In The Spotlight

Global sourcing: The next frontier 

Financial Express Article, 06/2010, Ganesh Natarajan

The annual conference of the BPO industry held in Bangalore recently, demonstrated how much has gone right but how much can still go wrong with this important segment of the business and knowledge services industry. The perception shared by analysts from Gartner and Everest as well as a majority of industry CEOs was that in an economic scenario where every step forward seems to be followed by half a step back, it is difficult to predict the extent of growth in the current year till the Greek crisis and the threat of a double dip recession are truly behind us.

In spite of the uncertainty, the industry view is that double digit growth will still happen and the estimate that the addressable global market for BPO will grow from $200 billion today to over $900 billion by 2020 leads to the optimistic view that Indian BPO revenues can grow nearly fourfold to a $50 billion level in the same period. Domestic BPO which has been growing at a fast clip even through the downturn periods in 2009 can be expected to grow six to seven times during the same period. The ability of mature Indian service providers to provide solutions to complex global process migrations and add value beyond simple cost reduction is the key to this expected growth and the confidence that pervades the industry today is a healthy sign.

A key trend that only the foolhardy will be able to ignore is the expectation of customers that the days are over when best of breed IT, IT enabled services and KPO vendors could peddle their wares to solve parts of the problem rather than address the process as a whole. As this decade progresses, it will become imperative for offshore leaders to demonstrate all three capabilities—business savvy, process expertise and optimisation through judicious deployment of technology to improve overall productivity of horizontal and vertical processes. To put this into perspective, a company which takes over the procurement process of a large diversified manufacturing firm will have to discuss business metrics for sourcing, purchasing and payment sub processes, show an intimate knowledge of the critical success factors for each stage and be aware of all technology solutions feasible to automate and transform the process for better business efficiency. While this could be done by BPOs partnering with ERP specialists or Six Sigma process optimisation boutique firms, the next generation of global business process and knowledge process outsourcing firms will have to provide solutions to move complex processes to their campuses.

This trend is compounded by the rapid growth of platform BPO solutions, which is emerging along with software as a service (SaaS) as one of the killer applications of the cloud computing phenomenon. Predictions about the extent to which outsourcing will move to the cloud range from 12 to nearly 30% which means that over $50 billion of service may be provided through hosted software and platforms to clients by the year 2020. This not only calls for a deep understanding of processes and the ability to partner with or develop high quality software applications for hosting on public or hybrid clouds, it will also change the characteristics of the BPO firm as it develops a healthy mix of technology and process capabilities and changes the commercial model from a service fee to a pay per use billing system.

The thrust on new value-added services has seen the advent of exciting new providers like Omega Healthcare, which uses hundreds of competent medical and science specialists to support physician groups in the US with a large number of administrative and para-medical support services. It has also enabled market leaders in IT and BPO like TCS and Genpact to configure specialised service groups for credit card companies, retailers, treasury managers, equity analysts, legal professionals and many other specialist areas.

The recurring theme of concern, at the conference and in all discussions on the future of the business services industry is the ability to attract, enable and retain the right talent for these increasingly complex jobs in the industry. With salaries expected to go up by double digits this year after a year of reasonable increases in 2009, and job seekers in the US and Europe willingly to work at lower wages given the tough employment situation prevalent there, the wage gap is fast narrowing and Indian firms will have to get more innovative in their talent acquisition and deployment strategies. Some new idea like partnering with process and business management training firms to provide business, process and technology skills to young aspirants even before they join the firm is a trend that is here to stay and the industry will also have to move beyond the traditional locations to smaller towns like Jaipur, Bhubaneswar, Nagpur and Mangalore if it is to keep runaway input costs under control.

Both the opportunities and the challenges are increasing every year but there is cautious optimism that the industry will prevail. Government, academic institutions, financing agencies and all other eco-system partners will have to play a role in ensuring that the success story continues.