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6/11/2008
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Analytics Summary: BPO Survey

InformationWeek's latest poll on enterprise use of business process outsourcing reveals a mix of angst and opportunities.

Concerns over data security and the difficulty of managing business process outsourcing projects are no match for the relentless drive to cut costs, a recent InformationWeek reader poll finds.

More than seven out of 10 companies surveyed are forging ahead with BPO initiatives, even as a sizeable minority expresses dissatisfaction with results. Perhaps even more interesting is that another small cadre of companies surveyed sees BPO not only as a cost-cutting tool, but as a way to push strategic agendas, such as transforming processes or increasing revenue.

Our research also suggests that this will be a difficult transition--and one that not all clients and vendors will survive.

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That makes another key phenomenon we identified seem even more like rolling the dice. Knowledge process outsourcing, or KPO, is an offshoot of BPO that encompasses high-level business processes requiring professional judgment. Think risk management and modeling, even actuarial work. Compare that with less rigorous BPO activities, such as handling customer queries, applications, and orders, and you begin to see the schism picked up by our survey. Is the imperative to slash spending worth putting mission-critical business decisions into the hands of outsiders?

Apparently so, since BPO usage shows every sign of growing. Almost three-fourths of companies say they'll use an outsourcer in the next 12 months. Thirty percent say they'll increase their use, while just 7% will cut back, even as satisfaction is starkly split: Half are pleased, half are neutral or dissatisfied.

For the BPO you work with, in which areas has their performance improved significantly?
Non-IT managers anticipate that BPO use will accelerate at a significantly faster rate than IT professionals do, an important point because it's non-IT managers who tend to drive BPO decisions. Technology pros who think BPO isn't in their future might want to have a heart-to-heart with their line-of-business colleagues.

One thing IT and non-IT managers do agree on is that it's financial factors--cutting costs (cited by 83%) and improving efficiency (73%)--that are primarily driving BPO initiatives. The next most common factors are focusing on new projects or core capabilities. A significant number thought they'd realize savings with offshore labor. These companies might want to check the current exchange rate before spending their expected windfalls.

But back to that "strategic minority." About 20% of respondents take a strong stand that BPO is more about long-term competitive advantage than short-term, tactical gains.

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COSTS CONTAINED
Calculating salaries can help quantify BPO savings. Find the latest pay trends in our annual Salary Survey.
This is, unfortunately, unrealistic. A minority of companies has the range of management skills needed to wring maximum value from deeper, more strategic--and significantly more complicated--relationships. The flip side of that reality is that there's competitive advantage to be had by those that can make it work.

Still, necessity is the mother of invention, and market pressures, ranging from troubles within the financial services industry to competitors' successfully tapping these strategies, may compel companies to move beyond their comfort levels with outsourcing efforts. Building deeper BPO ties with vendors, however, will take even more data sharing and complex contracts, hitting squarely on companies' biggest fears about BPO.

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