The Hindu Business Line : Opportunity in the midst of crisis

Predictions about the future are both easy and hard. Easy because no one can prove you wrong; hard because if you run a BPO business, as I do, you will end up making resource allocation decisions based upon your view of the world and being wrong will not be without consequences.

However, having been a keen follower of Indian BPO over the last several years, I am bemused at reactions to events in western economies. These have ranged from projected revenue declines, to job losses, to the ‘Obama Effect’ (whatever that might be), to hiring freezes, sabbatical programmes, redeployment of staff, etc. It is easy to panic in the current environment because the world economy looks quite dangerous right now. Despite that, my view is that the opportunity for Indian BPO has never been better.

It is, however, a different opportunity from the past and will need a very different response than before. Not everyone will be able to react swiftly enough but the companies who do so will be able to move their businesses to a different level of evolution. To me the opportunities far exceed the threats.

BPO will grow

There is no doubt in my mind that Indian BPO has the solutions to many problems that western companies are facing. Most western companies are seeing falls in revenue, some pretty dramatic. The only way to respond to a fall in revenue is to cut costs. Offshore BPO is one of the best and proven ways to restructure costs in a thoughtful and deliberate manner. Execution is not easy but there are so many companies that have done this with visible impact that it is seen as a predictable way to achieve long-term cost savings.

Execution risk of offshore BPOs has always been the major hurdle to growth and this is not made any easier by Indian BPO companies’ intense preoccupation with their own profit model than the real problems of their customers. This drives them to commercial arrangements that are low risk for them and transfer the execution risk to the buyer (more of this later).

Even so, I believe that the potential impact on the customer P&L will drive Indian BPO to growth. And despite the repeated Cassandra cries from India media, I believe that Barack Obama will have more important things to worry about on January 22, than outsourcing.

As an aside, I remain sceptical if Indian BPO will be able to really benefit from this trend as much as it possibly can. The extremely low risk model of Indian BPO does not play well to current market needs and I do not believe that Indian BPO companies fully understand this or even see the need to change. Be that as it may, the good news is that there will be growth. I suppose this is something to be thankful for.

Non-traditional thinking will win

The traditional Indian BPO model is to get the customer to pay for everything and then try and be as tight on costs as possible. For all large BPO companies, it is a scale game that they understand much better than their customers and are able to game the pricing model to their advantage.

The downside of this approach is that this shares execution risk unequally, loading the customer organisation with almost 100 per cent of the cost of delays, transition overruns, operations errors, redundancy costs, severance payments, retention bonuses, etc. Indian BPO response to this inequity has always been that “it costs money to save money”. Given the severe cost pressures that western companies are facing today, I consider this to be an unsustainable value proposition.

I believe western customers can (and should) demand that Indian BPO be an equal partner in their success and bear an equal stake in the success of the offshore transition. I am convinced that major BPO deals will not be done without some element of this type of negotiation. This represents non-traditional thinking and most Indian BPO firms will shy from such commitments as they have no ability to manage them and inadequate empathy with the issues involved.

This is a time for innovation and companies who are able to respond will, literally, walk away with the prize.

Big firms will remain in crisis mindset

I am mystified as to why large Indian BPO companies are spending so much time whining about global economy and complaining about exchange rates rather than aggressively trying to influence business outcomes in the US and Europe. They are all highly profitable, have big cash reserves, experienced management, proven scalability and unused capacity. Their only problem appears that they are growing less than before. I wish everyone had the same problem.

The issue appears to be that many large BPOs have little or no experience in managing a business in anything other than a continuous growth mode. We all understand the positive cost impact of large entry level hiring every year and now that this has changed, they all see it as a crisis.

For any normal company, this would be an opportunity to make some adjustments and move on. Not our Indian BPO — justifying lower growth appears to be more important than looking for new ways to grow. One only reads about freeze in hiring plans but nothing about new initiatives. I suppose larger BPO companies with equity analysts following their every move must do this. However, from the outside, they appear to be seized by the global crisis than making the right efforts to seize the opportunity that the crisis represents.

Specialist firms will be the stars of 2009

In a counter intuitive way, a global recession does not appear to be playing well to scale businesses although one would think it should be the opposite.

The difference appears to be how a company responds to the recession, The larger Indian BPO companies are so fixated in their “manage the supply chain” model that they appear unable to respond to changed market needs. Managing costs is not the opportunity today.

In my view, it will be the smaller, more specialised, niche BPO companies that will be nimble enough to respond because they do only one thing or service only one customer segment and as a result understand it much better and are fleet footed enough to alter their strategies to respond to rapidly changing needs of their customers. Their focus, specialisation and smaller size will allow them to innovate faster than the big boys.

To me these are secular trends in a growing industry where incumbency can easily become a problem and innovation always comes from the smaller players. These trends have existed before the world economy started to go down but its rapid shrinkage has made the time scale of the response so much shorter.

Indian BPO has never been short on entrepreneurship and innovation but unlike before, I don’t believe that we have as much time as before. 2009 could well be a defining year for the industry and it will be interesting to see where the new winners come from.

The author is CEO, Butterfield Fulcrum Group, and can be reached at akshaya.bhargava@gmail.com

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