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Technology / AI and automation

Contracts at risk in BPO market shakeout

Gartner has warned that the combined pressure of market consolidation and loss-making contracts will push one in every four providers of business process outsourcing services out of operation by 2012.

“As providers are exposed to the economic crisis, and loss-making contracts, and an inability to adapt to standardised delivery models, many will struggle to survive in their current form,” the analyst house has said. 

It cautions that enterprise BPO contracts could be put at risk as the market shape changes in the coming years. 

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Some vendors will be acquired. Within the last month product companies like Dell and Xerox have signalled a push into services markets which will take out two BPO heavyweights through their planned acquisitions of Perot Systems and ACS.

But some will go bust, Gartner has suggested, under the weight of carrying unprofitable contract portfolios.

There’s a need to understand what to watch for among BPO vendors that might be caught up in the shakeout it noted, as it released guidance for CIOs and other business executives.

Procurement teams need check vendor profitability and look for evidence of new business activity, but the loss of a big-name marquee customer or over exposure to the banking and finance sector could be seen as danger signals and an indication of a vendor to avoid.

There are three main pillars of BPO industry, pretty much all incorporating some level of technology investment as part of the solution.

Front office takes in activities such as call centre and contact centre management, horizontal back-office such as human resources, finance and accounting, or document management, and vertical back-office processes such as life and pensions administration in the financial services sector.

It makes for a market with massive potential.

In the UK where Capita, Accenture, Xchanging, HP/EDS and Vertex number among the top five suppliers, the BPO market has been estimated at around £100 billion, according to figures produced by Ovum. 

With so much at stake the landscape will change rapidly in the coming years, and Gartner said businesses need scrutinise prospective suppliers very closely.

 
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CBR Staff Writer

CBR Online legacy content.