Multimillion dollar deals were the hallmark of 2000. These were multisite contracts that spanned continents and had a varied scope involving more than one process, according to Rebecca Scholl, an analyst with Gartner Dataquest in Mountain View, California. And she believes that trend will continue in 2001.
A good example of the mega deal is the $625 million contract Nortel Networks signed with PricewaterhouseCoopers (PwC). This global company hired PwC to outsource its human resources (HR), finance and accounting, and administrative services at numerous Nortel sites. The biggest deal was the $1 billion 10-year contract the Bank of America signed with Exult to outsource HR and finance and accounting. “This contract is only for the U.S., but it could expand to other regions,” Scholl says.
These mammoth deals are driving BPO growth. Scholl says in 1999 worldwide BPO totaled $207.68 billion. By 2004, she estimates that number will soar to $543.48 billion, increasing almost 22 percent annually in the next five years.
The second major trend has been the emergence of the business service provider (BSP). The BSPs are offering highly automated applications a la the application service providers (ASP). But they “go beyond the pure applications” and offer full BPO services, too.
Scholl says many of the new BSP providers are targeting the small to mid-sized market. This is a new twist, since traditional BPO providers historically have chased the big deals.
ASP Vendors Turning To BPO
In addition, Scholl predicts the successful ASP vendors will enter the BPO market and become BSPs. ASPs will be forced to migrate to BPO to meet the demands of their valued clients. “The ASPs aren’t providing the knowledge their clients are expecting,” she says. One of the swiftest ways for an ASP to complete an overnight metamorphosis is to form a partnership with a BPO provider, Scholl suggests.
The third major trend is the growing popularity of a new way of delivering BPO services: through the Internet. Applications are becoming more self-service. “Internet BPO can be done by everyone,” says the analyst. Scholl reports Web-enabled applications “facilitate collaboration, break down the frontiers of a process, and add value to shared services facilities.”
This year Scholl predicts these shared services facilities will provide multi-client BPO. Throughout last year most shared services facilities still had only their original buyers. The vendors will be able to add more clients to their centers which will generate economies of scale. “It’s been hard to sell a customized solution,” she reports.
When it comes to processes, sales/marketing and customer care will experience the biggest percentage growth from 1999 to 2004, growing 27.87 percent. Finance and accounting (25.80 percent) and HR (23.89 percent) will be red hot, too. Manufacturing services, however, still attract the most dollars. By 2004 this sector will grow 19.12 percent to $242.28 billion. By contrast, HR will only generate $76.44 billion four years from now.
Currently, the United States is the leading BPO market, comprising 52 percent of the BPO dollars generated. In 1999 Scholl estimates U.S. buyers spent $107.97 billion with BPO vendors. That number should grow 22.15 percent in five years, totaling $293.61 percent in 2004.
But three other areas will also experience 20 percent growth during that period. Europe, which cornered 32 percent of the market in 1999, will enjoy the fastest growth of these three up-and-coming regions. “What is new is full blown multi-process BPO,” she says. Scholl predicts pure play BPO companies will appear as the Continent consolidates, moving toward the day when the euro will be a hard currency.
Europeans Take the Long View
Europe, which should enjoy a 20.17 percent growth to $168.32 billion in 2004, is a fertile market for strategic BPO “because Europe has a long term view of things,” reports Scholl, who grew up in France. Europeans “can see down the road and understand the value of BPO.”
Asia-Pacific, which accounted for 5 percent of the BPO traffic in 1999, should grow 21.66 percent by 2004, to revenues of $27 billion. Canada, which held 4 percent of the BPO market in 1999, will grow 20.87 percent to $21.54 billion five years later. Japan and Latin America will each experience 18 percent growth over the next five years, according to Scholl’s figures.
Add all those numbers together and it paints a promising picture for BPO.
Lessons from the Outsourcing Primer:
- Mega deals involving more than one process and totaling more than $100 million arrived in 2000.
- Customer care will be the fastest growing process in the new four years. HR and financing and accounting are red hot, too.
- The U.S. remains the leading BPO country. But BPO is growing by double digits everywhere.
- The European Union and the euro are encouraging strategic BPO in Europe.