As the outsourcing of human resources (HR) business processes grows, companies must devise strategies to determine which tasks should be handled internally and which externally, Gartner Inc. said Tuesday.

Companies will increase their spending on HR business process outsourcing (BPO) 18 percent this year to US$46 billion compared with 2002, Gartner predicts. Human resources is by far the most outsourced business process.

HR BPO spending will continue growing in 2004, reaching $51 billion, according to Gartner. Companies already using HR BPO services will increase "significantly" their investment in the coming two years, Gartner said.

The term BPO refers to engagements in which entire business processes, not just IT tasks, are outsourced. For example, a traditional IT outsourcing engagement would involve the administration of servers and PCs, while a BPO contract would include the actual work done on that equipment, such as payroll processing.

BPO isn't a "monolithic" market, but rather a "vast, mature and growing" area whose "flavors" companies must understand in order to get the most out of these services, Gartner said in a statement. Currently, the two most popular segments in BPO are payroll and benefits services.

In 2004, BPO providers will make their offerings more flexible, giving customers the chance to modify the engagements, Gartner said. Many customers, in turn, will extend their use of BPO from short-term contracts focused on single tasks to longer-term more comprehensive sets of services, Gartner said. Likewise, the goals of BPO engagements will evolve from cutting costs to transforming and improving HR services, according to Gartner.

IDG News Service

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