Index Insider: The State of BPO in 2026

Hello. This is Stanton Jones with what’s important in the IT and business services industry this week. 

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What You Need to Know

Enterprise demand for BPO services remains solid, but the environment is only getting more challenging for service providers as AI expectations rise and competitive pressure mounts. One outcome: providers are committing to greater FTE reductions than ever before. 

Data Watch

Background

This week we released our 2026 State of BPO Report. The good news for providers is that enterprises continue to use business process outsourcing (BPO) to reduce cost, improve efficiency and access operational expertise.

But BPO providers also face a lot of emerging challenges: 

• Buyer expectations are changing – and fast. Enterprises now want providers to increase output, improve service performance and support transformation without proportional increases in headcount.
• Contract values continue to decline, forcing executive teams to improve sales productivity and reduce cost to serve at the same time.
• The current BPO delivery and commercial model is also showing strain. Transformation activity is widespread, but value is uneven.
• Enterprises also now have lots of alternatives to traditional BPO. They can use AI-enabled insourcing, global capability centers, software platforms and new categories of service providers to run and optimize work that was once only the realm of traditional BPO providers.

It’s a combination of these pressures that is leading to what we’re seeing in this week’s Data Watch. To win contracts today, providers are committing to reduce FTEs tomorrow. This is not new – it’s how the industry has worked for a couple of decades.

What is new is how fast the reductions are taking place. The same thing is happening in IT – as we talked about here. And our message then was the same: increased competition in the managed services sector and expectations for AI are driving the speed and scale of these reductions.

The race to infuse generative AI into managed services is going to be fast and furious. But that’s more about how the work gets delivered. The important question is whether providers can move from simply running operations (with humans, AI or a combination of both) to improving them.

This will take providers moving beyond the labor-era control model and toward a new AI-focused model that improves industry- and domain-specific KPIs. Providers that can help clients make that shift will be better positioned for the next wave of BPO growth.