Caveats For BPO

Forrester Research today released a report stating that while business process outsourcing (BPO) initiatives may result in significant cost savings, some expertise is overhyped. For the report "BPO's Fragmented Future," the research firm surveyed 82 senior business and IT executives and found that companies experimenting with BPO complain of inflexible contracts, difficulty managing vendors, and a lack of performance metrics. Explaining the problems with inflexible contracts, John McCarthy, group director at Forrester, says, "Companies don't want a ten-year fixed price. They want to renegotiate costs to see more value over time. They also want to grow the contract incrementally, as they get more confident in their vendor's skills." To avoid a management melee McCarthy says three tiers of management need to be in place on the customer side. First, senior business, IT, and legal council that works with peers on the vendor side that have the ears of senior management. Second, a BPO-program officer responsible for day-to-day processes. Last, a project manager on the vendor side and an operations manager on the customer side. McCarthy suggests these people and their vendor contacts meet on a regular basis--weekly if possible--to stay abreast of relevant project issues. "If you know what you're getting into, you can help people focus on things that aren't strategic to [their core competency] going forward. It makes a lot of sense, but it's no [magic] bullet. If you outsource it you still need to manage it," McCarthy says. Firms report that they are most interested in outsourcing human resources, customer resources, customer service procurement, and accounting, the report says. While those surveyed didn't spend much on BPO in 2002, 52 percent said that they were considering outsourcing and plan to spend at least $1 million on business process outsourcing in 2004. Forrester expects the BPO market to grow to $146 billion in 2008, yet the growth will be fragmented, specifically in four individual segments of BPO. The report states that simple bulk transactions like credit-card or stock-trade processing will grow to $58 billion by 2008, dominated by companies like ACS, Fidelity Investments, State Street, and Unisys. Broad shared services like finance and administration, indirect procurement, and human resources will represent $57 billion by 2008, and be dominated by ACS, Mellon HR Solutions, and big IT-systems integrators. High-volume vertical processes, such as policy administration, claims, and loan process applications, will remain a small piece of the market, emerging as a $6 billion segment and dominated by offshore IT providers and large U.S. outsourcers, such as Accenture and CSC. Niche vertical applications, such as environmental data reporting and chemical process-control monitoring, which require deep specialization, will reach $24 billion in 2008, and be dominated by small BPO vendors like Ingenero and RMSI.