A quarter of BPOs will not exist by 2012, says study

Gartner is a leading information technology research and advisory company.
“As providers are exposed to the economic crisis, with loss-making contracts and inability to adapt to standardised delivery models, many will struggle to survive in their current form,” Gartner Vice-President (Research) Robert H Brown said.

Six signposts
Gartner has identified six key signposts to watch out for that might herald the predicted market shakeout and has identified the BPO vendors that might be acquired or exit the market outrightly. Some BPO providers are carrying unprofitable contract portfolios, largely stemming from too-much, too-soon pursuit of deals and are without much thought as to how to transition them to a standardised, profitable state of ongoing operations, it said.

Buyers’ vendor selection teams should gain insight into prospective providers’ deals to understand how profitable the vendor is. While most vendors will be reluctant to share this information, those that stand the best chance of longevity will realise that BPO is a partnership and being open about profitability can limit long-term risk to both parties, Gartner said.

Handling multiple deals at once is a necessity in outsourcing, and buyers need to know that a vendor can successfully cater to the needs of more than one customer. A lack of recent new business activity can indicate that a vendor is choking on a backlog of business, it said.

The financial services sector accounts for about one-third of total BPO market globally, and providers with significant amounts of BPO revenue from banking sector were first exposed to credit crunch and ensuing financial meltdown.

Subsequent mergers and acquisitions saw both current and prospective buyers of BPO taken out of play and this exposure could still leave many BPO providers vulnerable in the longer term. While exposure to the banking sector is by no means an absolute harbinger of doom, sourcing executives should be aware of the potential impact if their provider has a significant amount of revenue (more than 85 per cent) as a financial services pure-play BPO vendor, it said.