2012 was a year that brought significant challenges for the business process outsourcing (BPO) industry, and in 2013, customers are sending service providers a clear message: they now expect far more than just cost savings from a BPO engagement. So what’s going on?
Abid Ali Neemuchwala of TCS, an IT services, consulting and business solutions consultancy, declares that 2012 was a watershed year for both BPO and the global economy. “Although the global financial crisis seems to be just about overcome, Europe is still marked by uncertainty,” he adds, noting that European companies continue to experience severe cost pressures this year.
Delving a bit deeper, Keshav Murugesh, Group CEO of WNS Global Services, a well respected global BPO company, notes that firms in the UK and the US were cautious about their IT and business process spends, due to wariness about the euro zone crisis and the ‘fiscal cliff’ in the US. Adds Murugesh, “There was a surge in unemployment and the outsourcing rhetoric became stronger with the 2012 U.S. presidential elections. All of these factors led to a sluggish demand for BPO.”
“As companies looked to cut budgets in 2012, outsourcing providers were forced to change their business value proposition. No longer was the ‘your-mess-for-less’ or ‘body-shop’ approach viable in the BPO space.”
Maria Allen, Senior Vice President, Americas, BancTec
According to Rajesh Sehgal, Quality and Process Head at Wipro BPO, an innovator in the IT services, BPO and research and development services space, “Today’s global delivery model has redefined the BPO value proposition, and in 2012, we saw increased demand for value-add.” A decade ago, Sehgal notes, “the primary value proposition associated with the offshore phenomenon was lower cost.” But as the industry has matured, service providers have started operations in other than low-cost destinations where value has to be beyond cost. WNS’ Murugesh says that this proliferation of low-cost destinations—such as the Philippines—is leaving companies without a presence in these locations at a disadvantage. “They’ve lost market share to competitors who have leveraged the opportunities in these destinations effectively,” he adds.
Of course, there is hot debate about whether this nomadic trend will continue. But the evolving BPO value proposition is an area where there is broad consensus among industry leaders. BPO providers have become acutely aware that they must sharpen their domain expertise and demonstrate a deep understanding of their customers’ businesses in order to serve in the strategic capacity that customers currently expect, as BancTec clearly describes.
Maria Allen, Senior Vice President and President, Americas, of BancTec, a global BPO leader that provides financial transaction automation and document management services, paints the following picture: “As companies looked to cut budgets in 2012, outsourcing providers were forced to change their business value proposition. No longer was the ‘your-mess-for-less’ or ‘body-shop’ approach viable in the BPO space.” Allen points out that providers were challenged to position themselves as strategic partners, and that required them to have a clear understanding of their client’s pain points and needs, so they could create and deliver reliable, sustainable business solutions.
While the global business environment has indeed been volatile, Neemuchwala of TCS believes it has also meant that organizations with a fundamentally sound business model have continued to thrive: “For example, our BPO services revenue has seen a 35 percent CAGR over the last 3 years.”
2013: The Road Ahead
WNS’ Murugesh sees opportunity on the horizon in 2013: “Demand could improve if recoveries are positive and client appetite for investments pick up, but BPO industry players must focus on the optimum use of technology, sharpening domain expertise and creating a global delivery model with the right mix of onshore, offshore and near-shore delivery mechanisms.”
There’s no doubt about it: savvy buyers of BPO services have grown more demanding as the industry has matured, says TCS’ Neemuchwala. “In 2013, TCS expects that customers will more frequently and more explicitly ask business process services (BPS) providers to align themselves to their customers’ strategic growth objectives, expecting the providers to optimally leverage people, process, technology and controls elements to deliver to these goals.”
BancTec’s Allen points out that “BPO is changing more than just how companies operate; clients now expect BPO results to go beyond delivering cost savings and meeting service level agreements.” Noting that providers can respond to these challenges by adopting practices that offer an end-to-end approach and provide sustainable innovation and high performance throughout the life of the BPO arrangement, Allen said, “These practices must include implementing a framework that enables a clear path for improving process efficiencies and allowing companies to capture business value beyond cost savings. At BancTec, our Intelligent BPO (iBPO) planning and execution framework, along with well-defined project management, helps us deliver the expected value.”
“Additional avenues of value have emerged,” acknowledges Sehgal. “For example, at Wipro, we scrutinize our customers’ end-to-end value chains to find opportunities to drive improvement in areas that transcend cost savings.” Sehgal says Wipro routinely searches for ways it can apply process expertise to optimize processes and increase efficiencies, noting that service providers capable of bundling IT with BPO will definitely demonstrate significant value-add, because it’s not only more convenient for the customer to interact with a single vendor, but the integration of IT and BPO also offers added efficiencies and better quality control.
Observes Lalit Dhingra, President of NIIT Technologies, Inc., a leading global IT solutions company, notes that any service providers with high adoption, time to market and proactive execution will remain front runners. Adds Dhingra, “2013’s buyers of BPO services expect standardized tools and processes that drive efficiency and effectiveness. They also expect vendors to provide more business value. For example, NIIT helps clients sell effectively internally and externally by suggesting ways to re-negotiate future contracts based on the value our clients provide their customers.”
What other trends are here to stay in 2013? TCS’s Neemuchwala says, “More and more of our customers want to move to utility models through platform BPO to quickly deploy best digital technology and best domain practices, since they need to minimize capital investments and accelerate transformational gains.” Wipro’s Sehgal also notes, “Business Processes as a Service, more popularly known as BPaaS—is quickly heating up. Customers like the idea of buying nothing, owning nothing, and taking advantage of the pay-per-use model the cloud offers.”
Sanjay Jain, Head of WNS’ Global Transformation Practice, mentions that in 2013, “We’re seeing a greater adoption of cloud-based solutions, SaaS platforms, big data analytics, social media analytics and convergence of technologies like Web analytics and chat-call platforms.” BancTec’s Allen adds, “The proliferation of mobile apps and other means of access to environments will create security challenges. Technology is keeping pace, but providers will have to stay focused on maintaining integrity with their systems.”
NIIT Technologies’ Dhingra introduces an interesting point: “Mobility is not a “technology;” it’s a culture. Today, more mobile devices are being sold than laptops or traditional computers. With some companies testing ‘Bring Your Own Device’ or BYOD, the ecosystem for mobility will change.” Dhingra also notes that technologies that enable big data will be critical, and it will also be important to keep abreast of tools and migration platforms for cloud.
Another area that is rapidly evolving, Sehgal observes, is the move from transaction-based pricing to outcome-based pricing. “This change in pricing models offers a win-win situation: for example, in the case of problem resolution, the customers now pay only for what the number of problems that get resolved, and the providers also earn more if they resolve more issues.” NIIT Technologies’ Dhingra declares that “transactional pricing is not an option.” Obviously, TCS’s Neemuchwala agrees: “Challenges lie ahead for partners who are not able to rise beyond transactional services. BPS partners that are consistently able to provide re-engineering and transformation will be frontrunners, if they can couple these capabilities with a deep understanding of the customers’ business, challenges and market imperatives.”
So, as we’ve heard from every quarter, the challenges faced in 2012 have emboldened the customers of 2013: they are clamoring for BPO partners who will help them maximize revenue-generation opportunities, demanding analytics and insights that will help them drive agility and responsiveness and asking for focused transformation plans that improve business efficiency and effectiveness.
Clearly, BPO services providers have their mandate, but there are two sides to every story. Stay tuned for The Value of BPO: The Proof Is in the Partnership.
In what ways has your BPO services provider brought you added value during the economic downturn?