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Report: BPO companies 'overhype' services

Companies selling their business-process outsourcing services often exaggerate their ability to handle a range of tasks, according to Forrester analysts.

Companies hawking business-process outsourcing services exaggerate their abilities, according to a recent report from Forrester Research.

What's more, business process outsourcing (BPO) will not generate the sort of big deals that large service providers desire--deals that involve taking on more than one kind of business task, according to the report, released Tuesday.

"Enticed by increasing customer enthusiasm, vendors continue to overhype their capabilities," Forrester analysts said in the report. "While a set of smaller BPO specialists build out deep capabilities in a single segment, large players like ACS, EDS and IBM, as well as offshore firms like Progeon, stumble trying to master all of the required BPO competencies."

BPO refers to the practice of farming out tasks such as human resources management, transaction processing and call center operations. Companies that provide information technology services--such as Electronic Data Systems and IBM--have been expanding their efforts in the BPO niche, which is projected to grow. Forrester, for example, expects BPO spending in the United States to rise from $8.8 billion this year to $146 billion in 2008.

Big providers typically offer a broad range of services. IBM, for example, is in exclusive talks for a long-term contract with Procter & Gamble to take over employee services tasks such as payroll, benefits, travel services and relocation services. It has also pledged to develop an efficient procurement system for clients.

EDS has long handled the processing of health care claims. It has said it is investing in its ability to deliver services such as customer relationship management, human resources, and finance and accounting.

But the Forrester analysts suggest in the report that some service providers are running into problems when faced with challenges such as the need to master multiple processes and to manage large numbers of clerical employees.

The analysts also argue that the BPO market will split into smaller segments. They say the biggest of these will be simple bulk transactions, such as credit card or stock trade processing. Such activity will account for $58 billion by 2008, according to Forrester.