Indian BPOs got their start competing on price. Now there are geographies that offer even lower prices. At the same time, buyers’ shopping criteria includes more than just price. How are BPOs adopting to the new pressures?
Here are four major world trends affecting Indian BPOs and their productivity goals.
1. The changing marketplace
“The world competition on cost is heating up,” Neil Bentley, joint managing director, Active Operations Management International (AOMi) in London, notes. “The Indian BPO market needs to wake up to this.”
The cost issue has many pieces. First, new entrants have appeared that do quality work are productive and have lower prices than the Indian BPOs. “This paves the way for new entrants,” the AOMi executive explains. The Philippines, Malaysia and Indonesia are offering significant advantages over Tier 1 and Tier 2 India sites, he points out.
At the same time, costs at home are rising, Brantley points out. India has recently experienced the fastest interest-rate increase since 1935. Indian wage inflation renders their pricing less competitive. Alsbridge CEO Ben Trowbridge adds Indian BPOs could be challenged on cost competitiveness “if exchange rates go the other way.”
Also, there is internal competition within India. To be competitive, BPOs are moving work from high-cost to lower-cost cities, according to Rahul Kanodia, CEO and vice chairman of Datamatics. “We explored opening an office in China. We believe Tier 3 Indian cities are equal to China. This is how Indian BPOs can mitigate the cost issue,” he continues. He adds that today Tier 3 Indian cities have the requisite infrastructure and educated populace to provide the needed labor.
V K Raman, head, domain services, BPO services, Tata Consultancy Services (TCS) says Indian BPOs “need to create global footprints,” not only because the buyers are entering new markets, but also because that allows access to a larger talent pool. While the governments in many countries have initiatives to create employable talent and provide the requisite infrastructure, he adds, “providers must create scalable and sustainable business models in new delivery locations.”
2. A new focus on productivity
“Service management remains a challenge for many providers,” says Trowbridge. Kanodia says part of this is a cultural difference. “Indians aren’t as focused on productivity as they are on technology,” he reports.
Bentley says more and more European and American companies are making their service provider selections on criteria other than cost. He notes labor productivity has “moved up the agenda” because Western companies realized they still bear the risk under established headcount contracts. Today the Indian BPOs “just can’t throw more people at the problem,” says the AOMi Director.
He says this is a paradigm shift, just like the major changes Toyota did to its production lines 15 years ago. These forces are causing BPOs to look at how to optimize labor productivity across the supply chain.
There is opportunity here, Bentley believes. He points out planning and managing capacity “is the most overlooked process in the back office.” The basic question is: Do we have enough people to do the work or not?
Previously, the Indian BPOs didn’t have to really answer that question. They just kept extra resources on hand. “Managing capacity was not a primary concern before. Today they have to evidence their professionalism in these areas,” the AOMi executive says.
And it is possible. AOMi has been able to increase productivity 20-40 percent in India by managing resources better, Bentley reports. “That percentage is enough to regain their competitive advantage,” he adds.
3. A shift from simple head counts to transaction-based contracts
Clients are looking for BPO solutions based on outcomes rather than inputs. For the first time BPO operations have to manage the whole problem, not just provide a shared service center filled with people on a tariff. Bentley says this change forces BPOs to focus on managing output effectiveness. “Now they need the right people (i.e., as few as possible) doing the work,” he explains. The emergence of global standards for the operations management practice gives clients new tools to define and control BPO relationships.
4. Changing client demands
The AOMi executive says many BPOs now have onshore operations at their client sites. Here, the clients want to have the same planning control they have in their own operations. This is forcing BPOs to manage their human capital planning and productivity better. These include:
- Matching resources to the work
- Having the right skills at the right time
- Forecasting future demand
“Outsourcing buyers want to look under the bonnet. They want to know their service provider’s approach to operations management to see if their methods are similar,” Bentley continues.
Perception is part of the problem
Finally, Kanodia posits that part of the perceived productivity gap is “just perception.” The Datamatics CEO has found Indian BPOs frequently had higher labor productivity than the clients themselves. “When people work remotely, you wonder whether they are really working or just having tea. You question when you cannot wander around the shop floor,” he explains.
Kanodia says Indian BPOs are using tools, technology and platforms to close the true productivity gap. Process remodeling has helped Datamatics clients improve their accuracy by 80 percent and turnaround times by as much as 90 percent. “The only way to do that is by taking a blue sky approach,” he notes.
The bottom line: “BPOs have to able to respond to changes in the marketplace. As every boxer knows, you can’t win if you are flat footed,” says Bentley. If the Indian BPOs can learn to control more effectively, Bentley believes the resultant productivity will become “a competitive differentiator against the emerging competition.”