Gartner says Business Process Outsourcing in Europe will reach €25 Billion in 2004
Global sourcing trends will be discussed further at Symposium/ITxpo in Barcelona 14-17 March 2004
Egham, March 3 2004 — Business Process Outsourcing (BPO) is continuing to gain strength in Europe and will grow 4.5 percent in 2004 to reach €25 billion, according to Gartner. BPO is now the fastest growing segment within IT services, and is expected to grow at a compound annual growth rate (CAGR) of 6.8 percent to reach €33 billion in 2007.
Gartner said the use of offshore resources as an alternative to domestic BPO is also starting to take off and by 2007 offshore BPO will account for 14 percent of the total BPO market compared with only one percent in 2003.
"The BPO market is evolving quickly and we see many US service providers aggressively targeting Europe. Eastern Europe has become particularly attractive because of good delivery locations and many global BPO providers are ramping up their capabilities in Prague, Krakow and Budapest to take on the competition from European BPO service providers and Indian offshore providers", said Rebecca Scholl, principal analyst at Gartner.
"Mergers and acquisitions, such as IBM's acquisition of PWC Consulting and Cap Gemini's acquisition of Ernest & Young, have also contributed to a change. This has enabled the established providers to enter the BPO market, and BPO has over time become a natural extension to the traditional IT services offerings", Scholl added.
Gartner said the desire to focus on core competencies, cost reductions and customer service improvements, primarily by large organizations, are the key drivers to BPO growth in Europe. BPO adoption in transaction-intensive processes such as payroll, card processing and claims processing continue to grow, but are now extending to enterprise processes such as human resources, finance, accounting and procurement. Several large organizations have signed comprehensive HR or Finance and Accounting BPO contracts in Europe over the past three years.
In Europe, the UK leads the way representing more than 50 percent of the total BPO market. The public sector is the most active industry, followed by financial services. Gartner said there is also a growing trend in the UK transport sector using BPO administration processes and BackOffice services.
"Several obstacles are still inhibiting the widespread adoption of outsourcing in France and Germany, such as legislation regarding employee transfer. The cost savings associated with economies of scale and specialisation are tempered by the costs of employee transfer. Beyond the UK, BPO adoption will grow in the Nordic countries, Switzerland and the Netherlands because of stronger cultural acceptance of outsourcing," said Scholl.
Despite positive growth, BPO Service providers are still facing tough market conditions and Gartner said market consolidation will continue in 2004. Understanding customers' service needs, buying criteria and business requirements are key to becoming a market leader. However, many BPO providers offer highly customised services that are difficult to sell twice because other companies may feel that they need a unique set of services.
According to Gartner only 4 percent of CIOs are currently involved in making BPO decisions, with top management making the decisions in 75 percent of European organisations that have undertaken BPO activities. Gartner warned that because business buyers traditionally are less savvy buyers when it comes to outsourcing, this could lead to poor service level agreements and a poor BPO strategy.
"Traditionally, decisions around BPO have been handled by CEOs and CFOs. Moving forward, CIOs must play a stronger role. With their recent experience of offshore outsourcing they are uniquely positioned to provide insight into offshore BPO projects and this will be the stepping stone to get involved in a wider range of BPO sourcing strategies", said Scholl.
Gartner said the top three priorities for CIOs in relation to BPO in 2004 should be to:
Become involved early in the BPO process
Evaluate impact of BPO on their own IT organisation
Help the business craft the appropriate governance structure for retained processes and relationship management.
Global sourcing trends will be discussed further at Symposium ITxpo in Barcelona. 14-17 March 2004. In case you would like more information about the event or speak to an analyst, please contact:
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