Vertex plans to make India its global hub

BPO firm Vertex plans to make India its global hub and is looking at acquisitions of domestic BPO companies. The company also plans to move 300 roles in HR and finance, among other functions, from its UK and North America operations to India. Employees on these roles would be re-deployed in other functions in their home market. “We can’t be a leading global BPO player without India being a vital part,” according to Vertex managing director for private sector Bruce MacLeod. A member of the global board of Vertex, he was recently made accountable for India. Mr MacLeod said that Vertex aims to do more work for clients in the UK and North America out of India as well as expand in the domestic market, especially through acquisitions.

Vertex is looking at 2-3 BPO firms for acquisitions that will give it a critical mass and larger presence in the domestic market. The BPO firm, which has about 1,200 employees in India now, wants to scale it up to 5,000-6,000 employees, backed by acquisitions.

Business model to earn more

Next time, when a client’s transaction is forwarded to a BPO in India, he might actually end up getting more value on the service offered than he ever expected. The Indian BPO industry is undergoing a shift in its revenue-generation model to spur more efficiency among the service providers. From the input-based pricing or FTE (full-time equivalent) model based on per person on hourly basis, the sector is embracing outcome (a client pays a vendor based on the output or outcome) and transaction (vendor will be paid on the number of transactions performed) based pricing models.

“Gauging productivity of providers based on the FTE format was becoming quite difficult. In the new output based model, the effort and success is out in the open for everyone to see. It shall have positive impacts in revenue generation,” said Sameer Chopra, president, Business Process Industry Association of India (BPIAI). The industry believes that outsourcing is not strictly a cost-cutting exercise; it’s a business-value creator. The new pricing model based on the output delivered to a client would help in achieving the latter role. Outcome or transaction based pricing provides incentives for the vendor to invest in improving process performance and efficiency on an ongoing basis. “

At present, about 40-50% of our revenues are generated by the transaction model and helped us in aligning revenue utilization to clients’ variable cost. However, a derived outcome model from the FTE model without proper domain knowledge, might imply negative impact,” said Aparup Sengupta, MD and CEO, Aegis BPO. The much-touted transaction-based pricing model is the result of a series of improvements such as process simplification, application of technology and standardization.

Transaction-based pricing offers significant advantages over the FTE based pricing where service providers charge for manpower employed per unit of time. In transaction-based pricing, since the service provider is paid for quantity of work, it breeds efficiency and helps clients to easily compare the service providers. “We have embraced the outcome based model along with the existing FTE model since it is performance based and promises to outperform our customers’ best centre by 10% or more. Apart from the fact that the clients need not pay on flat basis, it provides comfort to clients, as they need not bear the entire risk. We have incorporated the operational efficiency platform for the outcome-based model,” said 24/7 Customer chief marketing officer Vivek Bharathwaj.

Besides, it can bring close alignment of objectives and incentives of the client and the vendor, to achieve value-addition in the transaction process. In case of transaction based pricing, clients would need to pay only for the results achieved and not the unutilized FTEs.

*Reference Economic Times

Finance services BPO may grow 40-45 times in next 5 yrs

US sub-prime crisis may be a boon to the Indian business process outsourcing (BPO) units, which provide financial services, with the sector expected to grow 40-45 times the current market size over the next five years, according to a global consultancy firm.

"The key drivers of growth will come from cost pressure and the timely advent of more vertical-specific offerings by offshore suppliers," a study from Everest Research Institute pointed out.

The study says that within five years, the addressable opportunity for global BPO by the financial services sector will reach USD 145-165 billion for India-based services. It further added that offshore BPO adoption in the insurance sector will grow 12-15 times during the same time period.

"Banks and other financial services firms are under significant cost-reduction pressure and that's why a large number of firms plan to reduce headcount in West geographies and move job offshore," Everest Research Institute Global Services Vice President Nikhil Rajpal said.

The financial services industry comprising banking, capital markets and insurance accounts for 40-45 per cent of worldwide global outsourcing.

Aligning Business Objectives with Human Resource Management

The Human Resource Alignment Model focuses on aligning: HR Processes + Talent + Jobs + Culture + Key Business Objectives. HR professionals today closely partner business to 1) assess alignment, 2) architect aligned HR processes, and 3) build competencies around this alignment.
The central component in the basic HR Model consists of Key Business Objectives. Organizations and jobs are aligned to most effectively execute clear roles and cross functional synergies to accomplish business objectives. Talent is aligned with key position requirements to assure that the performance of each function is fully powered and optimized. Human resource processes are aligned and fine tuned to assure that talent is effectively placed, motivated, highly capable and retained. Culture is aligned to assure that the right behaviors are expected, encouraged and reinforced. At the end of the day the alignment of human resources and organizations is the starting point for success.

'Apac emerging as key market for outsourcing'

Asia Pacific is emerging as a key outsourcing market, but it offers its own challenges to service providers. Cost differential or labour arbitrage won’t work in this market and players have to develop new offerings, says Gartner BPO research director T J Singh. Excerpts:

What sort of growth do you see for BPO services globally?

In North America, we continue to see growth, but it’s lower than what it used to be a year ago. The deal sizes are getting smaller and the duration is getting shorter. However, the drive to reduce costs is higher. For instance, everyone said mortgage processing would fizzle out. However, while mortgage origination has seen number of deals go down, the number has gone up in mortgage servicing where companies want reduced cost per client. We have seen a lot of deals in the UK. In continental Europe, companies are still looking at whether they should offshore/outsource. Some have set up captives, which are outsourcing. So, companies are taking a slightly different approach to outsourcing. Asia Pacific is emerging as a key growth market for outsourcing. It has a burgeoning middle class that is tech-savvy and wants new services. I was talking to the CEO of a contact centre in India whose company supports a telco. He was speaking about how this telco wants to provide services in Punjabi, Marathi and other languages. This market also has a lot of small and medium businesses and the golden nugget would be how to crack this segment.

What are the key verticals in Asia Pacific?

Financial services continues to be attractive. In case of telcos, companies have to be selective in certain markets. South East Asia is also big in utilities. The government is also very active in the outsourcing space in the region, but they prefer local delivery and players. In India, retail vertical could become important in the future. The SMB space hasn’t been looked at aggressively. The mid-market, which comprises SMBs in Asia Pacific, is huge. Indian outsourcing firms are looking at expanding in Apac. What are the challenges? Companies are setting up centres not only for multi-country delivery but also to cater to the domestic market. For instance, Indian companies have, in the last 12 months, started focusing on their domestic market, but the mindset is still the same as when dealing with North America and Europe. Companies will have to develop new offerings for Asia as there is not much of a cost differential. It’s also important that service providers don’t treat it as a secondary market.

How do you view Indian service providers’ China strategy for tapping its domestic market and Japan?

In China, Indian service providers are following the multinationals’ path by going after state-owned enterprises (SOEs). It’s an opportunistic strategy but it might not be sustainable while competing with the MNCs. China is a good springboard for the Japan market. The play in Japan for Indian companies would have to start with application services with support from centres in China.

What about various outsourcing destinations in Apac? How would you rate them? India will have the lion’s share for the next couple of years. Malaysia is looking at captives, especially those targeting utilities, banking, financial services and logistics. Other countries are also looking at carving out a niche for themselves. Philippines is establishing itself for voice business. It’s now looking at finance & accounting and animation. China is developing 10 cities as BPO hubs. So, while banking and financial services BPOs would come up around Shanghai, call centres would be centred around Dalian. Vietnam is doing low-level design and testing as well as programming.

What changes are you seeing in terms of offerings?

There is this new trend in BPO called business process utility or one-to-many service, which is non-customisable but configurable. What this means is that 80-90% of the process is standard while the remaining 10-20% permits configuration to suit certain markets and regions. For instance, in case of payroll processing, most of it could be standard, except for certain regulatory and taxation issues. China has seen some development on this front. A company that has used this approach got 10,000 clients within three months of launching it. However, these were all small companies. In India, it’s called platform-based BPO.*

*Reference Economic Times

Europeans more open to outsourcing

Infosys Technologies’ acquisition of UK’s Axon couldn’t have been better timed as a new study finds that Europeans are becoming more open to outsourcing. The French, however, are likely to be more reserved than their English counterparts when it comes to adoption of outsourcing, according to a Ernst & Young study completed last month. The study found outsourcing was being used by 70% of the European firms surveyed.

The study is the first in recent times that analyses European openness towards outsourcing. An earlier study by research firm Gartner had said Europeans continued to show a strong preference for local vendors. Part of the reason behind the reluctance of some of the European firms may be tough labour laws in countries such as Germany and France, according to the study. Despite a growing recognition of the quality advantage, the primary motivation to outsource still comes from cost savings, and this, according to study’s authors, Thierry Muller and Paul Young, is not easy to achieve.
“In order to achieve an overall reduction in costs, employers must be able to either successfully reallocate internally those staff whose operations have been externalized, or carry out redundancies. The options available to employers vary according to each country’s legal framework. European countries such as France and Germany have less room for maneuver than countries such as the UK, where labor laws are more liberal,” according to Mr Muller and Mr Young.

The British are, however, likely to outsource only a few standard functions, while the French and Belgians are open to outsourcing a wide range of functions.

Also, compared to 70% of respondents that had at least one outsourcing relationship, only 49% of respondents cited cost savings and higher productivity (revenue earned per employee) as the advantage of outsourcing for their organisation. About 33% identified better quality through use of specialised skills.

“French companies attribute less importance to cost-saving benefits, with improvements in quality and strategic organization being the key advantages identified. Belgian companies are also strong proponents of the improved quality brought by outsourcing, while in the UK, quality considerations are rated on a par with cost savings,” the study said.

The higher emphasis on quality among some of the EU nations may help Infosys, which positions itself as a premium player rather than a low-cost player. In the past, it has let go of some large clients such as GE because it wanted to maintain its pricing. It has also not participated in some large projects with lower margins.

In the recent past, however, there are some indications that Infosys may review some of these measures. The recession is making it harder for IT firms to get more business as many of their clients are facing huge losses and write-downs.

*Reference Economic Times

Building an Agile Enterprise

A cursory look at the entire outsourcing wave shows how outsourcers have prioritized knowledge and cost savings, and shelved cultural differences. As a result, predominantly western-centric companies, despite the cultural divide, have adapted themselves to Indian dynamics, and that had led the outsourcing industry to boom. In the outsourcing world, BPO is the hottest segment. Unlike its big brother, IT, the dynamics of the BPO industry is totally different. If we look at the two dominant forms of BPO-voice and transaction-companies have come a long way.

India is going to play a significant role in the export of services. Therefore, it is imperative to understand world trade which is critical to business. The total number of IT and ITes - BPO professionals employed in India is estimated to have grown from 2, 84, 00 in 1999-2000 to 1,287,000 in 2005-06. In addition, Indian IT-ITes is estimated to have helped create an additional 3 million job opportunities through indirect employment. In order to stay in lead and increase India's share in the global market, the Indian government and IT/BPO industry need to focus on moving up the value chain by cultivating deep and enduring innovation across three dimensions –

a) Business model innovation
b) Knowledge innovation; and
c) Ecosystem innovation.

The IT sector has to expand to other countries and tap new centers of emerging demand and expand not only in terms of quantity but also in terms of quality of its skilled labour by introducing appropriate changes in the system in collaboration with the industry and academia. This calls for a transformation of Business Process Outsourcing to Knowledge Process Outsourcing (KPO) units.

Despite the boom the industry is eyeing, challenges are very pronounced because BPO is a customer facing industry. On any given day, thousands of BPO employees interact with clients and customers. If we look a little closer at BPO as an enterprise, it faces numerous challenges. And to surmount these challenges, BPO companies need a high degree of top management commitment. Agility comes with the seamless interplay of key components that create an eco-system on which the enterprise runs. If we look at the challenges faced by BPO companies, we can narrow them down to three core challenges-managing the telecom, the IT infrastructure, and HR. If these three components are taken care of, most of the other challenges can be managed easily.

Technology: Challenges and Solutions The BPO industry is all the while concentrating too much on managing the manpower churn . But correct technology deployments and implementing IT best practices go a long way in upping the operating efficiencies. BPOs, in addition to deploying enterprise applications, give high emphasis to networks as real-time remote communication is the order of the day for most BPOs.

Managing a private network with diverse network connectivity, PoP is a big challenge for maintaining high uptime; creating a network up-time backbone that secures the much sought after five-nine (99.999%) up-time is indeed a challenge and the key goal of BPO companies. This network backbone is the one that makes the entire mission critical processes in the BPO to function on a 24/7 basis. The challenge in networking is to make sure you have available capacity at all times to enable 24x7 operations. Having realized the criticality of uptime, BPO companies are also gearing up to meet the stringent operational requirements. To manage the networking challenges it is wise to use services of multiple vendors. This method enables enterprises not to get tied with one vendor. The multi-vendor approach gives flexibility and heterogeneity in terms of managing out networks effectively.

From an application side of things, one key technology area which is directly related to operational efficiency is First Call Resolution (FCR) measurements. The time spent by the agent on every call is measured in what is called as Average Call Handling Time (ACHT). The more the agent spends on each call, is an indication that the problem has not been resolved. When the same customers need to call again, it means that the problem is not sorted out.

The biggest challenge for BPO companies is to deploy FCR solutions that help the agent as well as help measure how much of FCR they were able to achieve in any given day vis-à-vis the number of customer calls. Hence, a good FCR solution is a must to benchmark the call center performance on the way the calls are handled and problems resolved.

From an organizational viewpoint, given the huge manpower of most of the big BPO companies, a robust HR automation solution is mandatory. The creation of an HR portal also assumes significance. The biggest challenge here is in creating a single window intranet, where right from employee appraisals to the latest happenings should be available. The creation of a fully automated HR system involves careful planning and right selection of HR solutions, supported by proactive HR policies.

The HR Churn: Beyond technology HR is a key challenge that most BPO companies face. Retaining talent is the primary challenge that BPO companies face. Since the nature of work in most BPO companies is often routine and repetitive, attrition tends to peak. According to industry experts, the BPO industry, in a short time span, has gained importance due to its phenomenal growth. Industry bodies had predicted that the 650,000 people currently employed in IT and BPO will triple in the next five years and grow over to 2 mn. Given this backdrop, HR professionals today face a whole lot of challenges. While there is a large number of qualified manpower available in the market, the actual percentage of people who are employable in the BPO sector is only about 5%.

Being a very young industry, and the low employability percentage, the need for domain experts is a big need. In today's scenario, the business processes that companies handle are very mature, but the employees are very young and, in most cases, with high attrition, the entry level employees do not fully understand the mission critical nature of the work they do. As there is a wide supply-demand gap, retaining talent becomes another big challenge for companies, especially in this growth boom. This also leads to poaching of employees between companies; with the frequent job hopping leading to scarcity of talent. With attrition and skill shortage on the anvil, the BPO companies are implementing various ways and means to retain and attract new talent.

What emerges at the end of the day is that as BPO companies scale in size, they need to expand all the vital components–from technology infrastructure to employee benefits. On the technology side, BPO companies need to think innovatively and go for concepts like virtualization for greater manageability. Managing networks will continue to be a challenge as technology heads will face increasing pressure in building a robust network. End-point security will also become a big issue and one needs a slew of security solutions from firewalls to anti-spam. On the HR side, while attrition will increase, BPO companies must focus on creating domain leaders within their own companies so that a highly skilled HR base can be created.

R&D outsourcing to rise

India is the top choice for companies looking to outsource R&D with an Offshoring business there expected to grow 23 percent to USD21 billion by 2012 and a talent pool in its largest hub, Bangalore second only to Silicon Valley, according to a study by a management consulting firm. The number of outsourced R and D centers in India has leapt from 180 in 2000 to 594 this year, according to the first report on India’s R&D centers from Zinnov. The huge talent pool in India has been fueling that growth, Zinnov said in its report.

About 140,000 engineers currently work in India’s R&D centers and another 110,000 are working for companies that serve them, a larger group than previously believed, the company reported. The engineering talent pool in Bangalore, Zinnov reported, is second only to that of Silicon Valley.

The India Semiconductor Association released a report in April projecting the design sector there will grow by more than 21 percent during the next three years to USD10.96 billion. It estimated about India employs about 130,000 engineers, the vast majority of them in software. India is attracting and retaining more of its native technical workforce, according to the Zinnov report. About 30,000 of India’s engineers have returned in recent years from jobs in the U.S. The number of graduates from IIT and other top Indian universities relocating to the U.S. is on the decline, it said.

The maturing talent pool is driving an increase in the sophistication of jobs handled in the India R&D centers. About ten percent of the projects in the centers now involve full development of a new product, a slice that is expected to increase to 30 percent by 2012, according to Zinnov. The report estimates the cost per employee in India grew at 16.2 percent between 2005 and 2007. However, Zinnov expects the cost growth to slow as pay raises and real estate prices moderate in the future. At the Design Automation Conference earlier this year, the president of one of India’s R&D firms estimated engineers salaries in India could rise to the levels of counterparts in the U.S. within a decade.

Why is such Indian Offshoring continuing to rise despite higher costs? One reason, of course, is that despite all the wage inflation, India remains a lot cheaper than the U.S. The total cost of employing a fulltime Indian engineer including wages and benefits, facilities, telecom, travel, and administrative support ranges from USD 35,000 to USD 55,000. The U.S. average is at least three times that. A lead engineer in India still averages just USD 30,000 a year in salary, while a raw recruit classified as an associate engineer draws a mere USD 4,440 a year. The growth of Indian engineering wages, meanwhile, is starting to slow, meaning the gap with the U.S. won’t close anytime soon.

But a bigger reason is that the growing quality and experience of India’s huge technical workforce is offsetting escalating wages. Some of the estimated 250,000 Indian engineers working on global R&D, especially those who have been employed by big Indian software services providers including Infosys, TCS & Wipro now have 10 years of experience working for international corporations. Countless others have received heavy training by their Indian employers. The reason to go to India no longer is just about cost, it’s about the quality of talent. That’s a big reason Bangalore remains by far the most important R&D base. Of the city’s 80,500 engineers working in foreign owned R&D centers, according to Zinnov statistics, about two thirds have four to seven years of experience. One third have seven to 15 years, enough to qualify as a lead architect for many products. No other city in India comes close.

An influx of returnees from the U.S., Britain, and Australia, many boasting years of managerial and R&D experience at Western corporations, is supplementing India’s technical workforce.

Indian Outsourcing Business sees more revenues

Global recession has come as a blessing for Indian IT companies as now mid size US IT companies have started turning towards India for their work. Describing this as a golden opportunity for Indian IT companies, Ashish Bahuguna of Bitscape IT Solutions Company said that now Indian companies had opportunity to get the best of their talent in terms of quantity and rate for their work. Bitscape is an Indian Multinational IT company which has made its global presence in a short span of seven years. The company with a large bouquet of IT services has its own subsidiary in the Silicon Valley and has a noticeable presence in Europe through its UK based director. The Bitscape is Gujarat based 100 percent Export Oriented Unit with CMMi level 3.

Elaborating his point Bahuguna said that earlier only small US companies used to outsource work to India. However, recession has hit mid size and big companies very badly. In outsourcing to India these companies find the most viable strategy to beat the heat of the recession. What many have not yet realized is the fact that this has opened channel for quality work for India, obviously at much higher rate that what Indian companies used to get.

The US remains the biggest market for Indian software and service exports, which are forecast by the industry lobby group National Association of Software and Service Companies NASSCOM to hit 60 billion dollars by 2010. The business environment for IT stocks has become slightly favorable than at the beginning of the year, said Bhavin Shah of J P Morgan.

Last year software firms such as TCS, Infosys and Wipro were roiled by the rupees steepest appreciation against the dollar in three decades, surging wages and property prices. Mathematically speaking, Infosys could increase their full year earnings guidance by 67 percent, Bhavin said. There is renewed optimism after better than expected third quarter earnings from US based Accenture.

The global consulting and outsourcing firm said it has not seen any cancellation or big delays in its business due to a weaker US economy and the financial sector. New bookings for Accenture, a key indicator of future revenues, rose by five percent at 6.77 billion dollars in the third quarter.

Giving the example of his own company, he said that opening of sole subsidiary in the Silicon Valley last year has improved the revenue model of the company substantially. He said that the Bitscape has its director Kartik Shah based in the Silicon Valley and as part of the company’s commitment to transparency, the company was telling US companies that it was offering better services at competitive rates because it was getting the work done in its 100 per cent EOU unit in India.

The company was set in July 2002 with a staff of four and it has a round the clock working with a staff of 100. With US business pouring in to companies in India, he said, the Bitscape expected quantum jump in its outsourced business. SharePoint Development is one of the areas in which company is focusing. It already has many projects in the pipeline, he said.

New Outsourcing Model

In a first of its kind business proposition in India, Datacom Solutions, the telecom services arm of the Videocon group, has floated the idea of outsourcing its IT solutions on a revenue sharing basis. Datacom has received participation proposals from five top IT services companies IBM, TCS, Wipro, Tech Mahindra and HCL Technologies to outsource services, which, industry sources say, could be worth about Rs 3,000 crore over a 7 to 10 year period.

Usually, though telecom companies outsource their IT services to companies with domain knowledge, revenue sharing has never been the norm in India. Confirming the move, Datacom CEO Ravi Sharma told that the company has received very enthusiastic response from the five IT majors. Now we are in the process of evaluating the technical bids. Financial proposals from the five companies should come in soon and in about four weeks we will take a final decision on outsourcing our IT requirement, Sharma said. However, he declined to comment on the revenue that could possibly accrue to the selected vendor. Datacom was one of the five new panIndia GSM players licensed by the government earlier this year. Other players are ADAGs Swan Telecom, Shyam Telecom, STel and the telecom arm of realty major Unitech.

Videocon group company has permission to start telecom operations in all the 23 telecom circles.
Datacom plans to use the Videocon groups country wide presence through its network of distributors and retailers of electronic goods, numbering around 60,000. The company plans to launch its full fledged telecom operations be the end of the year.

Datacom looks to get about 25 million customers in the first three years of its operations and another 25 million in the next two. Going by interest shown by the IT vendors, they also feel the customer numbers and revenues projected by the company could be achieved, Sharma said.
The company has received bids from six global telecom networking majors Nokia, Nortel, Alcatel, Ericsson, ZTE and Huwaei. The final call on this tender is awaited.

Sectors driving Outsourcing Industry

The outsourcing industry has given impetus to inflow of foreign currency and creating job opportunities in India. The financial services sector has emerged as a key domain for outsourcing.

Work Flow and Growth Prospects

Banking, financial services and insurance (BFSI) comprise 38 per cent of the outsourcing industry in India (worth $47.8 billion in 2007). Most of the work outsourced comes from the US followed by Europe. According to a report by Mckinsey and Nasscom, India has the potential to process 30 per cent of the banking transactions in the US by the year 2010. Outsourcing by the BFSI to India is expected to grow at an annualized rate of 30 - 35 per cent. Outsourced services from the BFSI domain include customer support, software and solutions required for core banking, various banking processes like mortgage loan processing, application processing, verifications etc, and other services like market analysis, financial statement analysis etc. The

Indian Edge
While the major driver of the outsourcing wave is the cost advantage India enjoys in terms of employee cost, comparatively lower rentals for space etc., western outsourcers opt for India for various other reasons like better management, focus on core areas where they specialize, quality, service etc. According to Ramesh Mengawade, CEO and Chairman of Opus Software Solutions, a third party processor for credit, debit and prepaid cards, "outsourcing in card processing enables our clients flexibility and time to market advantages for introducing new features and enhanced security due to stringent regulatory compliance."

Future Outlook
Recently the Financial Services sector in the US has been under a lot of pressure on account of the sub-prime crisis, due its exposure to securities backed by real estate assets. This has resulted in uncertainties regarding the flow of work from this sector to India. There is a view that the slowdown in the US will affect the IT and BPO industry adversely while there is another school of thought that the slowdown would eventually benefit India as companies will outsource more work to check their costs. It seems that the growth for companies with outsourcing jobs in the financial sector is here to stay in spite of the recession in the west and like in the past Indian companies will raise their standards to meet the requirement of their clients across the globe.*

*Rahul Mantri- Economic Times