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Back Office Outsourcing

BPO Terminology

The technical terminology used to refer to processes related to Business Process Outsourcing can be confusing. Here are some simple definitions designed to help you with the concepts that lie behind the terminology.


Back Office

Back OfficeBack Office: That part of the company dedicated to the running of the organisation but not directly facing the customer or contributing to revenue generation.

Back OfficeBack Office Outsourcing: Outsourcing the entire Back Office (or specific Back Office tasks) to an external service provider. The Back Office is particularly apt to be outsourced because 1) it doesn't deal directly with the customer, 2) it doesn't generate revenue and 3) a specialist BPO provider can apply operational expertise to improve productivity.

Back OfficeBusiness Process: In terms of BPO, any individual business activity that can be defined and therefore outsourced to a third party specialist provider.

Back OfficeBusiness Process Outsourcing: Often abbreviated to BPO. Outsourcing category which contracts out any Back Office department (Accounts, IT, Human Resources...) to an external BPO provider.

Back OfficeCapacity Management: When extra capacity can only be absorbed by contracting the extra load to a third-party BPO provider instead of expanding the organisation and increasing fixed costs. Also, when extra capacity is outsourced due to strategic considerations (see "Structural Flexibility").

Back OfficeCatalyst for Change: Using a specialist Business Process Outsourcing provider to be able to make some strategic change, too difficult to implement alone without the help of third-party support.

Back OfficeCore Business: The central activity of a company. The principle revenue generating activity.

Back OfficeCost Restructuring: The active re-balancing of total cost ratios from fixed to variable costs. In BPO terms, contracting Back Office tasks to a Business Process Outsourcing provider to convert fixed costs (such as salaries) into a variable cost - a deliverable service.

Back OfficeFee-for-Service: Dismantling a Back Office department into individual tasks which are then paid for individually as a deliverable (variable cost) service.

Back OfficeFixed Cost: A business expense which remains constant throughout the business cycle (for example, salaries, office rents). See "Variable Costs".

Back OfficeFront Office: That part of the company directly facing the customer amd contributing to revenue generation.


Back Office

Back OfficeInshoring: Contracting out Back Office tasks to a third-party specialist BPO provider based in the same country as the client. Inshoring prefers proximity (both geographical and cultural) and quality assurances over simple low-cost labour outsourcing (see "Offshoring" and "Nearshoring").

Back OfficeIn-house: The opposite of outsourcing: completing a task within the orgnisation's own premises, with its own staff.

Back OfficeKnowledge Expertise: The recognition that a third-party specialist BPO provider, whose accumulated experience has made it an expert in its field, can execute their speciality tasks better than an organisation focused on its core business.

Back OfficeNearshoring: Contracting out Back Office tasks to a third-party specialist BPO provider based in a country very near to the client (for example, Germany outsourcing to Poland.

Back OfficeNon-Core Activity: An activity which doesn't directly contribute to revenue generation but is essential to the good running of the company.

Back OfficeOffshoring: Contracting out Back Office tasks to a third-party specialist BPO provider based in a distant country where low labour costs produces simple cost-saving (typically to India). See also "Offshoring" and "Nearshoring".

Back OfficeOperational Expertise: The recognition that a third-party specialist BPO provider, whose entire focus is on completing tasks with the highest possible productivity, has made it an expert in its field, and can execute their speciality tasks better than an organisation focused on its core business.

Back OfficeOutsourcing: The contracting out of processes to a third party. In BPO terms, the contracting out of Back Office tasks (or the entire Back Office) to a specialist Business Processs Outsourcing provider.

Back OfficeQuality Improvement: The recognition that outsourcing the Back Office to a specialist provider typically leads to improvements in quality. Unmotivated staff, absenteeism, departmental rigidity, often leads to a decrease in productivity, whereas a servive provider competing for business has good reasons (including contractual obligations) to provide a quality service.

Back OfficeService Level Agreement: Often abbreviated to SLA. The agreement in which the services to be delivered are formally defined in a contract.

Back OfficeStructural Flexibility: The deliberate strategic policy of increasing variable costs against fixed costs, outsourcing instead of in-house. The objective is to keep the organization streamlined and agile. Structural flexibility allows a company to respond quickly to changing market conditions and alternating business cycles.

Back OfficeVariable Cost: A business expense which remains flexible throughout the business cycle (for example, Back Office Outsourcing). A variable cost can run harmoniously with changing market conditions: contracting when the market contracts and expanding when the market expands (see "Fixed Cost").

Back Office

Outsourcing Decision Process


Back Office BulletOutsource or keep business functions in-house?

Back Office BulletOutsource? Which functions can be outsourced?

Back Office BulletOutsourcing intermediary (consultant) or deal directly with BPO provider?

Back Office BulletWhat kind of supplier? Offshore, nearshore, or inshore?

Back Office BulletSupplier: price, performance, experience, quality, flexibility…

Back Office BulletRequest for Proposal. Bidding process. Appraisal. Negotiate. Supplier chosen.

Back Office BulletContract finalised.

Back Office BulletTransition process begins.

Back Office BulletService delivered