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Table of Contents

Everest Voice
Best of Times, Worst of Times for BPO

Focus on Accenture
Buyers Ready For Business Transformation Outsourcing

Focus on EDS
BPO Buyers Seek Stable Suppliers

Focus on Exult
Exult's Business Grows As BPO Becomes Mainstream

Focus on SourceNet Solutions
BPO Business Blueprint for 2002

Focus on Spherion
Executives Hearing Outsourcing's Value

Focus on CRM
CRM Providers Bullish On 2002

Legal Voice
BPO Suppliers Face Renegotiation

Focus on Venture Capital
Payroll Outsourcing Becomes Payday For Suppliers

A Guide for Establishing Service Level Specifications for Outsourcing Relationships

Untethered Organizations - Accessing Leverage Through Outsourcing

Outsourcing Relationships: Why Are They Difficult to Manage?

Business Transformation Outsourcing: Partnering for Radical Change

It was an interesting year for BPO. The industry took two steps forward and one step back. To paraphrase Charles Dickens, "It was the best of times. It was the worst of times" for BPO.

Clearly, BPO is becoming an important business option for companies seeking to cut costs or totally transform their organizations. BPO's increased acceptance is reflected in the fact that large BPO suppliers like ACS and EDS booked over $1 billion in BPO revenues last year. New companies like Exult exploded on the scene. It enjoyed high growth thanks to its compelling ability to create value. Successful suppliers like these have made BPO a viable and profitable segment of the outsourcing industry.

At the same time, some BPO suppliers also experienced setbacks during 2001. A rising tide does not float every company downstream. Last spring we lost LeapSource, a promising finance and accounting supplier based in Phoenix, Arizona that was a victim of the dotcom bubble. Salience, a Boston, Massachusetts-based sales force supplier, found itself losing its biggest customer when Enron declared bankruptcy. A booming supplier is now forced to regroup.

Clear Winners And Losers

The Big Five firms seemed to stumble last year as they developed their BPO practices. The Securities and Exchange Commission is pressuring these accounting firms to divest themselves of their emerging BPO business. The current economic climate is also making it difficult to attract and retain the capital necessary to make significant investments in the infrastructure needed to make BPO a profitable enterprise.

There were clear winners and losers. Accenture has done a good job of navigating these choppy waters. It successfully completed a public offering, giving it access to the debt and equity markets. And Accenture has been able to focus on what I call a new breed of BPO-transformational outsourcing. The supplier derives its leverage by helping clients reengineer their processes in an expeditious manner. This is a viable and valuable business proposition.

Finally, last year we saw the "BPOing" of the IT world. Major IT players have stepped up to the plate and accepted accountability for true business results by being responsible for the entire process. Compaq, EDS, and IBM are now wrapping BPO offerings around their IT services. This strategic move is helping these suppliers improve their profit margins while improving the value they create for their buyers.

An Imbalance Between Supply And Demand

Today, at the start of 2002, the BPO world is in a peculiar situation. Here at Everest we are experiencing the problem that there is more latent demand than qualified suppliers to fill it. Currently, ACS, Accenture and EDS are rising to readdress this equilibrium. New entrants like CSC and FiServe are also working to fill the void. I predict it will take much of this year to get supply and demand back into balance. By the end of the year, supplier capacity will catch up, certainly in the two established BPO arenas: finance and accounting and human resources.

In this situation, suppliers can afford to be selective about the buyers they chose to work with. Hopefully they will avoid the trap of taking on more BPO assignments then they can handle well. I hope all the new BPO newcomers will have enough discipline to focus on just a few formats and deliver them with excellence. If they spread themselves too thin, their poor performance could set the BPO world back several years.

This year I expect venture capitalists to take note of this disparity and attempt to profit from it by funding new BPO suppliers. They may divert their attention from the well-established areas and instead concentrate on emerging BPO processes like supply chain management or niche areas like revenue cycles in health care.

All in all, I expect BPO should have a year of increased acceptance and greater profitability.

Lessons from the Outsourcing Journal:

• BPO had clear winners and losers in 2001.
• 2001 saw the "BPOing" of the IT suppliers who wrapped business processes around their IT offerings.
• Today there is more demand than supply for BPO. This year suppliers will ramp up to remedy the imbalance.
• Venture capitalists will fund new ventures to fill the void.

Publish Date: January 2002

Copyright © 2002 - Everest Partners, L.P.

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