Market Maturity Heralding the End of the 10-Year BPO Contract?

IDC believes that increasing maturity of the BPO model as well as increasing sourcing maturity of clients will lead to a shortening of BPO contract lengths. In addition, service providers will have to contend with a growing trend among clients to negotiate a significant restructuring of long-term contracts.

Commenting on the impact of these trends, Mike Friend, research manager, European BPO services at IDC, said, "A shortening of contract lengths will reduce the total deal size of contracts signed in the future and the service providers' forward order book, in turn impacting service providers' planning and investment strategies in the BPO space. It will, however, have a greater impact on contract deal profitability."

Friend added, "BPO contracts, particularly those with a heavy transformational component, tend to become more profitable for the service provider towards the back-end of the contract term, once operational stability has been achieved. A shortening of contract lengths may make certain deals unprofitable and force service providers to seek new service delivery models in order to meet this challenge."

With healthy operating margins, crucial to the funding of future client acquisitions and innovation in delivery centers, already being squeezed by oversupply and growing competition from offshore providers, the impact of this trend on the BPO industry is discussed in IDC's latest study, Market Maturity Heralding the End of the 10-Year BPO Contract?