EquaTerra has their finger on the BPO pulse–results from their quarterly survey.
On a quarterly basis, EquaTerra surveys its expert advisors on BPO market activity in order to deliver critical intelligence to its clients and other interested parties. The following are excerpts from EquaTerras January 2005 BPO Advisor Pulse Survey, which covered BPO market activity from October 2004 through December 2004. The firms next expert BPO advisor pulse survey will be released in late April 2005. The results will be reported in this column shortly thereafter, so stay tuned for more!
BPO demand remains robust.
According to our advisors, market demand for BPO offerings remained robust in Q4 2004. Of polled EquaTerra advisors, 85 percent stated that market demand for BPO services rose sequentially in Q4 2004 over Q3 2004, with only 15 percent claiming that demand remained flat. BPO market activity was predicted to increase in Q1 2005.
HRO is hot, but FAO is getting hotter.
Across all back-office general and administrative functions, HRO exhibited the greatest level of market interest in Q4 2004cited as the leading sector by more than 60 percent of EquaTerra advisors. Within HRO, payroll and benefits were named as the most robust process areas. FAO ran a close second to HRO in Q4 2004 and is expected to increase strongly in Q1 2005. Procurement received the lowest scores of market interest, with a ranking of 54 percent by EquaTerra advisors.
Pricing in BPO contracts is rising.
During Q4 2004, 63 percent of EquaTerra advisors observed BPO price points rising sequentially, while 37 percent observed stable pricing. Advisors saw no indication of falling BPO price points in Q3 or Q4 2004. In Q1 2005, EquaTerra expects to see increasing pricing pressure on BPO providers although their profitability is expected to improve as their service delivery models mature and providers become more comfortable with multiple geographies, self-service and supporting technologies, and overall process improvements.
The dollar value of BPO contracts has increased slightly.
The average value of new BPO contracts cited by advisors in the Q4 2004 survey was slightly higher than in Q3 2004. The average value of a BPO contract was typically in the $100 to $200 million range. Fortythree percent of EquaTerra advisors observed that many new BPO deals are trending upward in terms of total dollar value. There was no indication that the monetary value of BPO deals is getting any lower.
Where are BPO sales cycles headed?
EquaTerra advisors observed that the length of the BPO sales cycledefined as the time period from release of the RFP to signing of the contractwas similar in both Q3 and Q4 2004. In Q1 2005, our advisors expect the BPO sales cycle to remain the same or decrease. BPO sales cycle length is dependent upon several factors, including process areas involved, user organization maturity and resources, services providers involved, sourcing process specifics, and whether sourcing advisors are employed (as well as the capabilities and areas of expertise of those sourcing advisors.)
BPO deal volume is increasing.
EquaTerras advisors cited ongoing growth in the volume of deals in Q4 2004 as compared to Q3 2004. Moreover, EquaTerra expects Q1 2005 will exhibit continued BPO deal volume growth.
The scope of new BPO contracts are stable with upside potential.
The size and magnitude of new BPO agreements remained stable in Q4 2004, yet 28 percent of our advisors indicated an increase in the amount of in scope services (e.g., the number of processes, geographic regions covered, amount of work, and dollar value) or new BPO contracts. EquaTerra expects the scope of BPO contracts to increase in Q1 2005, as compared to Q4 2004.
Multishore BPO scope will increase.
Global delivery models remained critical. The percentage of new BPO engagements with a multishore (nearshore or remote offshore) scope component was the same in Q4 2004 as during the previous quarter. Forty-six percent of advisors believed that the multishore-onshore scope profile will continue to grow through 2005, especially toward more remote offshore transaction processing. EquaTerra finds that, overall, the multishore scope component is dependent upon the scale of a buyers desired cost savings, process areas under consideration, and the buyers culture and multishore receptiveness. Our advisors predicted that multishore elements in BPO will continue to grow in 2005 as part of the overall globalization of the BPO service provider marketplace.
Conclusion?
Its a healthy market out there! And it will be even healthier in 2005.
