Outsourcing: Gartner expects boom in BPO contracting.

Worldwide business process outsourcing (BPO) is projected to reach $133.7 billion this year, an 8 percent increase from 2004 revenues of $123.8 billion, according to technology research firm Gartner Inc., which predicts more activity and development of a "seller's market" for services.

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 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 information technology (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."

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--making it incumbent on companies thinking about BPO to develop a strategy and make decisions soon.