Pod Insights a16z Podcast Unbundling the BPO: How AI Is Disrupting Outsourced Work About this episode Business Process Outsourcing (BPO) is a $300 billion industry powering the back- and front-office operations of the world’s largest companies.
In her article, "Unbundling the BPO: How AI Will Disrupt Outsourced Work," Kimberly Tan (Partner, a16z) explores how the rise of AI is challenging the status quo.
In this episode, Kimberly unpacks the shift—from call centers and invoice processing to cross-system automation and coding agents. They explore how AI is redefining the economics of scale, unlocking new markets, and expanding the reach of automation beyond the Fortune 500. For founders and operators alike, this conversation offers a clear-eyed look at the playbook for building in this newly addressable space.
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:01 Speaker 00 Voice AI has been an incredible, I think, enabling innovation in the last few years where you can now actually talk to an AI agent on the other line. You may not even know that it's not a human because their conversational abilities and their intonation sounds very human-like.
0:17 Steph Smith? Business process outsourcing. Ever heard of it? Well, you may not have heard of the acronym, but you almost certainly have heard of some of the companies operating in this space, whether it's Cognizant, Emphasis, Accenture, companies that help other companies offload repetitive, labor-intensive tasks. This industry is massive, valued at over $300 billion today and expected to exceed $525 billion by 2030. But this industry, one with its origins in manufacturing, is ready again for disruption because AI is rewriting the BPO script. Where instead of outsourcing work to humans in lower-cost regions, businesses are now automating entire workflows, replacing the need for traditional BPO services.
1:01 Steph Smith? This is already happening in the front office for needs like customer support, but also the back office, from internal ops, finance and accounting, IT, HR, and even legal. Plus, we're seeing all kinds of verticalized solutions from logistics to healthcare. So in today's episode, together with A16Z partner Kimberly Tan, we break down exactly how AI is unbundling the BPO market, where new capabilities like browser or voice agents come into play, how startups can compete against massive legacy incumbents, and a whole lot more. This episode was also inspired by an article that Kimberly wrote called "Unbundling the BPO: How AI Will Disrupt Outsourced Work," and of course, we'll include a link to that in the show notes. Let's get started.
2:16 Steph Smith? Kimberly, you wrote an article that's been going pretty viral across social called "Unbundling the BPO: How AI Will Disrupt Outsource Work." What is BPO? And then also, where did it originate? And also, maybe, how does it look today in terms of categories or the breakdown of the industry?
2:33 Speaker 00 I think a lot of people actually don't know what a BPO is, since you're not alone. BPO stands for Business Process Outsourcing, and it is a large component of work that really large companies like Accenture, or Tata, or Wipro, Cognizant, Infosys do. What it means is, sort of as the name implies, if you are a large enough enterprise, there's just a large amount of work that is unsustainable for you to manage in-house. And so you outsource that to one of these businesses to do for you. This includes some of the obvious things that maybe we have interacted with before, like customer support, customer service. It also includes a lot of back office functions that we don't see as much, like outsource IT, HR, finance and accounting for invoice processing and such.
3:17 Speaker 00 Some sort of like, knowledge management and outsource research functions as well. So, it's really a large catch-all bucket, in some ways, for work that big enterprises need to do, but for some reason, feel like it is more cost-efficient or more scalable to give to someone else to do versus do it in-house.
3:32 Steph Smith? So how big is this industry? And also, maybe, talk a little bit about how long it's been around, too.
3:37 Speaker 00 So the industry is valued at 300 billion today, with expectations to grow to over 500 billion by 2030. And it's just because there's just so much work that needs to get done for large enterprises to be able to function. As well, the industry's actually been around for a long time. Some of the oldest players in the space were started in the 1940s to help manufacturing companies manage their operations. And today, really touches on all the major industries that we think about when we think about like, the Fortune 500s. It includes retail, it includes travel, telecom, logistics, manufacturing, healthcare, insurance, banks. It's just a huge, huge swath of industries, who all in some way, shape, or form, rely on BPOs to be able to function.
4:20 Steph Smith? So let's talk about how BPOs, to date, maybe, haven't quite satisfied the need of those companies, or maybe where they're falling short.
4:28 Speaker 00 So one thing I should know is, when we're going to talk about this, we're going to talk specifically about the business process outsourcing part of what these firms do. I know a lot of people who maybe have heard of Accenture, who have emphasis, know that these companies also may engage in like strategy consulting or outsourced application development. So we're only going to talk about the outsourced business processes that they do today. And a lot, I think of what has fallen short today is it is humans at the end of the day who are doing this work. And that means it's prone to things like generally long delays because humans can't do 100 things at the same time, or maybe misunderstandings about what it is that is being asked for. There's just a lot of reasons in which the enterprises outsource this work because it was not their core competency and they did not want to manage it.
5:11 Speaker 00 But that in no way means that it is being done in the best form that it could be done in. And I think a lot of people know that and just have not found a better solution because for a long time, software could not handle this type of work because it was so either bespoke or it used data sources or information that wasn't structured enough for software to be able to handle. And so the only solution was just to be able to use human labor to be able to do the work.
5:38 Steph Smith? Why is it that software to date has not been able to solve that challenge?
5:42 Speaker 00 In a lot of ways, I think it's because software historically was very good at doing very clearly defined processes that did not have a lot of variation, didn't have to use tons of different data inputs, did not have to contextually really understand what it was going on and be able to like make in some cases like judgment decisions and actions off of that. So a lot of times in which you do have to do one of those things, which you know, in a customer service question, you have to understand what the customer is asking. Or if you're processing an invoice, you have to really know what are the different inputs in that invoice? That sort of work software just couldn't handle. This is actually the type of work that AI is really good at handling. It is really good at taking very disparate amounts of information that is often unstructured
6:27 Speaker 00 in different formats across different systems, synthesizing and structuring it, making sense of all that information and actually being able to output some sort of action against that. And so what we're really excited about is seeing that this capability is really enabling net new use cases for software that historically just couldn't be handled.
6:45 Steph Smith? Tell me what's really catching your attention in terms of the capabilities that allow us to specifically unlock this industry that previously was BPO.
6:53 Speaker 00 There are some capabilities that today we're seeing have incredible ROI already. And then there are some that we are really excited about and see on the horizon getting to full production that we think will unlock a whole net new set of use cases. So maybe very immediately today, we've seen voice AI capabilities really allow for a zero to one unlock capability. Historically, all of us have called some customer service line and they tell you to press one, two, three, and then you press zero a hundred times. And that's just a terrible experience. Or you get some sort of bot on the other line that just does not understand what you were calling about. Voice AI has been an incredible, I think, enabling innovation in the last few years where you can now actually talk to an AI agent on the other line.
7:34 Speaker 00 You may not even know that it's not a human because their conversational abilities and their intonation sounds very human like. The latency has gotten very good, meaning they respond at the speed at which a normal human would respond. And they also have the benefit of being hooked into a lot of business systems. They know when you call, the context of the question, and they're able to actually sift through your specific situation and are able to actually get you a response quite quickly. One thing that we're quite excited about on the horizon is this emerging browser use technology, whether it's, you know, some people call it computer use, some people call it operator, where AI agents will soon actually be able to work across a heterogeneous set of systems, whether it is, you know, traditional software systems, whether it
8:18 Speaker 00 is the web, whether it is some in-house bespoke piece of software a large enterprise has, and actually be able to navigate that set of situations to be able to not only get the information it needs, but also take appropriate actions. That is still an emerging field of research that we see getting better very quickly. And we think, once that is at a state of production, there's going to be a whole new set of use cases where data analysts or invoice processor, et cetera, that had to be human before, now AI could handle.
8:46 Steph Smith? I think one of the most interesting aspects of this industry is that it's pretty horizontal. To your point about call center technology, that's not specific to the finance sector. It's also in shipping and logistics, it's in healthcare, it's in insurance, right? Where are we seeing the most disruption? And then where do you see the most potential as well for future disruption?
9:07 Speaker 00 I think where we're seeing the most disruption today is industries that have very high call volume. We're seeing it a lot in logistics in particular because if you think about how many different nodes are in a supply chain, there are so many people who have to call between the different nodes to be able to just manage communication and collaboration across the supply chain. We're seeing a ton of it there. We're starting to see a lot of innovation in healthcare where either you are a consumer who's calling about some healthcare question, or it's actually between, let's say, the hospital and the insurance provider, or between the insurance provider and somebody else. Anything in which calling is a huge function, we're seeing a lot of. And then we're starting to see a lot of
9:48 Speaker 00 early innings in a lot of back office work where calling is not the primary function, but there is some kind of automation that has to happen on the backend.
9:58 Steph Smith? Yeah.
9:58 Speaker 00 Where now we see that AI agents can move through lots of different systems, can understand the context and actually be able to execute on actions that maybe a human had to do before.
10:07 Steph Smith? And in your piece, you talk about this difference between front office and back office. And with new founders coming into the space, how would you advise them on attacking this opportunity and thinking about maybe the difference between those things? Or is there some other way that they should be thinking about attacking this market?
10:24 Speaker 00 These BPOs are very large businesses and they understand the opportunity of AI the way lots of people who are paying attention to the news understand the opportunity of AI. So they should not assume that these BPOs will not try to leverage it themselves. We do think in the short term, there's actually still a really exciting opportunity. These BPOs, the business model they have is fundamentally about labor and it's fundamentally about having humans execute on a lot of these tasks. And it's quite a big shift for any business, but especially large public businesses with tens of billions of dollars of revenue on the line, to be able to shift that work into product immediately. The second thing that I think a lot of people underestimate or don't quite realize is just how difficult it is still is to work with these AI systems. There's a lot of work that needs to be done
11:07 Speaker 00 to make sure, you know, hallucinations don't happen, to be able to actually evaluate the responses of the AI agents, to know as the models get better, which model to swap in and swap out. I think you have to be a really AI-native, technical founder to be able to understand how to leverage that. And that's actually just not a widely distributed skillset yet. So we think that the best types of opportunities for people in that domain is Just really thinking about situations in which the ROI is so incredibly clear, which often means in types of work or types of functions where they have clear KPIs that you can assess them against. Customer support has very clear KPIs. It is how many tickets can you address in a certain amount of time?
11:49 Speaker 00 And what is the satisfaction score, the CSAT score of the end user? Once you do that, what are the KPIs for HR? It's a little bit more unclear. And so I think if you're building AI agents that go tackle that opportunity, there's probably something there. There's a little bit more work to be done for a large enterprise that you're trying to convince to adopt AI to say, how do I know that this is going to be a better experience for my employees? And why should I actually switch? I think it'd be a disservice to say that AI is this incredible innovation. And I think it can do so much of this work that couldn't be done before. There's probably still going to be some very long tail problem that a human's going to need to be able to handle. And so I think a really important question of what the future business model of AI looks like
12:33 Speaker 00 is who does that long tail of work?
12:36 Steph Smith? What does this enable in terms of the kind of new business that can be done? For example, instead of only working with large companies, does this enable smaller companies to leverage some of these resources? Or is there something else at play here when you think about the longer term of, again, not just replacing the old, but actually starting something new?
12:53 Speaker 00 I think the advent of AI solutions, which are much cheaper, much more scalable, et cetera, is that you can not only maybe offer this type of work to a new subset of the population that BPOs never handled, but even for companies that use BPOs, you can now expand the surface area that that type of work covered. For example, going back to customer service, with AI, you can now offer it across the entire gamut of your product surface area. And that opens up just a ton of net new areas that BPOs did not cover historically. The new industries or new types of companies question. Yeah, I think there are a lot of companies that maybe would have wanted to outsource their invoice processing and not do it in-house,
13:37 Speaker 00 or who did want to offer support but couldn't. And then now you'll see that with AI agents, they'll actually be able to make their own internal operations much more efficient. Today, maybe the large BPOs won't see directly impact their business because this wasn't the core functions.
13:54 Steph Smith? This is a net new market.
13:55 Speaker 00 This is a net new market, doing very similar work to what they were offering, but to a different segment of the population. And so they might not see it in the short to medium term. But you know, if these companies do well, obviously they will grow up with their customers. They will target larger customers. And so I think they will see it in the long term. And a great way to maybe think about what are the best opportunities? One is, like we said, like what are the clearest KPIs that you can show to prove clear value? Another way to think about it is what sorts of operational work scales linearly as the company grows? Meaning it's always going to be a consistent cost on the company. And as you get more customers, you have more customer support requests. Or as you grow your business, you'll have more invoices you have to process.
14:39 Speaker 00 That just means that is a consistent, linearly growing cost for these companies, that they're always going to have to figure out what is the right cost benefit analysis. And if you're able to make that cost plateau or even go down, that's a very clear value proposition for companies. And it actually enables them to grow their top line in a much more efficient way.
14:57 Steph Smith? Are there any parting thoughts that you have in terms of where this goes? Or also maybe gaps that you see where founders haven't quite found their mark in that industry yet?
15:06 Speaker 00 So I think one common question that I've gotten about this is distribution of what these BPOs actually do.
15:15 Speaker 00 Is not super clear from the outside. Like if you read the report, it's actually quite opaque. And I think a lot of what these businesses do is not just a lot of this outsourced work that we were talking about. But it's also it's like amorphous. I would call it like outsourced IT or outsourced application development, where these businesses also might build these small internal tools or just like small applications for companies that don't have the IT resources or engineering resources in-house to do. And one thing that we haven't really talked about is I definitely think this is on the earlier curve of things that software can handle, because building a full application is quite different than responding to a customer service inquiry.
15:58 Speaker 00 But we're seeing a lot of, at a more horizontal level, like coding agents just get a lot better and be able to empower people who maybe weren't as technical or maybe who weren't technical at all, be able to build full-formed applications. And so I think that's actually going to be a very interesting orthogonal attack vector against a lot of the type of work that did get outsourced. Even when the way in which you would do that is not just I'm going directly after this BPO spend, but it's just I'm enabling every individual person to be able to build their own either mini apps or fully fledged apps. I just think it's another interesting thing that we haven't really touched upon, that it's hard to quantify what exactly does that mean in the next two to three years?
16:41 Speaker 00 But I think you can imagine what happens when you actually enable a whole new class of people to be able to truly like build their own applications.
16:50 Speaker 03 Thanks for listening to the A16Z Podcast. If you enjoyed the episode, let us know by leaving a review at ratethispodcast.com/A16Z. We've got more great conversations coming your way. See you next time.
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