Spending on business process outsourcing (BPO) services will continue to increase in coming years, but so will clients' expectations for the quality and breadth of vendors' offerings, according to an IDC study whose results were announced Wednesday.
Worldwide spending on BPO services reached US$405 billion in 2003, an increase of about 8 percent from 2002. Revenues are expected to grow at a compound annual rate of 11 percent through 2008, when they will total US$682.5 billion, according to IDC.
In a BPO engagement, a company hands over an entire business process or function to an external services provider. This contrasts with traditional IT outsourcing engagements, which involve the transfer of an IT task or process.
Fueling the demand for BPO services are companies' desire to reduce costs, focus on their core business, obtain new expertise, and increase efficiency and productivity through business process integration, said IDC analyst Romala Ravi, one of the study's authors.
As BPO adoption spreads, companies are also becoming more savvy and are demanding better and more comprehensive offerings from vendors, she said. For example, clients increasingly require BPO providers to have global capabilities and IT and business consulting skills, Ravi said.
Putting a damper on BPO growth is a certain level of confusion that vendors are creating by peddling BPO services too aggressively to their clients, she said. This often results in the client feeling obfuscated and delaying the decision to enter into a BPO engagement, she said.
"Vendors need to find a more phased approach to introducing BPO services to clients," Ravi said.
Vendors also need to understand that the BPO market is made up of a number of different segments, and that each segment requires a significant level of expertise and specialization in order for the vendor to be able to provide high-quality services, she said. IDC has identified nine BPO segments: human resources; procurement, finance and accounting; customer care; logistics; engineering/research and development; sales and marketing; facilities operations; and management and training.