Business process outsourcing (BPO) is contracting of the operations and responsibilities of specific business processes to a third-party service provider.
Advantages of Outsourcing some of your business processes:
- Flexibility – Services provided by BPO vendors are offered on a fee-for-service basis so this will transform fixed into variable costs. This will help your company respond to changes in required capacity and doesn’t require investing in assets.
- Focus – Key employees are herewith released from performing non-core or administrative processes and can invest more time and energy in building the firm’s core businesses. Focusing more on value drivers such as customer intimacy, product leadership or operational excellence create competitive edge.
- Entrepreneurial Agility – A company can maintain growth goals while avoiding standard business bottlenecks. BPO therefore allows firms to retain their entrepreneurial speed and agility, which they would otherwise sacrifice in order to become efficient as they expanded. It avoids a premature internal transition from its informal entrepreneurial phase to a more bureaucratic mode of operation.
Although the above-mentioned arguments favor the view that BPO increases the flexibility of organizations, management needs to be careful with the implementation of it as there are issues, which work against these advantages. Among problems, which arise in practice are: A failure to meet service levels, unclear contractual issues, changing requirements and unforeseen charges, and a dependence on the BPO. Consequently, these challenges need to be considered before a company decides to engage in business process outsourcing.
Threats Risk is the major drawback with Business Process Outsourcing. Outsourcing of an Information System, for example, can cause security risks both from a communication and from a privacy perspective. From a knowledge perspective, a changing attitude in employees, underestimation of running costs and the major risk of losing independence, outsourcing leads to a different relationship between an organization and its contractor.
Therefore risks and threats must be managed, to achieve any benefits. In order to manage outsourcing in a structured way, maximizing positive outcome, minimizing risks and avoiding any threats, a Business continuity management (BCM) model is set up. BCM consists of a set of steps, to successfully identify, manage and control the business processes that are, or can be outsourced.