BPO Vendors Seek Clear Role in SMB Market (Executive Summary) Executive Summary

Transcription

1 BPO Vendors Seek Clear Role in SMB Market (Executive Summary) Executive Summary Publication Date: 25 July 2003

2 Author Robert H. Brown This document has been published to the following Marketplace codes: ITSV-WW-EX-0326 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice

3 BPO Vendors Seek Clear Role in SMB Market (Executive Summary) Introduction The widespread uptake of business process outsourcing (BPO) involves a small but growing legion of small and midsize businesses (SMBs). Gartner Dataquest estimates that the business process management market size and forecast for small businesses (1-99 employees) in 2003 is $6.24 billion, and will grow to reach $7.78 billion by The midsize business ( employees) process management market in 2003 is estimated at $11.70 billion in 2003 and will grow to reach $14.94 billion by Concurrent with growth is an intensification of trends that characterize the SMB BPO market. More SMBs are urgently maximizing their internal resources and are intensely scrutinizing any process not core to the business especially since the onset of the economic downturn at the beginning of this decade. Economic recovery over the coming months will necessitate increased agility and competitive edge among SMBs, and assessment of what businesses perceiveascoreandnoncoreprocesseswillincrease.economicrecoveryornot, commercial pressures are magnified among smaller businesses, which perennially challenges them to do more with fewer resources. Knowing where to turn for help in resourcing their business needs in times of boom and bust will be a competitive weapon; trusted outsourcers will increasingly serve in that role. The key challenge for SMB BPO vendors is to clarify their message and differentiators using a language that SMBs can understand. There are so many BPO options available to SMBs, clear choices have become difficult. Meanwhile, vendors have found an underserved market suddenly awash with "would-be" SMB BPO vendors, resulting in a muddied competitive landscape. During the next 24 months, BPO is poised to move beyond the Type A early adopters and into the mainstream among Type B "fast follower" SMBs that want to take advantage of the "norms" adopted by larger businesses especially around outsourcing of essential but noncore business processes. By 2005, more than 50 percent of BPO activity will come from enterprises with less than $500 million in annual revenue (0.8 probability). The remnants of the dot-com boom have spawned a greater openness to new and more interconnected ways of doing business beyond the typical boundaries of SMB, as seen in the high SMB investment in IT (such as applications and networking). SMB owners and CEOs are looking for greater return on investment (ROI). Some even hail BPO as a highly desirable leapfrog mechanism a catalyst to augment or transform the organization people, process and enterprise all through a singular and contractual undertaking. Against that background of revenue growth, outsourcers will continue to learn that SMBs are nervous. At best, they are conservative and focused on the short term in their sourcing and decision making; at worst, they are reactionary and engaging in tactical, day-to-day exercises in pain avoidance. Showing demonstrable business benefits, appropriate references and track record are critical to helping SMBs overcome perceived fears. Take it slow by respecting budget cycles when necessary; in the interim, outsourcers must constantly underscore the business value of their offering. For more information on the buying behaviors of the SMB market, see "Seven More Big Vendor Mistakes Inhibiting SMB IT Sales," COM Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1

4 2 BPO Vendors Seek Clear Role in SMB Market (Executive Summary) Key Findings Key Demand Trends The top three reasons vendors pursue the SMB BPO opportunity are as follows: The high growth of the overall BPO opportunity A 9.5 percent compound annual growth is predicted for BPO through Midsize business BPO demand Seventy-three percent of midsize businesses surveyed by Gartner Dataquest outsource or plan to outsource some portion of their back-office enterprise services through Leverage established capabilities developed to support large enterprises Many vendors have identified SMBs as an underserved and untapped market where SMBs maintain the following characteristics: Use BPO for mostly for intra-enterprise back-office processes (especially Human resources [HR]) Seek BPO primarily to improve service levels, focus on their core business, and reduce transaction costs Demand for one-stop shop providers of BPO services has increased since 2001 The majority of responding vendors estimates their SMB BPO revenue will increase by more than 15 percent between 2002 and Competitive Landscape Established BPO vendors worry that the BPO market among SMBs could be hyped to the point of becoming a meaningless marketing tagline. With so many vendor types flooding the market, SMBs are faced with an array of different delivery models and different "interpretations" of BPO. BPO Supply Strategies Gartner Dataquest recommends the following BPO supply strategies: Most vendor respondents focus their investments and initiatives in 2003 around development of mass-customized repeatable back-office offerings, moving up market to serve large enterprises and developing new process offerings for SMBs. The majority of SMB BPO investment will fund direct sales over channel partners. More simplified SMB BPO models are on the rise, forcing vendors at a micromarket level (subvertical industries such as meatpacking vs. manufacturing), to anticipate needs through structured, but flexible, engagement models. Forty-three percent of respondents' small business customers engaged for BPO via utility-style contracts, whereas traditional, multiyear contracts are the norm among midsize businesses. Growing the portfolio of offerings, while also paying careful attention to regional growth and to developing SMB domain knowledge across sales and delivery, are key vendor challenges for Gartner, Inc. and/or its Affiliates. All Rights Reserved. 25 July 2003

5 BPO Vendors Seek Clear Role in SMB Market (Executive Summary) 3 Recommendations Gartner Dataquest makes the following recommendations to SMB business process outsourcers: Clarify your differentiators Hone value propositions to SMBs that go beyond just dropping costs Heed lessons learned from professional employer organizations (PEOs) Intensify client focus and seek service diversity (but be cautious of being all things to all people) Standardize for scalability Provide customer references they are an SMB requirement Be vigilant about cost of sale Keep relationship management a priority Watch the business service provider (BSP) space because it will become preeminent by 2006, especially for back-office processes Donotexpect"mega"dealsamongSMBs,butsmallbusinessesmaywishto engage for an end-to-end contract Offer seamlessly integrated processes Interoperability make sure it actually works and is not just a sales tagline For the full report, see "BPO Vendors Seek Clear Role in SMB Market," ITSM-NA-MT Gartner, Inc. and/or its Affiliates. All Rights Reserved. 25 July 2003