There is only one Lee Coulter. Service providers tremble at the very sound of his name, consultants run for the hills… practitioners flock for advice. And when he isn't performing carpentry or attempting cordon bleu, Lee has the small task of being SVP for Kraft's shared services, where he is a key leader of the firm's corporate transformation program "Organize for Growth". He is responsible for Kraft's IT services, global finance and HR shared service centers, in addition to the firm's BPO activities. He even once threatened to smash up my blackberry.
On a more serious note, Lee has a practical and experienced perspective on how enterprises today should approach global sourcing, and we have enjoyed his exuberance and candor in our buyers' group meetings. Today, we are blessed with the first part of a lengthy interview with Lee, where he is discussing how practitioners should approach global sourcing in this economic climate, how to select and engage the right service partner and how to decipher and execute innovation (yes, I said it) in a global sourcing environment…
PF: Lee, we’ve been through some major developments in the world of global sourcing over the last decade. As a senior operations leader in one of the world’s largest multinationals, what, in your opinion, has worked, and what hasn’t?
LC: Let me start by saying that the global sourcing industry has proven its most basic value proposition, and that is a huge success. There are many skeptics of
this industry, however I’m seeing that they are starting to agree that BPO adds value, and is here to stay. Now within that primary success, there are a few areas that need some attention. I have a top three in terms of growing pains in the industry:
– The global mega deal. Simply put, there is very little truly global scale advantage. In almost every BPO vertical, the synergies stop at regional pairs (by regional, I mean North America (NA), Latin America (LA), European Union (EU), Asia-Pacific (AP), and Central Europe/Middle East/Africa) (CEEMA). There are lots of pairs that you see frequently in BPO: NA-AP, NA-LA, NA-CEMA, EU-CEEMA, etc. It is rare that there is any advantage to including more than two regions either as a client or a provider. All the trends today support a regional best of breed approach. So I would say the global mega deal didn’t work out so well, and the regional best of breed strategy is working pretty well. Now we need to spend some time getting more modular and better at managing the interfaces between providers.
– Multi-client, public utility (MTPU) based services. This has long been a promise of all kinds of BPO services. Generally, companies that have enough scale to benefit from BPO at all, are usually capable of creating single-tenant, dedicated (or private) utility (STDU) based services. While there are exceptions, generally a BPO provider is only capable of the minor scale advantage over the client’s capabilities that comes from running many STDUs for many clients. There are a lot of reasons for why MTPU based services have been difficult, but this is one area that I don’t think has worked so well and I believe it is key to the future of the industry. (btw – I made up the acronyms, but if no one else coined it, they work for me)
– Contracting for successful partnerships. Despite literally thousands of relationships that exist in the BPO industry, the industry as a whole has not cracked the code on how to contract for a successful relationship. It seems there is little science here, and mostly art. If you look at the long term success of BPO relationships (getting completely through the originally intended contract term), it is a bit disappointing. I am certain it’s more about client and provider behavior than anything that is written in the MSA, but I think we should have come farther in being able to predictably create sustainable and satisfying relationships.
PF: We’re clearly at an inflection point in the industry as the fog lifts from this Great Recession. Are companies approaching outsourcing any differently as a consequence? Do you believe companies are investigating more in-house models, namely captives or shared services operations as a result?
LC: I believe there are some basic and unchanging (despite a recession) rules that anyone looking at shared services should consider to make the best delivery model decision. I don’t make a distinction between shared services and BPO. BPO is simply a choice to use an external provider for your delivery model. All the essential components of shared services are present in both models. In BPO, the service agreements and chargeback methods might be more complicated, but aside from that, they are very similar. Regardless of the economic climate, any company should examine process capability, client organizational readiness, short and long term financial goals, level of automation and technology, and risk to make the decision on in-house, captive, modified captive, or outsourcing models.
The limits or thresholds of these key dimensions might change slightly because of the recession, but I don’t think they change the basic questions you need to ask to choose the right answer. I will go one step further by saying that I think there is a natural progression (in-house, captive, modified captive, outsourced) that makes a lot of sense. There are times when skipping a phase is the right thing to do, but generally I recommend anyone looking at shared services get the basics in place as a shared service before looking to turn it over to an external. That doesn’t need to take five years either, but to give yourself the greatest advantage of succeeding in outsourcing, implement a shared service first and move up the sophistication spectrum.
In Part II of this interview, Lee will discuss innovation strategies for global sourcing and service provider management
Folks – I can exclusively reveal to you today that Wipro BPO and Oracle are shortly going to announce a partnership dubbed "simPlify", whereby Wipro will deliver PeopleSoft HR to both mid-market and high-end clients via a hosted utility BPO service, that will cater for 20 major countries. They will also partner with The Hackett Group as part of the arrangement to provide performance benchmarks for HR processes.
The mid-market play is a true move towards "one-to-many", whereas the enterprise play will be a more customized approach. Clients will need to invest
a minimal initial outlay to move into a "pay as you drink" model, based on a per-employee-per-month pricing, to receive PeopleSoft-based HR delivery services, most notably payroll. The industry has been crying out for this for years, and Wipro and Oracle have broken the mold by putting together a delivery model for the mid-market that clients can move onto without huge upfront costs.
Moreover, the yawning chasm of mid-market HR service delivery, which has been under-serviced for PeopleSoft-based HR services in a utility BPO model, is now being filled. ADP, Ceridian, NorthgateARINSO and others will look warily at this move, which threatens to blow-up the traditional model, that has been often plagued by expensive implementations, long inflexible contracts and poorly integrated software. Not to mention Wipro's services competitors which are vying for increased share in the HR BPO market, namely ACS, HP, IBM, Infosys and TCS. Clients in this environment simply cannot shell-out multiple millions to get global payroll and HRMS – managed services with limited Capex is their only real choice today. Bringing hosted software into the BPO model is the answer, and this is a true game-changer in the industry.
Wipro will absorb much of the client implementation costs as they move onto this solution, which they will host across their delivery hubs in India, Latin America, the USA and the UK. They will look to roll-in China and Japanese delivery later in the year. Wipro will provide clients with Level 1, 2 and 3 support, with Oracle level 4. The pair have also incorporated benchmark data from The Hackett Group to help clients assess their performance levels, which is embedded in the software at no additional fee.
More to follow with this trend… the next question is how the incumbent service providers will react, and, interestingly, whether this will put more urgency on Workday to make its BPO partnership move. In addition, we can certainly expect similar BPO/hosted software partnerships to spring up in other BPO disciplines, notably supplier management and finance.
Pictured left-to-right: Puneet Chandra (Wipro), Tibor Beles (Oracle) and Ashwin Bhatia (Wipro) announcing the partnership to a certain analyst at the European Shared Shared Services and Outsourcing Week show in Budapest earlier today.
This Tuesday, we're holding a "World Exclusive", with a distinguished panel of Horses-readers being webstreamed live from the 9th Annual European Shared Services and Outsourcing Week in Budapest Hungary. For those of you unable to make the conference, you will have a chance to take part in the debate via a live blog-cast streamed to a computer near you. I do hope you can partake in the banter.
*World Exclusive* Horses For Sources – Live From Budapest
Deciphering The Business Value Of Tomorrow’s Sourcing Strategies In Today’s Economic Climate
TIME: 8.00 AM Eastern Time, 2.00 PM Central European Time, 5.30 PM Mumbai/Bangalore, 8.00 PM Beijing
I wanted to share a few early snippets from our global sourcing adoption study, which we've been running over the last 2 weeks. And thanks to Global Services Media, Vinnie Mirchandani, William Mougayar, Jason Busch and Dennis Howlett, who have all contributed in helping us reach close to 700 respondents, of which we had 127 enterprise buyers for IT, supply chain, finance, HR and other BPO services.
One of the most enthusiastic leaders in the BPO industry is the man who has overseen Wipro’s rapid rise in recent times: Ashutosh Vaidya. In-between playing squash, watching cricket and clocking up a ridiculous quantity of airmiles, Ashutosh has overseen a series of Finance & Accounting, HR and supplier management wins that have moved the service provider into the BPO industry’s top tier. I asked Ashutosh to share his views of the current state of the BPO industry and what steps need to be take to ensure the continual growth of the business in these times.
PF: Ashutosh, we’ve been through a tremendous development in the world of BPO over the last decade. What, in your opinion, has worked, and what hasn’t?
AV: Indeed the BPO world has come a very long way over the past decade. In fact, 2009 really marks the 10th anniversary of the meaningful 3rd party BPO industry emerging out of India. We have seen significant change in the market, both from buyer and supplier perspectives. Buyer requirements have evolved across the board to enhance the range of processes that they outsource and the way they structure the engagements and what they demand out of a BPO partner. Providers have evolved to keep pace with buyer interests, and in many ways have also influenced the same by creating and demonstrating capabilities which have strongly contributed to the evolution of the buyers’ thoughts. Overall, from my perspective here is what that has worked and what has not:
What has worked well:
• Seamless transition and execution of a broad spectrum of processes across various functions and industries – from simple rule based processing to complex decision/judgement based work.
• Replicating the Services Factory model into BPO services, replicating and further evolving the overall quality models; leveraging concepts like Six Sigma, Kaizan and Lean into BPO services to bring about continuous process improvements. Customers started outsourcing for cost saving but stayed on because of better quality
• Scaling up the people factory in lower cost locations like India, Philippines and establishing Global Delivery models with the inclusion of East European centres in the delivery mix.
• Raising the bar on Risk/Compliance practices – in most cases exceeding the standards in the client’s home country
• Development of a very strong support eco-system (hiring, training, transport, facilities management, etc.) to facilitate 24*7 BPO
• Redefining the concept of ‘Shared Services Centers’ by setting up world class delivery centers – greatly enhancing the concept that started with just the notion of putting people doing similar work under one roof.
What has not worked well:
• Scaling up on the domain knowledge for vertical domain processes… moving up the value chain faster
• Building transformation capabilities – in addition to the process improvement capabilities
• Platform play – it is still in the infancy
• Moving seriously into business benefits, outcome based pricing and a good model of sharing gains.
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?
AV: I believe what companies expect out of BPO engagements is going to change. The objective is no longer going to be only – “my mess for less”. Instead, it will more and more get into asking “can you solve this business problem for me”? Companies are going to view BPO not just as a means of cutting costs, but as a way for changing the operating model for the organization. A stronger need for flexibility, speed, variability of costs as well as a sharper focus on risk/reward is going to come up from the buyers.
Customers are also realizing that to achieve the transformational gains, the business, IT and the Ops have to collaborate on a regular, proactive manner. Pure play BPO is no longer going to be enough.
TCO plays could become more important – partnerships where client + providers work towards reducing the TCO of clients and trying to make it win-win for both parties. Vendors will try and increase the “stickiness” factor by executing different types of deals – ‘5/10 year outsourcing with YoY productivity and penalties for breakage / partial termination’, ‘end to end outsourcing – ITO, Operations, Infrastructure’, ‘Platform BPO plays – where the customer gets hooked on to the providers platform’ etc.
We’ve experienced a significant surge in client requests for BPO services over last few quarters. There is a very serious and determined mindset in the client groups to make this happen in accelerated time frames. This is reflected by the fact that we are seeing outsourcing initiatives being driven hands-on by leadership of line functions and CFOs in several cases rather than the procurement team.
As far as areas for Outsourcing are concerned, the focus is going to be on horizontal functions which impact business metrics and results – both in current BPO relationships and new ones. E.g. how do I reduce my OTC cycle? What can I do to manage WC better? Etc. On the other side, there is keen interest in areas in the true vertical processes which are domain/ technology intensive.
The other trends would be a level of Protectionism – the way this pans out could alter the business projections and business models – e.g. larger share of local delivery centres and near shoring instead of full off shoring to low cost locations. One interesting aspect here is that the this will not keep the offshore vendors out. Unlike in the early stages where labour cost saving was the key driver of the business case, the vendors are now very capable and mature. Even though a local delivery centre may mean no saving due to labour arbitrage, there would still be significant gains from process standardization and transformation that the good vendors can offer.
PF:Do you really see this concept of “Platform BPO” taking off, or are you expecting a lot more of the classic “lift and shift” deals in the coming couple of years? Do you really believe we’re going to see a strong inter-linkage between IT and BPO service delivery in the next three years?
AV: Overall, ‘lift and shift’ deal demand continues to be larger part of outsourcing opportunities. For these cases, the degree of disruption from as-is process environment is relatively lower and clients seek to realize business case built on technology investments e.g. ERP platforms and other applications. However, we are seeing movement away from this to other models like “transform, lift and shift”, “lift and shift with accelerated transformation”, “platform BPO” and “ITO+BPO” type deals. In the last 10 deals we have done, 4 of them are the non-lift and shift areas. Hence, while “lift and shift” will continue, over the next 3 years the % of deals will increase in the favor of non-lift and shift deals.
We really believe we’re going to see a very strong inter-linkage between IT and BPO service delivery in the next 3 years due to the following reasons:
i. Most deals today have a fair amount of transformation or YoY productivity improvements baked in. While six-sigma, lean, shared service creation can give improvements for the first 12 to 18 months, over a 5 year horizon it becomes increasingly difficult to give significant benefits without a technology play. Technology change/rationalization is an extremely important aspect of transformation.
ii. By having both ITO-BPO, the deal size increases, hence making the commercials more attractive to both the client and to the vendor and therefore sharper focus from the vendor.
iii. Monetization of IT / process assets is becoming a reality with the vision of forming industry utilities – giving even more potential benefits to clients and to the providers (at-least a possibility exists)
iv. Cost of Governance – due to large deals, the costs of vendor management comes down for the clients AND the management attention they get from the provider organizations goes up.
v. Change management – often in the clients organization IT and Operations work in silos – but these silos can be more effectively broken in provider organizations…. hence conceptualizing, rolling out and sustaining change initiatives become far more possible.
The potential down side is single vendor concentration risk – but this can be mitigated in multiple ways.
PF: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?
AV: I believe that India based providers will continue to provide thought leadership and retain the pole position from a location perspective at least for the next 5 years. There is significant lead that exists today in talent pool, process maturity, leadership capabilities etc. that the Indian providers will build on and enhance their capabilities for delivering BPO services. This includes an expanding footprint in terms of the scope of services, how they are delivered and from where. The expansion of service delivery from LatAm countries is a natural progression, not just to serve US driven BPO, but also to deliver BPO services to the businesses in those geographies.
It is not only about having good BPO capabilities now – it is about domain, transformation/change and IT-Ops integrated capabilities that will be important. Though other countries are becoming interesting areas from a pure play BPO perspective, India is ahead in though leadership in domain, change, platform and IT…. hence I think India will play a ‘hub’ role. We are also seeing a host of best practices being transferred to other geographies as each of the Tier I players opens up delivery locations in other countries – so to that extent, India will influence/champion best practices globally.
The other countries/continents such as Latin America, central / eastern Europe and China/Asia will play a role for 3 reasons – language, proximity, comfort (for MNCs – a European office will be more comfortable with central European operations than India) and cross country BCM/BCP for critical operations.
Over a 5+ year horizon, non-Indian countries could become important from the perspective of diversification of people (cost inflation) and currency concentration risk ….. this needs to be monitored closely.
China could play a more influential role in the future – not necessarily in 3 years – but in 5 to 10 years due to the talent availability and education focus of the govt. For the next 3 years it will primarily service Japan, Korea and the growing local need from MNCs operating in China.
We also believe that several locations including new emerging countries like Egypt will play a role – in a Hub and Spoke strategy – there would/could be several spokes.
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?
AV: Obviously the service providers have been impacted significantly in the downturn. I believe that the jolt which the industry has received due to the recession can be looked as timely! The industry has seen a phenomenal growth rate over the past few years and most of the providers have not really experienced a difficult and tough environment that we face today. In my view, this jolt is well timed as it provides significant learnings to the India based providers to cope with this environment and learn from it when they are still relatively small in comparison to global peers. This will hold them in good stead the next time the business cycle goes south and they are much larger in size!
Due to the rapid growth, the industry had picked up some negative characteristics over time. Attrition, wage inflation along with a strengthening rupee was starting to be a concern. This recession has given us breathing space to start focusing on our core processes as an organization (e.g. training quality improvement) and building new capabilities (such as platform BPO, IT-Ops integration)
From employee perspective in India, The other aspect which I think is going to be beneficial overall is expectation management. We were getting to a situation where 23 year olds were managing teams (15+) of younger 20/21 year olds! …. And if a promotion did not happen every year, then these same young folks would switch jobs . The current scenario will act as a good wakeup call and will be which is going to be good for the future of our people and the industry.
Valuations have become very attractive, while the ability to invest has also been eroded. As the market improves, we could be seeing some consolidation as smaller niche players may get acquired by the larger ones as they look to expand footprint and build wider capabilities. Some small /medium players will also exit as they will run out of cash. The big 3/5 in India and the big 3/5 non-India behemoths like IBM/Accenture will get bigger due to economies of scale and wide variety of offerings which they will bring together to add incremental value to customers. Having said this, there will be niche providers focusing on specific domains who will also do well if they have differentiated products and good management.
For Wipro, our sustained focus and early decisions on delivering services out of most economical delivery locations has proven to be an asset in a challenging economic environment.
PF: Thanks for your time, we really appreciate it Ashutosh.
Ashutosh Vaidya (pictured) is Sr. Vice President & Head – Wipro BPO Solutions. Industry veteran of over 23 years, Ashutosh is the Head for Wipro BPO Solutions. In this role he reports to the Joint CEO for Wipro’s IT business. His rich experience in the IT industry includes leadership roles in a variety of businesses including Products, Solutions and Services for Global markets. He has spent over 13 years at Wipro and has handled multiple responsibilities in diverse businesses.
Vinnie Mirchandani has his latest take on the constant controversy of third-party researchers, consultants and associations compiling rankings of service providers. This time the IAOP's Global Services 100 is being questioned.
We've also had some banter about the Black Book of Outsourcing on this site, which made such a noise with its constant rankings of service providers, that Datamonitor decided to buy them to hop on this bandwagon. And we've never even got to discussing the Global Services 100, or several other rankings that come out periodically. Moreover, some "analyst" firms make a living ranking service providers, while barely bothering to talk to their customers, and selling white papers to the winners so they can flout their success (you all know who you are).
Personally, as an analyst and advisor, I find these lists useful – I sometimes find out about some provider I didn't know a lot about, and they draw attention to who's doing well at the
moment. But that's all I care about. If these entities produced a directory of service providers, it would be a valuable resource to the industry at large. But that isn't really the case; why produce free information of you can't sell it as marketing collateral?
What worries me is the following:
These entities make the majority (or all) of their revenues from service providers;
However accurate these rankings may be, they always make errors which can cause buyers to make poor purchasing decisions, or service providers to be unfairly discounted from a down-select process
So what can entities to do make these rankings more credible?
If I am advising a client in an area where I need some additional input or validation, I want to talk to the resident expert in that field. At the end of the day, it's the recognized experts who have withstood the test of time that can give you the real deal when it comes to rankings. A true expert in a niche area, for example application development services, would be in constant contact with all the service providers, their clients' successes and traumas, and have a unique view on who really is delivering the goods, versus who is struggling. And we don't really want some fluffy top-ten score, we want to know exactly where each service provider has scale, expertise, language, technology and process acumen. That's the real info customers need. The only benefit of rankings is for service providers to send out press releases boasting about their "performance" and add more marketing vapourware to PowerPoint decks. Oh, and they need to pony up significant cash to whomever compiled the list. But it's cheap point-scoring, so what do they care?
Hence, in my world, a service provider ranking is only really credible when the expert's personal name and brand is attached. Someone is being held accountable, as opposed to some faceless corporate brand, which masks any real accountability. At least an analyst firm is attaching an analyst's name to that ranking list, so that analyst has some skin in the game. A good analyst will normally produce correct performance indicators. A poor analyst will make mistakes, or simply not have good industry connections or guidance, and likely not last long in this economy.
Strong stuff I know, but it has to be said… your views are more than welcome.
So it's coming again this week… the 7th annual HRO schmooze-fest in New York's plush mid-town Hilton. Yes, I've been to every bloody one and I swear this will be the last :)
This time I am assured there will be:
No rubber chicken
No dodgy awards
Lots of buyers
In fact, with the industry enjoying something of a revival, this should prove to be an interesting experience, with focus on the core elements of HR operations: payroll, benefits, recruiting, talent management and HR
technology. They even recruited yours' truly to talk about the latest trends in the BPO industry, and the important role of HR in broader BPO engagements. I'll also reveal some early results from our current survey on outsourcing adoption trends. Come and swing by my session at 1.45pm this Tuesday.
Other things I am looking forward to (with baited breath) are:
Congratulations to our friends at the Black Book of Outsourcing, who have been rewarded for their years of entertaining us with a nice little buy-out by British research firm Datamonitor, which also owns boutique outsourcing advisor Orbys.
It speaks volumes for the Brown-Wilson group
that the leading outsourcing research firm (Source: The 2009 Black Book of Outsourcing "Top Advisors and Consulting Firms") chose to integrate them into their operation:
To quote Mark Meek, Chief Executive of Datamonitor, "I am thrilled to be announcing this acquisition which is exactly in line with our international growth strategy. The Black Book of Outsourcing is a world-leading brand, with a reputation for independent research and a first-class client list. This acquisition provides excellent synergies and strengthens Datamonitor’s position as a key provider of sourcing research and advice, at the critical juncture between vendors and buyers. The counter-cyclical nature of sourcing means it is an excellent acquisition for the Group at this time."
With all the recent fuss in the media and the global sourcing industry about protectionism derailing new engagements, I wanted to set the record straight with some brand new survey data and some views into President Obama's current position, that protectionism is not proving to be as big an impediment behind companies' making outsourcing decisions in the near future as many people have stated.
To this end, I wanted to share some preliminary data from our current survey on global sourcing dynamics that tackles the issues preventing companies from making outsourcing decisions this year:
Barely 15% of 125 buyers currently surveyed view moving jobs offshore as a very important factor preventing an outsourcing decision this year, while close to half view upfront transformation costs and potential disruption to their organizations very important factors. As Professor Bob Kennedy pointed out to us recently, there is a growing chasm between political rhetoric and action. So while people in media, politics and in other settings, whose jobs are unaffected by global sourcing, are publicly voicing their objections, those executives fighting to drive costs out of their businesses and move onto more innovative global delivery models, clearly have other priorities.
Clearly, President Obama needs to put together tactical measures if he wants to deter buyers from using offshore resources, but when you look at his new appointments and current lack of anti-offshoring policy, you start to wonder if he is going to pursue any policies with teeth that will impede offshore outsourcing in the future. The following clip from CNN discussed his recent appointments of Diane Farrell, the former Director of McKinsey's Global Institute, and Jeffrey Immelt, GE's CEO. Both are strong public advocates of a global sourcing model:
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…
PF: We've been through a tremendous development in the world of BPO over the last decade. What, in your opinion, has worked, and what hasn't?
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.
Partnership Approach
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.
There is only one Lee Coulter. Service providers tremble at the very sound of his name, consultants run for the hills… practitioners flock for advice. And when he isn't performing carpentry or attempting cordon bleu, Lee has the small task of being SVP for Kraft's shared services, where he is a key leader of the firm's corporate transformation program "Organize for Growth". He is responsible for Kraft's IT services, global finance and HR shared service centers, in addition to the firm's BPO activities. He even once threatened to smash up my blackberry. 
Moreover, some "analyst" firms make a living ranking service providers, while barely bothering to talk to their customers, and selling white papers to the winners so they can flout their success (you all know who you are).
