Outsourcing, BPO and KPO

Outsourcing is another emerging trend that this AP Intermediate Commerce chapter studies alongside e-business, and the two are connected because information technology has made it far easier for a firm to hand over a part of its work to another firm, often located elsewhere.

Outsourcing means a business enterprise contracting out one or more of its business activities or processes — which it could otherwise have performed itself — to an outside specialist firm, usually with the intention of reducing cost, gaining access to expertise, or allowing the firm's own staff to concentrate on its core, most important activities. Common examples of activities a firm may outsource include payroll processing, customer support, accounting and bookkeeping, data entry, software development, and market research.

When the outsourced work is a routine business process, it is called Business Process Outsourcing, or BPO — for example, a firm getting its customer call-handling, billing, or data-entry work performed by another specialist firm rather than by an in-house department. BPO work is typically process-driven and repetitive, and the outsourcing firm's main aim is usually to reduce operating cost while still keeping service quality acceptable.

When the work outsourced instead requires specialised knowledge, judgement and domain expertise — rather than mere execution of a routine process — it is called Knowledge Process Outsourcing, or KPO. Examples include outsourced financial research and analysis, legal research, engineering design, market research and data analytics, medical transcription requiring subject expertise, and patent research. KPO work generally commands a higher value and requires more skilled, often specially qualified, personnel than typical BPO work.