BPO: Advantage India for the Present

By Krishna Kannur | 17 Dec 2003


Krishna KannurInformation Technology-enabled services (ITES) in India are poised for exponential growth. So far, its major entry strategy has been leveraging the arbitrage in wages between developed economies and India. As with all newly emerging businesses, information technology can enable ITES to improve its own productivity and cost competitiveness.

Some leading service providers are already exploring the possibility of addressing core conflicts and using integrated web services platforms. This is expected to help in building entry barriers to retain a leadership position despite its problems such as high employee attrition, working with disparate systems and processes used by clients and maintaining costs to remain globally competitive.

Back office to the world
India is fast emerging as the back office of the world. The first wave of outsourcing started with call centers when large corporations like GE, HP, HSBC ,etc, started shifting their back offices into India.
The current scenario of back office operations can be categorized as:

  • Captive Operations: Where large corporations set up their own operations in India, catering to their requirements. For instance: GE, HP, Dell which operate as cost centers and have assured captive business and therefore, face fewer pressure on bottom line performance than independent BPO operators.
  • Independent Operations: Where operations are owned and managed by organizations which scout for business and service their customers. E.g.: Wipro Spectramind, Infosys-Progeon, Satyam-Nipuna, Accenture , etc. These organizations are funded by venture capitals and face pressures to contain burn rates and operate profitably.

However, both operations have problems of high employee attrition, working with different systems and processes, etc.

The reasons as to why India has been chosen by many companies as a preferred destination have been well documented by NASSCOM. The main reason of course, is the ability of Indians to grasp, innovate and execute these jobs more efficiently. This is well-supported by the success of our IT industry as a whole.

It is an accepted fact that IT enables any job to be executed anywhere in the world. The shift of jobs to India has created a furore in the west among unions and those who face the threat of unemployment, as well as attempts at legislative action, to halt these job losses.. Hence, the onus is on India to demonstrate that there is definite value for companies which outsource.

The first wave of business process outsourcing took place because of cost advantages, unlike in IT where the availability of skilled manpower was the decisive issue. In the initial stages, new jobs were created. However, in ITES, the cost savings were achieved by replacing a 'dollar head count' by a 'rupee head count', and hence the resistance.

Currently, most of the service providers in India use the same and process used by the client thus becoming extended arms of their clients. So far there has been very little room for innovation as we have relied on Costs as Competitive Advantage. Though costs can be an entry criteria, building barriers to competition can bring long-term sustainability. Unfortunately, ITES inherently has low-level investments to act as an effective entry barrier.

Thus in order to survive in the market, ITES needs to compete on, Costs along with Quality, Service and Speed.

Constraints and Core Conflicts:
However, the constraints and the core conflicts that afflict the industry also adversely impact its ability to deliver quality, service and speed. Needless to state that, unless the core conflicts are resolved, long-term competitive advantage cannot be built.

Thus, ITES has to operate profitably within the following constraints:

  1. Maintain competitive billing rates — progressive reduction or doing more for the same
  2. Retain trained manpower — reasonable increase in wages / career growth, innovative hiring and retention policies
  3. Operate with low investments in infrastructure / technologies — ensure proper ROI
  4. Establish processes and ensure process adherence without adding to supervisory / management overheads, in short, work on flat organization structures, but retain enough controls

However, to operate within the above constraints is easier said than done. An astute reader would have realized by now that what is being suggested is the Theory of Constraints, in order to arrive at the core conflicts, some of which

Conflict 1: Manage with flat organizations, have enough supervisory controls
Conflict 2: Dedicate agents to clients — increase utilization
Conflict 3: Reduce billing rates — increase employee spend
We can construct many more conflicts, but we will cofine ourselves to the real core conflicts, and make a business decision.
Some Current Strategies and Possible Ramifications:
In order to overcome the conflicts, ITES sector is conceiving / implementing some strategies such as:

Move to semi-urban areas: This strategy is clearly aimed at containing the employee attrition while also managing the wage bill. The assumption behind this strategy is that the lower-end white collar employees are found in abundance in semi-urban areas like district head quarters due to fewer employment opportunities, while there is a competition for manpower in urban areas. It is easier to find, hire, train and retain the manpower, if the employment is available locally. However, this would work well for a short time till Mr. Maslow's theory of needs and rewards takes over.

1 Replicate processes of the client in our organization: This is clearly an entry-level strategy, with which the client feels comfortable. However, in the long run, it gets increasingly difficult to convince the client to allow changing the processes — essential to improve productivity. But, pressures to reduce billing rates will continue.

2 Allocate same manpower to the client: It is a common practice to allocate the same set of people to a client. This is a good practice to start business, as it enables rapid deployment and knowledge transfer. However, in the long run, extra work force gets built up for each client and leads to under utilization of manpower.

3 Deploy clients' systems: This practice reduces the investment in IT infrastructure to start with. However, when one acquires more clients, maintaining different systems becomes a major issue. Further, this brings in another constraint; namely, people working with one client cannot be interchanged due to lack of familiarity.

There are other strategies, as well. Each strategy has its own merits and demerits. At this point we need to find ways and means to break constraints, by using a disruption.

Here the technological advances made by IT enable the constraints to be broken. It is imperative to first look at IT enabling in order to break the constraints. Before we dwell on the basic technologies, let us look at the following scenario: A manager walks into the office, logs onto the system. He looks at the information portal, which displays the list of exceptions. For example, a particular processing may be pending beyond a stipulated time (but still within SLA).

However, if action is not taken immediately, there could be a slippage on the SLA. The manager clicks on the exception alert and gets the complete job history. He immediately sends an alert to the supervisor and the agent. He also views the trends, and gets details with the click of button to initiate corrective and preventive actions.

Now, imagine a platform which can connect to any application seamlessly. Such a platform with a built-in rule engine can manage traffic within the organization. Further, if such a platform can allow building of client specific rules, you have hit a jackpot. You can build client specific processes. The software will not allow deviations. Further, if you can web-enable some of the functions you may even allow remote processingand even disseminate information to the client.

In order to achieve the above, ITES needs to put in place some basic technologies.
Basic Technologies that Enable ITES:

  1. Web service platform: Integrating various applications, web enabling and seamless communication through various means namely, e-mail, mobile, etc. Further, the platform that allows development and deployment of custom applications will be a bonus. This platform is required with in-built connectors to standard ERPs like Baan, SAP, etc, and enable easy porting of data. Further, this platform has to have proper security features. This forms the nervous system.
  2. Orchestrator: This is the heartof the system as it contains a rule engine and data mapper. The rule engine allows one to configure process flows and checks and balances. Data mapper allows one to map related data among different databases. This would enable to maintain data integrity.
  3. Business Manager: This is the eye of the system. This monitors exceptions, helps to generate various reports, drills down the data to get meaningful information and action points.

In order to derive the maximum benefit, we need to have an integrated platform which can support these technologies. The technology must be affordable, protected against obsolescence and also have the capability to scale-up to the requirements of future.

How integrated web services can break constraints?
Conflict 1: Manage with flat organizations, have enough supervisory controls
An integrated web services platform allows the managers to manage by exceptions. At the same time, the platform ensures that the agents follow the processes as dictated. This facility greatly enhances the span of control of the supervisor / manager. This would enable a flat organization to be built with minimal supervisory overheads.

Conflict 2: Dedicate agents to clients — increase utilization
Here the rule engine plays a major role. The platform allows configuring the client specific processes. In a given practice, 80 percent of the business rules are identical. However, the 20 percent of the exceptions generally reside in the heads of the agents. If these are also configured using the rule engine, the system will not allow any deviation for a given client. Thus the agents become interchangeable. Such a system will allow dedicated agents and also brings in interchangeability — thus increasing the utilization.

Conflict 3: Reduce billing rate — increase employee spend
Here again the rule engine plays a major role in conjunction with the business manager. With the rule engine and by building proper interfaces, the scope for automation increases. This can improve the productivity of the organization. And also pass on the gains of productivity to the client either through a reduction in billing rates or through improved services
Similarly, for each of the conflicts, by harnessing the power of integrated web services platform, we can break the constraints.

Cautions that need to be exercised:
Technologies are already available to facilitate all these. However, these components require integration. Buying them individually leads to efforts being wasted in integration, which is not the core competency of ITES. Further, some of these technologies specially those which are proprietary in nature increase the risk of obsolescence or can be prohibitively expensive. Therefore, it is safer to develop these technologies on open platforms.

Further, one needs to keep in mind that ITES is an emerging sector in India. There is nothing like mother of all technologies—which can answer all the issues. Therefore, CEOs need to carefully pick and choose partners and work with them to ensure that their specific business needs are met.

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