Outsourcing, the practice of contracting out business processes to external providers, has a long history that spans centuries. Initially, it involved basic tasks but has evolved into a complex strategy integral to modern business operations, including Business Process Outsourcing (BPO), which encompasses contact centers and back-office functions.
Empires Outsource for Efficiency
Outsourcing can be traced back to ancient civilizations. During the Roman Empire and Byzantine Empire (from 476 AD to the late 1400s), various tasks such as tax collection and food supply were outsourced to private contractors, enabling the empire to focus on governance and military affairs.
Division of Labor Fuels Outsourcing
In 1776, Adam Smith touched on the theory of competitive advantage in his book, “The Wealth of Nations,” which highlighted the benefits of specialization and division of labor, concepts that underpin outsourcing. He wrote, “It is the great multiplication of the productions of all the different arts, in consequence of the division of labor, which occasions, in a well-governed society, that universal opulence which extends itself to the lowest ranks of the people.”
Specialization Drives Outsourcing Boom in the Industrial Revolution
The Industrial Revolution (1760s till about 1850s) marked a significant expansion in outsourcing. Factories began to outsource parts of their production processes to specialized firms. For instance, textile manufacturers outsourced cotton spinning to small workshops or individual workers. Similarly, in the burgeoning railway industry, companies would outsource the production of specific components like wheels or rails to specialized firms, ensuring faster and more efficient production.
Professional Services on Demand
Economic and industrial development caused the rise of legal and accounting outsourcing jobs, mainly in Great Britain. William Deloitte opened his office in London in 1845, and he was the first to be appointed as a private auditor of a private company. In the years to come, he opened offices in New York and many other locations.
In the 1840s, the company, later known as Dun & Bradstreet, provided credit reporting services to businesses.
From Factory Floors to IT: Outsourcing Gains Momentum for Efficiency
The concept of outsourcing continued to evolve with the rise of manufacturing hubs. In the early 1900s, Henry Ford outsourced parts of the automobile production process to streamline operations and reduce costs. He summarized the relationship between business partners by saying, “Coming together is a beginning; keeping together is progress; working together is success.”
Outsourcing gained momentum as companies sought efficiency and cost savings. Initially, it involved peripheral activities such as cleaning and maintenance. The 1980s and 1990s saw a surge in Information Technology (IT) outsourcing, with companies like IBM and EDS leading the way. This era laid the groundwork for the modern BPO industry. The rise of toll-free numbers led businesses to set up dedicated centers to handle customer calls.
From Answering Services to Contact Centers
Business Process Outsourcing began to take shape in the 1950s. Companies started outsourcing more complex functions such as payroll, human resources, and customer service.
Answering services entered the business world in the 1940s and 1950s, particularly to address after-hours calls or surges in call volume. Coupled with IVR (interactive voice response) in the late 1980s, contact centers became a prevalent service component of the BPO sector.
Contact centers handle customer interactions, while back-office functions include finance, accounting, and data processing. In the 1990s, Jack Welch of General Electric famously championed outsourcing as a strategic move, stating, “You can’t grow long-term if you can’t eat short-term. Anybody can manage short. Anybody can manage long. Balancing those two things is what management is.”
Peter Drucker, a renowned management consultant, emphasized the strategic importance of outsourcing. He stated, “Do what you do best and outsource the rest.” This quote encapsulates the modern philosophy of outsourcing, where businesses focus on their core competencies and outsource non-core activities to specialized providers.
A Global Industry: The BPO Boom in the Philippines and Beyond
The BPO industry expanded globally, with countries like the Philippines becoming major hubs due to their skilled workforce and cost advantages. Technological advancements, particularly in telecommunications and the internet, have enabled the BPO industry to be genuinely global in countries such as Pakistan, which leverages a highly educated workforce. As businesses seek more skills and language, technology has made it possible to seamlessly outsource to countries such as China while keeping links to U.S. and U.K.-based organizations.
AI and Automation Reshape Outsourcing
The BPO industry continues to grow, marked by digital transformation, artificial intelligence, and automation. These technologies are reshaping how businesses operate and outsource their processes. The relationship between businesses and BPOs has evolved into a strategic partnership rather than just cost reduction. Today, BPOs help companies improve their quality, enhance customer satisfaction, and use insights to help their brands thrive and compete.
