Business Process Outsourcing: New Obstacles to Growth

New survey from Saugatuck Technology indicates critical changes in user perceptions impacting the market for Business Process Outsourcing.

Westport, CT, January 26, 2004 A new reality has become the most critical obstacle to BPO the difficulty of untangling user business processes, and the need for process assessment, design, and management. At the same time, traditional concerns about security, and cultural biases towards keeping everything in-house, are waning.

These are among several key findings from a web survey of senior business and IT executives just released by IT market strategy firm Saugatuck Technology.
Westport, CT January 26, 2004 -- Saugatuck analysis reveals that this difficulty of untangling business processes has resulted from the inflexible architecture of underlying IT applications, and from informal and undocumented process complexities which have evolved over time. For this reason, more than 60% of survey respondents agreed that business transformation is an important part of successfully outsourcing a business process.

Most companies begin outsourcing of business processes in areas that are not core competencies and are easily separated from other processes, says Saugatuck Senior Program Director Michael Isaac, who is directing the ongoing survey project. Payroll, accounts payable, and customer call centers are examples of such processes. But interest in outsourcing more complex processes such as procurement and logistics is rising. Were seeing many companies taking a nothing is sacred approach to evaluation of outsourcing alternatives as they explore all options to increase their competitiveness, says Isaac.

In fact, while the need to cut costs and to focus on core activities remain key drivers for the outsourcing of non-core business processes, BPO as a means of creating competitive advantage is on the rise. More and more, users seek to leverage the service providers process expertise to improve key business metrics such as customer service levels, quality levels, and cycle times.

Other survey findings include:
    Corporate directives. Almost three-fourths of respondents say their companies have issued corporate guidelines concerning BPO. But in most cases, they are directives to explore outsourcing, not top-down cross-enterprise strategies for outsourcing.    
    Offshoring. 12% of current BPO engagements utilize offshore resources. This trend is generally on the rise, but growing scrutiny and backlash will limit its adoption, most significantly in the Public Sector and Education sectors.
    Vendor selection criteria. Track record/reputation is second only to total cost for importance in selecting a BPO provider. This is indicative of the level of risk users still associate with the outsourcing of critical business processes.
    Customer satisfaction. 30% of respondents are not satisfied with their BPO experience to-date. Market growth will be further constrained if vendors do not meet customer expectations pertaining to desired business results.

The BPO market is positioned for continued growth in 2004-2005, concludes Isaac, but only those vendors who demonstrate a track record of deep technology, process, and change management expertise will be able to capitalize on the market opportunity.

Research Survey and Interviews
In November 2003, Saugatuck Technology developed a research program designed to identify key trends and directions in Business Process Outsourcing. To establish a baseline for the research program, Saugatuck developed and implemented a brief, web-based survey of user firm business and IT CXOs, VPs, directors and managers. The survey was conducted by Saugatuck over November and December 2003. The initial data and trend indications are based on 32 qualified survey participants. Follow-up, in-depth interviews were conducted with survey participants to clarify trends and to investigate significant data points.

These initial results are being used to refine and expand the Business Process Outsourcing research program. Saugatuck plans to roll out an expanded survey in the second quarter of 2004. The company plans to publish a comprehensive analysis report including survey data, market trends, and recommendations to users and vendors, in the third quarter of 2004.

About Saugatuck
The company provides research-based consulting services that combines business planning and market assessment with first-hand research of executive technology buyer trends. Founded in 1999, Saugatuck is headquartered in Westport, CT (www.saugatech.com 1-203-454-3900).

MEDIA CONTACT:
Chris MacGregor, Saugatuck Technology
e-mail protected from spam bots
203 454 3900, x251

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