Forrester cautions against BPO hype

Forrester Research has warned IT managers and chief information officers that companies are exaggerating their capacity to offer...

Forrester Research has warned IT managers and chief information officers that companies are exaggerating their capacity to offer end-to-end business process outsourcing services.

Forrester surveyed 82 senior IT executives and had in-depth interviews with 12 BPO early adopters, and found that BPO suppliers are making promises they cannot keep regarding the breadth of their capabilities. That in turn is causing problems for their clients, including strained interaction with the service provider over inflexible contracts and difficulty in measuring the provider's performance.

CIOs and IT managers need to know there is not a single supplier that can offer a comprehensive end-to-end menu of BPO services, Forrester warned. Instead, suppliers tend to be strong in one or more BPO segments. Forrester has identified four major BPO service segments:

Simple bulk transactions, such as processing of stock trades or credit card transactions. Of BPO services, this type is the easiest for providers to master. It is also the largest BPO segment, with forecasted revenue of $58bn in 2008, when overall BPO revenue is expected to be $146bn. Suppliers standing out in this segment include Affiliated Computer Services (ACS), Fidelity Investments, State Street and Unisys.

Broad shared services, such as human resources and finance and administration, which demand more sophisticated skills from suppliers. This is the second-largest BPO segment in terms of revenue with expected revenue of $57bn in 2008. Forrester expected ACS and Mellon HR solutions to dominate in human-resources services and for IT system integrators to lead in finance and accounting.

High-volume vertical processes such as the administration of insurance policies and the processing of loan applications, which will remain a smaller segment with $6bn in revenue in 2008. Suppliers battling here will include Accenture and Computer Sciences (CSC).

Niche vertical applications involving complex processes, such as reporting of environmental data, which require deep knowledge on the part of the BPO supplier. It is expected to generate revenue of $24bn in 2008. Smaller specialists are expected to lead in this segment, including Ingenero and RM Software India (RMSI).

Despite the growing pains, companies are expected to increase their spending on BPO to enjoy the advantages and cost savings it can offer. Forrester estimated that overall BPO revenue will hit $146bn in 2008.

Juan Carlos Perez writes for IDG News Service

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