also to find efficient suppliers at the international level.

Good to know: be careful not to confuse outsourcing with subcontracting. Unlike the latter, outsourcing involves steering the company and working together over the long term (whereas subcontracting is more of a “task-based” contract).

Who is concerned with business process outsourcing?

Outsourcing is not limited to large companies: any structure can use outsourcing, regardless of its size. It is possible to outsource repetitive tasks as well as highly qualified activities. A company may want to outsource certain business processes for practical reasons, such as :

• to free itself from certain low value-added tasks and concentrate on its core business;
• entrusting certain tasks to companies specialized and expert in their field of activity (particularly in the event of a lack of internal resources);
• gain flexibility and have a wide choice of service providers;
• limit personnel costs .

Today, the most frequently outsourced tasks are payroll management, recruitment, purchasing, and sales force. However, with dematerialization and the progress of new technologies, the activities that can potentially be outsourced are now infinite.

What are the benefits of BPO ?

Business process outsourcing offers many practical and financial advantages. For companies, it is the possibility to :

• Achieve savings When a company outsources certain business processes to an external supplier, especially a foreign one, it can increase its profits thanks to the reduced costs of the tasks. In the case of purchasing outsourcing, for example, the company can obtain better prices on products and – in the long run – increase its margins.
• Gaining flexibility By entrusting certain missions to an external service provider, the company has a better reactivity and can react more quickly to changes in the market. It can also – in the event of unforeseen events – quickly turn to other partners.
• Paying less Outsourcing allows you to gain flexibility in your workforce and avoid the need to hire. In addition to the legal obligations relating to the employment contract, the company does not have to bear any expenses related to the recruitment of an employee (salary, wage costs, etc.).
• Increasing its competitiveness By delegating certain business processes, the company saves precious time that it can devote to high value-added tasks and strategic missions. On the BPO vendor side, BPO vendors are generally specialized in their industry and offer expertise that the company does not have. The result is faster and more efficient completion of missions, for quality services.

The disadvantages of business process outsourcing

Outsourcing part of its services is not without risk for the company. Outsourcing also has its share of disadvantages.

• IT security When a company uses a supplier, it establishes technological connections with the supplier. The risk? Sharing data, sometimes sensitive, and taking the risk of spreading it outside the company. It is possible that this information could be stolen by a third party, or exploited by an ill-intentioned supplier. It is essential to verify the guarantees related to security and data protection.
• Unforeseen costs Outsourcing can sometimes involve costs that can be difficult to predict. The company may underestimate the amount of work required, or it may simply not think about calculating costs properly in advance. For an offshore outsourcing, even if it is more abourt IT and communication then goods, delays in delivery can also occur, which penalize the company.
• Communication difficulties In case of offshore outsourcing, there is a risk that it may be difficult to communicate with the supplier, or that cultural differences may be encountered. For this reason, it is recommended to choose a supplier nearshore, and that has already a global presence, and especially for purchasing outsourcing. Choosing an organization that speaks natively the main European languages with a minimum of English & French is a best option. German and Dutch employes are used to work  in those 2 languages so it’s a good choice. This is the case for example of ISP Group est which, with its team and the 5 international locations. As a proof of its professionalism and of the quality of its services, ISP Group is certified  ISO 9001 : 2015, an international reference standard that guarantees a perfect quality of service.

In conclusion, the use of business process outsourcing is a real growth lever for the company: lower costs, flexibility, access to skills that it does not have, time savings and productivity… but it must be thought through. Intercultural risks, the danger of extended deadlines, or the loss of control over the outsourced activity are all disadvantages that need to be taken into account. Disadvantages that can however be anticipated in a partner that offers the geographical proximity of its decision centre, the competitive advantage of its international competitive locations and the guarantee of a certified quality system, if possible ISO 9001: 2015.

Also read: What is sourcing? Definition!

Would you like to entrust your sourcing activity to a trusted partner? ISP Group is an organisation entirely dedicated to reducing and optimising purchasing and administrative costs. Sourcing, outsourcing your purchasing and administrative management: discover our solutions, reduce your costs and accelerate your performance!

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A guide to business process outsourcing: the basics.

In this article

• Understanding Business Process Outsourcing
• The importance of Business Process Outsourcing
• Why choose Ubiquity as a BPO partner?

Business Process Outsourcing (BPO) is the practice of hiring a third-party provider to run specific functions for your business.

For example, rather than investing in a new technology platform and hiring a specialist who can run, manage, and maintain it—a business could contract this function out to a BPO partner who would provide these services for them.

This would enable management to reduce overhead costs and focus their resources towards their core business offering. BPO has typically been used for processes that while crucial, are not part of their core business offering. This might include: customer support, payroll, IT administration, etc.

But the way businesses use BPO partners is evolving and now covers more in-depth processes such as scaling up (or up, down, then up again), business process transformation , strategic considerations, and customer experience program design.

Check out our page on the best ways to approach Business Process Outsourcing to find out more.

1. Understanding Business Process Outsourcing

How does Business Process Outsourcing work?

When a business decides they want to work with a BPO partner, it typically has a goal in mind. For example: to improve customer experience (CX), to reduce business costs, to launch a new product, or to scale their business.

From there, they’ll need to find the best provider for their needs. To do that successfully, you’ll need to consider the following things:

What’s your budget?

Assess the resources you have available so you can determine the level of BPO service that makes sense for your business. This will also help rationalize the extent to which you can achieve the goals you have laid out.

What’s your timeline?

For certain business functions, your timeline will be the most important factor in determining how you approach BPO. For example, if you’re looking for BPO services for the launch of a new product, it’s vital that you choose a BPO provider who can realistically deliver on that.

Which BPO providers cover your needs

It’s important you also consider which BPO providers can cater for the specific needs of your industry. For example, if you’re looking to use a BPO provider to improve your CX, there will be different considerations if you work in heavily regulated sectors such as healthcare, as opposed to eCommerce.

What type of BPO relationship are you looking for?

Each BPO partner will have a different approach. Do you want something more transactional, in which you pay for services solely to cut costs in the short term? Or do you want a relationship-based approach that may offer more ROI upside in the long term?

Want to learn how to vet any BPO provider?

Check out our Insanely Honest Guide to Outsourced CX, which gives you 26 questions you can use to vet your outsourcing partner.

What is a BPO process?

A BPO process is any function outsourced to a third party that contributes to the smooth running of your business.

For example, say a growing business decided they did not want to build an HR department internally, and instead chose to use an external HR services provider to cover payroll, hiring, staff training, and benefits. These functions would be termed as BPO processes.

While connected, BPO and straight up “outsourcing” are distinct things. Click here to jump to the difference between them.

Examples of BPO services

BPO can be used for a variety of different purposes. Here we outline some of the most typical applications of BPO.

An HR BPO partner might provide functions such as: payroll and tax administration, benefits administration, recruitment, and training.

By working with an HR BPO partner, a business can access deep expertise in these areas without having to shoulder the cost of hiring specialist members of staff.

Customer service and support

Ensuring you have enough customer support and service capacity to keep your customers satisfied, it’s a major business concern. For businesses that are launching new products or have seasonal spikes in customer traffic, working with a BPO can help them deliver great customer experiences without the staffing headaches associated with it.

Technology access and IT administration

Working with a BPO partner, a business can access top tech talent and the latest technology without having to incur the cost of hiring, of maintaining and updating that technology, or ensuring their use of it remains compliant.

This helps businesses remain competitive, especially at a time when there is a worldwide shortage of tech talent (which, according to the International Monetary Fund , is only going to get worse).

Certain BPO providers offer more than elite customer service and support agents, they also help businesses develop their CX programs. This includes the orchestration of omni-channel user journeys and implementation of rigorous performance tracking through KPIs and metrics

Business process transformation, growth, and scaling

Businesses can work with BPO partners to help deliver transformation initiatives and even scale their operations. In order to make this successful, businesses need to work with a BPO partner with a relationship-based approach. To read more about BPO for transformation, click here .

These services come in many different forms: nearshore, offshore, etc. We explore these in detail on our page thatcovers what BPO actually is.

2. The importance of Business Process Outsourcing

What are the differences between outsourcing and Business Processes Outsourcing?

Outsourcing and Business Process Outsourcing are related but distinct terms.

Outsourcing

covers any circumstance in which suppliers or third-parties are used by a business. For example, if a business uses a specific caterer to provide food for their events, this would be termed as outsourcing. Outsourcing can also cover situations in which a business uses a third party to manufacture their products.

is specific type of outsourcing, which typically involves using a third party to cover non-core businesses functions such as HR, payroll, etc. Without these processes, the business would not be able to operate but they are not part of the business’s core offering. In recent years, BPO has evolved to cover more core-business functions.

The key difference

While all BPO is outsourcing, not all outsourcing is BPO. BPO covers the specific type of outsourcing that involves using a third party provider to cover processes that help businesses operate day-to-day. BPO has evolved from covering only non-core processes to strategic partnership involving core offerings.

Why is Business Process Outsourcing important?

Overall, BPO is important for businesses in two ways:

1. It allows them to focus more of their efforts and resources on their core-business functions.

2. It can give them access to experience, insight, technology, capacity, geographies, business agility, and go to market speed that the business does not have themselves (and in many cases, would not be able to realistically develop).

What are the main benefits of working with a BPO provider?

We have a dedicated page that covers the advantages (and potential disadvantages) of working with a BPO provider in detail. To check that out, click here .

But as a snapshot, the key benefits of working with a BPO provide are:

Access to expertise

Working with a BPO provider that excels in a particular area of service delivery allows you to benefit from their experience, expertise, and processes.

Better use of resources

Transferring responsibility of non-core business processes to a third party leaves the business with more resources for its core business offering.

Ability to scale

By working with a BPO provider you can quickly and easily increase headcount without incurring additional costs. This speeds up go to market times for new products and reduces the risk involved in scaling up and down.

Access to the latest technology

BPO partners that work in specific areas of service delivery will likely invest in the latest technology to cover that service. Working with a BPO therefore removes the cost of acquiring and maintaining this technology, affords you strategic advice on the best use of it, and removes the need to hire specialists to run it.

3. Why choose Ubiquity as a BPO partner?

Because of our firm in our belief that the only successful and value-driven way to approach BPO service must include:

A CX-first mindset

A bespoke approach

A strategic partnership

Rigourous, data-led performance tracking

That’s why we don’t work with a one-size-fits all approach and instead craft a unique strategy, service design, and KPIs that are molded to your specific requirements and business challenges.

Our agile methods provide a meaningful return on your outsourcing investment, so you can Scale Fearlessly.

Want to find out more about how we help businesses Scale Fearlessly?

Or if you want to find our more about our BPO services for specific industries, you can use links below:

BPO for healthcare

BPO for fintech and finserv

BPO for utilities

BPO for logistics and shipping

BPO for crypto & NFT

BPO for retail & eCommerce

BPO for insurance

BPO for office administration

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• Outsourcing

About four out of five of the world’s 500 largest companies outsource their work to India. But what does this outsourcing mean? And how does it benefit the country and its workforce? In recent times outsourcing has also been in the news due to the ethical questions it raises. Let’s find out more about it.

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Introduction to outsourcing.

Outsourcing is the process of contracting a business function or any specific business activity to specialized agencies. Mostly, the non-core areas such as sanitation, security, household, pantry, etc are outsourced by the company. The company makes a formal agreement with the agency.

The agency then sends the manpower required to the company. The agency charges the company for their services and in turn pays wages to their employees. Global competition has given rise to outsourcing. With the help of outsourcing, companies can focus on their core areas which leads to better profits and increase the quality of their product.

Advantages of Outsourcing

• Overall Cost Advantage: It eludes the need to hire individuals in‐house; hence recruitment and operational costs can be minimized to a great extent. It reduces the cost and also saves time and efforting on training cost.
• Stimulates Entrepreneurship, Employment, and Exports: Outsourcing stimulates Entrepreneurship, Employment, and Exports in the country from where outsourcing is done. Look at the example of India. After the initial success of call centres, there was a sudden emergence of many small scales and medium scale BPo and KPO companies.
• Low Manpower Cost: The manpower cost is much lower than that of the host country. This is exactly the case with India. We have a very large educated workforce. And this causes the labour cost in our country to be much lower.
• Access to Professional, Expert and High‐quality Services: Mostly, the tasks are given to people who are skilled in that particular field. This provides us with a better level of service and fewer chances of errors or misjudgment.
• Emphasis on Core Process Rather than the Supporting Ones: With its help, companies can focus on their core areas which lead to better profits and increase the quality of their product. They simply outsource ancillary services.
• Investment Requirements are Reduced: The organization can save on investing in the latest technology, software, and infrastructure and let the outsourcing partner handle the entire infrastructure.
• Increased Efficiency and Productivity: There is an increased efficiency and productivity in the non – core areas of an organization.
• Knowledge Sharing:  Outsourcing enables the organizations to share knowledge and best practices with each other. It helps develop both the companies and also boosts goodwill in the industry.

Disadvantages of Outsourcing

• Lack of Customer Focus: An outsourced vendor may be catering to the needs of multiple organizations at a time. In such situations, vendors may lack complete focus on an individual organization’s tasks. And the reputation of the organization may suffer as a result
• A Threat to Security and Confidentiality: The inside news of the organization may be leaked to the third party, so there are security issues. The leak of sensitive information may result in losses to the company and also be an advantage to competitors.
• Dissatisfactory Services: Some of the common problem areas with outsourcing include stretched delivery time and sub‐standard quality.
• Ethical Issues:  The major ethical issue is taking away employment opportunities from one’s own country. Instead of creating employment and wealth in the origin country it gets outsourced to another country. In recent times this has been viewed by many as unethical and even unpatriotic.
• Other Disadvantages: Include misunderstanding of the contract, lack of communication, poor quality and delayed services amongst others.

Solved Examples For You

Q. Which one of the following is a category in which Business Process Outsourcing can be categorized?

• Back office
• Front office
• All of the above

Sol. The correct answer is the option ”D”. In this, kind party agencies perform your back office as well as front office data entry tasks effectively in quick turnaround times. In the 90s we used it to refer to big business sending jobs offshore.

Q. Outsourcing _______________.

• restricts only to the contracting out of Information Technology Enabled Services (ITES).
• restricts only to the contracting out of non-core business processes.
• includes contracting out of manufacturing and R & D, as well as service processes-both core and non-core-but, restricts only to the domestic territory
• includes off-shoring

Sol. The correct answer is the option ”D”. It is a practice of reducing cost by a company by transferring a part of the company to another company. It includes offshoring i.e. relocating a part of the business to another place for reducing costs.

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5 responses to “Benefits and Limitations of e-Business”

Nice to meet you

oppnads.com, Thank you for the knowledgeable post which has helped me a lot. Keep it up for providing valuable information..

Any businessman is accurately tested when he or she decides to exploit the right opportunity at the right time. These businessmen not only decide, but also have the courage to put their decisions in execution as well. E-Businesses are one of them.

Its vey helpful i think there is a small mistake in advantages of e-business i.e cheaper than traditional business. but its written cost taken to setup a e-business is much higher than traditional business.

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Zeynep Tufekci

Opinion Columnist

Boeing’s Titanium Problem Reveals the Risks of Outsourcing

In yet another airliner scandal, Boeing and Airbus jets have been manufactured using titanium sold with forged documentation. The problem was uncovered after a parts supplier found small holes in the material from corrosion. Whether the parts are usable despite the faked paperwork is being investigated by the F.A.A.

Why did this happen? The companies outsourced their manufacturing to China, and what manufacturing remains in the United States has been subject to intense cost cutting. Outsourcing and cost cutting often mean lower quality, more errors and more cover-ups.

The parts in question are handled by Spirit AeroSystems, which was a division of Boeing until 2005, when it was sold to investors as a separate company. Right before that move, an internal report by John Hart-Smith, a Boeing engineer, questioned “whether or not a company can continue to operate if it relies primarily on outsourcing the majority of the work that it once did in-house,” according to The Seattle Times .

Problems caused by outsourcing aren’t exclusive to the airline industry.

In 2008, Ward Stone, a wildlife pathologist, and his daughter, Montana Stone, used over-the-counter tests and discovered hazardous levels of lead in children’s necklaces and bracelets. This led to a recall of half a million pieces of children’s jewelry made in China and an agreement between the companies and the State of New York that allows the state to fine the companies if it finds lead in their products again.

In 2010 an investigation by The Associated Press found that children’s jewelry from China contained cadmium, a highly toxic and carcinogenic anti-corrosive material that is similar to lead but less regulated. In response, California and other states outlawed the use of the metal in children’s jewelry, and testing found that by 2012, cadmium was no longer present in trinkets for children. There were no laws about it for adult jewelry and little testing.

In 2018, the Center for Environmental Health, a nonprofit, decided to check adult products . It quickly found that many items for adults contained cadmium, some at very high levels. Oops.

Because the airline industry is so heavily regulated, it tends to discover problems. And because planes have multiple safety mechanisms backing up one another, the problems rarely lead to major loss of life (although two Boeing Max crashes in recent years are reminders that there are no guarantees).

But what else is lurking out there in other industries and products not subject to strict standards, certification requirements and intensive testing and verification?

Michelle Cottle

Opinion Writer

Nancy Mace Settles Her Score With Kevin McCarthy

Tuesday was doubly sweet for South Carolina’s Nancy Mace. Winning big in her House primary was the cake. But sticking it to former Speaker Kevin McCarthy, who championed her challenger as part of his petty revenge tour against the Republican members who voted to depose him? That was the double-fudge frosting on top.

Mace told The Times early on Election Day that she wanted to “embarrass” McCarthy.

“I want to send him back to the rock he’s living under right now,” she said. “He’s not part of America. He doesn’t know what hard-working Americans go through every single day. I hope I drive Kevin McCarthy crazy.”

I mean, you gotta respect the impulse.

Even so, as is clear from her warlike tone, Mace can be a handful, and she has had a year of high drama apart from her McCarthy feud. Starting last November, her congressional office melted down , with basically her entire Washington staff quitting or getting fired over the course of three months. Public trash talk ensued, with decamping staff members slagging Mace as “abusive” and “ delusional .” Mace claimed the former staff members had “sabotaged” her in a variety of wild ways.

But wait, there’s more! Some Republicans complain that Mace is a media hog. Some have been put off by her flip-flopping on issues and her support for Donald Trump. And just this week we learned the House Ethics Committee is doing some preliminary poking around into whether Mace misused taxpayer dollars on her Washington townhouse.

Bottom line: She can be a lot. Which raised questions about whether South Carolina Republican voters would go in a slightly less erratic direction this time. McCarthy certainly hoped so.

Nope. With an abundance of attitude and an endorsement from Trump — a tribute to her recent sucking up to the MAGA king, seeing as how he declared her “crazy” and “a terrible person” just two years ago — Mace easily cleared the bar for what Republican voters are looking for today, winning by solid double digits. Plus, you know, Southerners have always had a soft spot for colorful politicians.

Poor Kev. The hits just keep on coming.

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David Firestone

Deputy Editor, the Editorial Board

The Supreme Court’s Bump Stock Decision Will Prove Fatal

There was nothing abstract about the 6-to-3 decision issued Friday morning by the Supreme Court to permit bump stocks to be used on semiautomatic rifles. It is one of the most astonishingly dangerous decisions ever issued by the court, and it will almost surely result in a loss of American lives in another mass shooting.

Bump stocks attach to the back of a rifle and use the gun’s recoil to enable shooting hundreds of bullets at a very rapid pace, far faster than anyone could shoot by pressing the trigger multiple times. The device is the reason the Las Vegas shooter in 2017 was able to kill 60 people and wound more than 400 others so quickly in the nation’s worst mass shooting in modern history.

Bump stock devices were banned the next year, just as all fully automatic machine guns are banned for public use, but the six conservative members of the court seemed entirely unbothered by their deadly potential. The opinion, written by Justice Clarence Thomas, parses in a ridiculous level of detail whether bump stocks truly fit the precise mechanical definition of a machine gun. Because the court feels the need to give the greatest possible deference to the ownership of guns, however they might be used, the court concluded that they are not really machine guns, as they do not allow firing multiple rounds “by a single function of the trigger.”

The opinion, full of lovingly detailed close-up drawings of a gun’s innards (provided by the Firearms Policy Foundation , a pro-gun nonprofit group), says nothing about the purpose of a bump stock. Why would someone buy the device and use it? Only to fire a lightning burst of rounds. In the hands of an angry shooter — and there are so many of them — it would produce far more carnage, which is why even the Trump administration banned it.

But Justice Sonia Sotomayor, in a dissent laced with astonishment at what her colleagues had done, didn’t hesitate to explain what was really happening. “When I see a bird that walks like a duck, swims like a duck and quacks like a duck, I call that bird a duck,” she wrote, and in this case, the duck is an illegal machine gun. (Which, by the way, is not typically used for killing ducks.) Skilled shooters using an AR-15-style semiautomatic rifle can fire 180 rounds per minute, she wrote, but a bump stock allows them to fire 400 to 800 rounds per minute, which is the ordinary understanding of a fully automatic machine gun.

“Today’s decision to reject that ordinary understanding will have deadly consequences,” Sotomayor wrote. “The majority’s artificially narrow definition hamstrings the government’s efforts to keep machine guns from gunmen like the Las Vegas shooter.” And when the next Las Vegas happens, it will not be enough to blame it on the madness of a single deranged individual. There are so many others.

That Jan. 6 Riot? We Don’t Recall …

Jessica Grose

What Southern Baptists Lose by Opposing I.V.F.

For over a year now, I have been talking to Americans who moved away from organized religion. Many of them did not leave their houses of worship because they stopped believing; they left because they felt betrayed — abandoned by their leaders and community when they needed support the most.

As one woman who said she became pregnant at 17 wrote to me, “I was a practicing Catholic, and the church response to me consisted solely of condemnation,” even though she married her boyfriend and they have now been married for over 50 years, “When I think back to that scared 17-year-old, my heart breaks for the added burden the church imposed.” A man told me that he lost faith because “when my mother was very ill just before she died, the church was unresponsive, even though she had a deep faith and had been very involved.”

I was thinking of these responses when I heard the news yesterday that the Southern Baptist Convention voted at its annual meeting to oppose in vitro fertilization . My newsroom colleague Ruth Graham explained that “the resolution does not explicitly oppose the creation of embryos ‘in vitro’ (in glass), but it does criticize the destruction of embryos, condemning the I.V.F. process as commonly practiced.”

I have watched several friends and family members experience the emotional pain of infertility and go through I.V.F. and other assisted reproductive technologies. Struggling to have children is not rare. A National Health Statistics Report published in April found that impaired fecundity, or the physical ability to have children, affects around 13 percent of women and 11 percent of men.

The idea that any faith community — particularly one that puts so much emphasis on motherhood — would place additional stress or judgment on someone going through this already difficult process makes me tremendously sad. Condemning I.V.F. is also out of step with many religious Americans. “Clear majorities of white evangelicals (63 percent), Black Protestants (69 percent) and Catholics (65 percent)” said I.V.F. is a good thing, according to polling published in May from the Pew Research Center .

During the most difficult times of their lives, people desire a community that will rally around them . Many find particular comfort in religious ritual when they are hurting. If modern churches want to stem the tide of disaffiliation, they should be opening their arms wider, not closing themselves off.

Gail Collins

How Will History Remember Jill Biden?

When history looks back on our current first lady, Jill Biden, what will people talk about most?

Will they remember that she was the first presidential wife to hold down an outside job while she lived in the White House? (Biden teaches English at Northern Virginia Community College.) Her work on issues like cancer prevention? Her long and apparently happy marriage to the president?

Well, the Bidens’ 46 years still has a way to go to match Jimmy and Rosalynn Carter’s 77.

Or will we remember her loyal appearances in court while Hunter Biden’s trial was underway? She’s certainly trying to fulfill both maternal and political duties — last week she was commuting back and forth between the courthouse in Delaware and diplomatic appearances in France.

“She’s his mother and he’s on trial, so of course she wants to be there as much as humanly possible,” said a spokesperso n for her office.

Jill Biden is Hunter’s stepmother — Joe Biden’s first wife, Neilia, was killed in a car crash that also took the life of their daughter, Naomi, and injured Hunter and his brother, Beau. But it’s a tribute to her performance in the role that the public doesn’t generally make a distinction.

First lady history tends to not dip back very far in the popular memory. Everybody knows Martha Washington was first and remembers successors like Jackie Kennedy. A lot of people know that Eleanor Roosevelt became an international activist whose career soared long after her husband died. But someone like Ida McKinley doesn’t maintain much name recognition. (Ida has lived on in my memory ever since I read the story of her insistence on attending White House dinners even when she was suffering from epileptic seizures. William McKinley made it a point to sit next to his wife, so he could cover her face with his handkerchief whenever the need arose.)

The last half-dozen or so presidential wives have run the gamut. Hillary Clinton created a rather stupendous career of her own after Bill Clinton’s term ended; Melania Trump, um, kept a low profile.

Jill Biden has been a strong presence in the White House, when it comes to both matters of policy and politics. If I had to give her a bad mark, it’d be in what was probably a strong role in persuading Joe to run for another term at 81.

But boy, she’s been good at combining the roles of loyal wife-mother, first lady and dedicated educator. I hope history pictures her both in front of a classroom and sitting behind her boy in court. Meanwhile, kudos, Jill.

Bret Stephens and Patrick Healy

Three Questions on Biden’s Theory of Victory

Patrick Healy, Deputy Opinion Editor : Bret, your column on President Biden’s theory of victory, at home politically and abroad in Ukraine, Gaza and elsewhere, has drawn huge interest from readers and debate in the comments section. What inspired you to write the column now?

Bret Stephens, Opinion Columnist: To quote Hendrix quoting Dylan, “ So let us not talk falsely now, the hour is getting late .” If the president and his team don’t do something dramatic to turn around the dynamics of this election, Donald Trump will again be president next year. Scoring a couple of major foreign policy victories would help — and they are achievable, if only Biden doesn’t let his instinctive caution get in the way of the opportunities.

Patrick: You’ve generally been supportive of Biden’s approach to the war in Ukraine, Putin and Israel and to his overall posture on the offensive in Gaza. But in your column, you argue that he doesn’t have a theory of victory on these fronts. Did anything shift or change in Biden’s leadership — or in how you see it — that prompted your argument in the column?

Bret: Biden seems determined to ensure that Ukraine and Israel don’t lose to their enemies, while being much more reluctant to help them win. It’s why the administration consistently refused to deliver certain types of weapons — M-1 tanks, F-16 jets, ATACM missiles — until Ukrainian battlefield reversals forced the president’s hand. And it’s why the president is now pushing a cease-fire for Gaza that effectively guarantees Hamas’s survival. Both policies are strategic and political mistakes. The world will be a better place if Russia and Hamas suffer conclusive defeats. And Biden will be in better shape, politically, if he can be the co-author of those victories.

Patrick: You end the column with the striking argument that the most courageous thing Biden can do is to step aside in the 2024 race and let another Democrat run for president. It’s a big deal when a columnist makes a call like that. How much did you wrestle over it?

Bret: I’ve been pressing the case since 2021 , when I argued that Biden would better serve his country, party and legacy by being the transitional president he all but promised to be as a candidate. Democrats could defeat Trump in a landslide if they coalesced around a younger, centrist governor like Pennsylvania’s Josh Shapiro, Michigan’s Gretchen Whitmer or Kentucky’s Andy Beshear.

Final point: Any reader who thinks Biden is fit to go the distance in a second term should watch this video clip of him at a Juneteenth event on Monday. Be honest about what you see. As I said, the hour is getting late.

Editorial Board Member

Devaluing Jewish Lives Won’t Save Palestinian Lives

The most stinging condemnation of Israel’s slaughter of Gazan civilians as it fights to destroy Hamas is that Israelis devalue Palestinian lives, as others had devalued theirs.

It’s becoming clearer that for many who make that denunciation, the reverse is true.

On Monday, anti-Israel demonstrators in Manhattan protested the Nova Music Festival Exhibition with a sign that said, “ Long Live Oct. 7,” the day Hamas and its supporters massacred 1,200 Israelis.

This wasn’t the first time protesters who professed a concern for human life showed little regard for Jewish lives.

On Oct. 8, a speaker at a pro-Palestinian demonstration in Times Square callously joked about how the hundreds of young Israelis Hamas butchered at that festival “were having a great time, until the resistance came in electrified hang gliders and took at least several dozen hipsters.”

A day later, as the dead were still being counted, Columbia Students for Justice in Palestine and Columbia Jewish Voice for Peace announced that Hamas’s butchery was “an unprecedented historic moment” and “a counteroffensive” against oppression.

Soon after, Israel’s foes were tearing down fliers commemorating the more than 200 Israelis, including babies, women and the elderly, whom Hamas was holding captive.

Most American protesters horrified by Israel’s devastation of Gaza simply want an end to the carnage and think slogans like “from the river to the sea” are just expressions of sympathy for Palestinians. But from the beginning there has been a significant segment of demonstrators who mask their Jew-hatred with intimidating rhetoric.

The person who rallied a Columbia University encampment in April to clasp hands and keep out “Zionists” had previously said “ Zionists don’t deserve to live .”

On Monday, a mob with kaffiyehs covering many of their faces stood in a New York City subway car and chanted , “Raise your hand if you’re a Zionist; this is your chance to get out,” using the English translation of Juden Raus.

Anti-Israel vandals who defaced the homes of the director and trustees of the Brooklyn Museum early Wednesday painted inverted red triangles , which Hamas’s military wing has used to denote targets .

Many good people want Israel’s attack on Gaza to end and for there to be real peace with Palestinian sovereignty. But they should have nothing to do with those who think that will be achieved by shunning Jews and shedding Jewish blood.

Paul Krugman

The Federal Reserve Has a Good News Problem

For inflation nerds, Wednesday was a double-whammy day: a new inflation report in the morning, a Federal Reserve interest rate announcement in the afternoon. And there was a weird dissonance between those two data points.

First, that inflation report was extremely encouraging, almost too good to be true. Actually, it probably was too good to be true: monthly numbers are noisy. But while this report was too good to be true, it helped make the case that the discouraging numbers early this year were too bad to be true.

The real story, I’d argue, is that inflation is yesterday’s problem. In fact, it has been under control for months. But that reality has been hard to see, given the noisiness of the data.

Consider core inflation — prices excluding volatile food and energy prices — excluding shelter inflation, which we know is still being driven by rapid rent increases that ended a year or more ago. Here’s core inflation minus the figures for shelter at an annual rate month by month, and over the previous year:

Nobody thinks prices actually fell last month, but the negative number highlighted how erratic the monthly data is. We should discount those big numbers early this year, which probably reflected start-of-year price resets rather than underlying inflation.

Meanwhile, the annual rate of inflation has been around 2 percent, the Fed’s target, since last fall. Basically, we’ve been where we want to be for around eight months.

But the Fed — burned by its failure to foresee the inflation spike of 2021 and 2022 — isn’t ready to say that yet. Its economic projections, mostly made before Wednesday morning’s numbers, show only gradual progress against inflation. Of course, it didn’t cut rates (nobody thought it would), and its statement about that decision was only slightly more dovish than the last one.

The rest of us, however, don’t have to be that cautious. Inflation has basically been defeated, and interest rates will be coming down — not now, and maybe not at the next meeting, but soon and for the rest of this year and much of next.

Maureen Dowd

Go Slow, Joe

In Normandy last week, President Biden gave a speech defending democracy that was designed to evoke Ronald Reagan’s famed “ Boys of Pointe du Hoc ” address in the same spot 40 years ago.

But if Biden wants to make sure democracy is defended from tyrants, he should emulate Reagan in another way: the Gipper’s leisurely travel style.

Nancy Reagan was always on guard, making sure her husband wasn’t being overstuffed with facts or overbooked with travel.

When I accompanied the couple in 1986 to Tokyo for the Group of 7 summit, we wended our way there blissfully slowly. A stop in L.A., a couple of nights in Honolulu, a look-see in Guam, three nights in the paradise of Bali. Nearly a week later, when we finally reached Japan, Reagan was tanned, rested and ready. (By contrast, when Bush 41 — known in Asia for having a frenetic “ants on a hot pan” personality — dashed around the Pacific Rim in 1992, he threw up on the Japanese prime minister and fainted in his lap at a banquet.)

Reagan was 75 when we went on that dream trip, but he never acted as if there was a problem with his age (even though it would seem later that there was, given his subsequent Alzheimer’s diagnosis). He played the ancient king, gliding along at his own pace.

Reagan wasn’t immune from criticism about his age, but he wore his years better than Biden, who seems in denial. And no one is stepping in to schedule him any breathing room; Jill Biden, the Nancy to Biden’s Ronnie, has a schedule that’s even more frenetic than Joe’s.

Biden and his staff always seem to be frantically trying to prove he’s energetic enough to govern. The 81-year-old sometimes jogs to the podium. And he’s trying to exhibit, through a strenuous travel schedule, that he’s up to the job. He arrived back in the United States on Sunday and went to Wilmington, Del. He came back to Washington the next day to host an early Juneteenth concert at the White House. On Tuesday, he gave a gun safety speech at the Washington Hilton — awkward, after Hunter’s guilty verdict on gun charges. He went straight from the Hilton to Andrews Air Force Base, and flew to Delaware where he gave his beleaguered son a hug on the tarmac.

On Wednesday, three days after he left Europe, the president schlepped back to Europe, this time for a G7 summit in Italy, and meetings with Prime Minister Giorgia Meloni and the pope, and a joint news conference with Volodymyr Zelensky of Ukraine. On Friday, he flies through cascading time zones to L.A. for a glittering George Clooney-Julia Roberts-Jimmy Kimmel fund-raiser with Barack Obama as a guest star.

Nancy Reagan would be appalled. Sometimes for an older president, it’s better to glide than jog.

American Optimism Comes for the Economy

What will happen in November’s election? I have no idea, and neither does anyone else. But I thought it might be worth flagging a development that probably isn’t getting enough notice: Americans seem to be quietly getting more optimistic about the economy.

We’ve come to take it as a given that no amount of good news will change Americans’ negative view of the economy; they were shocked by the inflation of 2021 and ’22, and the story goes, it will be years before they acknowledge that inflation is down and jobs are abundant. But there are at least hints that views may be changing, and faster than many observers realize.

One source of evidence is the New York Fed’s monthly Survey of Consumer Expectations . I usually follow that survey to track expected inflation, which remains fairly subdued. But the survey also asks consumers whether they expect their financial situation to be better or worse a year from now. Here’s the difference between the percentage who said better off and those who said worse off:

There has been a huge improvement not just since the worst of the inflation surge but even since late last year. We’re almost back to the optimism that prevailed in President Biden’s early months, before inflation took off.

Another source of evidence, albeit with less of a track record, is a survey conducted by The Financial Times and the University of Michigan’s Ross School of Business, which asks voters whether Biden or Donald Trump would do a better job of managing the economy. Earlier this year Trump had a double-digit lead; now it’s down to four points.

It’s still unlikely that the economy will be a net plus for Biden. But it may be much less of a drag than many expect (especially given falling gas prices ). Which in turn means that the election may turn on other issues, like the Republican threat to birth control .

Opinion Staff Editor

Happy Pride Month, Martha-Ann!

Martha-Ann Alito, who is married to Justice Samuel Alito, has admitted that she flies politicized flags outside her homes because she can’t stand the colors of the rainbow.

“I want a Sacred Heart of Jesus flag,” she told a woman posing as a Catholic conservative, “because I have to look across the lagoon at the Pride flag for the next month.” Tellingly, in the surreptitiously recorded conversation, she even fantasized about creating her own fiery flag with the word “vergogna” (“shame” in Italian) so she could say to her neighbors, “Shame, shame, shame, on you.”

Apparently, for Ms. Alito, the second great commandment , to love thy neighbor, applies only until the neighbor is proud enough to sport rainbows. Then vergogna!

To be honest, these comments aren’t particularly surprising. Ms. Alito is the wife of a justice who agreed that the country needs to return to “a place of godliness” and has argued that the court’s ruling on marriage equality restricts the free speech rights of religious conservatives. (If that’s really true, somebody should tell her to zip it before she’s jailed for her words.)

They are also emblematic of a broader campaign by the religious right to erase or shame queer culture from public view, often in the form of attempted — and successful — bans on books , flags , drag performances and curriculums . The only thing mildly revealing about Ms. Alito’s comments is that they signal it is still socially acceptable for religious conservatives to demean the queer community in supposedly polite company.

While it is undeniably exhausting that anti-L.G.B.T.Q. sentiments continue to infect members of America’s most powerful institutions, queer people should take heart that even the most benign of our symbols, the rainbow flag, still so bothers those who hate us.

In 1978, Gilbert Baker — an activist who was, as he put it, the “ gay Betsy Ross ” — and a group of volunteers dyed and stitched the first rainbow Pride flag in the attic of the Gay Community Center in San Francisco. While the flag has undergone many transformations since, the rainbow has endured as a welcome, if sometimes clichéd, Pride symbol.

As the rainbow has frequently been deployed by corporations or “allies” that take little interest in L.G.B.T.Q. equality outside of a boozy June weekend, some queer people may think it has become too watered down to stand as a powerful symbol. But predictable outrage, from the Phyllises and Anitas and Martha-Anns, should remind even the most cynical of us that our symbols often speak far louder than we could alone.

In the face of a rise in attempts to restrict cultural expressions of queer identity, the rainbow is still one of the best tools we have to collectively repudiate those who wish we were ashamed to be alive. We must wave it proudly.

As for you, Martha-Ann, I say happy Pride Month! I’ll be praying for you.

Jesse Wegman

Hunter Biden Is Guilty. That’s OK.

As a rule, it is not a good thing for your son to be convicted of a crime, and particularly not when you are the sitting president in the heat of a brutal re-election campaign.

But Hunter Biden’s conviction in federal court on Tuesday , on charges of lying on a firearms application six years ago, is a net positive — not for himself, of course, or his long-suffering family, but ultimately for his father, the American justice system and the rule of law.

After all, isn’t this how it’s supposed to work? You break the law, you face the consequences. Even if you’re the president’s son. Even if you’re the former president.

It was only two weeks ago that Republicans were thundering about the outrageous injustice of a different guilty verdict. Funny, I haven’t heard much complaining about this one, even though it involves a “paperwork” offense (boo!) that relates to gun regulations (extra boo!). The only complaints I recall were that Hunter was getting off too easy with a plea deal … until that fell through at the last minute.

On Tuesday, the right-wing naysayers got an actual guilty verdict, and still they tied themselves in knots trying to dismiss its significance. (I’ll save you the trouble: To them, Hunter’s conviction is a coverup for his and his dad’s real crimes. Also, any Biden conviction is de facto legitimate while any Trump conviction is de facto fraudulent.) What the hacks couldn’t erase were the unanimous verdicts of two juries in two jurisdictions. (Not to mention the Justice Department’s upcoming and more serious prosecution of Hunter on tax charges.)

Sure, the system is far from perfect. Rich and powerful people get off all the time; poor people more often don’t. And yet the past two weeks have provided an object lesson in the fair administration of justice, and the seriousness that characterizes criminal trials and jury deliberations. We talk a lot about the presumption of innocence, but that foundational principle derives its meaning only within the context of a society that actually holds its wrongdoers to account.

If the Hunter Biden prosecutions illustrate anything, it is that his father’s administration respects equal justice and the rule of law, so much so that the president stood down even as his own flesh and blood was facing a potential prison term. Can you imagine, for even a fraction of a second, Donald Trump allowing the Justice Department — his Justice Department — to prosecute any of his children? Or that he wouldn’t pre-emptively pardon them, just to be doubly safe?

Of course you can’t, and that is as important a difference as exists between the two candidates for president in 2024.

Alito No Longer Tries to Hide His Theocratic Worldview

Today’s Supreme Court may bear Chief Justice John Roberts’s name, but it is not his court, nor has it been for many years.

This was demonstrated once again this week — not in a formal public opinion but in a recording released by a woman who had infiltrated a private court event last week and surreptitiously taped her conversations with the justices.

Posing as a conservative Catholic, the woman, Lauren Windsor, asserted that America is a Christian nation and it is the court’s role to lead it on a “moral path.”

Roberts refused to take the bait. “Would you want me to be in charge of putting the nation on a more moral path?” he responded. “That’s for people we elect. That’s not for lawyers.” He also disagreed that America is a Christian nation.

This was, of course, the easy and correct answer. Roberts knows that the court’s legitimacy relies entirely on the trust of the American people. You don’t have to wonder if he’s a closet liberal (and he’s far from it ) to expect him and his colleagues to approach the nation’s most fraught legal disputes with fairness or at least with respect for the separation of church and state.

Justice Samuel Alito can’t be bothered with such earthly concerns. In response to Windsor’s claim that religious Americans have to keep fighting “to return our country to a place of godliness,” he said, “I agree with you. I agree with you.”

“One side or the other is going to win,” he added.

In one sense, this is no surprise coming from the court’s leading culture warrior. Alito has long made clear his special solicitude for religious claims, whether before the court or on the flagpole outside his house. Still, it should shock us to hear him lay out his worldview so bluntly. It shows an utter lack of regard for the court’s delicate posture of neutrality in the constitutional system and American society.

For a long time, Alito seemed like an outlier on the court, lobbing his sour, grievance-filled dissents from the sidelines. He is now ascendant, writing the lead opinion in the decision striking down the right to abortion and many other precedent-breaking rulings. He is also in good company in the upper reaches of government. Recall that House Speaker Mike Johnson, an evangelical Christian, told an interviewer after he got the job, “Go pick up a Bible off your shelf and read it. That’s my worldview.”

Perhaps we should be grateful that these aspiring theocrats have fully ripped off the mask. Why submit to the sinful compromises demanded by a pluralistic society when you can just impose your (and God’s) will by fiat? In that regard, this is really the Alito court.

An earlier version of this article misstated Justice Samuel Alito’s history with Lauren Windsor. It is not the case that they never met before.

How we handle corrections

Serge Schmemann

Why Macron’s Plan to Vanquish the Right Might Just Succeed

That far-right parties made gains in the just-concluded elections to the European Parliament somehow doesn’t seem too shocking, though President Emmanuel Macron’s decision to hold snap elections to the French Parliament as a result was quite the coup de théâtre. Maybe it’s that the threatening cloud of the far right has become familiar over Western democracies, including the United States, as they cope with immigration, climate change, social change, culture wars, real wars and other sources of popular disquiet.

The European elections have their own dynamics, and a few reasons for the lack of panic over its results come to mind. One is that many of the 373 million voters in 27 member countries of the European Union don’t take the European elections as seriously as they do national elections and often use them to sound off on domestic issues. That’s not to say they’re right to do so; the European Parliament does have considerable clout in setting Pan-European policy. But postelection analyses focused far more on the message for national leaders — terrible for Macron or Germany’s Social Democratic chancellor, Olaf Scholz, and great for Italy’s right-wing prime minister, Giorgia Meloni — than any potential impact on the European Union.

Second, while the far right made major gains, they were less impressive than many analysts had feared. The European Parliament’s center easily held, and Ursula von der Leyen, a German Christian Democrat (a conservative), will probably retain her powerful position as president of the European Commission. Not much is likely to change in the European Union.

So why did Macron panic? Maybe he didn’t. According to French press reports, his decision to dissolve the National Assembly and call for immediate elections was quietly plotted before the European elections as it became evident that Marine Le Pen’s hard-right National Rally, a perennial nationalist thorn in the side of French politics, was likely to make big gains under its new star, the 28-year-old Jordan Bardella.

It seems curious that Macron would saddle France with fateful parliamentary elections as it prepares for the Summer Olympics. The mayor of Paris, Anne Hidalgo, called it “extremely unsettling.” But to dismiss the move as panic, a desperate gamble, is to underestimate Macron, whose sweep to power in 2014 as a 36-year-old wunderkind was deemed a stunning feat.

His Renaissance Party has not been doing well of late, and he apparently concluded that quick elections over the tangible threat of a resurgent right may be the boost he needs. French elections are held in two rounds — these will be on June 30 and July 7 — and Macron hopes that French voters will do what they have often done, which is to vote their gripes in the first round and their reason in the second. He, in any case, will remain president for three more years.

The Next Republican Target Is Birth Control

Normally the “messaging bills” that each party regularly brings to a vote in Congress seem like huge wastes of time. The bills are meant only to put members of the opposite party in an uncomfortable position on a wedge issue when it comes time to run negative campaign ads. These days, it’s often what Congress does instead of actually working for the public.

But the latest Democratic effort on contraception may actually serve a useful purpose. Many people may not fully grasp the growing Republican effort to limit access to birth control. The bills in the House and Senate might at least help make it clear how serious that threat is.

Last week, Senate Democrats tried to pass the Right to Contraception Act , which would prohibit any restrictions to birth control access at the federal, state and local level. It predictably failed to overcome a Republican filibuster, but it got 38 Republicans to go on the record as voting against it. In the House, Democrats are circulating a petition to force a vote on a similar bill, which will also fail, but the names of Republicans who don’t sign will be publicized in ads across the country by a group called Americans for Contraception .

Republicans claim there’s no need for these bills because contraception access is already protected by the 1965 Supreme Court decision known as Griswold v. Connecticut.

“Nobody’s going to overturn Griswold,” said Senator Josh Hawley , Republican of Missouri. “No way.”

But that’s exactly what many Republicans said about Roe v. Wade before it was tossed aside, and when that happened Justice Clarence Thomas openly called for Griswold to be reconsidered, too. In Hawley’s home state, where abortion is now banned, a bipartisan group of women in the legislature have tried to expand access to birth control by requiring insurance policies to cover a year’s supply. That effort has been blocked by Republicans who say that the contraceptives will cause abortions.

The false connection between abortion and contraception is behind most of the Republican opposition, and as The Washington Post recently reported , surveys show that most Americans don’t understand that emergency contraception agents like Plan B don’t cause abortions. Many right-wing groups like the Idaho Family Policy Center falsely claim that they do. Seventeen states have now blocked efforts to assure a right to birth control, and Donald Trump said last month that he was open to those kinds of state restrictions. (Later, after realizing that was a bad look, he backtracked.)

More voters need to know that Republicans, from the top down, are willing to let states deprive residents of their birth control.

Katherine Miller

Opinion Writer and Editor

This Year, It’s Democrats Who Are Waving the Flag of Freedom

Every Monday morning on The Point, we kick off the week with a tipsheet on the latest in the presidential campaign. Here’s what we’re looking at this week:

In terms of where everyone is: President Biden will be in Italy later this week for the Group of 7 meeting. Donald Trump will be in Washington on Thursday for an event with the Business Roundtable. The Supreme Court will also release opinions that morning.

During the N.B.A. finals that began on Thursday, the Biden campaign ran a TV ad titled, “ Flag ,” which really mirrors a strategy that senior officials described to The New Yorker earlier this year. It’s highly focused on “freedom” conceptually, through the prism of abortion, voting rights and a few other issues. While the issues are definitely longstanding Democratic priorities, if you watch it, the solemn patriotic tone of the ad feels a little old school Republican to me — it’s an interesting artifact of how things have changed. Biden is running to preserve rights and freedoms, or, through another lens, conserve the old ways.

Late last week, Fox News released a poll showing Biden and Trump even in Virginia (which Biden won 54-44 in 2020 ) and with Trump only up 4 points in Florida (which isn’t far off 2020, but still seems a little surprisingly close). A very tight result in Virginia in November would most likely reflect big problems elsewhere for Biden. I’m a little skeptical it’s that close, but The Washington Post took a good look at Virginia, and presented a wide range of expert opinions about what might be going on there.

Robert F. Kennedy Jr. is trying to get on the ballot in many states, which might account for a somewhat unusual schedule. (He’s been in Colorado and Tennessee recently.) He will be in New Mexico over the weekend, at an event focused on addiction.

This is fairly tangential to the presidential race, but Nancy Mace, the South Carolina Republican congresswoman, faces a primary challenge on Tuesday from a few candidates with the possibility of a runoff if nobody reaches 50 percent. Mace has had a sort of unusual congressional career, veering between criticizing Trump after Jan. 6 to endorsing him (and vice versa); Kevin McCarthy, still incensed that she voted to oust him, has helped her opponent.

If you’re interested in thinking about affordability and inflation, and then, secondarily, how people are processing these concepts politically, definitely check out Ezra Klein’s latest episode of his Opinion podcast with Annie Lowrey. The two, who are married, go really deep on all of it, including thinking about the economic politics of 2012 and today.

Hunter Biden’s Revolver Case Exposes Republican Hypocrisy

Boy, Republicans can’t get enough of Hunter Biden and his drug-gun thing, right?

Well, it is a pretty juicy story. The son of the president, with a long history of substance abuse, is being prosecuted for denying he was using drugs when he bought a revolver.

But don’t you think the focus is kind of … narrow? Endless talk about how Hunter lied. Not much comment at all on the fact that just being asked whether you’re on drugs is a pretty modest approach to firearm safety.

All state laws are different. Delaware, where Hunter got his revolver, recently made some big changes. It will require anyone who buys a gun to first complete a firearm safety training program.

Don’t imagine Hunter would have made it through that one in his addict era. Yet many, many of the people doing the loudest howling about the president’s son are connected with the people who have challenged the reform law in court, arguing that it’s a violation of their civil rights.

As Jonathan Weisman pointed out in The Times , it’s “hard to make much of allegations that Hunter Biden lied about his drug use to purchase a handgun when your party is sponsoring legislation to ease gun-purchasing restrictions for veterans struggling with mental illness, not to mention the case before the Supreme Court that could allow domestic abusers to buy firearms.”

Just saying.