A new Gartner study reveals strong growth in the overall outsourcing market -- but even stronger growth in the business-process outsourcing most critical to CRM.
Posted Jan 30, 2008
The steady expansion of outsourcing continues, according to a new study recently released by Gartner. Taking a comprehensive look at the worldwide outsourcing space, the industry research firm expects to see overall market growth of 8.1 percent in the coming year. Particularly notable, however, was the growth Gartner predicts for the the market's business process outsourcing (BPO) segment -- in which contact center outsourcing primarily lies. The research firm's forecast has the BPO segment expanding from $160.7 billion in 2007 to $235.2 billion by 2011, a compound annual growth rate of 10.3 percent.
The study also segments the growth according to the relative share contributed by each slice of the outsourcing market:
While the study -- "Gartner on Outsourcing, 2007-2008" -- speaks to outsourcing's healthy growth, Kurt Potter, research director at Gartner, writes that several difficult challenges remain in terms of successfully implementing strategy. "Although user organizations often have fundamentally sound procurement organizations to initiate outsourcing contracts, for many, their IT sourcing strategies and governance structures are still immature, lacking altogether, or misaligned with enterprise objectives," he explains. "Because these organizations lack the basic building blocks for successful vendor management and outsourcing success, expected cost savings and other benefits are difficult to obtain. In extreme cases, the lack of needed trust and control to optimize the outsourcing relationship results in deal failure."
The BPO segment also shares the overall outsourcing market's growing divide between providers and buyers on cost savings. The study states that many clients hoping to have outsourcing deliver savings are not seeing the expected results. However, according to Robert Brown, research vice president at Gartner, preliminary data reveals the conflict beginning to ease. "We're seeing improvements," he says. "Certainly, it's imperative for both buyers and suppliers to get that disjoint sorted out."
- demand management: 11 percent;
- enterprise services: 10.5 percent;
- supply management: 9.7 percent; and
- vertical operations services: 9.6 percent.
Solving the conflict will become even more critical in the face of an uncertain economy. Brown asserts that the BPO market remains robust in both good and bad economic times, but during tough times companies looking to implement BPO with savings in mind should make sure those expectations are clearly defined in discussions with vendors. "For [BPO] buyers that are going in based on these recessionary issues with a full expectation of cost savings, they are really going to need to work with the provider to understand exactly how those cost savings are going to be materialized within the context of the deal," he says.
The study also states that many BPO clients are considering the use of lower-cost, offshore delivery centers -- but not necessarily India, and not necessarily all in any single country. "Global companies continue to accelerate their demands for a presence in countries other than India, and providers are seeking to expand their geographic footprint of delivery centers accordingly," Ian Marriot, research vice president at Gartner, writes. "More-sophisticated buyers are seeking a multicountry strategy to minimize risk and align nearshore and offshore delivery centers with their primary time zones."
The Indian outsourcing companies are beginning to address that customer friction point -- with gusto. According to the Gartner study, Indian providers are expanding their U.S.-based operations at roughly an annual rate of 40 percent and their European ones by 60 percent -- possibly a response to the widely disseminated stories detailing high agent attrition and dissatisfaction with outsourced facilities based within India itself. "Indian outsourcers are starting to move to bring facilities to America, which is a very interesting trend," says Michael DeSalles, strategic analyst for Frost & Sullivan. "What Indian outsourcing providers are essentially saying is, 'If we're not successful in our country, we'll bring our outsourcing to you and use U.S. agents.' "
DeSalles, however, agrees that companies are looking to diversify beyond the traditional Indian mainstays. "Companies may decide to keep their own in-house call center and expand with nearshore facilities [in places] like Canada and Latin America," DeSalles explains. "It mitigates [the] risk [of] having too many agents in a single geographic area, which is extremely risky in case of a natural disaster or pandemic. It also gives organizations an opportunity to benchmark performance."
While companies still face many challenges in deciding where and how to outsource, BPO will continue to forge ahead in 2008. One area of particular interest involves the utility delivery model, which seems ready to take hold for the foreseeable future -- especially with software giants (such as Microsoft and SAP) and Internet titans (including Google and Amazon.com) making announcements about new software-as-a-service (SaaS) offerings and mass-customized software platforms. "User organizations need to realize that the utility delivery model is a viable alternative to traditional outsourcing, and they should seriously consider utilities in their sourcing strategies," the study recommends.
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