Paper Title:
indian BPO: the transformation into
a global model
Paper based on project implemented at:
Infosys BPO
(Erstwhile
known as Progeon)
Author:
Abhishek Sinha
T.A. Pai Management
Institute (TAPMI), Manipal.
http://abhishekrocks.tripod.com/
( 91-98443 82476
The world
is abuzz today with the waves which Business Process Outsourcing is making.
There are multiple players in the BPO industry, especially in an intensely
competitive market like
The most
important factor for the Indian lead in outsourcing is the cost arbitrage. This
is the factor on which the whole BPO industry hinges on. However this cost advantage
can be split up under the following heads:
·
Labor Arbitrage: The cost of skilled
educated knowledge workers, at all levels of hierarchy is much lower as
compared to other developed countries.
·
Capital: The cost of setting up a business
and running it from
·
Labor management: The problem of Bench
Stagnancy prevalent in most in-house handled processes is mitigated as India
currently has a plethora of projects and keeps shuffling employees between
projects so that nobody is “on the bench”, and human resources are optimally
utilized.
We can
take the example of the Mortgage Origination Industry and see how much benefits
are given by the cost advantage:
Source: Trinity Avendus
BPO Sector Report
However,
and it is a big “however” in the BPO industry, the current model of BPO in
- Cost
Advantage is always short-lived:
India was
once an under developed nation, today it is a developing one, and the day is
not very far off when it will be known as a developed nation. As the economy of
the nation becomes better, the expectation of the people rises, the lifestyle
becomes better, and the demands become more. Hence what could have been
“cheaper” labor will no more be cheap, infrastructure prices would shoot up and
cost would become more of a disadvantage.
- Client
Satisfaction:
If today
the outsource client is satisfied only with cost satisfaction, tomorrow he
might not be. Very soon the BPO clients will start asking “What more can you offer
me?” and the vendors need to be ready with the answers. Clients can be obtained
and lured with petty benefits, but for long time retention, a vendor needs to
look beyond client satisfaction and work towards delighting the client with
something extra.
- Alternate
Destinations:
Given
below is a comparison chart of the alternate destinations in the BPO industry
based on some factors which attract clients.
On the
basis of the above, and adding a few more countries, we may consider where the
pie rests in the BPO industry at present. This can be seen by the following
NASSCOM chart:
Hence it
is very important that
The ex-CEO
of Progeon Mr. Akshaya Bhargava says in his article From Order Takers to Heart Surgeons, “We need to be a lot more
prescriptive and develop the skills and the confidence of a heart surgeon. When
a patient goes in for heart surgery, he expects the doctor to be an expert. The
last thing he expects is to give the doctor instructions on what to do. Much
the same way, what customers are looking for from Indian BPOs
is expertise, experience and complete solutions. They want us to be heart
surgeons of BPO. We should be able to tell them that the experience could be
traumatic for them. But, if they follow our prescriptions, they will emerge as
better and more profitable.”
1. Transformational / Value Added
Outsourcing
The aim is
to adopt the mantra “We don’t just make it cheaper, we make it better”.
Transformational Outsourcing aims to transform a process which is outsourced
into a much better and more efficient process apart from making it cheaper.
This modus
operandi for outsourcing changes the reason why the client would want to
outsource. Initially clients would outsource only if they thought that the outsource
service provider would provide cheap services. But with the Expertise Oriented
concept a client out-sources a process because he has the expertise in the
process as that is what he specializes
A very
good example of this is Progeon (now Infosys BPO). It follows a phased process where it delivers
not just the cost advantage but a lot more to the client.
The
following is the model of Transformational Outsourcing that they follow:
Source: www.progeon.com
Once
again, whenever a process is obtained from a client, there is a specific
methodology followed in bringing the process from the client end to the Progeon center. The transformation process starts right
from the point of time that a BPO provider like Progeon
starts taking interest in a clients process. They first study and understand in
the complete process in Discovery,
then ‘migrate’ the operating capabilities to the vendor site in the Transition phase and then
‘migrate’ the actual process and operations in the Parallel Run in a phased manner. The next stage is the
smooth running of the process at the vendors end with complete operating
requirements in place, and this stage is the Steady State. And the final phase is to continuously
optimize, tweak and improve the process according to the new environment to
reap maximum benefits from the process at minimum cost. This is the
transformational cycle. Now let us see each phase as Progeon
follows it.
Discovery1:
The
Discovery phase of the Progeon methodology involves aggregating
and understanding the client's processes, identifying processes that can be
outsourced, articulating the risk around these processes, and developing a
business case for the client
Transition1:
Transition
is the process of migrating knowledge, systems, and operating capabilities. It
typically follows identification of appropriate processes and vendor selection.
The
following diagram shows the Transition Management process in detail:
Source:www.progeon.com
Parallel Run1:
The
objective is to test the successful migration of processes to the offshore
location, while ensuring that interdependent processes are not adversely
affected. This takes place in the following stages:
• Preparation of the ramp-up schedule
• Logistics management (shift timings,
transportation, food, etc.)
• Execution
of offshore ramp-up and onsite ramp-down while maintaining the continuity of
operations and service levels
Source:www.progeon.com
Steady State1:
‘Steady state
operations’ is the on-going delivery of services. It also encompasses
continuous process improvements in collaboration with the client.
The
objectives of the steady state are the establishment of "Business as
usual" for the client, where the outsourced processes are executed as per
norms laid down in the Service Level Agreement (SLA).
1 Information obtained
from Progeon website (http://www.progeon.com/) as on
August 21, 2006.
2. Platform Based Outsourcing:
A concept
in which the outsource service provider not just provides the services for a
process but also provides the software platform for the process. This results
in a long and mutually beneficial relationship between the client and service
provider because of high dependency on the service provider for reasons other
than cost advantage.
This is a
classic example of non-standard thinking. As the ex CEO of Progeon
Akshaya Bhargava in his
paper “The Need For Purple Cows” puts it: “If
the Indian BPO industry does not have non-standard thinking, non-standard
business models, and the courage to experiment we will lose the initial lead we
have over our competitors. The real battle is not between one Indian BPO
company and another but between
In order
to be able to move up the value chain and provide Platform Based Outsourcing
Solutions, Indian BPO vendors would require to adopt a Process Platforms or
Packages.
On
adopting a Process Platform or Package, the BPO vendors would have to deliver
all its new services using the platform. The Platform Outsourcing Strategy
clearly means that the platform will be used only for the Tier 2 clients to
begin with. As for the tier 1 clients who are the present customers of the
vendors (or otherwise) and who have the bargaining power and muscle to make the
vendors use a platform of their choice, the vendor will continue to provide
transformation services by improving productivity through a combination of BPO
& IT redesign.
The
Platform Strategy: The Objectives
- Offering
something beyond Labor Arbitrage
Labor and
Cost Arbitrage have always been the primary reasons why organizations all over
the world have been outsourcing. The cost factor is extremely important to
initiate the outsourcing of a process, however it is not enough to sustain the
outsourced process. After a certain amount of time the client will look for
further benefits and a cost arbitrage alone would not suffice as a reason for
the client to retain an outsourced vendor. A platform based outsourcing
solutions goes beyond cost arbitrage and hence differentiates the service
provider from others.
- Lesser
dependency on client platforms
In a usual
process or end to end outsourcing scenario the platforms on which the processes
are executed are usually provided by the client. This increases the dependency
on the client with regard to a lot of aspects. It implies that the service
provider is dependent on the client for all further updates of the platform,
the initial and the subsequent update training for employees using the platform
and the system requirement specifications for a process. On the other hand if
the service provider offers a platform along with the services, the client
tends to forge a long term relationship as it will be a very expensive task to
break the relationship. This is so because in case of withdrawal of a process,
the whole process will have to be restructured by the client as per the new
platform.
- Greater
Process Expertise
If a
service provider will be working on only one platform for all clients and all
processes the expertise of the organization with regard to the platform and the
knowledge about the handling of the process and the platform workflow will be
much higher as compared to a scenario where the service provider works on
separate platforms for separate clients and separate processes.
- One
step “Business Transformation”
Most
intelligent BPO players know that Business Transformation is absolutely
necessary for any process outsourced by a client. However nearly all service
providers carry out this transformation over a prolonged period of time thus
showing increased productivity at each stage. With a platform based solution
with which a service provider has adequate expertise, the client will experience
a one step “Business Transformation” with reduced initial transition risks and
immediate productivity benefits.
- Shorter
& Cheaper Transition
The phase
of Transition is a very important part of converting a normal in-house process
to an outsourced one. This involves a lot of time, effort and cost. However in
the case of a platform based solution the time, costs and efforts are much less
as compared to any other form of outsourcing lower in the value chain.
3. Global Delivery Model for Outsourcing
“When you can’t beat them, join them”
When we
talk of GDM in the BPO scenario, we first need to address the issue of why GDM
can be the solutions to the problems currently facing the BPO Industry.
When we say
that the BPO industry is developing competitors for
This would
mean that Indian BPOs having been on the scene for a
longer time, guide the new and upcoming BPOs in other
locations and develop a network of combined services which become an irresistible
offering for any client.
There are
some myths about the Global Delivery Model which need to be clarified and only
then can we take a decision on implementing it in the BPO scenario.
GDM is not
a sum of offshore services and onsite presence. Neither can it be achieved by
make offshore services as a plug in feature or using onsite presence as an
add-on.
2 Global Delivery Model is a combination of
onsite model and offshore model but unlike the onsite/offshore model wherein
the offshore development center of service provider is located at only one
place, in the global delivery model the service provider has its offshore
development centers spread out across the entire globe. The service provider need
not have their own offshore development centers across the globe but they can
use the resources of their partners located around the globe, and thus follow a
global delivery model. This provides the client with a large working team with
varied qualities and expertise in different fields.
2 Tasks accomplished by the onsite team:
- Understanding the client’s requirements.
- Directly interacting with the client to get a
better idea of their needs and changes in them, if any.
- Acting as a mediator between the client and the
offshore development centers.
- Planning & Designing the initial steps of the
project.
- Allocation of Tasks amongst the available
resources.
- Testing the outcome of the project in tandem with
the client’s team.
- Executing the project successfully at the client’s
place.
- Provide the required support for maintenance.
Tasks
accomplished at the offshore development center:
- Detailed design that will be continuation of what
the onsite team designed.
- Deciding any specific technological requirements
for the project.
- Development.
- Testing before handing over to onsite team.
- Continuous technical support.
2 Global delivery model is preferred where
the client requires that the job be done in a quick manner, which is made
possible by the number of offshore teams working together towards the
completion of the task. Also where the project is very big requiring sufficient
skilled manpower to complete the task this is the only model, which provides
solution in such cases. The level of risk involved is also minimum since even
if any of the offshore development centers face any disaster the project work
will not be stopped, as the work can be transferred immediately and continued
by the remaining offshore development centers.
Having a
perfect co-ordination between all the offshore development centers and that too
in accordance with the client’s satisfaction is a big task. However this
limitation can be overcome today by making the best possible use of the most
modern means of communication.
Mindtree Consulting believes that the IT Services
push is towards affordability and it clearly distinguishes between Offshore,
Onshore and GDM:
Source: The Global Delivery of IT
Services by Joseph King, A Mindtree Consulting White
Paper
Notes:
1 Information obtained from Progeon website (http://www.progeon.com/) as on August 21,
2006.
2. The matter is obtained from the following
website
http://www.offshore-softwaredevelopment.com/.
Bibliography:
- Trinity Avendus BPO
Sector Report
- From Order Takers to Heart Surgeons by Akshaya Bharghava
- The Global Delivery of IT Services by Joseph King,
A Mindtree Consulting White Paper
- Evaluation of Mortgage Origination Packages, A Progeon Project by Abhishek Sinha, TAPMI
- http://www.tutorial-reports.com
- http://www.carretek.com
- http://www.xicom.biz/research.html
- http://www.offshore-softwaredevelopment.com
Annexure 1: Competitor Data
available from http://www.xicom.biz/research.html
In
the outsourcing field,
The
main advantages of
- Lower Manpower costs:
The Chinese workers cost about 15 percent less than equally qualified
Indians.
- Extremely low cost
real estate and power: These costs are lower than in
- Proactive Govt.: The
govt. is very friendly to this sector and has taken the following steps.
1.
English teaching
and other skill sets: Over $5.4 billion was invested in nine universities in
2.
Increasing
telecom density and PC penetration:
- Leveraging on the
manufacturing image: Western manufacturing companies have found that
outsourcing their manufacturing function to
The
main disadvantages of
- Lack of a good
Quality record in Software:
- Low English speaking
population: This is the biggest drawback of
- Less mature: The
Indian business processes are much more mature.
In
the
The
main advantages of
- Large scale technical
training program: The govt. has initiated a no. of policies by which the
skills can be provided to a larger population.
- Improved telecom and
office infrastructure:
- 3rd largest
English-speaking nation in the world: This is a very important advantage.
- Well developed IT
skill set: It is considered 2nd only to
- Costs of technology
workers: This is(which represents the biggest recurring costs for, say, a
B2B site) is only around 16% to 25% in the
- Former American
colony: As a former American colony, American culture and language is
widely emulated here. These cultural and communications skills could prove
to be so appealing to American firms that they would outweigh slightly
higher labor costs in the
The
main disadvantages of
- Low graduate turnout:
- Not having a record of
high quality:
- Political
instability: The country has frequent elections which makes it difficult
for companies to outsource as there is lack of uniformity of policies with
changes in the Govt.
- No disaster recovery
facilities or multi-location facilities: After the WTC bombing terrorism
has become a very important issue for the
- Issue of scaling up:
It
was one of the front runners in the BPO and started much earlier than
But
it suffers from a very big disadvantage of a lack of a large human resource
pool. It has nearly 500 companies employing more than 40,000 people. Also it
compares very poorly with
The
other countries, which have a share in the BPO sector, are given below. These
countries are not serious competitors to
It
has a mature BPO industry with 4000 call centers employing 225,000 people with
US$ 5.7 billion revenue. It has the advantage of large English speaking
population with a favorable time zone.
Since
only five per cent of total BPO business (by year 2005) from United States
would be offshore amounting to US$7.5 billion, Canada and Eastern European
States could put severe pressure on India on price front, besides being sought
after for their near-shore capabilities by the US.
Annexure 2: Summary of Summer Project
done by Abhishek Sinha,
TAPMI at Infosys BPO (Erstwhile Progeon)
Academic
Scope:
The
academic scope of the project is immense as this project explores the
opportunities present in the field of Outsourcing
Value Addition.
Today the
outsourcing industry is in dire need for ways to increase their value addition to
the outsourced processes. Simply providing a cost or labor arbitrage is not
enough in today’s world where there are countries which are offering labor and
services cheaper even to Indian standards. There continues to be numerous
research attempts at finding out ways in which Outsourcing can become an
integral part of a client company work process, where the value addition by
outsourcing results in a long standing relationship between client and service
provider which is mutually beneficial and not of a short term contractual
nature.
This
project takes inputs from one of the most notable BPO reports of recent times,
“BPO Opportunities in the US Mortgage Market: A Trinity Avendus
BPO Sector Report” to carve a policy for Progeon to
adopt the Platform Based Outsourcing Process.
As there
is no predecessor for this project, at least to the knowledge of the
organization domain experts and the project implementation team, this project
can be used as a structure to evaluate any new jump in the value chain for the
organization. Keeping this in mind the structure of evaluation and the
methodology has been documented in detail for the organization for use in any
of its future value addition strategies.
This
project, as already mentioned earlier, is also being formulated as a classic
case where Information Technology has helped an organization move up the value
chain and hence enhance its competitive edge.
Methodology
Adopted:
The methodology followed for this project was as
relevant as the project itself, as it had to be formulated from scratch. As no
similar project for the evaluation of platforms or for the evaluation of
platform vendors in the mortgage field had been done ever, hence deciding on
the methodology was an intricate and important task.
The methodology for the implementation of the project
was selected keeping in mind the fact that Progeon is
new to the concept of offering platform based outsourcing solutions to its
clients.
Therefore the methodology followed was to first
create the requirements for a Mortgage Origination Platform for Progeon, keeping in mind the Mortgage clients of Progeon and the ways the platform can help improve and
support the different outsourced processes in Mortgage Origination.
After the initial requirements were found and documented,
the next step was to find the services or the parts of the requirements which
will not be fulfilled by any standard Mortgage Origination Platform. These
services will be recurring costs in the mortgage origination process and will
hence not be taken care of by the platform. There will be specific specialized
vendors to whom such services have to be outsourced. Hence the next step
involved listing down all these services, the vendors who provide the services,
the costs involved and the input and output formats for these processes.
After this a list of all the mortgage vendors was
obtained and then the vendors providing technology support to the mortgage
origination process was selected. These vendors were in turn made to undergo
another short listing process on the basis of judgmental analysis of domain
experts within the organization.
The step after this was to form a structure for
collecting data on the sort listed vendors and to form a framework for
organizing this data. This organized data which encompassed information on all
the short listed vendors was called the Vendor Qualification Matrix.
After all the data was collected, the project moved
on to the next phase where an algorithm was created in order to quantitatively
measure the capability of each vendor in different areas. There was a certain
criteria formed and weights were assigned to these criteria with the help of
inputs from domain experts.
The vendors were then scored on the basis of the
information in the Vendor Qualification Matrix as per the criteria and this
quantitative scoring deck was called the Quantitative Vendor Matrix. The
vendors were sorted based on their score in the Quantitative Vendor Matrix and
the top six vendors were selected and an exhaustive qualitative evaluation was
done. Finally two vendors were recommended on the basis of the qualitative
evaluation.
This was the complete methodology followed for the
“Evaluation of Mortgage Origination Packages” in order to justify the scope of
the project and come out with the required deliverables and final output.
Major Findings / Recommendations:
The following were the findings which were also
tabulated as the project deliverables/outputs and presented to the company at
each stage of the project:
- Mortgage Platform
Requirements Structure: A
detailed list of the requirements of a platform specifically customized
for Progeon.
- Mortgage
Ordered-Out Services: Vendors
providing them, Cost Structure of these services, the format of
input/output for the service software.
Vendor Qualification Matrix: a structure for the collection of data for the
vendors. This Qualification Matrix contains detailed data regarding the
key customers, the key partners and revenue and profitability growth for
the top 22 short listed vendors. A sample of the same is given in the
picture.
Quantitative Weights and Criteria: The different parameters to be considered
during the quantitative scoring of the data collected in the qualification
matrix and the numeric weights to be assigned to these parameters. A sample
of the same is attached in the picture alongside which gives the weight in
the general category.
- Quantitative
Matrix: The QM quantitatively
scores each vendor on the assigned parameters as per the weights assigned
in the Quantitative Weights and Criteria, sums up the score for all
parameters and finally ranks them on the score. Some parts of the matrix
are as shown below:
Final Recommendations:
Based on the Quantitative Matrix, the rankings
obtained, the following vendors were short listed individually in the two
sections of LOS and POS.
POS:
LOS:
- Dynatek
- Mortgage
Cadence
- GHR
Systems
After further qualitative analysis on all six vendors
the final recommendations were as follows:
Final
Recommendation for LOS:
Recommended because it has a Plug-In Partner Network
which allows access to unlimited partnerships
Final
Recommendation for POS:
Recommended
because of its alliance with MindBox to overcome the disadvantage of the inability
to do custom underwriting.
Further Scope:
- Research
and a Cost Benefit Analysis for Inorganic Growth
- Research
for investment risks for Progeon in a Mergers
& Acquisitions Deal
- Research for
evaluation of Vendors for a Mergers & Acquisitions Deal
Utility of the current project outputs:
- As inputs
for a further Mergers & Acquisitions project
- To
understand the utility for a Mergers & Acquisitions deal
- For a
cost benefit analysis for a Mergers & Acquisitions deal