Practicing Outside the Box

Gartner predicts BPO market to grow

March 5, 2001 -- As more enterprises continue to outsource many of their daily practices, the business process outsourcing (BPO) market is expected to grow from $125 billion in 2000 to $301 billion in 2004, according to Dataquest Inc., a unit of Gartner Inc. Gartner also reports that opportunities in finance and accounting and human resources outsourcing will continue to be strong.

Many companies currently outsource these business processes in a piecemeal way, and there is now an opportunity for multi-process outsourcing. Gartner Dataquest projects that multi-process solutions will account for at least 25 percent of BPO spending by 2004. A combination of factors is driving BPO adoption. Long-term economic trends are creating an environment where companies need to focus on their core competencies and seek outside specialists to access world-class processes in non-core, yet strategic functions, said Rebecca Scholl, senior analyst for Gartner Dataquest's IT services worldwide group. This trend is not new, but many companies were, until recently, adopting a wait-and-see' attitude.

New tools are now available to facilitate BPO adoption, such as Web-based collaborative applications and self-service technologies. These tools add value to the outsourcing relationship and enable end-users to keep control of their processes even though they are outsourcing them, through regular reporting and Web access to information.

The Internet revolution has opened up many new opportunities in the BPO industry as high-tech start-ups, Internet exchanges and dot-coms turn to BPO to fulfill their e-commerce promise, as well as handle their back-office functions. While a new generation of clients has emerged as a result of the e-business revolution, the recent economic downturn in the dot-com economy has slowed demand for BPO and business service providers (BSP) targeting the low end of the market, said Ms. Scholl. However, this instability in demand should not have a long-term effect as companies realize that BPO is a way to control costs, particularly during an economic downturn.

One challenge to BPO providers is transition. To receive the full benefits of outsourcing, clients will need to change much of how they work in order to achieve the true benefits of BPO. BPO providers need to set realistic expectations on both ends.

The second biggest challenge is delivery. In order to be successful, BPO providers have to juggle between their client's desire for highly customized services and the need to achieve profit to provide repeatable, scalable solutions.

Gartner Dataquest defines BPO as the delegation of one or more IT-intensive business processes to an external provider who, in turn, owns, administrates and manages the selected process(es), based upon defined and measurable performance metrics.