Gartner sees trouble ahead for BPO

Analyst firm Gartner predicts difficulties for firms outsourcing business processes

Half of business process outsourcing (BPO) deals will run into difficulties over the next three years, according to a new report from analyst Gartner released this week.

The study - entitled Hype Cycle for Business Process Outsourcing, 2006 - warned that many forms of BPO had become over-hyped and that a high proportion of current BPO relationships will experience cost overruns and unacceptable service delivery quality.

Lisa Stone, research vice president at Gartner, said the report found that many BPO deals were suffering from a "misalignment" of expectations between customers and BPO providers.

"BPO is far more complex than IT outsourcing as it is a multi-level phenomenon dealing with both technology and business processes," she explained. "While it is relatively simple to define technology, people define business processes in different ways and they may not synch up. For example, while you believe payment processing goes from A to F your supplier may understand it differently."

Stone said this means firms must be more thorough in the due diligence phase, prior to signing BPO contracts, and should clearly define what they expect.

The report also warned that IT managers used to relatively mature IT outsourcing services need to be aware that the maturity of BPO services is far more mixed, with areas such as contact centre or payroll outsourcing fairly mature, while more complex BPO services are less well developed and are still subject to inflated expectations.

Stone said that this immaturity is particularly apparent among the BPO start-ups that have emerged in the past couple of years, seeking to cash in on the growth of the market. "We've seen a lot of start-ups that call themselves BPO providers, but lack the deep domain knowledge and process excellence you need to be successful," she warned.

However, Stone insisted that the current over-hyping of BPO does not pose an insurmountable problem and predicted interest in the business model will continue to grow. "BPO is hugely underexploited and it is not going away," she said. "The larger BPO providers are committed to resolving the industry's problems and can expect solid long-term growth."