Outsourcing expands its appeal

Business process outsourcing (BPO) vendors are beginning to expand their target markets beyond traditional enterprise customers and seeking business from mid-market players, according to a recent survey by Gartner.

The analyst released the results of an online survey with 43 BPO providers from July to September 2002 which assessed the maturity of the market across a broad range of processes and target segments.

The study showed that, while Global 500 companies continue to be the main target segment for BPO vendors, the focus on mid-market companies is increasing.

In 2001, BPO providers were almost unanimously targeting Global 500 companies in the financial services sector, but Gartner expects BPO to gain interest in other vertical markets.

In 2002, 64 per cent of survey respondents' BPO revenue came from large clients - those with more than $500m in revenues - compared with 75 per cent in a 2001 survey.

Another 36 per cent of the 2002 sample targeted companies with less than $500m in revenue, compared with 25 per cent in the 2001 sample.

Rebecca Scholl, senior analyst for Gartner's IT Services programme, said: "Financial services and large corporations are often among the first to try out new business models.

"Now other vertical markets are formalising their adoption of BPO, and a number of providers are adapting to the 'verticalisation' of BPO demand.

"However, vendors must be cautious in targeting new opportunities and not target every BPO opportunity that comes along."

Gartner analysts suggest that BPO providers need to 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.

"BPO providers need to select targeted opportunities. Do not try to be all things to all people in BPO, which is impossible even for the largest BPO vendors," said Scholl.

"This means selecting the appropriate mix, scope of services, countries and industries to target for BPO. Opportunism may lead to client disillusionment and unprofitable engagements."

The survey also showed that the primary focus of BPO activity has been in the area of human resources (HR).

Demand for aggregated HR outsourcing services - the aggregation of multiple HR processes into one outsourcing contract for duties such as payroll, benefits, and HR records management - is becoming more mainstream.