GS- In what areas would you expect budgetary cuts in 2012? How would these cuts impact BPO activity? Or is there a scope for increased spends? Where and why?
Neil- A large part (over 70%) of controllable cost in BPOs is associated with staffing and so headcount is likely to come under pressure. Of course where deals have already been struck there may be no incentive to reduce head count, but in transaction-based deals that may be different.
Companies seeking to make budgetary cuts may well turn to BPO as an option - maybe even some operations that have never previously considered the option such as parts of the public sector. This may lead to some growth in BPO but with it would come competition and pressure on price and service delivery. The successful BPOs would therefore be the ones that stand out as being able to offer the most competitive package - price plus assurance of delivery.
GS- What are some of the shifts in the dynamics of global services (include global sourcing of services, outsourcing, offshoring, IT services, BPO) you would expect in 2012?
Joy- Overall Business Landscape: It is perhaps surprising that the concept of moving work ‘offshore’ to India is less than 15 years old – although experts refer to the current BPO age as ‘version 3.1’. In that time the industry has matured enormously. The initial motivation for ‘offshoring’ was reducing costs of service provision primarily as a result of lower labour costs (labour arbitraging). This offshoring concept is now maturing very fast. The market is much more competitive for a number of reasons – quality and service are give-ins, the focus is on cost, the domestic BPO market is growing and is extremely competitive, other cheaper offshoring hubs are now consolidating, contracts are now transitioning from FTE based to output/ outcome based – though the ‘optimum contract’ still remains elusive, the transition from standard BPOs to more knowledge based platform service etc.
Neil- It is a give in now that most BPO deals (especially the recent ones) have been bagged basis a transaction on outcome based pricing model. Another theme might be "supply chain integration". A likely theme to follow on from Lean operations is to take the concept one step further and look at the end to end process. Just as the likes of Toyota spread their production control method all along their supply chain, we might anticipate a similar move towards standardisation as companies seek to strengthen their BPO and more importantly outsourcing/ Offshoring partnerships.
The BPO industry in India is shifting from provision of simple transaction processing to the provision of functional/ domain skills and ultimately to a full strategic partner model including the carrying out of activities that would have previously been considered “core” – for instance, full settlement of insurance claims including dealing with lawyers and directly with the claimant.
Richard- Capacity and Planning: In AOM’s view the big change that will take place over the next few years is shift of the planning and control centre of gravity to offshore even for resources still located onshore. This could caused raised eyebrows in some quarters but the crucial factor is that implementing a standard methodology that allows capacity to be managed transparently in whatever manner suits the culture and objectives of the company (including spanning across company boundaries into outsource providers).
In most global companies transaction processing/ back office operations are shifting to offshore locations. This may be just the simple transaction processing or the majority of back office functions and in some cases essentially the whole of the delivery function. Both the transition of capacity and the ongoing optimisation of the use of that capacity can only realistically be achieved with a combination of transparency of plans and monitoring and reporting of actual performance and this in turn requires a standard approach to and culture of managing operations. In our view the implementation and partnering framework offered by AOM provides a unique solution to an increasingly universal set of challenges.
GS- If you were to give three pointers for ITO/ BPO in 2012, what would they be? How should service providers align themselves to these? How would enterprise buyers of services align themselves to these?
Joy- The productivity issue in Indian BPOs: While the Indian BPO market has been able to compete on the basis of low labour costs, assuring clients of quality and service outcomes has been critical to winning business. Indeed BPOs have often been content to trade efficiency off against being able to assure quality or service. Now Indian BPO businesses are competing against alternative Indian providers but also against alternative off shore locations where labour costs are lower. Against this market context and also strong wage inflation for skilled labour, does productivity management now matter and how are BPO providers adapting to the new pressures?
Another phenomenon typical to Indian markets is the resistance to change, especially if it is induced from the external environment or an external party. The ‘not invented here’ syndrome is rampant and businesses believe they have everything under control, where in the real sense they may be ‘fire fighting’ everyday and a struggle everyday is more or less the agreed norm. But is this ‘productivity’.... and is there an issue with the way it is managed and measured?
The answer to this question will open a whole new world of continuous improvements, innovations that will contribute to better control of the operations.
The Shift to Transaction Based Pricing Demands Premier League Performance Through Active Management
Joy- Over the last twenty years India has built a very successful ‘offshoring’ industry centred on the twin core competencies of an educated workforce and labour rates which were a fraction of those in the West. This has served the industry well but has led to a certain complacency in relation to the efficient utilisation of capacity and the monitoring of the productivity of that capacity. This is slowly changing but is leading to a plethora of ad hoc development of tools to measure productivity but with no context in which to apply these tools.
It is our contention that the ‘bureaucratic’ application of static FTE based contracts will be replaced by a much more dynamic framework in which transaction based pricing will become part of the mix of SLAs alongside quality and service delivery. This will lead to much greater competition and give rise to the idea of a Premier League of service providers – be they BPO or captive. Just like the Football Premier League it will require investment both up front and on a continuing basis to ensure that the 10-25% of ‘latent capacity’ present in a bureaucratic or reactively managed shop is utilised productively.
The Indian BPO and captive industry is arguably at a pivotal stage in its history and delving on this topic may provide that ‘light bulb’ moment for many organisations who are grappling to find the right framework in which to make a leap forward in operational excellence.