Business Process Outsourcing or commonly known as BPO is the process by which a company hires another company or companies to handle some of its business activities. It involves "offshore outsourcing" or contracting a company based in other countries or "nearshore outsourcing" where the company hires a company based in its neighboring country to do the work.

It started out in the payroll services then gradually progressed into employee benefits management. At present BPO’s services are divided into two major business activities, the back-office and the front-office. Back-office includes financial and administration processes such as payroll, accounting, billing, collections, credit analysis, logistics, human resource functions and job recruitment. Front-office involves technical support, customer service, marketing and advertising.

BPOs run a multi-year contracts that are well worth hundreds of millions of dollars. The major players in this type of business are IBM, Accenture and Hewitt Associates and some of the European and Asian companies like Capgemini, Genpact, TCS, Wipro and InfoSys. India is a popular location for BPO activities with 63% of offshore share. These companies are set-up specifically in Bangalore, Hyderabad, Kolkata, Mumbai, Pune, Chennai and New Delhi. Other key locations for Business Process Outsourcing activities are in Eastern Europe, Philippines, Morocco, Egypt and South Africa including China.

Since most business processes include some form of automation, Information Technology Enabled Services (ITES) is integrated as part of the BPO business. It is however distinct from IT Outsourcing, and unlike SaaS or Software-As-A-Service and other outsourcing alternatives, BPO covers a broad range of the hardware and software aspect of the business as well as the staffing to run the entire business service. BPO has even branched out into what is called as KPO or Knowledge Process Outsourcing wherein the activities run herein requires a much greater skill, knowledge, education and expertise. It encompasses Research and Development, product development and legal e-discovery. A sub-segment of this is the LPO or the Legal Process Outsourcing. Other derivative of BPO is the BTO or the Business Transformation Outsourcing wherein the provider will help contribute in the transformation of a business into a leaner, more dynamic, agile and flexible operation.

Outsourcing a business process increases the flexibility of a company. By doing so, it is able to focus on its core competencies rather than being burdened by bureaucratic restraints. It will be able to focus on customer intimacy, product leadership and operational excellence. It is able to speed-up other business processes and at the same time retains its agility and entrepreneurial speed. A company could utilize BPO due to cost considerations by having some 15 to 35 percent or higher cost savings. Or a company could source-out an aspect of the business with which it does not have the capability and expertise to do it. On the other hand, some of the drawbacks of BPO could also be accounted to the fact that a company may become too dependent to BPO which in turn reduces its flexibility. BPO service providers may fail to meet certain service level requirements. There could also be issues that would arise that hamper the usefulness of BPO like contractual clarity and unforeseen changes in the company’s requirements. There could also be (IT) security risks that a company may face in utilizing such business practice hence the development of the BCM (Business Continuing Management) Model where steps are created to successfully identify, mange and control the business process that are or can be outsourced.

While many companies have improved their bottom line by outsourcing, they are however faced with some exacting criticisms from consumers due to the decline in the quality of customer service. Nonetheless, companies today are able to go beyond its capabilities while having BPO as their strategic tool, a cornerstone of the "lean and mean" way of doing business.

Resources:
-Wikipedia.com (Business Process Outsourcing)
-Sourcingmag.com (BPO-What is Business Process Outsourcing?)
-Wisegeek.com (BPO-What is Business Process Outsoucing? by Garry Crystal)
-Oracle.com (What is BPO by Alan Joch)