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Akshaya Bhargava

If there is one thing Indian BPO can never be accused of, it is the inability to come up with new buzzwords. Having seen a number of reports in Indian press on ‘Platform-based BPO’, it doesn’t take much to sense the emergence of a new BPO mantra.

Days of call centres have come and ingloriously gone — no BPO company claims to be providing just voice-based services today. Transaction processing, which had once become de-rigueur, ran into the debacle of global mortgage market meltdown. Knowledge Process Outsourcing (KPO) was fashionable for a while but most big BPO companies, who have not had any success in any of these exotic segments, dismiss it as a subscale fad. It appears that now, it is the turn of Platform-based BPO.

As I read through the articles, it became clear to me that no one appeared to fully understand the term. I saw a jumble of phrases such as ‘end to end services’, ‘order to cash’, ‘procure to pay’, ‘hire to retire’, ‘unified technology platforms,’ etc, and disappointingly enough, saw nothing that actually demonstrated an understanding of the issues involved.

Being deeply involved in running a business that qualifies for all the exotic labels (such as ‘high end’, ‘end to end outsourcing’, ‘participation pricing’ and yes, even ‘platform-based BPO’), I realised that none of the companies talking about Platform BPO in India really appear to understand what it really means to own, sell and deliver on such a platform.

Fact is, Platform-based BPO is a very successful model elsewhere in the world and for Indian BPO at large, this is the right goal to aspire to. However, it is a radical departure from the current Indian BPO model and represents a totally different risk-reward equation. It fundamentally changes the provider-user relationship in a way that would make most Indian BPO firms very uncomfortable.

My reasons for saying so:

A full solution capability is a pre-condition to Platform BPO. Platform BPO is far more than just having a technology platform to deliver a service. The technology platform needs to be packaged with operations to deliver a complete solution — so much so that the underlying technology becomes irrelevant. Take payroll service, for example — customers rarely care what technology is being used or indeed whether any technology is being used at all. All they want is a proper service — i.e. produce employee payslips accurately and on time, even if you have to type them up in the middle of the night. This is not something that plays to the strengths of Indian BPO — it is an industry of world-class order takers, which has yet to demonstrate the ability to deliver full solutions.

Need to ‘own’ the technology. The implication of this ownership is that software platform costs are included in the full service.

This further implies that the burden of constantly enhancing the platform lies with the vendor, i.e. in-house development costs are likely to be incurred ahead of revenues.

This is not only a complete opposite of the low fixed cost model of current BPO but also changes the risk–reward model that the industry is comfortable with. I wonder how many Indian firms are prepared to make the upfront investment needed? I am not referring to superficial investment in small technology tools but big dollars in core software that delivers the service. This is equivalent to owning the customer’s SAP platform or a credit card processing platform — neither cheap nor simple.

Lack of the right skill set. Indian BPOs’ current skills lie in managing logistics and scale. Regardless of loud claims to the contrary, the Indian outsourcing industry is very largely a supply side success — very good at hiring, training, deploying, delivering, improving and so on; not very good at taking ownership of customer problems. The reason is simple — the industry shies away from on-shore work (except where it has acquired on-shore businesses).

Unfortunately, Platform BPO requires you to present a solution in the context of the customer’s marketplace. It needs an understanding of the industry, competitive landscape of the customer, how the vendor’s technology can change that, etc. I have yet to see an Indian BPO that is able to go beyond promising what is fundamentally a cheaper and more efficient service alternative to an existing one. Doing it cheaper is a good value proposition but it is not a full solution pitch that is needed for Platform BPO.

Lack of the right mind set. Indian BPO has shown itself to be a highly risk-averse industry. Regardless of corporate spin to the contrary, all industry pricing is actually cost plus. This way, all the business risk is with the client and the BPO firm gets paid its normal margin regardless of whether the client’s business goes up or down. Even where market events lead to contract cancellations (witness mortgage BPO) it’s a temporary dip in revenues for the firm until resources are re-aligned, with no long-term impact on margin. Indian BPO is a low fixed cost but a high variable cost model.

Platform BPO is the reverse — it requires high upfront investment in fixed costs with low variable costs. This means that until the business gets to scale, margins remain negative. Again, knowing the mindset of Indian BPO companies, I am forced to question whether they have the appetite to make this investment. That they can afford to do so is without question — that they have the mindset to do it is highly debatable.

The need for domain. BPO platforms necessarily represent domain expertise that goes beyond simple familiarity. Even if an Indian BPO company had the investment appetite, it is hard to see where they would get industry leading domain expertise from. Even if they were prepared to invest in the right people, can an Indian BPO company provide them the right environment for success?

Further, proper BPO platforms are complex, expensive and represent significant barriers to entry — which is why so few companies have them.

These platforms are highly specialised and, very often, define the industry sub-segment that they serve. Take the example of Advent Software, whose hedge fund accounting platform is used by the majority of the world’s Hedge Funds. Or Smart Stream Technologies, which is the industry standard for SWIFT-based reconciliation. These companies have decades of knowledge that is embedded in their software functionality and while neither of these companies is a BPO provider, if they were, they would represent cutting edge capabilities for their users. To me that is true platform BPO, not the ability to run order management off a customer’s SAP platform.

I am aware that all this sounds like a doomsday argument outlining a set of reasons why Indian BPO will never succeed in Platform BPO services.

It is actually intended to motivate the opposite outcome. Having seen the industry evolve first hand over many years in India and in recent years from Europe, I passionately believe that Platform BPO is the logical future for the Indian industry.

However, it is neither as imminent nor as facile as many Indian companies are presenting it to be.

My fear is that Indian BPO has taken the same path as Indian IT — it has become an industry providing bespoke services and unless someone makes some radical changes, we have no more chances of seeing true Platform BPO emerge than we have of incubating an Indian Microsoft.

So what is the answer? Personally, I am of the view that Indian BPO companies have neither the bandwidth nor the domain talent to follow an organic strategy to get into true Platform BPO services.

The good news is that they have the profitability, cash flow and till recently, the high valuations of their stock, as currency to acquire Platform BPO companies in the West. Acquisitions in this space are not cheap but that is the price of entry.

However, acquiring something is only half the story. Having bought a Platform BPO company, Indian firms will have to adopt a management model that does not demand so much conformity with the corporate norms that it ends up destroying the very DNA that it acquired. To me, this is the hardest (and nearly impossible) part although it sounds both easy and obvious.

Nevertheless, Platform BPO remains a worthwhile goal for the Indian industry — one that builds on some existing strengths but also one that needs the industry to step outside its comfort zone. The rewards are large — as they ought to be for a large prize. So are the risks.

For all readers of JK Rowling, the magical properties of Platform 9¾ are well known …. as is the fact that not everyone can get to it.

The author is Chief Executive Officer, Fulcrum Group. He can be reached at akshaya.bhargava@gmail.com

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