The Hindu : Cost factor may trigger innovation in BPO

Online edition of India's National Newspaper
Friday, Feb 14, 2003

Business

Business

Cost factor may trigger innovation in BPO

By Shanthi Kannan

CHENNAI FEB. 13. A lot of large IT outsourcing and consultancy firms have entered the Business Process Outsourcing (BPO) segment. However, the business model of BPO is entirely different because of variation in the kind of skill sets and depth of domain knowledge required for delivery. Moreover, the BPO model throws up a whole new set of HR (human resources) challenges. These companies will do well to address this. For these firms, the current advantages are the relationships they have with clients and the fact that IT is an enabler for BPO.

Today, most businesses have started asking a few questions. Can outsourcing provide marginal gains? What should be outsourced? Where exactly comes outsourcing in the business? The key challenge before any BPO model is to maximise the value delivered to clients. Not surprisingly, these companies are faced with the daunting task of building the requisite trust levels with the outsourcing models. However, there are a number of pure-play BPO companies that are very successful, particularly in the U.K., and these models can be replicated in India, with the additional benefit of cost arbitrage, says the founder of Primentor, Phaneesh Murty.

The current recessionary environment is forcing companies to reduce costs. Market pressures will increasingly force organisations to focus on cost reduction. This will lead companies to initially consider process optimisation and labour arbitrage as an opportunity to achieve cost reduction. This is what the current vendor players are focusing on.

In the future, further cost reductions will need to be achieved through the use of common shared platforms and innovations through BPOs. The companies are facing pressure to reduce costs due to increased competition as economies such as India and China were focusing mostly on labour arbitrage. Mr. Murty felt that there was a space for a company that combined the benefits of both these models to deliver a higher value point to the clients. Higher cost economies rely on technology and process efficiencies to deliver the cost reduction that customers demand. Cost reduction continues to matter and to be a key goal of outsourcing. Businesses must constantly increase both their efficiency and quality and therein drive greater profits to their bottom lines, according to Michael F. Corbett, Chairman and President of Michael F. Corbett & Associates Ltd., who was in Chennai recently.

Mr. Michael said the major wave to watch for was BPO, which meant examining the processes that made up the business and its functional units, and then working with specialised service providers to both reengineer and outsource these at the same time. Next most important element of BPO is offshore outsourcing. Offshore outsourcing is a subset of BPO. Though not new, this is an area that is clearly gaining momentum and it is probably not long before any company that is not leveraging the global talent pool will find itself at a severe competitive disadvantage. India is currently receiving a great deal of attention.

However, Eastern Europe, the Philippines, Vietnam and perhaps most notably China are moving swiftly onto the playing field as well. Then comes the call centres and medical transcription outsourcing companies. While lucrative, these were at the bottom of the value chain and need to either quickly expand in scale and efficiency to be the best possible vendor in their space or face consolidation.

Mr. Phaneesh Murty felt globally the U.S. and Europe were considered as a big challenge for Indian players. Though IT outsourcing had some extent raised the level of comfort and awareness with offshoring as a concept, one should remember that not all the companies going in for BPO had offshore IT, and hence the challenge is fresh.

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