Forrester Research Reveals That Business Process Outsourcing Expertise Is Overhyped · Forrester

The business process outsourcing (BPO) megadeal is a myth. According to “BPO’s Fragmented Future,” a new report from Forrester Research, Inc. (Nasdaq: FORR), firms looking to outsource core business processes like human resources, finance, and administration to gain cost savings will not find a single vendor that can manage such complex offerings. The BPO market will grow to $146 billion in 2008, but the marketplace will fragment.

Forrester surveyed 82 senior business and IT executives and held in-depth interviews with 12 early adopters of BPO. While BPO initiatives may result in significant cost savings, the report details many examples of vendor hype. Companies experimenting with business process outsourcing report inflexible contracts, difficulty managing vendors, and a lack of performance metrics. “Although some firms show BPO savings, vendors overstate their current offerings,” stated Forrester Group Director John C. McCarthy.

Firms report that they are most interested in outsourcing human resources, customer resources, customer service procurement, and accounting. While those surveyed didn’t spend much on BPO in 2002, 52 percent said that they were considering outsourcing and that they plan to spend at least $1 million on business process outsourcing in 2004.

Because no one vendor is able to completely master the complex set of skills needed to offer an end-to-end outsourcing solution, vendors will be forced to focus on serving four individual segments of BPO:

  • Simple bulk transactions represent the largest segment, growing to $58 billion by 2008. These include simple tasks, such as credit card or stock trade processing, and are the easiest for vendors to master. This segment will be dominated by players like ACS, Fidelity Investments, State Street, and Unisys.
  • Broad shared services represent a $57 billion segment. This second-largest segment includes finance and administration, indirect procurement, and HR. These tasks require more understanding by employees than simple bulk transactions do. Vendors like ACS and Mellon HR Solutions will expand into HR, while big IT systems integrators will battle in finance and accounting.
  • High-volume vertical processes will emerge as a $6 billion segment in the market. Vertical processes, including policy administration, claims, and loan process applications, will remain a small piece of the segment. This segment may cause competition between offshore IT providers and large US outsourcers, including Accenture and CSC.
  • Niche vertical applications will initially reach $5 billion in 2006. This segment includes complex processes, like environmental data reporting and chemical process control monitoring, which require deep specialization. After customers are comfortable with outsourcing these tasks, the growth rate over time will accelerate to reach $24 billion in 2008. Vendors that specialize in these processes include small BPO vendors like Ingenero and RMSI.

The research mentioned in this press release is available to Forrester WholeView™ clients and can be found through[1].


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