The outsourcing market is experiencing a radical change from the first generation lift-and-shift paradigm to today’s business process solution model, according to Richard Jeffery, managing director, Active Operations Management International (AOMi). Adds Rahul Kanodia, CEO and vice chairman of Datamatics, “Today it’s no longer just about cost. Buyers want you to produce value from more complex transactions. In fact, BPOs need to scale up to the next level, which is knowledge process outsourcing and business process management, for demonstrating value adds to their customers.”

Here are the nine biggest trends that will affect the BPO world in the next 24 months.

1. The move away from headcount-based contracts

Jeffery says BPO buyers now no longer just want to move a chunk of their back offices. “Buyers are no longer happy with service based on headcount,” he says. Instead, they desire “a more complex platform and technology change.” He says the move away from scope has made the BPO proposition “more sophisticated and multi-layered.”

Kanodia agrees. “Technology and platforms are driving the second generation of BPO,” he observes. This makes taking over a process from end-to-end possible. “Buyers no longer want us to just take on a piece of work,” he continues.

Adds V K Raman, Head, domain services, BPO Services, TCS, the current  pressure for effective business operations means buyers “are increasingly looking at providers to not just save on the operational costs, but also to drive business excellence through transformation.”

Shantanu Ghosh, senior vice president and global head for practice solutions and transition for Genpact, adds that BPO 2.0 “will require a higher level of change management because it’s more intrusive.” He admits there are no easy answers when the change “requires a new way of thinking of how to run your business.” Efficacious change management is required because “the pain of change is only worth it if the change has a material impact on the business,” he explains.

2. Buyers want more transparency inside the BPO process

The AOMi executive says today buyers “are more sophisticated in what BPO should look like.” In the first generational model, buyers stipulated head counts and wrote SLAs. “That black box contracting model is increasingly dying,” observes Jeffery. Buyers no longer “take it on trust that their BPO is able to deliver the process. Clients themselves introduced industry standards for operations management which they expect and require their service providers to use,” he says.

Why? Because the buyer is still shouldering the productivity risk under a headcount contract. “Today buyers require operational transparency. They want to know how the provider is matching the headcount to the workload. With visibility the responsibility for productivity transfers from the customer to the service provider,” he reports.

Ten years ago the appeal of labor arbitrage meant “no one cared about seeing inside the operation,” continues Jeffery of AOMi. Today, however, it’s central to a strategic customer-service provider relationship. “This represents a 180-degree change for many Indian BPOs.”

Service providers who fail to adapt will lose business. Jeffery reports some of AOMi’s buyers are bringing the work back home or moving it away from India and Philippines. “They want a provider who either has an outcome-based pricing model or one that can offer a solution offering visibility over capacity and costs under a headcount model,” he explains.

3. Productivity matters

“There’s a lot of pressure on productivity. And you can also improve your costs by improving productivity through process automation,” Kanodia reports.

Jeffery says in the first generation model, Indian BPOs could just add an extra person to  get the job done. No more. “Today the productivity of the original team matters,” he says. “You don’t want to add additional people because now it affects your margins.”

He adds that for the first time BPO buyers are asking their service providers “about the how – they assure productivity. Historically, it never would have occurred to them that this was a useful thing to ask.” For example, buyers are now asking for details about team leader and management qualifications in operations management and capacity planning.

Outsourcing buyers locked into long-term contracts with a supplier are requiring a retrofit to achieve this standardization, Jeffery reports. Many Australian banks in particular “are requiring their service providers to standardize their processes for operational management control which aligns with the retained onshore teams.”

Ten years ago there were no standards for operational management practice, recalls Jeffery. Today, there are established international standards “which give clients much greater leverage when specifying and managing on-going performance,” the AOMi executive explains.

4. The rise of the BPO specialist

Today companies don’t want to hire an outsourcer that does everything. Instead, they prefer a BPO specialist, observes Ben Trowbridge, CEO of Alsbridge. The rise of knowledge process outsourcers is a good example.

Trowbridge adds this trend toward specialization does not auger well for second-tier service providers; he predicts they will either be acquired or pushed out because of these market forces. BPO buyers need to monitor this situation closely because they will have decisions to make if someone else acquires their service provider, he warns.

The Alsbridge CEO adds BPO buyers need to be sure the service providers they hire are indeed specialists in the process they claim to be. “Everybody says they are specialists but that’s just not the case,” he warns.

Ghosh notes the time has come “to separate the men from the boys. Service providers have to have a deep domain knowledge of their customers’ business at both the horizontal and process level.” He warns service providers: “You cannot  be everything to everybody. Pick your industries and understand them well.”

5. Offshore providers are doing more work onshore

“The conversation is shifting dramatically,” says Ghosh. He says Genpact’s buyers “are reengineering the business model” by doing some work nearshore, some work offshore and some work at home. Just sending work offshore to cut cost is now just a part of the conversation. Ghosh says today buyers want to streamline, integrate, standardize and optimize their business processes, which requires work to happen at home as well as abroad.

6. Regulatory pressure will continue to increase

Trowbridge predicts U.S. auditors will increase their scrutiny of BPO transactions. He suggests enterprises that outsource BPO processes will have to spend more time and money working with their BPO providers to accommodate the auditors.

Kholkar of TCS also sees evolving regulations on the horizon. “These will drive changes in the way many companies do business and necessitate their outsourcing partners to follow suit, he says. In addition, he believes certain industries like banking and insurance will experience increasingly stringent compliance. These will require additional investments to comply, he predicts.

As for service providers, Trowbridge warns them to “be careful what you agree to.”

Trowbridge says closer audits “will certainly not halt BPO adoption, but it will change the dynamics.”

7. Social media is a new biz op for BPO providers

“Social media is an increasingly relevant factor in the end-customer’s decision process,” says Raman of TCS. Increasingly, BPO providers are “capturing the data real-time, conducting analysis and providing critical insights to drive business agility. Managing the customer experience and responding to customer concerns have created a plethora of opportunities” for BPO service providers, he says.

8. Business Process as a Service (BPaaS) is catching on

Jeffery says buyers like the idea of paying as they go. But they also like buying the services behind it. “It’s like buying salesforce.com and the salespeople. Buyers like having the supplier put the different components together,” Jeffery explains.

Managing the customer experience and responding to customer concerns have created “a plethora of opportunities” for BPO service providers, he says. Kholkar of TCS says the “hype about cloud increased the acceptance and popularity of BPaaS models.” The fact that service providers are addressing data security and privacy law issues at a global level also helps.

9. Buyers are getting savvier

“That puts the service providers under pressure,” observes Kanodia of Datamatics.

The Datamatics executive says many of these trends are still nascent. “I predict the market dynamics will force more of them to happen…faster,” he says.

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.”

There’s little doubt that offshoring business process work can deliver cost savings for outsourcing customers and profits for business process outsourcing (BPO) providers. But can the BPO industry actually improve the lives of the poor and disadvantaged in developing economies?

That’s what a recent study, funded by the Rockefeller Foundation and conducted by business consultancy Monitor Group, sought to find out. And the answer is, in certain cases, yes.

The researchers examined what they called the field of “impact sourcing:” employing socioeconomically disadvantaged people in BPO centers around the globe. They found that such work not only gives the poor and vulnerable more access to opportunities but can also provide high-quality, reliable services at prices that are at least competitive with traditional BPO centers and, in some cases, nearly 40 percent lower than the average provider.

Mike Kubzansky, a partner in Monitor’s National Economic Development and Security practice, had been looking at a range of innovative market-based approaches to poverty—most specifically “impact investing,” in which enterprises not only deliver a commercial business case but also have a social impact—when it became clear that the global BPO industry could do just that.

The study focuses, to a large degree, on the nascent BPO industry in Africa, where the Rockefeller Foundation has a large presence and interest. But it also looked at the BPO industry in India and a host of other underserved communities in developed nations, said Kubzanksy, such as “U.K. operators doing this in economically depressed areas in London, or what Accenture does with Native American populations in South Dakota.”

To qualify as impact sourcing, the BPO work needs to provide a significant income increase to its employees over their alternatives. As a result, a significant amount of BPO activity in, say Bangalore, where providers hire college graduates with other opportunities available to them in those cities, did not factor into the impact sourcing picture.

Kubzansky found a wide variety of BPO providers having a potential impact on poverty and opportunity in the markets where they set up shop—from multinationals like IBM and Infosys to African and Asian start-ups, from rural locations in Kenya to urban centers in Haiti. According to Monitor’s working paper, Job Creation through Building the Field of Impact Sourcing, impact sourcing employees benefit not only from income increases between 40 and 200 percent, their BPO employment also increases family investment in health care and education.

The most mature market for impact sourcing is India, where such activity takes place in rural areas and second- and third-tier cities. “There’s a social impact but also a strong business case,” Kubsansky explains. “Wages are lower, skills are comparable, and churn rates are significantly lower. They have been able to hit that double bottom line.”

The two BPO work areas where impact sourcing is likely to occur today are lower-end data tasks (data processing and digitization) and lower-end voice work that requires local language skills.

The biggest issue for BPO providers working in the impact sourcing arena is training. “It’s a significant investment, and one of the things they worry about the most,” says Kubzanksy. “And the problem exists at two levels. First, there’s the employees themselves. Some will have innate smarts but may have never worked in a formal setting. The other issue is middle management. Can I get skilled people out in a rural area six hours outside of Calcutta? Can I get these people who started out with me as entry level analyst trained up for middle management?”

In some countries, such as South Africa, the government is helping to absorb the cost of training. Then the issue becomes generating demand. In most cases, these BPO providers start with smaller contracts for local work and must figure out how to scale. “We’re still very early in the game,” Kubzanky said, “and the issues are the same as for anyone new in the outsourcing space.”

They key to taking impact sourcing to the next level is to surmount those growth hurdles. The average outsourcing customer may not be willing to take a risk on a new location or provider, and their interest is on cost cutting and quality, not providing opportunity to workers in Luang Prabang, Laos or Lahore, Pakistan. Quite the contrary, most Western companies today avoid trumpeting the creation of jobs anywhere outside their home countries.

Kubzansky points to two potential solutions. One would be an increase in established BPO providers subcontracting to smaller impact sourcing players. “This needs to go on a lot more to help these guys access larger multinational clients,” said Kubzansky. “They will be more comfortable having a conversation with a Wipro who will give their Six Sigma guarantee on the work.” The other is a model embraced by Samasource, a San Francisco-based non-profit that acts as an intermediary to service providers in five countries, providing them a sophisticated marketing and sales front end. Samasource brands the BPO work and, once acquired, distributes it as “micro work” to its member companies. “They have someone who can be at the front end and speak to customers so the providers can focus on service delivery, training and employment,” Kubzansky said.

According to the study, impact sourcing accounts for $4.5 billion in business annually—just 3.8 percent of the global $119 billion BPO industry—and employs 144,000, but it has the potential to reach $20 billion and employ 780,000 by 2015.

For most existing BPO providers, including many of the upstart players in the impact sourcing field that the research examined, the social impact of offshore outsourcing is an afterthought, if it’s considered at all. But Kunzansky says that is fine. There has to be a business case beyond doing good for sustainable change in local communities or developing economies. And, for many players in the field, there is, from the value of a new lower cost location to access to new markets.

Join senior executives from some of the UK’s leading corporates to hear cutting edge case studies and participate in interactive panel sessions to hear how the likes of DSM, Ernst & Young, Logica, Clifford Chance Alsbridge and others have used China as a high quality, low cost resource for both ITO & BPO.

Click here for the brochure.
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What You Will Learn by Attending:

• How to make outsourcing IT & BPO to China work for you
• Tapping China’s growing ITO and BPO capabilities
• What are the opportunities to develop business in China’s huge domestic market for IT & BPO
• Future trends in the China market in ITO & BPO

Areas to be Covered Will Include:

• What types of IT applications & business processes have been outsourced & results to date
• The costs & benefits associated with outsourcing to China
• What are the risks and how can they be mitigated and managed
• Managing cross cultural issues / Legal: Contractual, Data Protection, IPR
• Process migration, technology and people issues
• Governance models (3rd party / captive / BOT) & supplier selection issues

Speakers Include:

• Banesh Prabhu, Former Head of International Operations, Global Consumer Bank, CITI
• Dariusz Sus, Chief Operating Officer (GSS), ERNST & YOUNG
• Mark Payne, Shared Services Director, LOGICA
• Tony Johnson, Director Global Service Management, DSM
• Andre Duminy, Partner, CLIFFORD CHANCE
• Paul Morrison, Director of BPO & Shared Services ALSBRIDGE

COMPLIMENTARY INVITATIONS are available for end user organisations and suppliers who have no current operations in China. A delegate fee is applicable to all other delegates.

To increase profitability, these agencies have to run lean, automating as many processes as possible. However, even with the latest agency management systems and real-time quoting tools, some manual tasks remain. So, instead of spending time prospecting and interacting with customers, valuable staff members are checking insurance policies, reviewing loss runs and handling paper. According to The National Alliance Research Academy’s most recent Producer Profile: Compensation, Production, and Responsibilities, the average producer – the undisputed money maker of any agency – spends only 41 percent of his or her time on sales.

Although insurance carriers have long embraced BPO for application and claims processing, agencies were slow to climb on the outsourcing bandwagon. With today’s new challenges and a potential staffing shortage in clear view, all of that’s starting to change. Success, for some agencies, requires a fundamental shift in the way they manage their businesses, with outsourcing playing a key role in their go-forward strategies.

“We’ve been looking at the possibility of outsourcing for a few years,” Stephen Moriyama, senior vice president of Hayward Tilton and Rolapp Insurance, a California-based, full-service, eight-location agency handling $100 million in premiums. “We spent a lot of time researching the different providers, talking to other agents about how they were using outsourcing and zeroing in on the model that would work best for us. I think the biggest surprise was seeing not only how many options were out there but also how many agencies were already doing it.”

An Outsourcing Option for Every Agency’s Need

The new needs of insurance agencies have not gone unnoticed. Within the past few years, a number of smaller, insurance-specific BPO providers have opened their doors, each with its own unique model.

New York-based ReSourcePro was one of the first of these boutique providers, offering back office processing and analytical support delivered by college-educated, English-speaking professionals in its facility in China. The idea for ReSourcePro came when its parent company, an insurance managing general agent (MGA) was working with a carrier that went out of business. It had to quickly transition 13,000 accounts to a new carrier in three months – and didn’t have the staff to handle the extra work.

“At the time, one of our ex-employees was teaching English at a university in China. He said the skill level and English comprehension was so great that if we set up an office with computers and a connected terminal there, he could put together a team who could remotely cancel and rewrite these accounts,” explained Dan Epstein, CEO of ReSourcePro. “They got done in 10 weeks what it would have taken us 13 months to do. Our company was born.”

Unlike traditional BPO operations, which pool resources and leverage these across multiple clients, ReSourcePro dedicates specific workers to each client. Another very visible difference is the work environment itself – there are no phones on any of the desks, no Instant Messaging or texting – nothing to interrupt the staff from the tasks at hand. All that exists are secured remote desktops, which mirror the clients’ agency management systems.

On the other hand and on the other side of the world, WAHVE, LLC gives insurance agencies a U.S.-based outsourcing option. WAHVE, which stands for Work at Home Vintage Employees, matches retired insurance professionals, age 55 or older, with insurance agencies needing anything from insurance processing to back-up customer support. The concept is the brainchild of Sharon Emek, an insurance industry veteran who saw two needs: agencies that couldn’t find qualified personnel and retired Baby Boomers who, for economic or personal reasons, wanted to keep working – but not in a traditional, stress-filled office environment.

“In the past, insurance carriers would take kids out of college and train them in the insurance industry so they could work with those carriers or in agencies – and that’s just not happening anymore,” Emek said. “We take established talent, go through an extensive vetting process and match the right people with the right agencies on an outsourced basis.”

By employing a work-at-home model, where each WAHVE connects remotely to the client’s agency management system, Emek reduces overhead. As a result, she can provide agencies with a low-cost outsourcing option without going the offshore route.

This is not to say that larger, enterprise BPO providers are ignoring this growing market need. Accenture, for example, with nine global insurance processing facilities, serving more than 85 percent of the world’s top 40 insurance companies, also markets to the smaller agencies.

“The business needs of the SMB market are very much aligned with those of the larger players. To make BPO successful, expertise in the specific business function rules the day,” said Michael Costonis, partner, North American Insurance Industry Lead for Accenture. “The primary benefit of working with a larger player is access to expertise at scale, which provides deep experience where needed, the flexibility to add key players in anticipation of business demands and the shared learnings across multiple clients.”

Although a wide range of providers, geographies and models are available to insurance agencies, one commonality exists: it’s not about headcount reduction. The idea, with each provider we spoke with, was getting more value out of existing staff by moving more task-oriented, back office work to an outside provider.

A Cultural Shift that Could Change an Industry

Stephen Moriyama, for one, is happy to have options — and saw different values in each outsourcing provider he researched for Hayward Tilton and Rolapp. The key, he believes, is finding the model that most closely aligns with the agency’s culture and specific business needs.

“For us, a dedicated staff in China gave us a ‘night shift’. They work from 6 p.m. our time until 2 a.m. our time. We come in the morning and the work is done,” he said. “We liked the concept of dedicated employees, although we knew that meant giving up some of the benefits of a pooled resource model. For example, we still have to deal with vacations and sick days – whereas in pooled model, you don’t.”

According to Moriyama, one of the most challenging parts of transitioning to an outsourced back office model was explaining the strategy to the agency’s 95 employees. “Our employees definitely had questions when they heard the word ‘outsourcing.’ They wanted to know why we were sending jobs overseas,” he said. “We explained that we really don’t see it that way. We see outsourcing as a way to focus our dedicated staff on building revenue, and focus our efforts on generating income in a market where premium rates and profits are down. In a way, outsourcing is giving our internal staff job security.”

But, the proof is in the output.

“In a 45-day period, our outsourced team has checked more than 300 policies. It would take us four times as long to do that same sort of checking in house,” Moriyama said. “And honestly, when English is a second language, you’re more accurate. You see the difference between ‘Inc’ and ‘Inc-period’ (Inc.). Those details are important in our business.”

In speaking with other agencies, Moriyama believes that outsourcing has the potential to be as important to agency survival as technology and automation – regardless of the provider or the mode of adoption.

“To grow an agency in today’s economy, to remain profitable against all odds, you can’t keep doing business as usual,” he said. “Outsourcing can be a great way to gain efficiencies, improve quality and refocus your producers on what they do best – generating income for the agency. Technology makes us more efficient; outsourcing makes sure we use our people where they bring the greatest benefit. Ultimately, that’s what will separate the winners from the losers in this industry.”

Sources: (alphabetically):
Michael Costonis, Partner North American Insurance Industry Lead, Accenture

Sharon Emek, President and CEO, WAHVE, LLC.
Dan Epstein, CEO, ReSourcePro
Stephen Moriyama, Senior Vice President, Hayward Tilton and Rollap Insurance

Earlier this summer, Capgemini signed a deal with Brazilian conglomerate Grupo Algar, to support its accounting, account receivables, account payables, tax, human resources administration, payroll and procurement services. Capgemini says the engagement, which includes standardization of processes and service levels across two Algar business units and nine of its companies, will increase productivity by over 45 percent in addition to improving quality and flexibility to keep up with the privately-held holding company’s expected growth.

Latin America is an increasingly important market for international BPO providers. Capgemini opened its Brazil BPO hub in 2008, joining such BPO powerhouses as Accenture and IBM, local leaders including Politec and Stefanini IT Solutions, and Indian competitors Tata Consultancy Services and Satyam. According to Capgemini’s global head of BPO sales Claude Hartridge, the country is one of the company’s top three growth markets. Last September, they made an even bigger bet on Brazil investing nearly $300 million in regional IT and BPO service provider CPM Braxis. “Latin America is an increasingly important part of any global company’s portfolio,” Hartridge told the Outsourcing Center. “We are starting to see a significant increase in opportunities in the region.”

Brazil serves as both a nearshore and onshore services hub. “Currently, we have an interesting balance of international customers with strong central decision-making that want us to execute locally, a number of global companies where BPO decisions are made within the region or locally, and a number of local and regional companies that are first movers to BPO,” said Hartridge, noting that at least 40 percent of Capgemini’s BPO business in Brazil is local. For Brazilian-based providers, the number is even higher with as much as 90 percent domestic revenues, says Forrester’s Belissent.

More Than Cost Savings

Those local customers like Grupo Algar are in high-growth mode. They’re looking for BPO partners to deliver what Hartridge calls the five “C’s” — control, compliance, consistency, consolidation, and cost savings—to support sustained and profitable growth.

“The main driver is compliance,” said Grupo Algar’s shared services director Mauricio Llemos. The company was also looking for a BPO provider who could apply it best-in-class processes to the conglomerate’s transactional services so its companies can focus on their core business, in industries as varied as agriculture, technology and aviation.

“The key success factors [in Brazil] are not always cheaper prices or simple labor arbitrage,” Hartridge said. “Clients want to have confidence that the service provider can help them get to the next level of managed growth.”

While Brasscom touts an average of only 4 percent turnover within BPO teams in Brazil, which can have a positive impact on productivity and costs, the region’s BPO market remains challenging for global players who must contend with such issues as rising costs and the potential for geopolitical instability. Out of the largest developing economies, Brazil has the second highest number of English speakers behind only India, according to Brasscom, but language skills remain an issue for customers requiring English fluency.

Such problems are par for the course in any emerging BPO market, Hartridge contends. “Inflation is a global issue,” he said. As for geopolitical risk, “we need not look any further than the riots last summer in France over retirement age or the recent riots in the U.K. to see that politics and the socio-economic environment can give rise to strong passions or irrational behavior,” Hartridge added. “The countries where we primarily operate in Latin America—Brazil, Chile, Argentina, and Guatemala—have had years of stable political environments and crime rates have not impacted our operations or the safety of our staff or the clients.” Language requirements for BPO services are addressed early in discussions with clients, according to Hartridge, to determine how much interaction is voice-related in native tongue versus written documentation and which transactions may necessitate native speakers.

Strategies for Success

The outsourcing business processes that work in Brazil for the first time must not rely solely on their vendors to mitigate such potential risks. Potential BPO customers should:

• Keep an eye on costs. BPO customers looking for rock bottom prices should look elsewhere. Brazil has the highest salaries and taxes in Latin America today. Factor in currency and inflation risks when making a business case for Brazilian BPO.
• Don’t expect Brazil to be India. For better or for worse, Brazil is not a mini-India. On the upside, it’s much closer in distance and cultural perspective to U.S. customers, and its workforce is reported to be more creative. On the downside, some industry watchers report less of a sense of urgency in employees than their counterparts on the subcontinent, and local providers have less process experience.
• Plan for language issues. Many BPO customers may require only Portuguese or Spanish speakers, but those that require English fluency—for call center work for example—should insist on unannounced site visits and call listening sessions throughout the course of the deal.
• Consider scale. Brazil is the biggest provider of BPO services in Latin America, but it still pales in comparison to India. Make sure your provider can meet your capacity needs while maintaining quality.

Historically companies outsourced business processes to save money or gain process efficiency. But as service provider offerings and buyers matured, BPO can now become a revenue enabler, according to Manish Dugar, senior vice president, BPO.

In some cases, old, outdated technology and antiquated processes in the back office can “handcuff” the front office, points out Dugar. For example, today enterprises need real time analysis, not end-of-the quarter reporting. But this kind of research and analysis is not possible without the newest technology.

BPO becomes an enabler if the service provider:

1. Can control the process from end-to-end
2. Has deep industry domain knowledge, including keeping up with ever-changing government regulations
3. Has developed the requisite IT to enable the process changes

Examples of BPO as a revenue enabler

Expanding into new geographies. Dugar cites a bank that may have become well-known in its home geography. Now it wants to expand but doesn’t have the processes or the local knowledge necessary. Wipro, however, has other clients in the proposed new geography and is intimately familiar with the banking regulations there. “We can provide a ready-made platform to support this bank’s expansion into the new geography because we have done it before,” explains Dugar.

Expanding into new areas of business. Stock traders are another example. Service providers with the proper technology and understanding of markets can enable traders to enter new markets and do different kinds of transactions they couldn’t do before.

Launching new products. Today’s service providers can also cut the time for a new product launch, Dugar continues. “If you open up a new market five months earlier than planned, it creates a business opportunity,” says the Wipro SVP. “It’s possible the opportunity could vanish if you waited.”

Keeping current customers. Social media is particularly helpful here. Say a manufacturer discovers it has a problem with its new printer. It can employ social media to let its customers know they can call a toll-free number to swap out their misbehaving printer with a new one. “This way the customer doesn’t have to call and complain,” he says. Nipping the problem in the bud creates good will and ultimately retains a hard-earned customer.

Using analytics as a revenue generator

Analysis is more important than ever, given today’s economy. “ We believe that analytics-driven experimentation and performance improvement will be a key driver for businesses to be future-ready. It’s hard to find trends manually,” points out Dugar. “Technology can point out trends that the naked eye can’t see.” Spotting these trends early is critical because then companies can make business decisions “based on the trends currently shaping the market.”

The Wipro executive recalls one client asking the service provider to help increase its cross selling and up selling opportunities. The Wipro team decided the best way to do this was to figure up which customers were the most likely to be amenable to a selling opportunity. Combing through the data, the Wipro team discovered that six percent of this company’s customers called, emailed or tweeted about issues they had with the company’s product. It removed their names from the cross selling list, figuring it would be difficult to sell more products to unhappy customers. Then they used the statistics to prioritize the remaining 94 percent. “These insights created a revenue opportunity for the company,” Dugar says.

In another case, the Wipro buyer sold surface cleaners (equipment to power wash buildings and windows.) An analysis showed the average surface cleaner purchase was $150,000. But the Wipro buyer’s average sale was just $100,000. Knowing this, the company’s sales force worked to bring up their sale to the industry average. “We helped them increase their wallet share with this knowledge,” Dugar says.

Why Now

A number of events coalesced to bring about BPO’s new role as a revenue enabler. Outsourcing buyers have matured. They have already picked the low-hanging fruits of process consolidation and improvement. They have already reengineered their processes and employed tools. Going through these evolutions generated the confidence buyers needed to get to the stage where they could feel comfortable outsourcing a process end-to-end.

One the supplier side, providers have gained vertical capabilities. “Collection for a telco is different from collection for a manufacturer. Each is unique,” says Dugar. Providers now have the experience and the expertise to understand the nuances of the industries they specialize in.

Service providers also have developed the technology needed to automate and transform BPO processes. They have analytics in place.

Put all three together and BPO steps up a notch. “Today, the service provider has to own the business outcomes using technology and analytics and thereby help its customers do business better,” says Dugar.

One solution: harmonize and standardize global processes using one ERP system. How do you do this efficiently and cost effectively?

For Amcor, the answer was outsourcing to a local provider.

The need for one platform for 10 Latin American countries

Amcor Rigid Plastics, a packaging company, is a division of Amcor Ltd., an Australian corporation. Amcor, which has 35,000 employees in 43 countries, divides its workforce into three regions. The Latin America business unit works with 10 Latin American countries from its headquarters in Buenos Aires, Argentina.

In 2006 it outsourced SAP implementation and support to Grupo ASSA, which is headquartered in Argentina. Roberto Wagmaister, President and CEO of GrupoASSA, says “our job is to help business process executives shape the way they work with their IT systems.” The company, which is about to celebrate its 20th birthday, was one of Latin America’s first application service providers (ASPs. Remember them?)

Its largest assignment to date was integrating 70 different countries into a single entity. The Amcor assignment was only 10.

Before outsourcing, Amcor used proprietary software, according to Cielo Hernandez, director of operations, finance for Amcor. Each unit behaving independently “jeopardized our financial template,” she explains. “We needed to be on a single platform so we could benchmark across countries. One platform meant we could look across the region in a controlled process,” adds Hernandez, who is also director of IT for the region.

Standardization was also more cost and time effective, she adds, because it meant Amcor had to do only one IT development instead of 10 for each country. Amcor also saved money because it had different providers in each country, many of whom charged higher rates than Grupo ASSA, which now handles the entire region. “Because our IT is less expensive, our prices to our customers are lower. That makes them and us more competitive in our marketplace,” Hernandez continues.

To date, the savings are in the millions, according to Guillermo Perez, regional IT manager, Latin America for Amcor.

Outsourcing’s other benefits

Outsourcing SAP support also sped up IT development, Hernandez reports. Today Amcor receives “better information. That allows our business to make better decisions,” she notes.

Amcor is a company always on the hunt for merger possibilities. (Amcor has completed two in the last first years.) When Amcor buys another company, the consolidation process is faster because Grupo ASSA implements SAP, Hernandez continues.

The service provider has helped Amcor implement best practices, which it shares across all 10 Latin American countries.

One of the trickiest parts of the SAP implementation is business process management. As the head of finance, Hernandez is responsible for financial compliance and Sarbanes-Oxley implementation. “We had to document all these processes,” she explains. Grupo Assa has a tool that is already integrated into SAP to produce the requisite narratives and flow charts for each finance job. An added benefit: the partners used these charts to implement the processes whenever they rolled out SAP in a new country.

Finally, there is just one throat to choke. “We have a direct point of contact when SAP is broken. Now I don’t have everyone calling me to ask, “Who is going to help me? Outsourcing is easier to manage when you have just one provider,” says the Amcor executive.

Why Amcor wanted a Latin American-based provider

The company, which was using multiple service providers, invited three to bid for the entire region. “We wanted someone with Latin American experience, someone who understood Latin American culture,” says Hernandez. Wagmaister says many of its Latin American clients select his company “because we are closer to home.”

Typically the buyer selects one country as a pilot. After the first implementation, Grupo ASSA makes adjustments to the model and then rolls out the new-and-improved version to all the other countries. Grupo ASSA always keeps a small group of people on site.

The importance of merger and acquisition experience

The new provider also had to have merger and acquisition experience, especially in Brazil, where Amcor’s past two acquisitions occurred. “Grupo ASSA is helping us grow our business,” says Perez. He includes Grupo ASSA executives in early discussions every time Amcor is considering an acquisition.

Grupo ASSA did such a good job in Brazil, Amcor decided to use the company to do the SAP implementation when Amcor bought Ball Plastics Packaging Americas in Broomfield, Colorado. “We had a tight integration time: just 90 days,” says Hernandez. “This integration was a huge priority for our company.”

However, there was one hitch: Amcor and Grupo ASSA had already agreed to implement SAP in both Ecuador and Peru during that exact same 90-day period. “This was just as important,” she says. (The partners found that if they do two Latin American countries at the same time, it saves both time and money.)

The three-part assignment in three different countries required great coordination, the Amcor executive recalls. The two partners decided to test all development work before they put it into production. “Everything had to work the way it did before the SAP implementation,” she explains.

IT people at both companies “worked night and day all through the Christmas holidays,” Hernandez recalls. “Grupo ASSA was committed to delivering everything on time and on budget. And they did.”

About Grupo Assa
The service provider specializes in what it calls “mission critical business transformation” using SAP or Oracle to replace legacy applications. “We hold round tables with executives to address the needs of their business processes and then work with their IT departments to support those results,” explains Wagmaister. He says business transformation success only happens when “IT executives understand the soft infrastructure—creating a rewarding user experience—as well as they understand the technological infrastructure. We realize we manage people not just IT systems.”