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When it comes to the BPO market, buyer beware

A dynamic business process outsourcing market means that CIOs have to be careful they don't get shortchanged.

Scores of vendors are rushing to provide companies with business process outsourcing (BPO). Despite the influx of supply, the hot BPO arena remains very much a seller's market in 2005, said Gartner Inc. analyst Mark Brown. His advice: Buyer beware.

Brown, who offered an overview of the volatile BPO market at Gartner's Outsourcing Summit in Los Angles last week, cited several reasons for the disconnect.

First off, the vast majority of BPO providers -- about 85% -- focus on cost savings, according to Gartner's research. While the field of vendors keeps expanding, the level of expertise has not. The user looking for comprehensive or "transformational" BPO services will find the pickings slim.

"If you're looking to do a comprehensive deal today or possibly tomorrow, as you build that relationship, what we see in all domains is between 0 and 20%," Brown said. "Only one in five vendors who responded to [a] Gartner [study] had the ability to take you from soup to nuts."

As the BPO market grows a predicted 9.5% over the next five years, the full-meal deals will as well, Brown said. "We are going to see more and more vendors uplift to comprehensive relationships, and or some, to multi-domain relationships," Brown said.

BPO market shifting, merging

But don't expect those vendors to do it all under one roof. BPO companies will start looking more like prime contractors, Brown said, providing services through a network of subcontractors.

"The big fish are gobbling the niche players to flesh out that BPO portfolio," Brown said, adding that consolidation is far from over. "What we're seeing in the wake of consolidation is other smaller players bubbling up to fill the void."

The uncertainty in the BPO sector was reflected by the questions submitted to Brown by Gartner Outsourcing Summit attendees. One attendee wanted "the Reader's Digest" version of the difference between business process outsourcing and information technology outsourcing.

"With BPO we're kicking it up a notch, from technological services to the process itself, and with the inherent risk for delivering that process being externalized onto the BPO vendor," Brown said.

Should companies worry if their vendor is acquired? Yes -- unless they have a contract stipulating service continuity in the event of acquisition or includes an exit strategy -- they should, he said. "If a vendor is not living up to his or her requirements, you have to be able to extract yourself."

In Gartner's view there are eight "leading contenders" out there now that can deliver the kind of complex BPO deals that offer transformational expertise, and they "tend to be providers who have a strong heritage in ITO sourcing or management consultant," Brown said. His lineup: Accenture; Affiliated Computer Services (ACS); Capgemini, CGI Group Inc., Computer Sciences Corporation (CSC), Electronic Data Systems (EDS), IBM and Unisys.

Let us know what you think about the story; email Linda Tucci, Senior News Writer.

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