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BPO Journal

Tuesday, April 17, 2007

BPO slowdown paradoxical?

The recent TPI outsourcing index suggests a significant slowdown in the number and total contract value (TCV) of BPO contracts inked in the first quarter of 2007. Tekrati reports:

The downturn in overall outsourcing contract activity is exemplified in the decline of Business Process Outsourcing (BPO). This quarter experienced the smallest number (29) and lowest TCV of BPO contracts greater than $25 million being awarded in almost five years. The BPO share of the broader market TCV was down 50 percent quarter-on-quarter and 66 percent year-on-year. The adoption rate of BPO has hit a soft patch and is expected to grow at only 2 percent year-on-year, which is well off the double-digit pace of prior years.

This one's a paradox. In the early years of outsourcing, organizations knew little about how to disaggregate strategic processes from their value chains and manage them across organizational boundaries. Not surprisingly, the management of BPO relationships was more complex, expensive and time-consuming than anticipated, and firms experienced hidden costs related to contract administration, profit margins, and in-house management. Yet, the growing dissatisfaction with BPO arrangements was accompanied by an allied increase in the number of BPO contracts inked.

Now, as organizational learning enhances management of BPO relationships and the ensuing odds of BPO success increase (evidenced in numerous industry reports, the most recent being Duke University's Offshoring survey results), we're finding a dip in the number and TCV of BPO contracts.

Explain this paradox.

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