Choose carefully as BPO spirals

Business process outsourcing, the fastest growing part of the IT services and sourcing market, will attract many players and that could lead to high-profile failures, warns research firm Gartner.

Businesses looking to outsource non-core activities like HR, payment systems, inventory management, supply chain management and CRM services because of the cost benefits, should evaluate the outsourcer carefully because "there will be many companies jumping in with two feet without a serious commitment to the process delivery model", said Gartner senior analyst Robert Brown.

Ed Binney, CIO of IT researcher Ideas International, agreed with Brown's warning. He said his gut feeling is, for an integrator or services firm specialising in, say, CRM or ERP type implementations, it's the next big thing to get into.

"You start extending your model to do the functional outsourcing in areas like business process," Binney said.

Business process outsourcing (BPO) is an immature, but rapidly growing market.

Gartner said that by 2005 most Australian organisations will outsource a wide range of business management functions to BPO providers with mega deals and selective deals hitting fad status.

Overall, BPO and re-engineering is a discipline where both the client and the provider should know what they are dealing with so they can get it right, Binney said.

"If you've got a [business process] that's failing, don't outsource it, because it won't be some miraculous solution. The risk factor in BPO will depend on who the player is."

Binney said companies also forget the cost to management of outsourcing, "You can lose a lot of intellectual capital because the outsourcer is serving a general market so won't necessarily bring the best ideas to the table."

Binney said with traditional services firms like EDS, CSC and IBM GSA in a head-to-head battle, the natural trend will be for smaller BPOs and integrators to try and take over this space.

According to recent research by Gartner, BPO appeals to 31 per cent of CIOs because of its cost reduction opportunities.

"CIOs find they also save time, increase their management skills, improve customer service and quality of information, and increase efficiency through [BPO]," Craig Baty, group vice president for Gartner Research Japan and Asia Pacific, said.

However, BPO was unpopular with 26 per cent of CIOs, who said outsourcing had cost them more than keeping the work in-house, with 50 per cent claiming it was inefficient.

Baty attributed these results to confusion in the regional marketplace over the benefits of using BPOs and scant knowledge of the large number of suppliers besides the big-name providers.

Business process outsourcing deals are complex, long-term deals and will make a company "highly dependent" on the service provider. Few organisations have established the capability to do this, Gartner said.

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