Business process outsourcing (BPO) is a form of outsourcing which involves the contracting of the operations and responsibilities of a specific business function to a third-party service provider.
Traditionally, BPO is undertaken by manufacturing firms, for instance Coca Cola, where almost the entire supply chain is outsourced and the company is essentially becoming a marketing organization. More recently, it is also used by service oriented businesses, such as the Bank of America, who outsourced their entire Human Resources function to the BPO firm Exult Inc.
BPO is often divided into two categories: back office outsourcing, which includes internal business functions such as billing or purchasing, and front office outsourcing, which includes customer-related services such as marketing or tech support. BPO that is contracted outside a company's own country is sometimes called offshore outsourcing. BPO that is contracted to a company's neighboring country is sometimes called nearshore outsourcing.
Use of a BPO as opposed to an application service provider (ASP) usually also means that a certain amount of risk is transferred to the company that is running the process elements on behalf of the outsourcer. BPO includes the software, the process management, and the people to operate the service, while a typical ASP model includes only the provision of access to functionalities and features provided or 'served up' through the use of software, usually via web browser to the customer.
BPO is a part of the outsourcing industry. It is dependent on information technology, hence it is also referred to as information technology enabled services or ITES. Knowledge process outsourcing and legal process outsourcing are some of the subsets of business process outsourcing.