Gartner Survey Shows Business Process Outsourcing is No Longer Just for Large Corporations; Survey Shows BPO Vendors Expanding Offerings to Smaller Companies.

Business Editors

SAN JOSE, Calif.--(BUSINESS WIRE)--April 3, 2003

While Global 500 companies continue to be the target segment for business process outsourcing (BPO) vendors, these BPO providers are beginning to expand their target markets, according to a recent survey by Gartner, Inc. (NYSE: IT and ITB).

Gartner conducted an online survey with 43 BPO providers from July to September of 2002 to assess the maturity of the BPO service provider landscape across a broad range of processes and target segments.

The survey showed BPO providers continue to primarily target large corporations, but the focus on mid-market companies is increasing. In 2002, 64 percent of survey respondents' BPO revenue came from large clients (more than $500 million in revenue) compared with 75 percent in a 2001 survey. Another 36 percent of the 2002 sample targeted companies with less than $500 million in revenue, compared with 25 percent in the 2001 sample.

BPO companies are also looking to have a more diversified client list. In 2001, BPO providers were almost unanimously targeting Global 500 companies in the financial services sector, but as BPO gains more attention, Gartner analysts expect BPO to gain interest in other vertical markets.

"Financial services and large corporations are often among the first to try out new business models. Now other vertical markets are formalizing their adoption of BPO, and a number of providers are adapting to the 'verticalization' of BPO demand," said Rebecca Scholl, senior analyst for Gartner's IT Services program. "However, vendors must be cautious in targeting new opportunities and not target every BPO opportunity that comes along."

Gartner analysts suggest that BPO providers go vertical in a focused manner. As several horizontal BPO offerings become more mature, particularly in the business administration space, services providers should consider expanding deeper into a carefully selected number of vertical-specific BPO services, especially in industries that already have extensive experience with BPO.

"BPO providers need to select targeted opportunities. Do not try to be all things to all people in BPO, which is impossible even for the largest BPO vendors," said Scholl. "This mean selecting the appropriate mix, scope of services, countries and industries to target for BPO opportunism may lead to client disillusionment and unprofitable engagements."

The survey showed that the primary focus of BPO activity has been in the area of human resources (HR). Demand for aggregated HR outsourcing services is becoming more mainstream - the aggregation of multiple HR processes into one outsourcing contract for duties such as payroll, benefits, and HR records management.

As BPO providers have expanded their offerings, the marketplace has become more competitive. "Users can really begin to choose the service provider that is right for their needs, whereas as recently as a year ago, they were very limited in their options," Scholl said. "At the same time, as service providers ramp up their delivery capabilities, they will be less and less interested in acquiring assets and staff from their clients. The market for HR outsourcing will therefore become more challenging for both users and providers during the next three years."

Additional information is available in the Gartner Dataquest Market Trends report "BPO Validated: Verticalization and Aggregation Accelerate." The report examines the North American BPO services market, focusing on marketing, selling, pricing, contracting and delivery strategies for BPO providers. This report can be purchased on Gartner's Web site at www.gartner.com/DisplayDocument?id=385249&ref=g_search.

Gartner, Inc. is a research and advisory firm that helps more than 10,500 clients leverage technology to achieve business success. Gartner's businesses consist of Research, Consulting, Measurement, Events and Executive Programs. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, and has 4,000 associates, including more than 1,000 research analysts and consultants, in more than 75 locations worldwide. Fiscal 2002 revenue totaled $907 million. For more information, visit www.gartner.com.