Business Process Outsourcing

No company does everything itself. Anyone who sells sneakers doesn’t need to staff the phone hotline with their own employees. They can hand this task over entirely to another company that specializes exactly in that. This is precisely what is called Business Process Outsourcing, or BPO for short: outsourcing entire workflows to an external service provider. What gets outsourced is not just a single activity, but the whole process with all the steps, staff, and computer systems behind it. Typical examples are customer service, payroll, invoice auditing, or the processing of insurance claims.

Why companies give up their hotline

The most important reason is cost. A service provider often does the same work for half the price. That’s because they do it for many clients at once and thus benefit from routine and economies of scale. In addition, many of these service providers are based in countries with lower wages, such as India or the Philippines.

The second reason is focus. A car manufacturer wants to build cars, not check payroll statements. If it hands off such side tasks, it can deploy its people for what truly sets it apart from the competition. Flexibility is another factor: if you suddenly need three times as many service staff during the holiday shopping season, the contract handles that instead of a hiring wave.

However, there are downsides that are often overlooked in the news. You lose control over quality and become dependent on a partner. If the service provider protects customer data poorly, the brand whose name is on the front is still liable. And once a capability has been given up, it’s hard to bring it back in-house.

Contract, metrics, and time zones

At the start there is a precise description of the process. Both sides define which steps are being handed over, which systems are needed for them, and who is allowed to make which decisions. Then comes the transition phase: the service provider’s employees are trained, and sometimes even employees of the client switch over to the new provider.

After that, performance is measured with numbers. The contracts include so-called Service Level Agreements, i.e., bindingly agreed minimum values. One example: 80 percent of all calls must be answered within 20 seconds. Anyone who misses these values pays deductions. Payment is often based on volume, for instance a price per case processed.

A distinction is made by location and by content. Offshoring means outsourcing to a far-away country, nearshoring to a neighboring country in a similar time zone. In terms of content, simple mass work is distinguished from more demanding tasks such as data analysis or research. It is important to distinguish this from pure staff leasing: with outsourcing, you buy a result, not work hours.

Why the industry is under AI scrutiny

Anyone who calls a hotline and first talks to an automated system is experiencing BPO plus AI from the customer’s perspective. The same applies to inquiries in an online shop or to the review of scanned invoices. In many of these cases, the client’s name appears on the invoice, while the work was done by a service provider based on another continent.

In financial news, major BPO corporations such as Teleperformance, Concentrix, Infosys, or Wipro appear regularly. Since the rise of chatbots, their stock prices have been seen as a mood barometer for how strongly AI is replacing office jobs. The concern is: if a language model answers standard inquiries, the number of billed transactions declines. This erodes exactly the volume that these companies make their money from.

Providers are responding by deploying AI themselves and selling more expensive consulting services. A common misconception, by the way, is equating BPO with call centers. Medical report texts, credit checks, and the labeling of training data for AI models are also outsourced this way.