To BPO or Not to BPO?

Gartner: Early adopters of business process outsourcing still seeking to understand costs, business benefits

Stamford, CN — May 20, 2003 — Even with the increased awareness and adoption of business process outsourcing (BPO), BPO services are still immature, and early adopters of BPO are still trying to understand their cost and business benefits, according to technology consultancy Gartner.

"Enterprises must systematically analyze their internal business processes and associated external service provider offerings to best determine possible improvements to the bottom line," said Rebecca Scholl, principal analyst for Gartner's sourcing group. "As this understanding is gained, enterprises can determine what processes can likely be outsourced, and can then investigate what is and is not readily available from external services providers (ESPs)."

In a report called "BPO: Climbing the Learning Curve," Gartner proposes that companies evaluate their BPO needs and the available services using the consultancy's "BPO Market Model," which segments business processes into three broad categories:

  • Demand Management Processes — Processes that link an organization with its customers, including customer selection, customer acquisition, customer retention and customer extension.

  • Supply Management Processes — Processes that are focused on responses to customer demand, including move (moving products or services), store (storing products or information), make/deliver (the creation and delivery of a product or service) and buy (buying materials for product or service generation).

  • Enterprise Service Processes Activities that are necessary for every enterprise, regardless of industry, including human capital management or human resources (HR), finance and accounting and regulatory, information technology (IT) and facilities management.

Gartner analysts said that with the first two categories of processes, there will be significant differentiation for specific industries, and industry expertise is an important selection criterion when evaluating potential ESPs.

However, as the enterprise service processes category gains popularity in the BPO marketplace, providers are creating and strengthening their offerings in this category because an offering can more easily be leveraged across several industries. "Enterprises are increasingly wanting to focus on core competencies and, in conjunction with that focus, are evaluating enterprise-level support services to determine if they are being delivered as efficiently as possible, or, if possible, capital can be freed up by entering into a relationship with an ESP," said Lisa Stone, research vice president for Gartner's sourcing group.

Gartner said its BPO Market Model shows that with all three categories of processes, enterprises must first determine if it is appropriate to outsource an entire category of processes, a single process or even a piece of a process. Factors that will influence this type of decision include an evaluation of how strategic the process is, how integrated the process is with other support services and what is available in the marketplace at what level of stability.

"Enterprises also need a comprehensive view of their current costs and associated service-level abilities, their current ability to manage the process in house and their ability to manage a relationship or even a series of relationships with ESPs," said Scholl. "Through an examination of these issues, enterprises will be able to identify those processes where a BPO relationship could deliver shareholder value."

Gartner is due to highlight BPO-related issues at its Outsourcing Summit 2003 to be held in June in Los Angeles.