Despite results, survey of global BPO decision-makers finds enterprises want more cost savings, greater innovation and better customer experience from their BPO programs

Cost savings are the primary motivator for enterprise business process outsourcing (BPO) programs, and new survey research from leading global technology research and advisory firm Information Services Group (ISG) (Nasdaq: III) finds BPO programs are delivering an average of 15 percent savings over in-house operations.

The ISG Market Lens™ Business Process Outsourcing (BPO) Study asked nearly 400 business leaders worldwide about their BPO practices and plans and found growth in BPO demand is largely being driven by cost optimization.

Sixty-eight percent of respondents listed reducing the cost of operations as a top motivator for outsourcing to a managed services provider, followed by efficiency of processes (50 percent) and capacity to support their volume of needs (33 percent). Only around 20 percent of enterprises cited service quality, business growth or innovation as key motivators for outsourcing.

“Business process outsourcing has been largely driven by the need for cost reduction and efficiency—even for customer-facing operations—and on the face of it, BPO has delivered very successfully,” said Michael Dornan, principal analyst and co-author of the study. “Our study respondents said they have achieved cost savings of more than 15 percent, on average, by outsourcing business processes, and have improved their quality performance by an average of 11 percent over running operations in house.”

While enterprises are seeking and have achieved cost savings through BPO, the ISG study found that further cost and efficiency savings are being demanded. At least half of respondents rated BPO’s ability to deliver capacity, expertise and performance as very good or excellent, but only 38 percent of respondents rated the cost savings they had achieved this highly.

“BPO outsourcing has proven to be successful in meeting enterprise capacity needs and providing access to expertise, quality and efficiency, but enterprises rate BPO performance lower for driving direct business outcomes such as innovation, improved customer experience, growth or direct cost savings,” said Alex Bakker, ISG Distinguished Analyst and co-author of the study. “This may be due to the way BPO providers are measured based on specific process outcomes rather than broader business metrics.”

Over 30 percent of outsourced operations have been outsourced for ten years or more, the study found. Despite this maturity, nearly all enterprises studied had made changes to their outsourcing activity over the past two years and expect to make further changes over the coming two years, with those changes almost equally split between BPO expansion and contraction.

The biggest anticipated change involves AI. Around half of respondents said they expect to reduce external staffing through AI and automation efforts. This impact will be strongest for customer operations outsourcing, where 65 percent expect AI and automation to help them reduce external staffing, and weakest (32 percent) for finance and procurement operations, which tend to be less mature and smaller in scale, and where the management of quality and talent is more often a driving factor, rather than cost alone.

New requirements by BPO providers to build efficiency through AI technology solutions are not yet impacting BPO provider decisions. More than 50 percent of respondents cited “industry knowledge and understanding of their business” as one of their top three provider decision factors, while fewer than a third mentioned talent availability and only 12 percent said the provider’s AI and automation capabilities are a main factor in their decision. This highlights the need for providers to be able to both support tasks and understand the broader implications and impact of AI on the enterprise client’s business.

The ISG Market Lens BPO Study was conducted globally in March 2024 and surveyed 368 executives with decision making responsibility for business process outsourcing across finance, accounting, procurement, customer operations and industry-specific processes.

ISG Market Lens buyer behavior studies combine findings from surveys of senior-level global executives with expert ISG research and analysis on market trends and strategic business initiatives. Recent studies explored digital sustainability, AI, application development and maintenance, cost optimization, cybersecurity, global capability centers, network modernization, banking and the future workplace.

Contact ISG for more information on ISG Market Lens research.

About ISG

ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including AI and automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,600 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.

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