Sourcing vendors expand beyond Global 500

A survey released in April reveals that business process outsourcing (BPO) vendors are expanding their offerings to smaller companies, bringing BPO outsourcing beyond the realm of only the large corporations.

While Global 500 companies continue to be the target segment for BPO vendors, these BPO providers are beginning to expand their target markets, reads the Gartner release.

Gartner conducted an online survey with 43 BPO providers from July to September of 2002 to assess the maturity of the BPO service provider landscape across a broad range of processes and target segments.

The survey showed these providers continue to primarily target large corporations, but the focus on mid-market companies is increasing. In 2002, 64 per cent of survey respondents’ BPO revenue came from large clients (more than US$500 million in revenue) compared with 75 per cent in a 2001 survey. Another 36 per cent of the 2002 sample targeted companies with less than US$500 million in revenue, compared with 25 per cent in the 2001 sample.

BPO companies are also looking to have a more diversified client list. In 2001, BPO providers were almost unanimously targeting Global 500 companies in the financial services sector, but as BPO gains more attention, Gartner analysts expect BPO to gain interest in other vertical markets.

“Financial services and large corporations are often among the first to try out new business models. Now other vertical markets are formalizing their adoption of BPO, and a number of providers are adapting to the ‘verticalization’ of BPO demand,” noted Rebecca Scholl, senior analyst for Gartner’s IT Services program.

Gartner analysts suggest that BPO providers go vertical in a focused manner. As several horizontal BPO offerings become more mature, particularly in the business administration space, services providers should consider expanding deeper into a carefully selected number of vertical-specific BPO services, especially in industries that already have extensive experience with BPO.

The survey showed that the primary focus of BPO activity has been in the area of human resources (HR). Demand for aggregated HR outsourcing services is becoming more mainstream – the aggregation of multiple HR processes into one outsourcing contract for duties such as payroll, benefits, and HR records management.

As BPO providers have expanded their offerings, the marketplace has become more competitive, Gartner reports.

“Users can really begin to choose the service provider that is right for their needs, whereas as recently as a year ago, they were very limited in their options,” Scholl said. “At the same time, as service providers ramp up their delivery capabilities, they will be less and less interested in acquiring assets and staff from their clients. The market for HR outsourcing will therefore become more challenging for both users and providers during the next three years.”