The Hindu Business Line : ‘Transformational work key to growth for BPOs’

Mumbai, Nov. 4 Mr Devesh Nayel is the CEO of Compass BPO Ltd, which executes high-end F&A (finance and outsourcing) services, knowledge services, and IT solutions work for customers. In his previous role as the Vice-President-Finance & Accounting and Procurement Outsourcing at Infosys BPO, he established both practices from scratch. In a chat with Business Line, he talks about various industry trends in the BPO space.

With rupee appreciation and wage inflation pressuring BPO margins, how do you think these companies can maintain a profitable existence?

The trick for an India based BPO would be to continue to deliver transformational and high-value work. The traditional model of delivering the same (business) value for a reduced cost will get severely challenged.

Ultimately, a combination of high-value delivery with high-revenue productivity fetches high margins, while transformational work keeps customers from exiting your business model.

Admittedly, the focus on pure play total contract values (TCV), low margin offshore deals will see a paradigm shift in times to come.

The problem is that most Indian BPOs have managed to get two of the three important dimensions spot on, i.e. revenue productivity, TCV and transformation. Players who can juggle all the three dimensions will come out winners eventually. Companies will also have to look at alternative country revenue streams like India, UK, Canada and Oceania (group of countries in the Pacific zone) to hedge their bets.

Can Indian players deliver complex BPO deals that offer transformational expertise? What is the downside impact of a BPO deal going bad for the customer?

Global players like Accenture and IBM have pioneered the transformational BPO space. From an Indian BPO perspective, however, such deals are beginning to happen. However strong technology, domain (and I mean process specific skill) and onshore project management skills are key ingredients to making such deals successful.

Traditionally, Indian outsourcing ventures have functioned distinctly as either IT or BPO and very few companies have managed to create the synergy between IT and BPO to create a single value proposition from a go-to-market perspective. Add to that the significant fragmentation starting to happen in the horizontal offering space, strong platform capability will need to come to the fore. How this will play out for different segments of the market, though, remains to be seen.

From a market perspective, F&A deals in the Fortune 500 segment will maintain a measured pace, though the mid market is starting to get quite interesting. Addressing both ends of the spectrum, so to speak, will need a differing solution package.

What works for one segment, does not necessarily work for some other segment. Quite intriguingly, just in the US and UK, there are close to 800 companies with a revenue range of $10 billion or more, while in the $100 million to $5 billion revenue range there are 14,000 companies. While both revenue ranges employ about 60 million people each, somehow most of the attention and spotlight has only been on the F500s until now. This could change going forward. Players who can straddle all segments of the horizontal market will ultimately garner significant market leadership and staying power.

Is it easy for IT companies to grow BPO capabilities?

Most of the Indian IT majors now have BPO subsidiaries and truly it’s been an interesting but mixed bag up to now. Some have managed to scale up but sacrificed margins initially, while others focused excessively on the niche and could not build delivery engines to keep pace with the market. Some focused on voice and still some others have tried to stay within the transactional services ambit. Some have got bracketed into certain industry verticals.

However, true synergy between IT and BPO is just beginning to happen. The truth is that 60 per cent of big outsourcing deals coming up for renewal in the next 3 years are BPO led. BPO gets you into the board room and IT majors will have to learn to manage bundled deals through their BPO arms simply because of the business leadership impact it creates. Look at the metrics — in terms of people deployed most BPO subsidiaries (of IT companies) have crossed the 10-15 per cent number. In many cases, their BPO arms are their single largest units in terms of people. The strategic investments in domain, technology and leadership will also have to follow that same mix, if their BPO capabilities have to blossom and become the best in class.

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