When Tom Cuthbert looks at the business process outsourcing (BPO) landscape, he sees a panorama in flux.
While some competitors have failed, other companies are moving forward into 2002. Long-term prospects for the industry are mixed, even as some companies solidify their hold on the marketplace.
“2001 clearly was the year that defined our industry,” says Cuthbert, a principal with Optimal iQ, a division of Marketecture and the IntelliSolve Group in San Antonio, Texas. The company provides database integration, analytics, and customer intelligence.
Even as some providers failed, buyers entering 2002 are now enlightened about the need for powerful customer tracking tools. “This defined a greater level of accountability and understanding of how advertising dollars are being spent,” Cuthbert says. “As companies fell apart, that created a greater awareness and need for analysis and tracking.”
Economy Affecting Buyer Decisions
The economy will continue to affect buyers’ and suppliers’ take on the market, and that, in turn, will affect the ability of the customer relationship management (CRM) outsourcing market to grow, notes Christine Overby, a professional services marketing analyst with Forrester Research, a market research firm in Cambridge, Massachusetts. The market will continue to embrace and purchase outsourcing services – once they make it through 2002 and the current recession, she says.
“They’re in a real hunkered down mode with the economy,” Overby notes. “They’re looking to get things off their books and realize cost savings.”
It is likely any recovery or growth in the sector will come from the manufacturing industry, especially from companies “where you see a lot of margin pressure tied to an integrated supply chain,” she says.
This all comes on the heels of a year that saw intense pressure placed on BPO suppliers to deliver real results, she adds. Buyers have been satisfied with the results and use is increasing. But buyers themselves have to make better use of the benefits of outsourcing.
“What has to change is there’s still a need to tie performance back into the organization and steer the freed up resources back into the company’s core competency,” she says. “Managers have not yet tied those resources back into the core competency. There’s no real formal mapping yet.”
Robust Growth Predicted
BPO suppliers will experience continued robust growth, predicts Wade Myers, CEO of Interelate Inc., in Eden Prairie, Minnesota. As an supplier of analytical CRM, intelligence and campaign management solutions, the company is currently seeing clients cutting marketing budgets by upward of 50 percent, he says.
At the same time, they’re realizing the need to make remaining marketing initiatives perform better. This likely will only accelerate in 2002, Myers says. By outsourcing CRM and intelligence, companies will have powerful analytics with less payroll overhead. Meanwhile, suppliers are delivering greater personnel accountability and the ability to access software, technology and skill sets otherwise not available to a single company, he says. Suppliers like Interelate promise greater revenue, reduced marketing costs and shortened cycle time.
Cuthbert sees similar tidings for the industry. Challenging times call for changing practices. While his business strengthened in late 2001, the market is admittedly going through “a necessary evolution.” Marketing agencies, media, Web sites and buyer companies are evaluating budgets as managers demand increased focus on the bottom line. Those who can deliver will win the year in 2002, Myers says.
“People want to focus on ROI and maximize the effectiveness of their ecommerce sites. Without intelligence tools they cannot do that,” he says. “The industry as a whole will begin a slow rebound. Companies will make better decisions financially. Like security companies following September 11, companies involved in analytics and focused on delivering financial security are going to do well.”
Lessons from the Outsourcing Journal:
- Buyers and agencies will focus on bottom line, return on investment and maximizing financial resources.
- Consolidation will continue among suppliers. As the economy strengthens, there will be more buyers and opportunities.
- eCommerce sites require CRM intelligence to grow and be profitable.