Gartner Says Increased Demand for Business Process Outsourcing to Create a Seller's Market in 2005

Tuesday March 29, 9:05 am ET

Analysts to Show How To Implement and Manage a Successful Outsourcing Partnership During the Gartner Outsourcing Summit, April 4-6 in Los Angeles, CA

STAMFORD, Conn.--(BUSINESS WIRE)--March 29, 2005--Worldwide business process outsourcing (BPO) is projected to reach $133.7 billion in 2005, an 8 percent increase from 2004 revenue of $123.8 billion, according to Gartner, Inc.

Gartner analysts predicted earlier this year that eight to 12 major BPO contracts, each exceeding $300 million in contract value, were likely to be signed between the fourth quarter of 2004 and the end of the first quarter in 2005. That prediction is rapidly turning into a reality. Gartner analysts now believe interest and demand for BPO will surge as more of these larger deals are signed.

Gartner defines BPO as the delegation of one or more IT-intensive business processes to an external provider that, in turn, owns, administers and manages the processes based on defined and measurable performance metrics. BPO has many markets. They typically include staff functions such as human resources, finance and accounting, and contact centers or vertical specialization such as insurance claims processing or banking payments.

"A year ago, BPO providers and prospective buyers held many discussions, but few deals were signed," said Lisa Stone, research vice president at Gartner. "The level of activity that we are seeing now reflects the fact that the value proposition behind BPO has been accepted by buyers. Through year-end 2005, prospective buyers will be energized, creating a seller's market,""

Ms. Stone said that prospective buyers should understand that as rising demand materializes into more completed deals, the top vendors of BPO services will be focused on this newly acquired business. For this reason, more vendors will be in a position to bid only on projects that have a high probability of resulting in a sale.

"If a company is considering new BPO projects, it must begin to develop a BPO strategy and make decisions soon," said Robert Brown, principal analyst at Gartner. "Companies must consider if BPO offers an opportunity for them to improve services without capital investment, offload noncore services or reduce operational costs. The sooner prospective buyers can start meaningful discussions with providers, the more likely they will be to get the BPO vendor's attention."

With such high demand for BPO, Gartner analysts said prospective buyers need to make sure that BPO providers have enough qualified personnel to meet the increased demand. Many new vendors will be coming into the market that lack particular domain expertise.

"Buyers should assess if their company's BPO opportunity is compelling from a vendor perspective," said Ms. Stone. "This can be analyzed by evaluating whether the type of BPO offered aligns with the provider's strategic direction, and how committed the provider is to staying in that market."

With the increased market activity, the challenge for providers will be choosing the right companies to target. "BPO providers must identify buyers that want true relationships, rather than merely to discuss potential deals," Mr. Brown said. "They also must evaluate what relationships prospective buyers already have with other vendors. Buyers are increasingly inclined to select providers with whom they have a relationship - perhaps for IT outsourcing or another form of BPO - for additional BPO work."

Gartner analysts will provide additional analysis on the BPO industry at the Gartner Outsourcing Summit 2005, to be held April 4-6 2005, at the Westin Century Plaza Hotel. Gartner Outsourcing Summit 2005, Gartner's eighth annual event for buyers of IT and business process outsourcing (BPO) services, is the most comprehensive program of its kind. With this year's theme, "Practical Outsourcing: Managing the Choices, Risks and Rewards," more than 30 Gartner analysts and consultants will provide actionable advise that attendees can implement. In addition, more than 15 of the 60-plus content sessions will feature case studies and panel discussions presented by end-users and industry professionals. Approximately 50 of the world's leading services and solutions providers will also participate in the conference showcase and technology-provider case-study panels.

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