Your customers won’t love you if you give bad service, but your competitors will. EXL Service has this thinking ingrained in its psyche. Imagine the percentage improvement of the satisfaction among EXL’s customers analyzed by rigorous audits hovering around a certain swinging sixty. How did the pure play business process outsourcing (BPO) company ranked among the top ten by India’s National Association of Software and Services Companies–Nasscom–based on revenues for 2005-06 achieve it? Six Sigma practices seem to be the answer.

Not many BPO companies in India tout that methodology which reduces defect levels to below 3.4 defects per one million opportunities as part of their services. For example, through application of six sigma processes a transformation was brought in at the agent level in EXL’s insurance offerings. Earlier, any random agent would answer a call and ownership was not created. However implementation of six sigma metrics ensured that calls from a particular customer to any agent would continue to be handled only by the concerned agent in the future. The customer was spared from repeating the history of his or her problem to different agents at different points in time.

Down the months this resulted in customer satisfaction going up by 60 percent because the agent always knew the history of that claim and the particular process. The number of calls made by customers to resolve the claims reduced and hence the volume of work to handle the same amount of business went down sharply. This resulted in a nosedive in the cost of processing customers’ claims and led to a seven percent saving in the total cost. Surely the first method for excelling as an organization is to change the working habits of personnel positively.

Positive Changes and Growth
After the Park Avenue, New York headquartered firm, went public (NASDAQ: EXLS) in October 2006 there was more emphasis on sales, business development and customer relationship management. CRM is a new function and personnel are based in the U.S. and U.K. to be closer to the customers and address their inadequacies.

The three areas of change witnessed after hitting the bourses were immediate. Credibility soared to the top followed by smooth leveraging of deals and the unburdening of the baggage of being tagged a small company. At present there is $122 million in revenues on the balance sheet as of December 2006 and no debt. The market capitalization is around $539.03 million. “Hence there is a certain amount of differentiation between us and our competing service providers,” points out Rohit Kapoor, President, EXL. Revenues for the quarter ended March 31, 2007 increased by 85 percent to $39.9 million from $21.6 million posted for the same quarter last year.

Brand EXL has managed to excite customers with this noteworthy progress in the crowded BPO space of 500 odd companies in India. The next obvious step being expansion, the strategy is two pronged with the company wanting to increase international expansion of delivery capability especially in the Philippines, China or Eastern Europe in an inorganic manner. The other approach is to broaden the scope of service offering within verticals hence the acquisition of niche players is hotly considered. The stock that EXL possesses makes them game for M&A activities and also helps them to confidently expand their portfolio of company divisions to build the mother ship company. Kapoor wants to rocket the company to stratosphere, miles above the ubiquitous competitors.

Mavericks Vs Competition
Differentiation from competition is in four dimensions. The focus and domain expertise in certain verticals is one differentiator. 75 percent of EXL’s customer base is in the Banking and Financial Services (BFSI) segment, which undoubtedly is their core area of functioning. Around 250 unique processes have been handled in the BFSI segment. In the insurance domain it boasts of having Third Party Administrator (TPA) licenses in 45 of the 50 states in the U.S. There are specialized training curriculums for staff and EXL has a thousand personnel trained in Life Office Management Association (LOMA) insurance guidelines of the U.S. EXL offers services to the healthcare industry and the media too.

Redesigning and reengineering client processes (transformational capabilities) is the second dimension to exclusivity from rival companies. There are three skill sets that help EXL to be ahead in the hairpin bend of the outsourcing race – first being the usage of analytics perfected over the last six years to improve the processes of the customers (the acquisition of Inductis, a competitor in the analytics field by EXL is a huge plus). The next is the possession of a Risk Advisory Service Line, manned by a strength of 150, which contributes to 10 percent of the revenues. The other skill advantage is the capability of six sigma orientation and training, which helps in transformation during migration or transition.

The third dimension is the objective of customer focus and customer centricity that drive EXL. Customer relationship is intimate and the execution is end-to-end which brings out the versatility of operations.

Ongoing operational excellence is the fourth dimension of differentiation. This could be in terms of transition or migration or even delivery of service level metrics which 84 percent of EXL’s customers rank in the top two slots in a five-point scale of customer satisfaction across all processes.

The combo of analytics, Risk Advisory Service Line and six sigma–other BPO heavyweights may have just one or two of this array, not all–positions EXL uniquely. In fact there is a four-pronged benefit of the Risk Advisory Service Line as it makes clients comply with Sarbanes-Oxley, helps run internal audit programs to check errors, and also handles process documentation and process reengineering. The advantage of this service line is to mitigate the risky outcomes of the processes of the customers’ banking activities. These concerns could range from compliance with pan-geography regulatory bodies, risk associated with financial reporting and operational risks in the back-end processes.

Performance Attracts Performers
Flashback March 31, 2006: 6,200 employees punched the keys on the keyboard. One quick year passes and 45 percent more hands joined the party with headcount now hovering around 9,000. The company has managed to attract noteworthy talent at the middle and senior management levels. However, the bigger challenge is to retain and motivate the talent attracted.

Manpower churn is a problem that makes clients from the U.S. and U.K. feel queasy about doing business from India and EXL has tried its best to curb attrition, which is the primary challenge of the company. Attrition at the agent (entry) level (42 percent) and the middle plus senior levels (15 percent) are dealt with separately. At the agent level there is a bench of trained employees, numbering 20 percent of the total, who acts as the backup. For every 100 employees dedicated to a particular client relationship 20 remain standby so that there are no operational glitches. An endeavor is made to present challenging work to the agents so that retrenchment is curbed. The middle and senior management teams had been given equity incentives when the company went public. The right kind of career growth and infrastructure has been given to stimulate ownership of the company and increase the net worth of the personnel.

And Customers are attracted too…
The two big client contracts EXL has in its kitty range from $150–250 million. The U.K. contributes 52 percent of the revenue and the U.S. brings in 48 percent. The U.K. has more aggressively contributed to offshoring than the U.S., notes Kapoor. The top three clients of EXL are Aviva, British Gas and American Express. Aviva continues to be the largest client bringing in 28 percent of the revenue and there are two contracts with Aviva a Build, Operate, Transfer (BOT) contract which will be functional in January 2008 and a third party contract which goes up till July of 2009. EXL brings essentially to the Service Level Agreements (SLAs) a commitment to reduction in risks of the back-end processes and certainty of processes delivered.
Commitment brings trust. EXL’s U.K. customer British Gas changed its back-end ERP operations worldwide to SAP, and has simultaneously offshored these processes to EXL. This was done to avoid training the staff twice over. Otherwise, it would have meant that the personnel in U.K. would have to be trained on the new platform and then the Indian workforce would have followed suit. Thus their U.K. manpower was given a bypass and the operational processes were put in place right in India. Costs were significantly reduced and implementation of the new platform was much quicker. The move by British Gas would have been considered risky at an earlier date by the industry. The company understands retaining customers is a challenge akin to retaining employees. Hence customer surveys are executed every six months to give clients the service they are keen to receive.

The Next Move is…
Analysis of the Indian BPO landscape reveals a motley of players ranging from global operators, IT Services tribe, pure play BPO companies, captive facilities and niche players. The emerging trends show market maturity with a clear demarcation between different types of players on the basis of parameters like size, scale and quality. The direction, which is in vogue in the BPO sector, is that customers are no longer hankering in a major way after outsourcing voice operations and call center operations. They are driven more to the back office operations, higher end complexity processes and wing to wing (complete) processes. EXL, as a fledged company, takes this as a huge advantage as at present it is well poised to handling back office work and high-end value added processes.

EXL has matured to the higher end of the BPO spectrum in a manner unique to itself. The company was incorporated in April 1999 in Delaware, U.S., by a group of professionals including Vikram Talwar and Kapoor. It initially came to India independently, and then became a captive entity when Conseco acquired it in August 2001.

Later, in November 2002, Oak Hill Capital Partners LP and FTVentures bought EXL from Conseco making it a third party pure-play BPO service provider. Thus it became independent again. The ability to fund the business, grow the business and develop customer centricity, which a captive may not possess, has become seeded in EXL because of the manner in which its growth took place.

This enables it to cash in on trends like the downward slide of captives. According to Forrester’s report ‘Shattering The Offshore Captive Center Myth’ released in April 2007 more than 60 percent of captive centers fail to meet expectations. Also, over the next three years, at least 40 to 60 percent of the current captives will exit the country by a simple shut down or acquisition by third parties.

The captive trend is on the wane. Three years ago when companies in the U.S. wanted to engage in offshoring they did not have the desired third-party choices to delegate work to. Hence they took the captive route. The pains of running a captive center is more pronounced now down the line and companies are looking for a way out. A number of captives are in fact in conversation with EXL to decide to spin-off and leverage the expertise EXL has developed over the years in India.

Captives, according to a McKinsey study, are 25 percent more expensive and are prone to deliver inferior level of service because of the unfamiliar territory they operate in. The situation is opportune for EXL with 60 percent of the BPO market in India belonging to the captives and 40 percent to third-party operators. Opportune because the third party business opportunity in India would rise by 150 percent if the captive trend dies out. For EXL it is the opportunity la galore to maximize its revenues from India.

A parallel occurrence is that a majority of the 2000 odd insurance companies in the U.S. are keen on shifting back office operations to India. This is indeed exciting news for EXL, given its proficiency in the insurance realm. At present 15 insurance carriers have their operations based in India.

The current U.S. slowdown stands to benefit the estimated $8 billion Indian BPO industry, at least in the short term. A recent Nasscom-McKinsey report suggests that of the $300 billion total addressable market for global offshoring, $110 billion will be offshored by 2010. And India has the potential to capture over 50 percent of this opportunity. For EXL, it’s an excellent opportunity. It knows the method to get to the summit of the peaks ahead, as its past records suggest.