When he's not tinkering with his fast-cars and rock music, Ritesh Idnani has emerged one of the key guys behind Infosys' prominent rise as a leading BPO provider. But's it's not been an easy ride…when you get up close, you can start to see some grey hairs creeping in to defy those baby-face looks. I've known Ritesh for a number of years and thought it ample time for him to share his views on the development of the BPO industry and what holds for the future in these crazy times…
RI: The emergence of outsourcing is not a new phenomenon. It has been practiced by corporates from the 60’s, but it is only in the last decade or so that corporations have recognized the phenomenon and actively engaging in outsourcing as a lever to reduce the effect of non-core activities contributing to the wrong side of P&L .
Much has changed in the last few years from the initial euphoria of tangible costs benefits. Today cost arbitrage and productivity efficiency is tablestakes. Clients are now looking more closely at their business processes not only to reduce costs and increase efficiencies but also on how tightly integrated processes can actually impact their overall business revenues over a long term.. There is a greater degree of acceptance to work with incremental benefits over a long term, rather than a “big bang” approach that often fails to sustain momentum. We are seeing companies wanting better management of their IP and governance models. Strategic outsourcing, higher risk appetite, bundling of IT and BPO deals are increasingly shaping the nature of BPO deals today.
Service Providers on the other hand have not only been able to build upon their existing capabilities, but also put more skin in the game and are showing a lot more appetite for gain share and other flexible engagement models. I believe that the emergence of service providers who have leveraged technology in their overall business offerings stand to gain in the long term in their ability to provide greater benefits to customer by supporting development, integration and outsourcing initiatives.
Technology also has provided a great impetus to providers to integrate their delivery seamlessly across the world. One of our key customers has their engagement serviced across all our delivery locations, capitalizing on our global reach, nearshore and offshore capabilities.
Today service providers who have a long term vision for the BPO industy have invested in domain and technology to create industry led solutions with a focus on impacting client revenues. The emergence of Platform-led solutions is a strong indicator of the ability of clients to derisk their business from huge capex outflow. In fact Infosys recent wins in the HRO Platform space have made me extremely optimistic of the fact that clients are willing to put their bets on alternative business and pricing models (a core outcome of Platform solutions)
At the core of the BPO industry is people. India Inc recognized this early on and with a sizeable graduate pool, service providers have been able to fuel the growth of BPO here as well as other emerging destinations.
Have we reached a state of an outsourced utopia? Not quite.
Let's talk about an Integrated IT & BPO Approach
Today much as I would like to believe, it is true that within many industries and organizations, there does not exist a single window or a unified outsourcing approach. There is an inherent buoyancy with providers to invest and put more skin in the game when it is a combined IT& BPO deal. Clients don’t have to grapple with integration or silo outputs that have not aggregated bearing on their business outcomes.
- There has been a lot of recent noise around BPO providers not utilizing latest SAAS based offerings that have entered the marketplace. We have been looking hard at these products and have tied up with some of them. Clearly some of them can be up and running much faster than traditional on premise software which actually is beneficial for us and the client. However, we have to balance out the perceived sexiness of these products against the lack of track record and understanding of where these companies are headed, especially since we are on the hook for the business outcomes across the life of the contract.
- We have taken the variable pricing paradigm to technology partners and convinced them in certain cases to license their technology to us on a transaction or business outcome based pricing model instead of traditional upfront license fee.
- To succeed, bundled BPO and technology outsourcing approach has to be supported at the very top, as this involves significant change management within the organization itself and companies have to ready to make some bold moves to facilitate this.
Ability to pay a premium on risk sharing
Sometimes organizations also look at outsourcing their processes and associated risk without willing to bear the cost of premium on the risk share. Clearly clients need to have a more mature and long-term view of the whole initiative and associated risk. Service providers too on the other hand must be committed to make investments and exhibit flexibility in operations to
Moving beyond G&A
I have had some amazing dinner table conversations where clients invariably link their outsourcing expectations and are looking to find solutions to very specific business requirements, be it something as basic as circulation accounting based standards for the Media industry or retail analytics around trade promotions management to drive new product launch strategies and clearly folks are extremely interested to know how BPO service providers can help them. Service providers need to invest more time and effort to contextualize the client or prospects ecosystem and come up with services that impact the cost of revenues and move beyond G&A.
Service Providers too on the other hand sometimes make a scramble for large contracts sometimes without a long term approach or any significant ability to understand the client, the industry and the ecosystem that impacts the client businesses. The inability to have the “right “ conversations with clients often leads clients to make choices based on the ability of the service provider to recommend what they can do “best” as opposed to what should be done best in the client situation.
People /resources Management
Lastly no matter what the breadth or scope of any initiative may be, the ability to impact people positively will be critical to the success of the engagements. Service providers not only need to invest in the right people but also continually scale up the domain with strong training and people practices. Strong academia initiatives and leadership development will be critical to building the right talent pool. From a client perspective, often the business impact of outsourcing and change management initiatives are poorly communicated internally. This leads to tremendous stretch on the management equity to actionize any plans to soften the people impact that the outsourcing initiatives are bound to have,. Clients often spend their resources and bandwidth on expensive communication campaigns that could have been initiated in a phased and optimal manner right at the onset of the outsourcing strategy development along with skill redeployment initiatives. Clearly an adhoc approach is sub-optimal and often yields short term gains coupled with long term pain of not having a strategy in place
The BPO engagement model like any other business imperative is based on trust, relationship, proven domain and above all a mutual desire to grow business and achieve gains and efficiencies in the system. It is not an anathema for poorly thought out business decisions or an alternative to ad hoc cost cutting business measures. Both clients and service providers need to recognize this and work with each other to make this a win all.
PF: We're clearly at an inflection point in the industry as the fog lifts from this Great Recession. Do you see companies approaching BPO any differently? And which areas of BPO do you see developing in the near/long term?
RI: The “great recession” as is being called is really an opportunity for organizations to take a far more closer look at reducing cost, building efficiencies and strengthen relationships with service providers.
I see the overall appetite for BPO clearly on the rise. Companies are under tremendous pressure to cut costs and build in more efficiencies in their businesses. So while there is a strong uptake from clients who haven’t outsourced before, for reducing cash outflows in their businesses, the mature clients are now more receptive to solutions that can impact upstream and downstream processes. In the long term, companies that are willing to integrate their outsourcing decisions with their core business strategies will be able to move ahead at a much faster pace than their competitors. Service Providers on the other hand have to innovate, find quicker and newer ways to adapt to the dynamic market situation and continue to stay relevant.
Much as BPO is about partnership and value creation, it is as much about recognizing opportunities that the new economic climate provides. For example the increasing pace of M&As has been an opportunity to speed time to market of the integration itself. Clearly service providers cannot hope to gain unless they are willing to take the risk and take a first mover advantage
Of late I see a growing trend for clients increasing the urgency to move into a new market and increase their customer base. BPO can play a huge role here, not only with analytics and research but also offer services that align with core business objectives. For example banks can leverage their direct banking strategies in new markets and work with service provider to engage in promotions, customer service and other back office support functions.
The emergence of industry-led BPO solutions, convergence of operations and technology, commercial models predicated on business outcomes, platform based solutions, focus on analytics and legal processes outsourcing will continue to be the levers that will shape the BPO landscape of the future.
PF: What is your definition of innovation within BPO and are we really seeing it in today's engagements? Do you really believe we're going to see a strong inter-linkage between IT and BPO service delivery in the next three years?
RI: We are increasingly starting to see innovation in different facets of the BPO engagement. These include the following areas:
- Engagement model – More and more clients are moving away from a traditional headcount based model to transaction based pricing models.
- Focus on business outcomes – Increasingly, it is our belief that service providers will have to drive their focus on business outcomes in addition to service level adherence. In the past, clients and service providers alike have spent time on quality, productivity, turnaround time etc. But the new paradigm will necessitate the ability to link to an end business outcome whether that means working capital efficiency in the context of F & A, or reduction in the amount of SKUs for a manufacturing unit in their O2C operations etc.
- End to end processing – Historically, there has always been a delineation between what the client has tended to send to a remote location and what they have retained onsite. To ensure greater accountability, it is my firm belief that organizations will move away from traditional process outsourcing to outsourcing entire functions. This will require a shift in operating models, governance, commercial models etc but increasingly business function outsourcing will come into play.
- Commercial models – The traditional models of payment on a per FTE basis are increasingly giving way to models predicated on transaction pricing, pay by the drink, higher order of risk-reward and gain sharing, outcome based pricing all of which will result in a larger risk being assumed by service providers. The key to doing this though will be the ability on the part of service providers to have greater industry expertise in the domains in which they want to operate.
How do you view India's role in the continual development of BPO, and what is your opinion of the emerging Latin countries as nearshore hubs for US-driven BPO? Do you see China playing a more influential role in delivering BPO services in future? Are there other sourcing locations you believe have a pivotal role to play?
RI: India still has a huge role to play in the continual development of the BPO industry and will continue to retain its leadership stature. The primary contributory factor to this will remain the demographic dividend that India hopes to derive on account of the huge population that is under the age of 25. Besides being a huge source of talent, India continues to remain cost-competitive.
Latin American countries, particularly Mexico and Brazil are certainly emerging as near shore hubs for US-driven BPO particularly since they operate in the same economic timezone as the US apart from also offering a cost advantage compared to the US and the ability to offer a business continuity/ disaster recovery site. For some clients, these locations also serve as a degree of comfort for those who may not want to go 10,000 miles away. Increasingly, though, they also serve as the regional hub for global corporations with large Latin American operations as well as to service local domestic companies in the Latin America market. In this context, Mexico and Brazil will remain key centers particularly with the skill sets available there along with the language capabilities available in Spanish and Portuguese respectively.
China is already being extensively used as a key service delivery location for BPO services and our belief is that along with India, China will be a key global hub in the future and not just provide language capability to the Far Eastern Countries. Besides offering a comparable cost advantage like India, China also has an amazing work ethic and a large qualified workforce. The focus on English will make China very competitive. It is also the reason why Infosys is so heavily focused on building its China capabilities.
Countries such as Phillipines are particularly strong on the customer care side, with clients in industry verticals such as financial services, insurance, telecom, manufacturing and media and entertainment. Eastern European locations will also be critical for any BPO provider to ensure that they have a European language and endemic capabilities. Europe is very unique in its cultural and business ethos and providers who recognize this diversity will invest in these regions to build a sustainable European advantage. Infosys today also has capabilities in Brno in the Czech Republic and Lodz in Poland.
PF: And finally, how do you see the service provider landscape playing out in this market? Has this recession come at a good or a bad time for the leading Indian-headquartered providers?
RI: The recession has had a “slam on the breaks” effect around the business world and no one can stay insulated for long. Businesses around the world are bleeding, operating on radically reduced costs and stretching every $$. We all operate in a flat world where the happenings in one part of the world have a direct bearing on the other parts.
What we definitely see is that with the M&A and consolidation dotting the current landscape, the less efficient service providers will have little or no role to play and will either be bought over or cease to be relevant. Niche firms also will find it challenging to scale up. Organizations with strong fundamentals –business & financial, governance models, increased appetite for risk, flexibility will continue to grow and thrive. Further, firms with a full service capability across BPO, IT and consulting will have greater ability to impact client organizations and in that context, Infosys is well poised with its breadth and depth of capabilities.
Today I don’t think being headquartered in India has less or more business implications as compared to non-India headquartered providers. They are all operating in the same ecosystem and most of the India based providers actually are investing heavily in other parts of the world.
Which is also why we believe that Infosys is well poised to emerge successfully even in the current environment. Our operations on the BPO side span Mexico to Manila, Brazil to Brno and Manila to Bangalore and Hangzhou to Lodz. Much of this stems from the fact that players such as Infosys understand that BPO is a global phenomenon and are willing to invest and work with clients who have specific nearshoring/onshoring needs.
Infosys has invested heavily to establish a strong brand presence outside India. It has worked hard to emerge as an employer of choice in all the major markets in which it operates. Clearly, the advantage a company such as Infosys has is that they have is a culture of trust and compassion and strong people practices that resonate strongly in today’s environment. That is hard to replicate.
Further, we have invested in building a world class consulting capability to back our strong technology and BPO credentials backed by global delivery which is something our competitors find hard to emulate. So in an environment where several of our competitors are hurting, Infosys continues to make investments in all its strategic focus areas.
PF: Thanks Ritesh – been great hearing your views.
Ritesh Idnani (pictured) heads sales and Americas operations for Infosys BPO. During his time, the BPO business for Infosys has scaled 8 fold from a USD 40 MM business in 2005 to a USD 316 MM business in 2009. He has held executive roles with PwC and Citigroup prior to Infosys.