6 reasons why 25% BPOs will perish

[jayanthi mandhalapu]

: At least one-quarter of the top business process outsourcing (BPO) firms worldwide will not exist as separate entities by 2012, accor
ding to IT market research firm Gartner.

Predicting a market exit for a number of players, Gartner said acquisitions and the ascent of new vendors will rearrange the BPO provider landscape in the coming years. Enterprises should thus look for warning signs when evaluating BPO vendors to mitigate risk, warned Gartner.

"As providers are exposed to the economic crisis, loss-making contracts, and an inability to adapt to standardized delivery models, many will struggle to survive in their current form," said Robert H. Brown, research vice president at Gartner. "Some will be acquired and some will exit the market completely to be replaced by dynamic new players delivering BPO as automated, utility services."

Gartner has identified six key signposts to watch for that might herald the predicted market shakeout and identified which BPO vendors might be candidates for acquisition or outright market exit.

The research is part of the Special Report "Assess and Manage Vendor Risks to Protect Your Business." The collection of research helps CIOs and vendor managers to develop, implement, and manage a comprehensive programme to assess and mitigate vendor risks that can help enterprises to minimize business disruption.

Here are six reasons according to Gartner that will deeply impact the BPO players in the years to come. Read on...

Chronically unprofitable portfolio deals
Some BPO providers are carrying unprofitable contract portfolios, largely stemming from 'too-much, too-soon' pursuit of deals, without much thought as to how to transition them to a standardized, rationalized, profitable state of ongoing operations. Buyers' vendor selection teams should gain insight into prospective providers' deals to understand how profitable the vendor is.

While most vendors will be reluctant to share this information, those that stand the best chance of longevity will realize that BPO is a partnership and being open about profitability can limit long-term risk to both parties, said Gartner.

Inability to win significant new business or drive growth/profitability
It is important to gain insight into the vendor's track record of winning new business, particularly over a sustained period of two to three years. Handling multiple deals at once is a necessity in outsourcing, and buyers need to know that a vendor can successfully cater to the needs of more than one customer. A lack of recent new business activity can indicate that a vendor is choking on a backlog of business.