BPO, Market, Logica, Outsourcing

BPO market may be smaller than expected, Logica warns

02 Sep 2003 | (Survey)

Unless significant progress is made in executing BPO, expert predictions that this market will be worth $200 billion by 2005(Gartner Group, 2002) will be proved wrong, according to Logica, the global solutions company.

For the market to grow as experts predict, success stories are needed to drive confidence in BPO. The traditional outsourcing model is rapidly evolving where businesses are looking to make greater cost savings by outsourcing more critical business processes, such as a company outsourcing its customer acquisition and registration -- core aspects of the business.

To illustrate this, new research released in September 2002 by Morgan Chambers (1) comments that 65 per cent of CEOs/CFOs with no current outsourcing strategy state that they are likely to outsource within two years, and 86 per cent of executives who already outsource plan to extend the use of their services.

Morgan Chambers also reveals that BPO, as opposed to IT outsourcing, received an overwhelming endorsement from the industry, with more than 70 percent of CEOs surveyed determined to outsource within the next two years. Additionally, the majority of CEOs felt that up to 25 per cent of operational budgets could be outsourced.

While these figures are impressive, Logica believes that potential investment plans will be abandoned if BPO does not deliver on its promise because of mismanaged implementation. This view is further confirmed by Morgan Chambers' survey stating that 53 percent of executives using outsourced services have difficulty in finding the right supplier as the single most challenging factor in making their decision.

Logica agrees that finding the right BPO manager is a challenge. BPO is still a maturing market and the model for success should be based on the IT outsourcing model and those that understand how to successfully operate in that environment. Like IT outsourcing deals, suppliers must understand the vertical market within which the customer operates. Business benefits can only be maximized and the correct BPO strategy put in place if the supplier wholly understands the differing regulatory and competitive issues that drive the markets in which the customer operates.

Service level agreements (SLAs) for BPO can also be modeled from the IT industry. For example, if rigorous contracts and service levels are not agreed at the outset, companies could lose control of core business functions and be committed to a long-term, high-value contract that does not fulfill its needs. The irony is that BPO could end up costing companies millions of pounds.

Steve Burnett, divisional director, Outsourcing Services, Logica said: "BPO has huge market potential, however the next twelve months will be critical. Only those companies that enter into a BPO agreement with a trusted third-party supplier who agrees rigorous service levels will reap the benefits of this type of outsourcing.

"Companies must enter into agreements that cover every eventuality, including exit management, technology refresh and risk sharing -- similar in many ways to a pre-nuptial agreement."

BPO will enable companies to become 'virtual enterprises' with management keeping control of strategy and direction while outsourcing all other business processes to third-party organizations. In some cases it could lead to corporations only directly employing a handful of people.

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