BPO Market to Top a Trillion Dollars

Adoption of the xSP model, the arrival of Web services and more cost-conscious customers will combine to drive the worldwide business process outsourcing (BPO) market past the trillion dollar mark, according to research firm IDC.

According to IDC’s report Worldwide Business Process Outsourcing Forecast and Analysis, 2002-2006, the market is undergoing rapid transformation and spending on BPO services, which totaled $712 billion in 2001, will grow to $1.2 trillion by 2006. IDC’s forecast is based on 10 business functions: human resources, logistics, procurement, engineering, marketing, sales, facility operations and management, administration, legal, finance and accounting.

“The use of external service providers in areas such as facility operations, finance, accounting, logistics, legal services, marketing and customer care go back a long time. However, new technologies, delivery models, and a more demanding end-user are forcing both old and new players to reevaluate their current strategies. This is leading to a transformation of the BPO landscape,” said Romala Ravi, program manager for IDC’s Supply Chain and Logistics Management Services research program.

IT service providers and pure-play technology companies are causing the BPO landscape to both expand and converge, according to IDC. The Farmingham, Mass.-based firm reports that service providers looking to enter the BPO space can expect the following:

  • An accelerated pace of industry consolidation and service convergence will stabilize the BPO market and strengthen the BPO value proposition.
  • BPO providers will expand services first along the value chain of their respective business functions, but will expand to other complementary functions, eventually positioning themselves as multifunction BPOs.
  • Organizations, faced with competitive and cost pressures, will be compelled to focus on their core competencies and look for external help in non-core areas.
  • Access to latest technology, as well as the need to optimize technology investments, will drive BPO adoption.
  • BPO growth will accelerate across all business functions. However, the maturity of BPO within each segment will determine the rate of growth.

Jessica Goepfert, IDC program manager and co-author of this study, cautions that service providers shouldn’t see opportunities in the sheer size of a $1.2 trillion market. Tapping the market will take focus and planning. “Uncovering the real opportunities will require providers to define their role, choose specific segments within the overall BPO market, define a value proposition that is aligned with your strengths and the market requirements, and partnering strategically for where the market is going within each corporate function.”

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