Press Release

STAMFORD, Conn., September 30, 2009 View All Press Releases

Gartner Says One-Quarter of Top BPO Providers Will Not Exist in 2012

Analysts Identifies Six Key Warning Signs When Evaluating BPO Vendors

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

Chronically Unprofitable Portfolio BPO 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.

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. 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.

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. It will always be prudent due diligence to seek and gain a reference from any current anchor clients to understand how committed they are to the vendor and their experiences in dealing with them.

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. In addition to the costs of the bid and proposal, large BPO deals usually require significant amounts of upfront cash investment on the part of the vendor. For this reason, more providers are making investments in platform-intensive approaches to BPO that require buyers to adopt their standard platform and service-level agreements, as opposed to the "lift-and-shift" strategy. Heavily leveraged vendors still invested in the lift-and-shift approach are the most likely to run into problems acquiring funding.

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. Subsequent mergers and acquisitions saw both current and prospective buyers of BPO "taken out of play" and this exposure could still leave many BPO providers vulnerable in the longer term. While exposure to the banking sector is by no means an absolute harbinger of doom, sourcing executives should be aware of the potential impact if their provider has a significant amount of revenue (more than 85 percent) as a financial services pure play BPO vendor.

Levels of BPO Contract Cancellation and Re-Insourcing Rise Even Higher
Cancellation rates among Gartner’s annual BPO buyer survey in 2008 rose sharply from the 2007 data. Therefore, Gartner advises buyers to build exit strategies into contracts and develop contingencies for contract termination, especially before signing the deal. BPO switching costs can be steep, so it’s important to understand contractual issue escalation procedures to ensure that all rational options are exhausted before initiating legal and/or termination discussions.

Additional information is available in the Gartner report “Business Process Outsourcing Vendor Consolidations: Is Your Contract at Risk?" The report is available at

This 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 program to assess and mitigate vendor risks that can help enterprises to minimize business disruption. The Special Report is available on Gartner’s Website at
About Gartner

Gartner, Inc. (NYSE: IT) is the world's leading research and advisory company. The company helps business leaders across all major functions in every industry and enterprise size with the objective insights they need to make the right decisions. Gartner's comprehensive suite of services delivers strategic advice and proven best practices to help clients succeed in their mission-critical priorities. Gartner is headquartered in Stamford, Connecticut, U.S.A., and has more than 13,000 associates serving clients in 11,000 enterprises in 100 countries. For more information, visit

Comments or opinions expressed on this blog are those of the individual contributors only, and do not necessarily represent the views of Gartner, Inc. or its management. Readers may copy and redistribute blog postings on other blogs, or otherwise for private, non-commercial or journalistic purposes. This content may not be used for any other purposes in any other formats or media. The content on this blog is provided on an "as-is" basis. Gartner shall not be liable for any damages whatsoever arising out of the content or use of this blog.