While we can all obsess about a future where any work requiring any sort of basic logic will be automated, where we won’t even need to think anymore, because machines will do that for us (in fact, we won’t need to do anything anymore except exist, or maybe play golf or twister or something…), the market for good old-fashioned BPO is quietly picking up very nicely as several smart providers, quite simply, are getting better at developing offerings that are much more effective, profitable and scalable.
One such service provider, which has been quietly going about its business very effectively of late is EXL, which has been enjoying a record stock price this month and very healthy improvements in profitability and revenue growth this year.
I first met a fledgling EXL before the firm went public, back in 2006, and was immediately impressed by the hands-on steely determination of its CEO, Rohit Kapoor, and his close-knit team of process-obsessive young managers. Fast-forwarding a decade, and that same firm has passed the half-billion dollar revenue threshold, developing deep process niches in verticals like insurance, banking and healthcare, while building out real global depth and competency in analytics and finance and accounting. And it’s this breed of provider which is really beginning to thrive in today’s As-a-Service Economy – small enough to be nimble to cater for needy clients, large enough to take on complexity and scale, and resourceful enough to lay the groundwork for multi-tenant As-a-Service offerings for the future.
So without further ado, let’s drag Rohit away from the golf course (where he’s probably upsetting yet another of his clients by not letting them win…) and hear his views of how the industry has evolved and how he intends his firm to evolve with it:
Phil Fersht, CEO and Industry Analyst, HfS Research: Rohit, it’s great to have you with us today. I think I’ve known you nearly 10 years – and it’s the first time we’ve had you on HfS to talk to our audience. So maybe you could give us a little bit about your own career background, what you started out doing and how you ended up running a major BPO firm like EXL?
Rohit Kapoor, Vice Chairman and CEO, EXL: Hi Phil, thanks for having me on – great to be here! I started my professional career with the Bank of America in India, ,and came to New York 25 years ago to establish a new business unit for the bank dealing with High Net Worth Individuals, helping them manage their money. As part of this, I started to make a lot of private equity investments into the Indian IT services companies, which were just growing up at that stage. These were highly under invested companies, not very well known in the public market, and there were a lot of myths around them. But as I dug deeper into these companies, I saw the leverage and power of the business models of the firms in this space, and you know ended up doing really well for some of my clients and making outsized returns for them. So that’s what led me to set up EXL with the concept that if you could do this for IT services and leverage the offshore delivery model, why can’t you do this for back-office operations. It’s now been 16 years with EXL. We continue to have fun and continue to enjoy growing this company and be successful.
Phil: So, Rohit, where do you think the industry is today? It seems like there’s an awful lot of noise circling around, in terms of shifts towards automation and new types of delivery models. Do you think the industry is really changing this rapidly or do you think it’s a lot more rhetoric than realistic business practices, right now?
Rohit: I think the industry is going through what I would call its growing pains. There are points of time in the industry’s evolution where things become a little bit hazy and there is a lot of talk and divergent viewpoints. Then ultimately a few companies break out, move through the clutter and show leadership and direction to the rest of the market. Then everything gravitates in that direction in a much more clear-headed way. Our industry is going through one of those phases where there are a lot of buzz words being thrown around and different things mean different things to people. One example is when people talk about digital, they talk about analytics, they talk about automation, they talk about outcome-based models, design thinking, platform BPO or talk about products. There are a number of different elements that get tossed around, and the fundamental underlying clarity is just beginning to emerge. It’s an exciting period. Companies that deal with these types of issues at a much more fundamental level and get it right and be really successful for their clients and for themselves, and others will struggle to change. So we are in that period of disruption in our industry right now.
Phil: I recently came back from a visit to India, where I met with a large number of service providers and their clients. I got the distinct impression, with maybe a couple of exceptions, that a lot of them have their heads in the sands a little bit. They don’t seem to think that there is a disruptive wave coming, and things are going to carry as on business as usual, for the next 3 or 4 years …and this interim panic will soon blow over. Is this something that you are seeing as well – and does that concern you?
Rohit: Yes. Absolutely, Phil. I think you know a number of companies that have been successful doing work the traditional way, and so many of them believe that staying with traditional models might be the right way to do it. Others are certainly being more adventurous and embracing changes that clients and the environment are pushing them toward. Some are proactively adopting some of these changes, and in many cases either cannibalizing their existing business or completely adopting new models. The tipping point has not yet been reached, but a few companies will actually accelerate their growth rates and end up showing the rest of the industry how you can adopt these new models and take the business forward. Just take the example of moving from traditional BPO towards BPaaS. Right now there seems to be a fair amount of confusion between the ownership of the technology assets working in what I would call a platform BPO model compared to true BPaaS. There’s a very, very important difference there – the ability to offer the service and the technology over the cloud, to have it be multi-tenanted. Those are distinctive features of BPaaS, as opposed to having the platform and offering BPO on it. There’s very little leverage with platform BPO, whereas in BPaaS there’s tremendous leverage. So some of those models are, as you know, being explored and a few courageous companies will get that right.
Phil: It’s interesting with BPaaS, Rohit. I think we’ve seen quite a lot of success in the market around platforms like Saleforce.com and Workday in the HR and CRM spaces. But it seems to be a lot more of a challenge for companies in banking, insurance and other disciplines, such as F&A, for example. Do you think that this challenge will be overcome eventually, and BPaaS will eventually take off at an industrial scale? Or do you think it’s a very slow gradual transformation, for most firms?
Rohit: I think this is a definite trend, Phil, which has very strong, fundamental drivers to it. Clients are looking to variablize the cost structure completely and want new choices to manage risk associated with technology as well as with the service. Everybody wants to have best-of-breed technology in place and the flexibility to make changes to that underlying technology platform, both in terms of functionality and cost structure. We are seeing the evolution and creation of disruptive companies with aggregator and network models, and as you move toward these models, BPaaS is going to be a critical component. The companies you referenced, Workday, NetSuite and Salesforce, all of these are what I would call software technology platforms on a SaaS model. The trick I think for us is going to be how can we leverage the same SaaS architecture to provide services in a manner that’s got operating leverage on it? It’s not just a matter of providing service alongside Workday, Salesforce or NetSuite. It’s how you take that service and scale it to get the benefits of a much lower marginal expense for every incremental piece of business added to it and then pass on that benefit to your clients to share in that reward.
Phil: Indeed, Rohit. It seems for this model to be successful, it’s going to take a provider or two to say “I am going to take on a bunch of BPaaS-based initiatives with my clients for the next couple of years, and I am going to work with them at a very low margin to build up a base that I can sell as a multi-tenant solution of people plus technology”. Is this something which you people at EXL are doing and you can see other companies being successful at it? Or do you think it’s still a long time coming?
Rohit: Phil – good question – we’ve certainly started to work on this as this is not a long time coming. Initially, we are trying to tackle non-core areas for our clients which, irrespective of their size and scale, they have been willing to adopt. Let me give you an example. We’ve built a product for an area that is increasingly standardized and a lot less customized called MedConnectionSM that, at the heart of it, summarizes medical records for insurance claims. So in the claims process when someone is hurt, we take all the medical files, a whole host of documents anywhere from one page to 400 pages, and this tool will summarize all of that information into a readily accessible digital format available over the cloud that can be accessed by the adjustor who is settling that claim. Adjusters can look at these records, get the summarized content and be able to make decisions far more nimbly, effectively and accurately than you could previously, and its priced per document, not on a per-FTE basis or the amount of time that it might take somebody to do this. So, we’re road testing and creating several of these kind of examples, predominantly in our core industry verticals of insurance and healthcare, where we have the maximum subject matter expertise, understand the pain points, see where can we create this type of functionality and deliver the maximum value – to not just one customer but several. That’s what the model is based upon.
Phil: When you look at EXL’s role in running a number of clients on this BPaaS model, Rohit, does this mean you are going to have to look to scale up in terms of the different types of skills you need and capabilities, you are going to have a look at more analytical workers, you’re going to have a look at more creative folks to support clients? Where do you see the real investments need to be made?
Rohit: Yes. I think this requires a sea change, Phil. First, we already have the domain subject matter expert. So that’s a good starting point, but it requires us to invest in the resources to architect and build these technology platforms. Right now we’ve got about 300 developers just focused on creating these types of tools and technologies to enable the commercialization of this kind of SaaS and BPaaS functionality.
We are then, layering on top of this, resources to embed analytics into product functionality. Then it also requires a retooling and retraining of our sales force because the skills and ability to take this to market, communicate and sell this are very different than selling traditional FTE-based models. So it’s actually the technology, the analytics and the frontend that needs to be retooled in order to make this successful.
Phil: I think this jives very much with the perception I came away recently from my India trip. I saw a real passion for process which we always knew existed, combined with a passionate analytics capability, which I think is still poorly marketed, in general, by most providers. But also, I did see some very good quality robotic process automation initiatives that were taking place within some of the India-based delivery centers. And these are simple things – they’re not rocket science – and are really helping improve the flow and throughput of certain processes. And I do think India has a really strong role to play in RPA analytics, as well in some of these BPaaS type delivery solutions. I just sense it will be a little bit of a while before we can see the true potential, and there is still a bit of shyness and trepidation, in terms of pushing the model heavily. Is it something which you are seeing as well, when you look at the real core strengths of a company like yours?
Rohit: Yes, absolutely. And you know we’ve invested our own which we call the Business EXLerator Framework™. What that does is it optimizes a client process end to end, leveraging a number of different skill sets — Lean Six Sigma, technology, business process automation, robotics, analytics — in an integrated, real-time fashion. The way to think about it and the way we are applying it, particularly for robotics, is we bifurcate the processes we handle for our clients into complex and simple processes.
The simple elements of our processes are where we apply a lot more of technology automation applied in two ways. Number one is to eliminate that exception altogether, or number two to roboticize it, so we can automate those processes totally without manual intervention. So whether it’s the elimination of the process itself or it’s the smarter more mechanical and automated way of dealing with it, which we call advanced automation, we are applying those types of techniques.
For complex processes, we adopt a number of tools to manage them a lot more efficiently and increase the effectiveness of the processing capability. We leverage the full skill set of analytics, work-flow solutions, benchmarking, lean sigma and we’ll make that a lot more efficient for our clients.
Phil: So I’m going to ask you one final question to share with our readers, Rohit. You’ve been around this industry, really, since the early days, so if I could anoint you as the Emperor of BPO for one whole week – and you had one wish that you could have granted – what will that be for this industry?
Rohit: Well, I think you know this industry really needs to have some real clarity in terms of the direction in which we all need to go. That clarity is in terms of providing the business outcomes to our clients and to be focused on outcomes first, understand what needs to be achieved, and then figuring out different ways of getting there. So whether it involves the Business EXLerator Framework, BPaaS, creating new products, new automation, using analytics, all of that needs to be centred around outcomes and having a very clear blueprint of what the outcome should be. So I think some of that is actually outside in-thinking rather than inside out-thinking, and if we can change the industry’s viewpoint to an outside in-thinking that will be a significant step forward.
Phil: Good answer! It’s been really good to have you share of your views, Rohit, and what we can do to move to a more evolved model. Can’t wait to share this discussion!
Rohit: Thanks Phil, it was fun.
Posted in : Business Process Outsourcing (BPO), HR Strategy, Outsourcing Heros, Robotic Process Automation, SaaS, PaaS, IaaS and BPaaS, smac-and-big-data, sourcing-change, Talent in Sourcing, The As-a-Service Economy