Quarter of BPO providers will not exist in 2012

Gartner believes the business process outsourcing landscape is looking negative

One-quarter of the top business process outsourcing (BPO) operatives will not exist as separate entities by 2012, according to Gartner.

Gartner said that market exit, acquisitions, and the ascent of new vendors will rearrange the BPO provider landscape in the coming years, and enterprises should look for warning signs when evaluating BPO vendors to mitigate risk.

“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.

1. Chronically Unprofitable Portfolio BPO Deals
Buyers’ vendor selection teams should gain insight into prospective providers’ deals to understand how profitable the vendor is.

2. Sustained Inability to Win Significant New Business or Drive Growth and/or 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.

3. Loss of Visible, Established Marquee BPO Deals To Competitors Because of ‘Recompetes’ at the End of a Contract Life
For some exposed vendors, the loss of a major, or ‘marquee’, customer can be a leading indicator of trouble, especially if the remaining portfolio of business is small.

4. Capitalization Prevents Funding for Bidding on New Deals
Some heavily leveraged — or risk adverse — vendors may be unable to obtain the necessary investment needed to bid on a business opportunity, however attractive the proposition.

5. Exposure to the Banking and Finance Sector
The financial services sector accounts for about one-third of the total BPO market globally, and providers with significant amounts of BPO revenue from the banking sector were the first exposed to the credit crunch and ensuing financial meltdown.

6. Levels of BPO Contract Cancellation and Re-Insourcing Rise Even Higher
Gartner advises buyers to build exit strategies into contracts and develop contingencies for contract termination, especially before signing the deal.