First-Quarter Contracts Blur Health Of BPO Market

Recent market research published by Technology Partners International stirred talk that the business-process-outsourcing market may be running out of steam. According to TPI, the total contract value of all BPO deals signed in the first quarter worldwide fell 55% year over year, from $6.59 billion to $2.99 billion.

So is the bottom falling out of the market? Not at all, says Jack Benton, VP of marketing at TPI. Benton calls the numbers anomalous and notes that the first quarter of 2005 lacked a BPO megadeal to boost the totals. He further notes that there were no major customer-relationship-management outsourcing deals during the period. CRM outsourcing contracts typically carry big dollar values, so their absence helped deflate the first-quarter numbers.

Overall, Benton says, the BPO market is healthy. "We don't see any significant long-term slowdown," he says. Indeed, certain areas within the broader BPO industry are booming. The total contract value of all human-resources outsourcing deals shot up 214% to $1.7 billion in the first quarter, according to TPI. Other strong market segments include finance and accounting as well as procurement.

According to market researcher IDC, the worldwide BPO market could hit more than $600 billion by 2008. With those kinds of dollars to chase, it's no wonder that big IT outsourcing vendors such as IBM and EDS are moving to bolster their BPO capabilities. That, in turn, could increase demand. "We're seeing more mature service providers with proven track records in the market, so that raises buyers' comfort levels," Benton says.

A recent InformationWeek Research study found that simplifying or optimizing business processes is a top-line objective in 2005. Across 300 sites surveyed, most companies say improving the efficiency of business procedures is a priority this year.

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Paul McDougall
Senior Editor
[email protected]

Larger Sites Lead

Will your IT organization implement or support business-process outsourcing in 2005?

Improving the function of business processes might be a common goal for U.S. companies. Yet most sites surveyed by InformationWeek Research won't rely on BPO services providers to achieve this aim. Only 14% of businesses with annual revenue of less than $100 million and a quarter of companies with revenue of $1 billion or more expect to partner with BPO vendors in 2005. Among midsize companies, one in five expect to outsource business functions.