Business Process Outsourcing (BPO) is hiring another company to handle business for you. BPO is different from Information Technology (IT) outsourcing. While IT outsourcing focuses on hiring a company to develop applications, testing and other works, BPO takes care of Human Resources, Accounting and Finance ad other related services.

Business Process Outsourcing (BPO) has two distinct branches of outsourcing – Back office outsourcing which typically involves functions like human resources, accounting and finance and Front office outsourcing that has services related to customer related and contact center. BPO that is contracted outside a company’s country is called offshore outsourcing and BPO that is contracted to a company’s neighboring country is called nearshore outsourcing.

BPO is a division of Outsourcing that comprises of contracting of operations and responsibilities of a particular area of business functions, to a third party service provider. Though outsourcing has been there in industries from a long time, it is now more organized and recognized. For instance, manufacturing industries typically have big divisions such as supply chain that require services to handle Since BPO is close to Information Technology industry, it is generally known as information technology enabled service or ITES. BPO can be both fruitful and harmful too. Though it increases the outsourcing company’s flexibility, management needs to take cautious steps before embarking on a BPO.

Capital can be set flowing and a variable cost structure can be imposed giving a company a choice to create changes as per the requirements. BPO allows a company to focus on its core competencies without being loaded by the stress of technical restraints. Key employees can be freed from non core processes and given time to focus on their actual core areas. This creates a cut throat edge in the company. BPO can contribute to the increase in speed of business processes. Business emergencies can be avoided by companies and retain their goals in the right perspective. A company would be able to nurture at a quicker speed with the flexibility that a BPO would give.

Areas where problems arise in practice due to BPOs are service levels, unclear contractual issues, changing requirements, and unexpected changes. Such challenges are not favorable to a company’s growth. A dependence on a BPO would reduce flexibility on operations of a company. A company would be risking its information system due to a increased security threat. The sense of ownership is lost. Employees no longer feel emotionally involved to many functions in the organization. Running costs may be underestimated leading to a major risk.