Business-process outsourcing (BPO) appears to be losing its steam among medium businesses (MBs, or companies with 100-999 employees) in the United States, according to a study by Access Markets International (AMI) Partners. About three years ago, about 60 percent of the 97,000 MBs in the US did some level of BPO. The level today is the same, in percentage terms: 60% of 99,000 MBs say they outsource some business processes and don’t plan to change their level of spending this year or next.

The most commonly outsourced business processes among MBs are internal (back-office) business functions, such as payroll and accounting. Front office outsourcing, such as customer support/call centers, are only used by 3% of MBs. Spending on BPO services by U.S. MBs totaled $2.4 billion over the last twelve months. In addition, most of these outsourced services are still performed onshore. Only 5% of MBs outsource their business processes to offshore companies.

“The lack of momentum in BPO usage implies that MBs’ wants and needs -- such as improved processes, turnaround time, and cost cutting goals -- are not being met,” said Melissa Chong, a research analyst at AMI-Partners. “MBs in the US have over the years reported revenue growth of 7% - 8%, slightly higher than actual GDP growth. In addition, the need for cost control and decreasing operating costs is of high concern among US MBs.”

On average, MBs earn US $68 million in revenues and employ 200 people and have the business scale to take advantage of BPO. Cost control and instilling greater efficiency in non-strategic processes are the primary selling points of BPO, yet MBs do not seem to be acknowledging or reacting to this benefit,” said Chong.

A key factor may be education.

BPO service providers should share their benchmarking processes and methods to measure performance outcomes with their customers. This could improve the trust and professionalism of the vendor from the MB’s perspective. This is significant alongside other improvements that must be made as the BPO market evolves, such as the way outsourcing contracts are drawn up and standardizing BPO delivery models. These issues are critical to making MBs feel more confident and comfortable in their working relationship with the BPO providers.

About this study

AMI’s "2006-2007 U.S. Medium Business Market Overview and Comprehensive Market Opportunity Assessment" study highlights these and other major trends in the context of current/planned IT, Internet and communications usage and spending. Products and services covered include established and emerging hardware, software, applications and business process solutions. Based on AMI’s annual surveys of MBs across the U.S, the study tracks a broad spectrum of issues pertaining to budgets, purchase behaviors, decision influencers, channel preferences, outsourcing, service and support. Also covered are detailed firmographics and critically important technology attitudes and strategic planning priorities. These data point to key opportunities and messaging hot buttons for vendors and service providers seeking to match their offerings to SB market requirements.

» Story on Analyst Firm Website

» Comments   Digg this    del.icio.us