What Is BPO? 

Business Process Outsourcing (BPO) is the practice of delegating specific business operations—think payroll, customer support, or data entry—to third-party service providers. Companies often do this to reduce costs, free up internal resources, and tap into specialized expertise. Gartner describes BPO as “the delegation of one or more IT-intensive business processes to an external provider” (source). 

Glossary of Key Outsourcing Terms 

1. Outsourcing 

At its simplest, outsourcing is contracting out a business function that could otherwise be performed in-house. This can include everything from manufacturing to IT services and is driven by factors like cost reduction, efficiency gains, and a desire to focus on core competencies. For more on this definition, check out Deloitte’s Global Outsourcing Survey. 

2. Offshoring 

When a company offshores, it moves a business process or service to a different country, usually to leverage lower labor costs or access specialized talent. Common destinations have historically included India, the Philippines, and Eastern Europe. Tholons publishes an annual “Digital Nations” report on top outsourcing destinations (source). 

3. Nearshoring 

In nearshoring, a business delegates processes to an adjacent or nearby country. For example, a U.S. company might outsource to Mexico or Canada. The idea is to minimize time zone differences, language barriers, and travel costs compared to offshoring. 

4. Onshoring 

Also known as domestic outsourcing, onshoring is when a company keeps its outsourced operations within the same country. It can be appealing for businesses that want fewer cultural and regulatory hurdles but still want to enjoy the benefits of a specialized external team. 

5. Knowledge Process Outsourcing (KPO) 

While BPO typically handles administrative or support tasks, KPO focuses on knowledge-intensive processes. Think of research, data analysis, intellectual property services, or legal processes. It often requires workers with higher educational backgrounds and specialized skills. 

6. Information Technology Outsourcing (ITO) 

Often mentioned in the same breath as BPO, ITO is the outsourcing of IT services—such as software development, network infrastructure management, or helpdesk support—to external providers. 

7. Back-Office vs. Front-Office Outsourcing 

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• Back-Office functions are internal processes like accounting, HR, and data management that aren’t usually visible to customers. 

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• Front-Office functions involve direct customer interaction, such as support, sales, or marketing. 

Both can be outsourced for cost efficiency and to tap into expert teams. 

8. Service Level Agreement (SLA) 

An SLA is a contractual agreement that defines the expected level of service between a client and an outsourcing provider. It might list metrics like response times, system uptime, and resolution rates. This helps ensure both sides have clear expectations from day one. 

9. Key Performance Indicator (KPI) 

KPIs are measurable values that demonstrate how effectively a company—or its outsourcing partner—is achieving key business objectives. Examples might include average handle time for customer calls or error rates in data processing. 

10. Full-Time Equivalent (FTE) 

You’ll often hear about FTEs in outsourcing discussions. Essentially, one FTE is the workload of a single full-time employee. This metric helps companies budget, forecast labor needs, and price outsourcing contracts based on total hours worked. 

11. Robotic Process Automation (RPA) 

RPA is software that automates routine tasks such as data entry, invoice processing, or customer service queries. It’s not “robots” in a factory, but code-based bots in a computer system. RPA can dramatically reduce manual labor and errors in outsourced processes. 

12. Cloud Computing 

While not strictly an outsourcing term, cloud computing plays a huge role in modern BPO. By storing data and running applications in the cloud, companies and their outsourcing partners can collaborate seamlessly from anywhere in the world. 

13. Shared Services Center (SSC) 

An SSC is a centralized hub where key business operations are consolidated, often to support multiple subsidiaries or departments. Sometimes companies opt for an in-house SSC, while others outsource to a third-party provider that offers SSC solutions. 

14. Captive Center 

In contrast to outsourcing to a third party, a captive center is an offshore or nearshore office wholly owned by the parent company. It’s a way to leverage global talent or cost advantages without fully relinquishing control to an external provider. 

15. Blended Shoring 

Some companies employ a combination of offshoring, nearshoring, and onshoring—commonly referred to as blended shoring. It offers flexibility and resilience by distributing operations across multiple locations. 

Why Knowing These Terms Matters 

Understanding the language of outsourcing isn’t just business jargon bingo. It empowers you to make informed decisions—whether you’re a startup exploring nearshoring for software development or a multinational establishing a new captive center in Asia. Familiarizing yourself with these concepts can also open doors to forging stronger relationships with vendors, negotiating more favorable terms, and ensuring you’re setting crystal-clear expectations from the get-go. 

If you’d like to dive deeper into any of these topics, the International Association of Outsourcing Professionals (IAOP) offers a wealth of resources to guide businesses and professionals (source). 

Wrapping It Up 

Now that you’re armed with the essential vocabulary of BPO and outsourcing, you can talk shop at any gathering without missing a beat. Whether your company is outsourcing payroll, setting up a captive center for data analytics, or exploring RPA solutions, you’ll be ready to engage in meaningful conversations that could lead to smarter strategies and better business outcomes. 

So, the next time you find yourself at a party chatting about the future of global business operations, remember—you’ve got the knowledge to impress. And who knows? You might just discover your next big opportunity in the process.