Business Process vs. Knowledge Process Outsourcing

Instructor: Toni Bonton

Toni has taught personal finance and has an MBA.

Outsourcing can be very beneficial to growing companies, but the type of outsourcing needed is a very important decision. In this lesson, we will discuss the difference between business process outsourcing and knowledge process outsourcing.

The Business Process

Bianca is the Chief Operating Officer of a large cell phone company. A few months ago, she announced that the company would be offering a new pricing plan to all of its customers. Since the announcement, Bianca has seen a tremendous amount of growth in the company; however, that growth sparked a great debate about what to do next.

Bianca not only needs to expand the call center to handle the increased customer volume, but if she wants the company to continue emerging as an industry leader, she also needs to expand the research and development department to stay current with new trends. Bianca thinks outsourcing is the answer; however, she is not sure which route to take.

Should she outsource the call center or should she outsource the research and development department? To understand the decision that Bianca must make, this lesson will delve into business process outsourcing and knowledge process outsourcing. First, let's check out business process outsourcing.

Business Process Outsourcing

Bianca's first option is to outsource the call center. The call center serves as a line of communication between the company and its customers, making it an operational function. Operational functions are procedures that result in the delivery of a product or service to customers. Without these processes, the business could not continue to function properly on a day-to-day basis because an important link between the company and its customers would be severed.

Although necessary, the company may not be in a position to focus its attention on this particular process. This is the basic idea behind the need for business process outsourcing. Business process outsourcing (BPO) occurs when a company subcontracts an operational function to an external provider, a third party hired to serve as a liaison between the customer and the company.

If Bianca opts to outsource the call center, the provider she chooses would act as an extension of the company. This arrangement would allow Bianca to utilize the company's resources in other areas of business.

Why BPO Makes Sense

Using a third party to perform as a call center, instead of expanding the current call center, saves the company time and money. Companies that specialize in call center outsourcing will already be setup to handle such a task, which is a benefit to Bianca's company. Let's look at an example.

Haley owns Outsource It To Me, Inc., an established call center that caters specifically to large cell phone companies. She has the building, the equipment, the software, and the trained manpower to take on any sized project Bianca could assign to Outsource It To Me. This arrangement would greatly decrease the expenses to Bianca's company.

If the call center were to be expanded, Bianca would have to dedicate time to implementing an expansion project, allocate funds to constructing a building, purchasing office equipment, updating the software, and hiring, training, and maintaining a staff. On the other hand, contracting through Outsource It To Me will only result in the fee charged by Haley, saving Bianca's company from having those expenses.

Knowledge Process Outsourcing

Bianca's second option is to outsource the research and development team. This department is also a function of the company; however, it goes a step further than the day-to-day operations of the business. The research analysts in this department are responsible for meeting innovative goals by gathering information about market trends and using that information to propel the company forward in the industry.

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