AI Redefines BPO Success as Innovation, Outcomes: ISG Study

New ISG research says enterprises expect AI to create another route to meet BPO objectives, challenging BPO providers to prove they have superior expertise and governance

STAMFORD, Conn.--(BUSINESS WIRE)--Enterprise expectations for business process outsourcing (BPO) are changing as companies deploy AI at scale and invest in alternatives to BPO, forcing providers to deliver and demonstrate more value, according to a new research report from Information Services Group (ISG) (Nasdaq: III), a global AI-focused technology research and advisory firm.

The ISG State of BPO Report, published today, draws on a survey of 250 senior decision-makers and ISG analysis of commercial sector contract bookings that show an uneven recovery for BPO since the pandemic. BPO bookings remain below 2019 levels, while bookings for IT outsourcing (ITO) have risen. The survey found that enterprises now expect providers to deliver more work and greater innovation without increasing staff.

Facing intense competition and expecting cascading benefits from AI and automation, BPO providers have begun committing to greater staffing reductions. Seventy percent of respondents expect their providers to deliver more innovation, but only 40 percent expect outsourced staff to increase, and 29 percent expect internal staff to increase.

Cost reduction and efficiency are the top two reasons for outsourcing, as enterprises increasingly look for savings to pay for AI transformation. However, as companies seek to reshape their operations with AI, ISG says the next phase of BPO growth will depend on providers not simply running operations but improving them.

“AI is transforming the way organizations approach efficiency and expertise, and traditional labor-plus-automation services based on service-level agreements are no longer enough,” said Stanton Jones, ISG distinguished analyst and author of the report. “To meet the moment, providers need to measurably improve enterprise outcomes and take the lead on integrating well-governed AI into clients’ operations.”

AI is already widely used in BPO, but AI transformation is often still limited in scope, the research finds. Though more than half of respondents have moved beyond manual or labor-led BPO models, AI is still used primarily for efficiency (reported by 43 percent of respondents) rather than AI-first outcomes (14 percent). Customer experience BPO is most advanced, with only 29 percent of companies still using traditional models and 22 percent achieving AI-first outcomes, while industry-specific BPO lags behind.

Against this backdrop, many enterprises are embracing alternatives to BPO. A growing number of organizations are seeking to insource operations, using AI to achieve traditional BPO benefits such as cost savings, efficiency, capacity and expertise. Highly regulated fields such as healthcare, life sciences, banking and financial services are leading this trend.

In addition, global capability centers (GCCs) have taken on functions that overlap with BPO, especially finance and accounting operations and customer service and support. Ninety percent of respondents said they plan to increase the scope of work handled by global capability centers (GCCs) in the next 12 months. Firms are also shifting BPO functions to software platforms and new categories of service providers such as data aggregators.

Current governance of BPO services often does not recognize the importance of AI, giving providers an opportunity to lead enterprises into the new era, the study shows. Two-thirds of respondents expect providers to lead AI adoption, but only 21 percent of enterprises say they have the internal skills to govern AI-enabled BPO services. Delivery of AI-led innovation is the lowest-rated metric of return on investment in BPO, but also the least measured. By offering clients a new control model designed for AI-led operations, providers can introduce governance and pricing methods based on enterprise outcomes rather than outdated metrics such as transaction completion.

“As more routine work is automated with AI, there is growing pressure on BPO providers to deliver benefits that traditional controls were not built to measure,” said Michael Dornan, ISG principal analyst and co-author of the report. “Providers that can manage exceptions, measure automation impact and remain accountable to industry-specific KPIs will be better positioned to prove value and expand client relationships.”

Additional information on the ISG State of BPO Report is available here.

About ISG

ISG (Nasdaq: III) is a global AI-centered technology research and advisory firm. A trusted partner to more than 900 clients, including 75 of the world’s top 100 enterprises, ISG is a long-time leader in technology and business services that is now at the forefront of leveraging AI to help organizations achieve operational excellence and faster growth. The firm, founded in 2006, is known for its proprietary market data and research, in-depth knowledge and governance of provider ecosystems, and the expertise of its 1,500 professionals worldwide working together to help clients maximize the value of their technology investments.