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April 18, 2017updated 14 Oct 2022 11:49am

What is business process outsourcing?

BPO can reduce costs from recruitment and training.

By Alexander Sword

Business process outsourcing (BPO) means contracting out specific business processes to a third party.

Business process outsourcing usually focuses on specific functions that are not part of the core business but provide support to the core business.

Call centres are an example of business process outsourcing
(Image: Shutterstock)

An example might be the outsourcing of a call centre or customer-facing service. These external functions being outsourced is referred to as front-office outsourcing.

When internal functions such as accountancy or payroll are outsourced, this is referred to as back-office outsourcing.

What are the benefits of outsourcing?

Sometimes processes are outsourced to other countries, which is referred to as offshore outsourcing.

IT is a key part of outsourcing, with many companies outsourcing directly to IT providers.

The main benefit of outsourcing is not having to hire staff with specific expertise to carry out fairly limited functions. This saves on recruitment and training costs.

It also reduces capital expenditure, meaning that the sunk costs required by a company are reduced.

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