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Reaping the Benefits of Business-Process Outsourcing
Most large companies outsource some business activities, often support functions such as payroll processing and IT operations, but even marketing services and manufacturing. Within the past few years, the pace of business-process outsourcing (BPO) has picked up dramatically, as companies have started to outsource broader business processes - particularly ones supported intensively by technology, such as human resources, finance and accounting, procurement, supply chain management, and customer care.
But business-process outsourcing is risky. McKinsey research on 35 large BPO deals, conducted in 2002, found that companies fail to get some or all of the expected benefits of the initiative in up to two-thirds of all instances. Similarly, several studies of IT outsourcing agreements and two recent studies of BPO deals found that about 30 percent of these agreements had to be terminated. The contracts of an additional 25 percent had to be renegotiated within two years of their being signed in order to change key elements of the deal, including the scope of the activities covered, service quality requirements, and pricing.