The Changing Face of Indian BPO Industry
Date: Friday , April 08, 2011
Business Process Outsourcing, whether viewed through the eyes of the vendor/provider or the corporate business owner, has historically been viewed myopically as a means for corporate entities to strip out cost and increase profitability through labor arbitrage as it applies to siloed business functions such as IT or finance and accounting. This business model led to the rapid expansion of specialized service providers and function specific, corporate captive centers. While these models have proven to be fundamentally and fiscally sound throughout the past two decades, the role of the discrete service provider is coming to an end. The end will be ushered in by traditional market drivers such as increased competition and emerging technology, but more importantly, the fate of individual IT-BPO service providers will be determined by the overall scope and value of the services provided across the client’s enterprise. Those who fail to adapt to customer demand will see their market share evaporate or find themselves the target of acquisition. The focus for the future must be the customer.
When addressing the future it is paramount to note that the market landscape is still bright. As per NASSCOM the Indian IT-BPO sector is estimated to grow over 19 percent in the FY 2011. Its total revenue of Indian IT-BPO is estimated to be $88.1 billion in FY 2011 of which 19 percent would be coming from BPO. Of the total revenue 33 percent would be generated from domestic and 67 percent would export revenue. Direct employment would grow by 10 percent reaching 2.5 million and over 2.4 lakhs jobs will be added in FY 2011. Total employment in FY 2011 is estimated to be 10.8 million.
The future of Indian IT-BPO industry looks promising for both domestic and export revenue. The size of global sourcing market has grown from $37 million in FY 2005 to $106 million in FY 2010. India’s share in global market is 55 percent in FY 2010 compare to 49 percent in FY 2005. Of this the India’s market share from BPO market is 34 percent in FY 2010 compare to 45 percent in FY 2005. Revenue from global BPO exports has increased from $12 million in FY 2005 to $42 million in FY 2010.
While financial statistics and generous forecasts are encouraging, the IT-BPO market is not immune to the boom and bust cycles that have affected mature global industries such as construction, manufacturing and retail. Although IT and BPO service providers have traditionally benefited from such market cycles, acting as a stabilizing agent for their clients, it is imperative to remain vigilant and understand that continued market share is not a given for Indian BPO and ITO organizations. To rest on past success by assuming that current competitive advantages such as cost, education levels and management expertise, will not erode can be fiscally fatal. Pressure from other BRICs members will continually increase and the impact of their continued assertiveness is difficult to predict.
Competition from outside India’s borders is a given and well covered by the business media. In of itself, competition is not the chief threat to our outsourcing leadership position; it is merely a contributing and ever present factor. Market share will continually remain in flux based on price pressures, regulatory shifts and trends largely out of our control. Business plans account for such variability and allow nimble service providers to react accordingly. However, as alluded to before, the chief threat is the infiltration of an overconfident and relaxed perception that the provision of largely commoditized services can be maintained. Relevancy will be determined by customer value and not solely on line of business expertise.
During offshoring’s emergence in the 1990s, labor arbitrage and technical proficiency drove customer demand, but what made outsourcing sticky was the notion that the customer was king. BPO and ITO businesses were built on relationship nurturing allowing service providers to intertwine their solution sets seamlessly within the customer environment. As new service providers enter the market and strive for differentiation, they are more likely to build business models around buzzwords or trendy marketing practices at the cost of sacrificing customer centric service delivery. For example, the industry is well aware that cloud computing and data virtualization has the power to transform not only the ITO industry but the BPO and KPO markets as well. This being understood, a provider should question whether the short term gain of adopting such a practice, measured in terms of acquiring new prospective customers, solely on the basis of new product positioning is worth a shift in resources from current customers and core service offerings. Are you simply chasing a fad and repackaging existing ASP based solutions as cloud applications for the sake of capturing buzz? Is this what the customer truly needs? As with all emerging technology, it is important to provide a sound evaluation and incorporate relevant aspects into a solution delivery model, but the key is still value.
For the client, realizing a significant ROI from current solution engagements is paramount to the formulation of future business cases for additional services. While new products and ideas are intriguing, such initiatives more than likely fall out of scope within the framework of current outsourcing strategies. A customer may become infatuated with the notion of cloud computing as they become more inundated by the concept within the media and their professional circles. The reality is that such a solution requires resource intensive integration and administration within their existing infrastructure. A service provider must listen in order to differentiate between what the customer is asking for and what the customer needs. In this instance, an end-user is looking for the provider to help them navigate these new waters and integrate them into their current processes when it makes good business sense. By maintaining an open dialogue at all times with the client and focusing on the overall value of the partnership, a service provider is likely to avoid such pitfalls and find themselves rewarded with new business from satisfied, current customers.
While investment in new products and markets cannot be shelved, a move that would ultimately sacrifice future market relevance, the core attribute of our success must remain a vigorous investment in the customer relationship. Otherwise, without a keen understanding of each and every customer’s unique business needs, innovation and product development is rendered meaningless. To quote a colleague, N.R. Narayana Murthy, chairman of Infosys, “Unless our researchers realize what the outside world is and what is happening in the trenches, their innovations will have no value for the customer.”
A recent article published in a daily newspaper with supporting data from the Indian arms of Everest Research and Gartner, highlighted how customers are increasingly looking to renegotiate current vendor contracts to derive additional value from current agreements. The author draws attention to one key aspect of the on-going renegotiations, changing the way services are billed. Instead of pricing services based on FTE count, customers are looking for KPI or SLA based price models. They are looking for more concrete ways to define the success of an outsourcing agreement and making payment contingent upon proof of such. This model will require the service provider to not only be more innovative in the way they build and deliver services, but in how they report the achievement of critical success factors.
Those who understand these concepts will succeed. They will understand their customers’ internal corporate culture and will be able to deliver value across the enterprise. End-to-end solution providers will continue to displace specialized, commodity driver vendors as they are better equipped to leverage their service offerings and expertise to meet the strategic business goals of customers. To survive, IT-BPO providers must divert more resources to the customer relationship and their overall experience. Complacency in regards to customer value will be fatal to those who fall behind.
The author is the President HOV Services