Meredith Knipp
"The more time you spend with your risk management, the longer your vacation could be..."

When it comes to Software Programming, there are two most popular approaches: BPO and ITO. The answer, which one to choose, lies in detailed comparison of the two kinds and finding out each one’s peculiarities.

BPO means Software Programming of a permanent established process needed for business operation. BPO is targeted at solving complex business problem, and is connected with transfer of administrative functions, ownership and day-to-day process operation to a third-party provider. ITO means implementation of a certain set of tasks and is aimed at cost reduction primarily.

BPO may or may not be connected to IT. BPO may cover different processes like finance and accounting, HRM, marketing and some other processes which are most frequently outsourced. IT outsourcing always involves IT-based activity, such as programming, Software System development and maintenance, system administration or testing.

In the context of flexibility, ITO is much more flexible than BPO. Service of programming tasks, which are not integrated into the company’s core activity, can be done easily within a short period of time. BPO means transfer of the whole process which is usually already established and operated within the company. So Software Programming of business process is connected with transfer of knowledge, training of personnel, dismissal of onsite staff, etc.

In the context of cost reduction BPO is a strategic decision and does not bring here-and-now profit. Instead of this, BPO is targeted at rising company’s performance and shareholder value. IT outsourcing which in fact means buying programming, testing or other IT-related services or sending Software System development projects either small or big to cheap Software Programming providers. Return of ITO investments comes in much shorter time however it is limited and is lower than BPO’s ROI.

While all business processes can be divided into core and non-core, critical and non-critical, experts advise choosing BPO for outsourcing non-core critical processes and ITO for non-core and non-critical activities. The second one is always about IT, because IT is a must for all enterprises and firms regardless of their core business line. Thus IT tasks (Software System development, improvement and maintenance) are non-core and non-critical but still essential.

Both BPO and ITO are connected with almost common risks however the criticality of the risks differs. For instance, risk of miscommunication is much more critical in ITO than in BPO. With that, risks of Software Programming vendor’s incompetence and loss of Client’s data, corporate secret data, or experience are much more critical in BPO.

There is no bad or good strategy. Despite some say that ITO will be superseded by BPO one day, it can hardly sound like true prediction. ITO and BPO will grow concurrently, each having its pros and cons.

Published on 10/9/2007