New research shows that business process outsourcing (BPO) growth has been stagnant among midsize businesses in recent years.
Posted Oct 18, 2007
Sixty percent of the 99,000 midsize businesses (MBs) in the United States outsource some business processes and don't plan to change their level of spending this year or next, according to a recent survey by AMI-Partners, a research firm specializing in small and midsize businesses (SMBs). The figure is unchanged from three years ago, when the same share of U.S. MBs engaged in some level of business process outsourcing (BPO). In other words, AMI concludes, BPO is losing steam.
"The lack of momentum in BPO usage implies that MBs' wants and needs -- such as improved processes, turnaround time, and cost-cutting goals -- are not being met," Melissa Chong, research analyst at AMI-Partners and author of the "Medium Business Overview and Comprehensive Market Opportunity Assessment" report, said in a statement. Even as revenue has grown, she added, the circumstances that led these companies to seek outsourced assistance in the first place have not eased: Profit margin remains a top issue. "MBs in the U.S. have over the years reported revenue growth of 7 percent [to] 8 percent, slightly higher than actual GDP growth. In addition, the need for cost control and decreasing operating costs is of high concern among U.S. MBs."
Spending on BPO services by U.S. MBs (defined by AMI-Partners as those with between 100 and 999 employees) totaled $2.4 billion over the last twelve months, according to the company's 277-page report. The most common areas for BPO among MBs are back-office business functions such as payroll and accounting. Front-office outsourcing (such as contact centers) is only used by 3 percent of MBs -- and most of these outsourced services are still performed onshore, refuting the common perception of the offshore customer service agent. In fact, only 5 percent of MBs overall outsource any business processes to offshore companies, the report states.
"On average, MBs earn $68 million in revenues and employ 200 people and have the business scale to take advantage of BPO," Chong said. "Cost control and instilling greater efficiency in nonstrategic processes are the primary selling points of BPO, yet MBs do not seem to be acknowledging or reacting to this benefit."
Why should BPO be in such a state? Education may be a key factor, the report suggests. AMI recommends that BPO providers share information on their performance measurement methods, in order to improve vendor trust and understanding from the perspective of the midsize business. This, along with standardizing BPO delivery models and making improvements to the way outsourcing contracts are drawn up, is "critical to making MBs feel more confident and comfortable in their working relationship with the BPO providers," according to the report.
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