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June - 2007 - issue > Cover Feature
Tipping Point for Offshore BPO?
Jagdish Dalal
Thursday, May 31, 2007
Offshore based business process outsourcing (BPO) has been in the news for the past four to five years. Businesses and providers alike are asking whether this represents a ‘mega-trend’ or just a point in the evolution of the globalization of business. In other words, have we reached a ‘tipping point’ in the journey of offshore BPO? Are we there yet?

Malcolm Gladwell in his bestselling book The Tipping Point - How little things can make a big difference describes a tipping point as “the moment of critical mass, the threshold, the boiling point…one dramatic moment in an epidemic when everything can change all at once”. Once we have reached the tipping point, the growth and evolution will be self-fed, much like a chain reaction. For example, the growth of World-wide Web is no longer a question mark; it is self-induced.

So, how does something reach a tipping point? Let me paraphrase some of Gladwell’s observations in his book. In order to reach a tipping point, there are two key drivers: a) a breakthrough, and b) socialization of the concept. Let’s look at the use of the World Wide Web for better understanding.

It is universal and growing exponentially. It illustrates the two drivers mentioned above. The technology for web services is well established, easily available, and is a part of the platform of the new world of technology. There has been, and continues to be innovative processes and solutions; these are introduced by companies large and small and they become the basis for their service excellence. As for the socialization of the concept, there are well published benchmarks for services and service levels. We can look at industry standards for organization of information, access mechanisms and service management principles. We know and emulate best practices. Therefore, we can claim that the World Wide Web has arrived at the tipping point.

A ‘breakthrough’ is the foundation for establishing a business. It can occur through introduction of technology or innovation of a process. When Web-enabled software became available, it allowed distant service providers to access, manipulate, and utilize systems and databases to launch offshore BPO support services. Similarly, advances in telecommunications made communication global and opened up a new world of offshore customer service BPO. So, basic technology has launched offshore BPO as a business solution. Now, the providers have to take that technology to the next level in order to enrich the BPO offering beyond the basic services.

A successful BPO practice requires process expertise along with the use of technology. The process innovation for BPO comes from being able to manage a process more efficiently and with higher productivity. Use of quality principles and tools enable process innovation; provided, there is a well defined foundation in the process itself. This foundation comes from knowing not just the process but also the domain for the process. In order to provide a higher value customer contact service for banking, the providers must thoroughly understand the banking process itself. I refer to this as having ‘domain expertise’. It is the domain expertise that enables a provider innovate the process and delivery of service and thereby provide service value beyond cost savings. Domain expertise is what creates ‘context’ for future services and generates ‘stickiness’ for expansion. Context and stickiness are two of the key characteristics Gladwell describes as the basis for reaching the tipping point.

So, what is the state of breakthrough in offshore BPO? Of course, the technology foundation is solidly established and can be considered as ‘having arrived’. On the other hand, there is very little evidence yet of providers being experts in domains and thereby capable of innovating BPO processes. This is a critical issue for the offshore BPO providers who are competing against well established onshore BPO providers; be they large multi-process disciplined (such as Accenture, IBM) or special process disciplined (such as ADP for HR services or Amdocs for billing services).

Established onshore providers have deep roots in domain knowledge and expertise and therefore, can offer value to their clients. You can say that they have reached the tipping point. Not until offshore providers make the investment in gaining competence and becoming experts in the domains, can they innovate in the processes they manage. Offshore BPO’s tipping point won’t be reached until that happens.

The second driver is the socialization of the concept. Socialization of the concept requires that the businesses look at established benchmarks, find industry standards for services or point to ‘best practices’ where extra-ordinary results are achieved. Socialization also requires that the basic components of services be well defined, understood and communicated. For BPO, that means the process standardization and innovation. Ironically, creating the socialization of the concept and establishing baseline standards makes that service a commodity service. It is one of the characteristics of achieving the tipping point.

Has the offshore BPO reached a stage where the concepts are socialized? There are not enough examples; let alone benchmarks for services. Best practices are still being defined and in most cases deal with only a fragment of service offering; such as quality of service,and transition of work. This is true of not only offshore BPO but also for onshore work as well. BPO, as an industry still has not reached the tipping point anywhere.

So, what will it take for offshore BPO to achieve the tipping point? Once again, let me paraphrase some of Gladwell’s concepts. First and foremost, we need leaders who become the connectors – as Gladwell describes them - for offshore BPO. They can be leaders of business or government. After all, many of the World Wide Web innovation came from early connectors who spawned many companies and fed the innovations that are the basis for the Web today. An organization can also be a connector. NASSCOM has and can continue to play that role by establishing frameworks for services, standards, and establishing benchmarks for adoption.

Secondly, offshore BPO providers need to look beyond the base technology and process knowledge and generate expertise in the process so that there is longer term ‘stickiness’ achieved for process innovation. This will require investment in domain expertise. It will require focus on long term goal achievement of true process innovation and not just labor arbitrage solutions. We have noticed a trend among some of the established Indian providers who take this to heart and developing the domain foundation by establishing and building consulting practices. That will help create the necessary process innovation and help establish the higher level value proposition for businesses.

What will happen when (since I don’t’ think there is a question of ‘if’) offshore BPO arrives at the tipping point. That’s when it will become a ‘must do’ strategy and not a ‘may consider’ one. There will be technology foundation, process innovation, standards, benchmarks, and best practices and offshore BPO will be just another globalization tool.
We are not there yet, but we are moving in the right direction.

The author is Managing Director, Thought Leadership for International Association of Outsourcing Professionals and President of JDalal Associates, LLC. He is a well known speaker and author on outsourcing subjects. And can be reached at jdalal@jdalalassociates.com

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