New ISG Research: Baby Steps for BPO, Giant Leaps in ITO Spending

Some service delivery trends and emerging client preferences were consistent across the eight specific outsourcing services lines examined in depth in the just-released ISG Momentum 2011 Market Trends & Insights Service Line Report. Buyers of ITO and BPO services alike want access to emerging technologies and service delivery options, including mobile device support, Cloud Computing and X-as-a-Service. Clients are also challenging service providers to create functionality, features and services that are tailored to their specific industry.

Changing preferences for new technologies and services didn’t stop the market, as outsourcing interest and contract activity were strong in most segments. There were a record number of BPO contracts awarded in 2010, and ITO spending was at an all-time high thanks to heavy network spending.

Here are the Top 5 highlights from the ISG Momentum 2011 Market Trends & Insights Service Line Report:

1. Business process outsourcing (BPO) is attracting new clients. A record 759 BPO contracts were awarded in 2010, 20 percent more than the previous year. Many of these contracts (encompassing Contact Center Services, Finance & Accounting [F&A], Human Resources Outsourcing [HRO] and Procurement) were for limited engagements for small companies who are cautiously investigating outsourcing. New interest was especially strong in Procurement, F&A and HRO. Despite the heavy contract volume, total spending in 2010 was down 12 percent from 2009.
2. Strategic considerations slow ITO. The ITO market seemed to pause in 2010 while clients reassessed their information technology strategies. Contract award volumes declined from 2009 in part because clients were heavily engaged in evaluating options and setting plans and policies regarding mobile devices, applications and security, virtualization, Cloud Computing and other issues. ITO contract awards rose 1.6 percent in the Americas while experiencing sharp declines in the EMEA and Asia Pacific regions. The Managed Network Services service line was the unquestioned strength of the ITO market in 2010 and was buoyed by heavy telco-to-telco spending.
3. Clients are bundling up. 2010 saw a decided shift in the ratio between standalone and bundled contracts  as clients opted for more bundling of services. In ADM, Cloud Computing and F&A service lines, in particular, companies are adopting portfolio bundling, in which separate bundles of contracts for outsourcing are created in both business and technology domains. The preference for portfolio bundling and vertical niche expertise is fueling the momentum for multi-provider sourcing. Clients also bundled when they renegotiated contracts or added scope.
4. Mobility is moving the market. The general business trend toward more mobility is affecting the outsourcing industry in several ways. Demand for mobility has the most clear and direct impact on the End-User Computing service line because service providers need comprehensive solutions for supporting an ever-growing range of mobile devices. ADM service providers are increasingly called on to develop mobile apps, and network operators need to manage more traffic. Client executives want mobile access to various business applications and performance dashboards, resulting in needs for BPO service providers to address.
5. (Expert) help wanted. Clients strongly valued expertise in their vertical industry when selecting service providers in 2010. They want solutions that are tailored to their industry or business process rather than general, “off-the-shelf” offerings. Clients also prefer strong value innovation, including Cloud Computing or other emerging platforms for service delivery. Cloud Computing is now sought after both as a transformational and as a cost-reduction mechanism. Additionally there is preference for “business-process-as-a-service” solutions, in which entire functions such as payroll, recruitment and others are procured over a platform on a pay-as-you-go basis.

The complete ISG Momentum report includes individual chapters for each service line that cover these and other developments in detail. For more information contact us.

About the author

Paul Reynolds leads Momentum, a division of ISG that provides research services to help service providers better target, win and retain business. Paul has 25 years of market research experience with specific expertise in methodology development, data analytics and research process design. Having found many service providers’ Advisor Relations functions to lack appropriate analytics, Paul is working to develop innovative new approaches that allow for data-driven programs based on the unique needs of each client. His approach benefits Advisor Relations, go-to-market functions, sales, strategy, marketing, and market/competitive intelligence teams.