discussed at length recently<\/a>, the political focus on job creation is reaching intense levels, and could exacerbate very quickly if a further recession occurs. \u00a0The Indian providers, in particular, are under constant scrutiny regarding their investment activity and immigration strategies. \u00a0Entering into agreements like this is a major positive for the perception of the outsourcing industry and creates a strong argument for helping clients such as Friends Life be competitive. \u00a0Moreover, as the leading providers chase more industry-focused engagements that require real domain skills that are tied to both local regulations and process flows, the need for localized delivery is becoming pivotal in the global sourcing delivery mix.<\/p>\nDeveloping common processes and a business platform will give TCS more teeth as a global insurance BPO provider. \u00a0\u00a0<\/strong>Most service providers have struggled to make effective investments in technology platforms that underpin their service delivery, and those that have invested have struggled to develop them effectively in such a way that they can actually sell their platforms multiple times. And by the way, the last point is crucial for the success of this deal – the jury is still out on how much standardization and scale TCS can drive out of this.<\/p>\nPotential to break the linkage between headcount and revenue growth, and the willingness to absorb lower initial margins (or even lose money) to do so<\/strong>. Several of the leading BPO providers, in addition to TCS, are eager to make platform-based BPO services a large proportion of their businesses over time (this has varied between 10 and 33% of future revenues, depending on provider). \u00a0This suggests that providers are increasingly worried about the longer-term supply-side constraints in India, namely wage appreciation, quality of staff, \u00a0constant\u00a0attrition etc. The more that processes can be automated and standardized, the easier it is to train and develop staff, effect uniform process improvements and globalize process flows.<\/p>\nThe IT services growth rate is slowing down and this is one way for the likes of TCS to add significant revenue to their bottomline.<\/strong> With the Rupee depreciating, TCS will have higher profitability from the rest of its business, such as BPO services, and this loss can easily be masked. Moreover, the Tata group at large has made successful turnarounds on Jaguar\/Landrover and therefore there is a willingness and confidence to make substantial long-term bets, such as this Friend Life engagement.<\/p>\nChallenges with this deal<\/span><\/p>\nTCS could find themselves constrained to the UK market. \u00a0<\/strong>TCS is going to find it challenging to scale these UK-specific investments to insurance sectors in\u00a0Continental\u00a0Europe, the US and Asia. \u00a0Life assurance and pension processes and regulatory issues for UK clients are different from those in other countries, so the current resources acquired in this engagement are likely to be confined to future UK-centric insurance business TCS hopes to win.<\/p>\nThis is the largest migration of insurance policies onto a single system ever untertaken in the L&P industry.<\/strong>\u00a0\u00a0To be able to migrate 8 million policies onto the TCS BaNCS platform is likely to take 2 to 3 years, which will pose a major\u00a0challenge in a niche market with only one major\u00a0competitor, Capita. Essentially, any serious migration issues would quickly make this deal unprofitable for TCS, however, it hopes this new engagement can be as successful as its recent migration of the 3.2 million Phoenix Group policies onto BaNCS.<\/p>\nPlatforms are only going to work effectively with\u00a0transactional high volume standardized processes with very little variation is outputs.<\/strong> While there is a rush in the BPO business for many processes to be “productized” on platform offerings, these are only going to be effective with processes that can be easily automated and require minimal contextual input and customization. While the opportunity to develop platforms to service insurance firms is clear, HfS is concerned too many service providers are already getting carried away with the Business Platform approach, as it’s only going to work with certain industrial and horizontal processes. Hence, the winning BPOs are those which develop competences for both context-based and standardized service provision. We already run the risk \u00a0of some providers starting to sound like software companies…<\/p>\nFrom a stock perspective, many Wall St analysts are lukewarm with these platform initiatives.<\/strong>\u00a0 Several investors worry that these investments are going to dilute margins in the near-term and this will impact valuation in the public markets. However, this is because many only care about short-term impacts and do not take the longer view that it takes some short-term pain to achieve long-term benefits. Moreover, too many investors have been blinded by the high-margin profitability of many ITO deals and simply do not understand the different dymanics and nuances that go into a more complex BPO engagement.<\/p>\nThe Diligenta proposition does not use wholesale offshoring.<\/strong> This poses a great challenge (and\u00a0opportunity) for TCS to drive efficiencies through automation and process transformation to make money from the engagement. With such a large base of UK employees, it will have to contend with local UK labor laws and regulations, in addition to a tense political environment with regards to job creation. \u00a0The Indian offshoring mentality of yesteryear of throwing cheap labor at a problem will never work in this scenario. \u00a0TCS has no choice but to make this work – and if it can, it will become one of the first leading Indian providers to truly break out of the low-cost wage arbitrage delivery model.<\/p>\nThe Bottom Line: TCS makes the boldest move yet of the Indian providers and forces itself to change the FTE game<\/span><\/p>\nThere’s been so much talk about this move away from the FTE-based model of cheaper bodies to do the same work<\/em>, but we’ve not seen much of it in practice. \u00a0However, this deal is different. \u00a0As much as people like to sneer at the lower margin expectations, the sheer scale of onshore labor investment and the unproven financial model for\u00a0business\u00a0platform utility in the L&P business, TCS is forcing itself to make this transformative engagement work. \u00a0Quite simply, there is little room for error, and there is little patience in the TCS boardroom for unprofitable business. \u00a0However, TCS has proven to be the most profitable of the Indian giants, and with the ITO model losing steam, it has to look at new business areas to hit the $10bn revenue goal. \u00a0If it’s ever going to take a risk, now is the time, and this is the right kind of deal that will challenge the firm to embrace new forms of\u00a0productivity\u00a0growth. Investing in Friends Life should prove to be a major step forward in evolving their BPO offerings – and surely a much smarter and more cost-effective way to acquire scale, domain depth and extend their BaNCS platform.<\/p>\n","protected":false},"excerpt":{"rendered":"For better or for worse, for richer, for poorer, until many missed SLAs do us part. Imagine committing to someone…<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[48,61,81,838,832,95,830],"tags":[270],"ppma_author":[19],"yoast_head":"\n
It may be for life, but will there be innovation, as TCS inks the mother of all insurance BPO deals - Horses for Sources | No Boundaries<\/title>\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\t \n\t \n\t \n