The last time vikram talwar spoke to siliconindia, EXL Services was in the midst of a very exciting phase. The Talwar-Kapoor-Wendt led BPO company was being acquired by Conseco [NYSE:CNO], at a time when BPO was not even a blip on the radar of most service vendors. Rich deals hung low for the plucking, the niche EXL occupied was hearteningly scarcely-populated, and India was not so chaotic in its human resource migration—things couldn’t be better.

In a short quarter,things changed. Rohit Kapoor, the co-founder of the company, and now President and CFO, and Talwar bought back the company, recapitalizing it with funds from Oak Hill and FT Ventures. In a remarkable turnaround, EXL turned profitable in early quarters of 2003, and is projecting revenues exceeding $60m for 2004. Talwar has moved to India, while Kapoor works with a core marketing team out of the New York offices. Clearly, while the market focus has remained intact, the duo has learnt how to keep the growth figures upward. “If we want to become a $1b company, there are some evolutions we need to engender,” says Kapoor, an IIT-IIM product who worked in Wall Street before teaming up with Talwar. “It is not going to be possible to grow by simply adding people—linear growth can get you only so far.”

Today, Kapoor is driving EXL Service to grow the advisory business, which has added 12 percent to 2003 revenues, and expects it to be a 20 percent component in the coming year. “The processing part of the business will continue to add to our linear growth, but the impact we have been able to make on our clients by our advisory services has been phenomenol,” reveals Kapoor, whose 10-month old new business now has about 70 experienced advisors. This business includes helping clients in identifying and analyzing their offshore outsourcing processes, and building a roadmap. The service also enables a client to document the process—and this is important, says Kapoor, because many times the process owner is the only source for knowledge about the process, and that knowledge is lost if the person moves on or out. Wendt’s legacy left a deep GE culture in place, where EXL has nurtured the Six Sigma process engineering expertise, and now deploys its Black and Green Belt team leaders to evaluate client processes, helping them re-engineer them for higher efficiencies.

In business risk advising, EXL plays an advisory role to companies in meeting the Sarbanes-Oxley compliance, and now is moving forward to help them establish internal audit systems for the coming years. The Sarbanes-Oxley Act of 2002 (SOX) has a mandatory internal control reporting requirement for SEC registrants and their independent auditors. Specifically, Section 404 of SOX mandates the SEC to adopt rules requiring issuers to include an internal control report that contains management's certifications regarding the effectiveness of the company’s internal control structure and procedures over financial reporting. EXL's Business Process Risk Advisory Services Division, a team of certified accountants, internal auditors and process experts helps companies meet their SOX 404 challenge by designing and implementing a flexible solution that delivers immediate value. After years of rigorous process oriented experience for a diverse array of clients, EXL’s team has developed expertise in documenting critical business processes, identifying gaps in the internal control structure and making recommendations to improve controls.

“Another issue of importance in this evolution has been our stepping out of India,” Kapoor says. Clients that have used EXL Service are now utilizing EXL’s service offers at the individual global operation sites. The next year’s focus is to grow its new offices across other geographies, and find talent that would fulfill its needs. “If you were to map our financial growth, we can scale up much easier than a typical IT services company, since our revenues are tied in to annual contracts, over which we can layer our new services,” he says. With a selective acquisition strategy, EXL has managed to emerge the leading player in its niche, as it drives end-to-end fulfillment for the insurance and banking sector. “Insurance brings us about 60 percent of our revenues, and EXL is possibly the only company that can offer the deepest domain expertise in the total process management,” comments Shiv Kumar, the chief marketing officer.

EXL has recently expanded into Pune, and has plans to scale up into other cities in India and across the world in the 2004-05 period. “As a people-heavy industry, it is critical to create the right pool of middle and senior management,” opines the EXL President. “The BPO space was not considered a terrific career path, but as the industry matures and the challenges in the business greatly outweigh the perception, we see the right talent flow towards our companies.” Kapoor recalls instances of people from multinational corporations interviewing for positions in his company, and has been quick to tap them. In their efforts to remain focused in the financial, banking, and insurance services niche (FBIS), Talwar and Kapoor offer solid comfort of reliability. “We are aware of the market changes, but are not unduly perturbed,” says Kapoor. The confidence comes from the fact that deep domain knowledge and process maturity still remains the winning decider for any client. “However large your consulting service maybe, a client seeks to transfer his or her internal processes to those vendors that can assure operability success the first time.”

The BPO company has been careful in the transfer methodologies of processes, “as many processes are fragmented and have no relationship to the main framework.” As these fragments are part of the contract, says Kapoor, the vendor needs to be extra careful. “For any typical project, we test out rigorous prototypes before we commit resources—and in most cases the clients have transferred more than a hundred processes to us quite rapidly.” With a proprietary tool in place, EXL’s PROMPT (Process Management and Performance Tracking) offers clients full visibility into the health of the process. The web-based system is flexible and highly parameterizable—in defining all kinds of processes and metrics in transactions processing and call center area, while providing business level and organization process performance dashboards for the client.

The client confidence also marks a growing maturity in the BPO industry, as processes mature and project failures diminish. Not only that, transaction or performance-based revenues are redefining the contracts between clients and vendors. “We are responsible for the delivery of the metrics outlined in the contract,” says Kapoor, “and we own the process performance completely.”

A new IDC study focused on the top five vertical industries within the business process outsourcing (BPO) market for procurement, finance & accounting, customer care, and human resources, predicts above-average increase in spending on BPO services to come from the manufacturing, financial services, communications, retail, energy/utilities, services and government industries. “While the nuances differ somewhat by vertical industry, and by business function, the main reasons for this interest are cost management and risk management. These drivers are being applied to a whole host of BPO goals that include technology access and optimization, business process integration and centralization, business flexibility, business expansion, regulatory compliance, and help generating new revenue streams,” says Romala Ravi, program manager, BPO Services at IDC.

Kapoor confirms this, revealing EXL’s next phase of adding on more capabilities with new clients. “We began with taking on simple processes in 1999, and now we handle so much more complex processes across verticals.” With an expected growth rate of over 50 percent for the next 3-4 years, Kapoor is gearing up the company to accommodate some inorganic acquisitions—and the contained challenges of people, processes and proactiveness. Since the recapitalization in late 2002, EXL has had an equity investment from one of its largest client, Aviva, and has been profitable since 2003. The post-recap evolution has been strong and satisfying. Or as Kapoor quips,”We ‘EXLled.’”