In the corporate environment, the term “outsourcing” often refers to a particular type of outsourcing, business process outsourcing (BPO). BPO occurs when an organization turns over the management of a particular business process (such as accounting or payroll) to a third party that specializes in that process.

The underlying theory is that the BPO firm can complete the process more efficiently, leaving the original firm free to concentrate on its core competency.

Many of these BPO efforts involve offshoring -- hiring a company based in another country -- to do the work. India is a popular location for BPO activities.

Frequently, BPO is also referred to as ITES -- information technology-enabled services. Since most business processes include some form of automation, IT "enables" these services to be performed.

An offshoot of BPO is KPO -- knowledge process outsourcing. Considered by some to be a subset of BPO, KPO includes those activities that require greater skill, knowledge, education and expertise to handle. For example, whereas an insurance company might outsource data entry of its claims forms as part of a BPO initiative,

it may also choose to use a KPO service provider to evaluate new insurance applications based on a set of criteria or business rules; this work would require the efforts of a more knowledgeable set of workers than the data entry would. The current definition of KPO encompasses R&D, product development and legal e-discovery, as well as a number of other business functions.

Also coming into use is the term BTO -- business transformation outsourcing. This refers to the idea of having service providers contribute to the effort of transforming a business into a leaner, more dynamic, agile and flexible operation.