Venkatesh Roddam, Chief Executive Officer, Satyam BPO

Although the Indian BPO industry is relatively young, it has already undergone three major waves of change. The first began in the late 1990s, when companies outsourced simple back-office services like medical transcriptions, phone support and data entry. In 2000, the second wave providers ventured into customers’ core processes. In the third and current wave, the industry has leapfrogged to knowledge process outsourcing (KPO). The fourth wave is coming, and may hit India early next year. Are you ready?

The Fourth Wave—Specialty BPO—is a step beyond KPO. In Specialty BPO, companies will focus on transforming core processes, rather than establishing or adhering to a KPO process. Fourth Wave customers will expect dramatic value from outsourcing providers, and demand transformation of their core processes.

To ensure a smooth transition to the Fourth Wave, Indian BPO providers will need to remember the following:

Develop specialized capabilities

Talking about transformation is easy. Doing it, however, is very difficult, and requires considerable expertise. As such, BPOs will need to deliver highly specialized services. To do so, they must engage customers in real partnerships. They must also feature at least as much expertise in a given field as their customers.

Integrated BPO offerings with IT

As the trend toward transformation emerges, many clients outsource both IT and BPO to a single partner. This enhances provider control and results in better deliverables. This situation is favorable to organizations that already offer bundled services along with their parent IT Company. However, it is difficult for standalone BPO organizations, which have to partner with an IT company or build IT capabilities.

Move to a partnership-based model

Vendors cannot perform transformation outsourcing alone. Clients must partner with them and create participative models that enable transformation at both ends of the spectrum. Additionally, service providers must work hard to engage customers and gain their confidence.

Move beyond SLAs

SLA-led approaches do not work for transformational programs. Instead, customers must look beyond SLAs and determine the value a service provider brings and how it can be quantified. This will also help determine how well a service provider understands the client’s business.

Look beyond existing pricing models

Transaction- and FTE-based pricing models are archaic. They were valuable once, but with the outsourcing industry undergoing dramatic changes in terms of services offered, they are no longer viable. Today, clients select providers based on their strategic off shoring initiatives.

They also want service providers to save costs and add value in ways that will transform the way they function. The vendor/provider relationship is a thing of the past, and has been supplanted by a strategic partnership in which the service provider brings considerable value.

The Fourth Wave will force organizations to examine other options, including near-shore sites, depending on client requirements. As time goes by, more and more organizations will have to adopt an onshore-offshore model—with the base being India. Watch the Fourth Wave of change!

alaji Boddapati, Director, ADP Pvt. Ltd

IT Services from India which started 20 years ago has made the world to take notice of the knowledge power and intellectual capabilities of India. India has captured more than 60% of the addressable IT Services market. IT Services industry has given new confidence and has catalyzed several other sectors. In spite of the incredible success of the IT Services industry, it had attracted the criticism of being elitist with very few benefits accruing to the common man. The advent of ITES/ BPO / KPO industry since the late 90’s has changed that perception by employing non-technical graduates in large numbers and providing technology-enabled services that touch the common man everyday.

A quick look at the performance of the BPO/ITES industry shows that India is now an established destination of choice. The BPO/ITES industry in India has done extremely well despite the recessive economic situation and weakening of the US$ (though currently the rupee is weakening against the dollar). With export revenues of US$11 billion and growing at 35% CAGR and employing 900,000 directly, the industry has truly arrived. The BPO/ITES industry accounts for 35% of the worldwide market. The domestic market has started picking up with revenues of US$1.6 billion. The key verticals are BFSI, Telecom and Manufacturing. The key service segments are Customer Interaction and Support (CIS) and F&A. The trends indicate a discernable shift from cost advantage based value proposition to optimization and business transformation; landscape extending to tier 2/3 cities and the domestic market growing stronger: from BPO 1.0 to BPO 2.0

The Opportunity

There is significant headroom to tap the international market from exports and at the same time serving the domestic market.

The addressable market is huge and growing. There is an opportunity to earn export revenues of over US$ 50 billion by 2012 at a stretch growth target of 45% to 50% annually for the next five years. This opportunity would also translate to 2.5% of GDP from exports; 2.0 million direct employment; expansion and growth to Tier 2/3 cities. There will be significant secondary impact on employment in related service industries and increased consumer spending.

The Indian BPO/ITES industry can position itself to maximize this great opportunity only through a distinctive value proposition. The industry need to go beyond the cost-savings and productivity-led and working to meet the customer expectations. Instead, the value proposition needs to be exceeding the customers’ expectations significantly, process reengineering, innovation, helping clients change the way they run their business; freeing up clients from critical but non-core activities and thereby helping the clients focus on their core activities – product development, marketing, sales, R&D, etc. and success linked to business outcome and partnering with clients for transforming their business: from BPO 1.0 to BPO 2.0.

Threats to the Indian BPO Industry

The Solution

Given these threats, the BPO/ITES industry must work on:
a) Optimizing the current environment to continue cost arbitrage driven value proposition, and
b) Innovate to continue building new, higher value proposition for buyers.

The providers need to focus on adopting optimization and transformation focused objectives. The buyers too are changing their expectations. More than 70% parent companies expect their captive operations to deliver value beyond cost savings. The providers also need to focus on moving from rule based work to complex judgment-based work. The providers should undertake accountability for outcome by moving from ownership of task to ownership of process and business outcome: from BPO 1.0 to BPO 2.0.

Key Action Items for the Indian BPO/ITES Industry to Move from BPO 1.0 to BPO 2.0