AI Redefines BPO Success as Innovation, Outcomes: ISG Study

Key Terms

business process outsourcing technical

Business process outsourcing is when a company hires an outside firm to perform routine operational tasks—such as payroll, customer support, IT operations, or back-office administration—so the company can focus on its core products or services. Investors care because outsourcing often lowers costs, improves scalability and flexibility, and shifts operational risks; changes in a company’s outsourcing strategy can therefore affect profit margins, growth prospects and regulatory or service-quality risks.

bpo technical

Business Process Outsourcing (BPO) is when a company hires an outside firm to handle routine operations—like customer service, payroll, or IT—so the company can focus on its core work. For investors, BPO matters because it can lower costs, speed growth, and change profit margins, but it also introduces risks around service quality, data security, and loss of control, similar to hiring a contractor to run a critical part of your business.

it outsourcing technical

IT outsourcing is when a company hires an outside firm to provide technology services such as software development, data storage, network management or cybersecurity instead of handling them in-house. For investors it matters because outsourcing can lower costs and let a business scale faster, but it also creates dependencies and risks—like vendor failures, security breaches, or hidden fees—that can affect a company’s profits and operational stability, similar to relying on a contractor to maintain your home systems.

global capability centers technical

A global capability center is a centralized hub a company uses to handle key back-office or technical functions—like IT, finance, human resources, data analytics or product development—for the whole organization across countries. Think of it as a shared kitchen that prepares services and expertise for many restaurants: it can lower costs, speed up work and concentrate talent, but also creates a single point of operational or geopolitical risk that investors watch closely.

service-level agreements technical

Service-level agreements are written promises that a company makes to customers about how well a service will perform—things like uptime, response time, and problem resolution. They matter to investors because they translate into predictable revenue, customer retention, and potential penalties if the company fails to meet the promise; think of an SLA like a delivery guarantee that affects trust, costs, and future sales.

kpis technical

Key performance indicators (KPIs) are specific, measurable metrics a company uses to track how well it is reaching important goals, like sales growth, profit margins, customer retention, or production speed. They matter to investors because KPIs act like a company’s dashboard gauges—showing whether management’s strategy is working, signaling trends or problems early, and helping predict future earnings and risks that affect the value of an investment.

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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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20260617727266/en/

Press Contacts:

Laura Hupprich, ISG
+1 203-517-3132
laura.hupprich@isg-one.com

Erik Arvidson, Matter Communications for ISG
+1 978-518-4542
isg@matternow.com

Source: Information Services Group, Inc.