A marked development in the last decade has been the growth of “virtual organizations” (or “extended enterprises”), where a network of service supplier and vendor firms cooperates to create customer value. One form of cooperation is described as business process outsourcing (BPO). A business process involves several interrelated activities performed with the goal of generating customer value. Because of the growth in e-collaboration tools, it is now possible for firms to outsource even core business processes to external vendors. Examples of processes typically outsourced include logistics, customer support, human resources, and back-office accounting functions. BPO and the value networks created by vendors and purchasers hold the promise of substantial business benefits associated with specialization and scale. These include reduced costs, greater business flexibility, and higher service quality. According to the Gartner Group, the world market for BPO services is likely to increase from $100 billion in 2002 to $173 billion by 2007(Gartner, 2004).
Key Terms in this Chapter
Risk: The likelihood or probability of some consequence seen as undesirable, although the term is often used synonymously with “downside.” Risk exposure is calculated as the probability of an undesirable consequence multiplied by its (negative) magnitude.
Outsourcing: Assigning, to required results, responsibility for all or a portion of the activity and tasks involved in a business process to an external provider. The provider is responsible for management of organizational assets, resources, and/or activities.
Offshoring: Offshore outsourcing or cross-national outsourcing, where the vendor and client operate in different countries.
Service Delivery Process: the set of activities that take place to perform a service. Performance involves the coordinated actions of both the provider and user (customer) of the service. In industrial settings, there may be many types of users, and the number of performers increases.
Risk Management: The process of evaluating and selecting alternative responses to risk.
BPO: Business process outsourcing. Outsourcing of relatively complex business processes or activities that are supported by information technologies.
Business Process: A set of interrelated organizational activities performed by a number of individuals with the goal of generating customer value. This process can be intra-organizational or interorganizational.