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: That part of
the company dedicated to the running of the organisation but not directly facing the customer or contributing
to revenue generation.
Back 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.
Business Process: In terms of BPO, any
individual business activity that can be defined and therefore outsourced to a third party specialist provider.
Business Process Outsourcing: Often
abbreviated to BPO. Outsourcing category which contracts out any Back Office department (Accounts, IT, Human Resources...)
to an external BPO provider.
Capacity 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").
Catalyst 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.
Core Business: The central activity of a
company. The principle revenue generating activity.
Cost 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.
Fee-for-Service: Dismantling a Back Office
department into individual tasks which are then paid for individually as a deliverable (variable cost) service.
Fixed Cost: A business expense which
remains constant throughout the business cycle (for example, salaries, office rents). See "Variable Costs".
Front Office: That part of
the company directly facing the customer amd contributing to revenue generation.
Inshoring: 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").
In-house: The opposite of outsourcing:
completing a task within the orgnisation's own premises, with its own staff.
Knowledge 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.
Nearshoring: 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.
Non-Core Activity: An activity which doesn't
directly contribute to revenue generation but is essential to the good running of the company.
Offshoring: 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".
Operational 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.
Outsourcing: 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.
Quality 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.
Service Level Agreement: Often abbreviated
to SLA. The agreement in which the services to be delivered are formally defined in a contract.
Structural 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.
Variable 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").
Outsourcing Decision Process
Outsource or keep business
functions in-house?
Outsource? Which functions
can be outsourced?
Outsourcing intermediary
(consultant) or deal directly with BPO provider?
What kind of supplier?
Offshore, nearshore, or inshore?
Supplier: price, performance,
experience, quality, flexibility…
Request for Proposal.
Bidding process. Appraisal. Negotiate. Supplier chosen.
Contract finalised.
Transition process begins.
Service delivered