Watch out for flaky outsourcing providers

Business process outsourcing, the fastest growing part of the European IT services and sourcing market, will attract all kinds of players and that could lead to high-profile failures, research firm Gartner Inc. warned Thursday.

European businesses looking to outsource activities like human resources, payment systems and inventory management because of the cost benefits, should watch out who they do business with because “there will be many companies jumping in with two feet without a serious commitment to the process delivery model,” said Robert Brown, a Gartner senior analyst.

Business process outsourcing is an immature but rapidly growing market, and service providers will want to be associated with it, according to Gartner. Today’s dominant vendors, such as Electronic Data Systems Corp. and PricewaterhouseCoopers LLP, will face tough challenges from new entrants and companies looking to outsource should “watch out for the newcomer using a BPO (business process outsourcing) label just as a sales tool,” Gartner said.

To date, most of the major European business process outsourcing deals have been signed in the United Kingdom, Ireland and the Netherlands. Business process outsourcing deals are complex long-term deals and will make a company “highly dependent” on the service provider. Few organizations have established the capability to do this, Gartner said.

The European market for business process outsourcing should reach US$38.3 billion in 2002 and grow to 72 billion by 2005. It is the fastest growing component of the European IT services and sourcing market with a 14.7 per cent compound growth rate between 2000 and 2005, according to Gartner.