Business Process Outsourcing: A General Understanding

Business Process Outsourcing: A General Understanding

There is a misconception on Business Process Outsourcing in general. The purpose of writing this article is to help and understand what is Business Process Outsourcing (BPO) and to clear which is also not covered under BPO although it is outsourced through businesses.

Definition of Business Process Outsourcing:
“Business process outsourcing (BPO) is the delegation of one or more IT-intensive business processes to an external provider that, in turn, owns, administrates and manages the selected processes based on defined and measurable performance metrics”.

When these outsourced processes require voice communication with customers, this is typically done using a
call center or contact center (the later term more specifically encompassing both outbound and inbound calls)

When this third party has been specifically established by a parent corporate enterprise to meet its needs (either the shared needs of several divisions or its need to locate these activities in another location for reasons, for example, of cost savings or risk management) then it is a referred to as a captive operation. These captives may be set up in the same country as the parent or elsewhere.

If the third party provider is located in another country then it is referred to as an offshore operation. Offshoring is therefore the practice of outsourcing to a third party in locations situated fairly far away from the parent company’s location, e.g. the USA ‘offshores’ to India.

Examples of BPO services:
Almost any business process that can be defined and ring-fenced can be outsourced. Examples include:

• Human resources and payroll administration
• Finance and accounting back office functions, such as managing creditors, processing loan applications. Related call center functions include outbound tele-sales or dealing with inbound queries
• Asset management back office functions
• Banking and related data processing, such as credit card transaction processing
• Property management services, such as property accounting functions or collections (which may make use of a call center)
• Customer services and retention, including customer relationship management (CRM)
• Expense claim administration • Insurance industry functions, such as claims processing and policy administration. Related call center activities include claims advice and acceptance, data cleaning and records up-dating
• Electronic media design
• Professional services, such as actuarial services, architectural and engineering design
• Secretarial services – especially legal and related
• Healthcare functions, such as audio transcription of medical records, diagnostics (e.g. analysis of ECG recordings), and payment claims processing. Related call center activities include health insurance advice, pre-clearance for hospital admissions, or outbound research surveys
• Web site and database maintenance
• Travel and tourism management functions such as hotel reservations, care hire and flight ticket bookings
• ICT system administration

Segmenting the BPO industry by activity
A common way of categorizing BPO activities is illustrated in the following diagram.

Figure 1: BPO sector breakdown

Outsourcing that involves physical materials – such as contract production – are not normally considered business processes. Additionally, BPO is generally not:

• IT outsourcing (whereby entire IT systems, including hardware and software, and taken over by a service provider and provided as a service to the client). The client makes use of the facility to manage its data – and so is still in charge of the processes enabled by the outsourced IT infrastructure
• A single project. In contrast, BPO services are typically provided in terms of a multi—year contract. Contracts of between three and seven years are typical.
• Applications management (whereby the functionality of an IT application is provided and maintained, but no responsibility or role is taken for the data that it processes, which is still done by the user)

Figure 2: Understanding what outsourced business processes (BPO) are, and are not

‘BPO’ therefore refers to the hand over of responsibility of processes that are an integral part of the outsourcing company’s activities. Consequently, BPO is not:

• IT facilities outsourcing
• Services such as project-based consulting, systems integration, or applications management
• The supply of goods or services as inputs into the value adding process, even if done in terms of a long term contract
• Undertaking some business function such as production, or facilities management (this may be outsourcing, but it is not business process outsourcing)
• Providing a support service such as advertising, desk-top support, banking or staff recruitment
• Providing a non-core (though none-the-less critical) service such as telecommunication connectivity or office cleaning

Mohammad Aminul Hoque
-Managing Director
Impel Service & Solutions Limited
-Joint Secretary General