BPO: Past Present Future

8/12/2019 BPO: Past Present Future

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BPOPast | Present | Future

Capturing the growth of an industrythat has redefined all others


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Preface

"We live in a moment of history where change is so speeded up that we begin to see

the present only when it is already disappearing."

This quote by R D Laing best describes the state of the world of business today.

Large deals are being struckcompanies are being acquiredinnovations are

taking placeproducts are being launchedand all thi s, while you read this line.

'Fast enough' is no longer fast enough.

Organizations that have stayed in the race have had one common string running

through them they have all focused on 'stay ing ahead of the pack' as a means to

gain an invaluab le first-mover advantage . It's what the market pays for innovation

and vision. It's where the big margins are.

This document charts the growth of one such industry that is fast-emerging as a

'business-driver' for the IT industry BPO. Business Process Outsourcing as a

trend and as an industry is here to stay. The game of business, today, is all about

cost competitiveness, process efficiencies, better service and focusing on one's

core competenciesand BPO plays a major role in enab ling all of these. It is thus not

too tough to ascertain that the BPO industry will not just thrive; it will perhaps grow

faster than even the most renowned industry analysts pred ict! It is now entirely up to

its players to innovate and go beyond the obvious to define its fortunes.

BPO


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Contents

Section No.

1

2

2.1

2.2

2.3

3

3.1

3.2

3.3

3.4

4

4.1

4.2

4.3

What is Business Process Outsourcing?

The story so far

- Origins

- The initial days

- Growth

The industry today

- Segment-wise break-up

- Region-wise break-up

- Outsourcing hotspots

- Client benefit through integrated offshoring

Future-scope

- Global trends

- Estimated global spends

- KPO The new wave in outsourcing

Contents Page No.

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1. What is Business Process Outsourcing?

BPO is the act of transferring some of an

organization's repeated non-core and core

business processes to an outside provider to

achieve cost reductions while improving service

qual ity. Because the processes are repeated and

a long-term contract is used, outsourcing goes

far beyond the use of consultants. If done well,

BPO results in increasing shareholder value.

The main difference between BPO and more

traditional IT outsourcing is that BPO offers

companies a way of achieving transformational

outcomes much more quickly. In a typical BPO

contract, a service provider takes over a speci fic

corporate function. Effective BPO encompasses

much more than just changing who is responsible

for performing the process. In BPO, the outside

provider not only takes on the responsibility to

manage the function or business process, but

also re-engineers the way the process has been

traditionally done.

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2. The story so far

2.1 Origins

It all began when the internet revo lution led to the

revelation that work could be moved out of one

place and remotely supported from a different

location in another hemisphere. This was given a

boost by the 'Core Competency Theory' by

C.K. Prahalad and Gary Hamelwho introduced

the concept in a 1990 Harvard Business Review

article. This theory spoke about identifying the

core competencies of a large organization, then

focus ing on it and getting out of everything else.

Proponents of this theory started looking at ways

and methods to do so. Companies realized that

outsourcing functions which did not add value to

their business would free them to concentrate on

core tasks. These tasks would thus be with

outsourced specialists who could work on them

as well as value-add to the same.

2.2 Initial days

What began with a small captive unit of 30 people

in 1996 is now 553,000 people strong. It all began

when British Airways assigned Raman Roy to set

up a captive call center in Gurgaon. This was

followed by the flagging off of BPO operations by

GECIS, subsidiary of GE. The third major feat

happened when backed by CDC Capital,

Sanjeev Agarwal set up Daksh eServices in

Gurgaon t o p rov ide e -ma i l suppor t t o

international clients.

Between 1996 and 2000, global companies such

as Swissa ir and American Express set up outfi ts

in India and gave feet to the nascent ITES

industry. Web support was one of the key areas of

growth. Fueled by the dotcom boom, this sector

grew by leaps and bounds. The basic idea at this

point in time was to utilize the low cost abundant

talent present in India to cut costs and thus

achieve better profitability. Thereafter, the

industry has moved from being a nascent one to

one with a high degree of maturi ty.

2.3 Growth

In 2001, the dotcom bust was followed by a never

before seen increase in demand for voice

services. Corporates like Dell, HSBC, AOL and

the l ikes jumped on to the outsourcing

bandwagon in an e f f o r t t o cu t cos t s .

This began by outsourcing non-core activities.

Third-party vendors like Convergys began

operations out of India and landed themselves

big ticket clients. The arena became more

competitive in 2002 with large IT companies like

Wipro, Infosys and Satyam either setting up,

buying out or announcing their intent to set up

third-party BPOs. Private equity firms like

Warburg Pincus, General Atlantic, Oak Hill

Capital, etc. began pumping in millions into this

industry. All this, in order to get a substantial

share of the lucra tive Indian BPO market.

2003 was the year of consolidation for the BPO

industry. Mergers and Acquisitions held sway

with major third-party service providers as well

as corporates like the Aditya Birla Group going

ahead with acquisition plans. This momentum

continued through the years 2004-2006 with

compan ies like GECIS being sold off to PE firms.

From this point, the indus try has been growing at

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3. The industry today

3.1 Segment-wise break-up

Rapid growth of internet, new technology and

application development are fueling the growth

of the ITES-BPO industry. India was the leader in

the ITES sector and continues to dominate this

area. With globalization touching an all-time

high, outsourcing continues to grow.

The growth in the BPO sector has been pegged at

nearly 10% in 2007. This was possible as

organizations across the globe have started

seeing offshoring not only as a cost cutting

measure but also as a method of improving the

service delivery and support for clients,

customers and employees .

The globa l BPO spends in 2007 were estima ted

at USD 462 billion. These spends were primar ily

d r i v e n b y L o g i s t i c s a n d P r o c u r e m e n t

Ou t sourc ing and S a les and Marke t ing

Outsourcing. Together, they accounted for a

whopping 84% of the market. The rest of it

constituted Customer Management, Finance

and Accounting, Human Resource Outsourcing

and Training Outsourcing.

The biggest grosser in the outsourcing industry,

Logis tics and Procurement, grew by a little over11%. This segment showed maturity by shifting

towards integrated engagements. Sales and

Marketing and Customer Service, the other two

mature service offerings, grew by an estimated

6% and 13% respectively. Clients are now both

well conversed as well as accustomed to the idea

of offshoring this segment of services. There is

also an increased emphasis on achieving the

right mix of off-shore, on-shore, near-shore andhome-shore to be able to compete effective ly.

Training constituted the lowest contribu tor to the

ITES industry growth graph. But interestingly, it

was the highest in terms of growth , clocking in a

20% growth in 2007.

8

224

201

167

157

26 30

1917 161465

USD billion

2006 2007

Logistics andProcurement

Sales andMarketing

CustomerManagement

Finance andAccounting

HumanResources

Training

Segment

Logistics and Procurement

Sales and Marketing

Customer Management

Finance and Accounting

Human Resource Administration

Training

Growth in 2007

11.4%

6.08%

13.05%

13.6%

12.9%

20.0%


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3.2 Region-wise break-up

As in the previous many years, North Amer ica

continued to be the biggest contributor to the

BPO growth story. Almost 90% of the contribution

was from America and Europe. The United States

alone accounted for 60% of the total market.

Europe, Middle East and Africa contributed

approximately 18.7% to the world-wide BPO

market clock ing an estimated 7% growth.

The Asia Pacific (APAC) region is one of the

fastest growing markets. Though it is still in the

nascent stages of evolution, it has grown at an

estimated rate of 17% in 2007.

But throughout the industry, the trend is moving

towards emulating the success of US in the

outsourcing markets.

9

NorthAmerica

60%

Europe, MiddleEast and Africa

18.7%

Asia Pacific17%


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3.3 Outsourcing hotspots

From the early days of outsourcing, India has led

the outsourc ing market, and is showing no signs

of giving up. But of late a whole new section of

outsourcing is happening from Malaysia, China,

Philippines, Central and Eastern Europe, Mexico

and Brazil. Other aspirants like Bahamas and

Mauritius are also actively deploying resources

to bring the ITES industry into their count ry.

On the other hand, the Indian IT/ITES companies

have seen the writing on the wall. With costs of

r u n n i n g o f f s h o r i n g c e n t e r s i n c r e a s i n g

meteorically in India, Indian firms are looking at

sett ing shop at other low-cost centers.

The acquis ition of Minacs by Transworks, Affina

by HTMT Global , Global Vantedge by Aegis, and

MoneyLine and ICE by Genpact are examples of

the consolidation and the near-shore strategy

be ing executed by BPO organ izat ions ,

especially in India.

Geographical proximity and cultural similarity

are also helping countries in Latin America to

offer themselves as preferable destinations.

Combined with excellent educa tion systems and

competitive wages, Latin American countries

such as Brazil, Mexico, Chile and Argentina are

emerging as new players. Similarly, Eastern

Europe plays a significant role as a near-shoreoutsourcing destination for Western Europe.

Service providers in Eastern Europe enjoy the

benefits of cultural and linguistic similarities

combined with geographical proximity.

Nearer to the giant in outsourcing - India -

Philippines is quickly emerging as a hotspot for

the outsourcing industry. Philippines offers the

traditional benefit of low cost operations

combined with a great workforce. Malaysia also

has a strong presence in the ITES industry while

China is also making its presence felt.

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3.4 Client benefit through integrated offshoring

Key takeaways:

Example of a Life Insurance Company

Substantial benefit to client through

integrated offshoring: A life insurance

company could increase operating profit

by approximately 11% by offshoring the

relevant applications, infrastructure and

business processes together. In contrast,

o f f shor ing bus iness processes, IT

app l ica t ions , and IT in f ras t ruc ture

separately would increase operating profit

by only 7%

Traditional vs. Integrated Offshoring:Scope for extending benefits: Similar

benef its can also be extended to clients in

other verticals be developing a thorough

understanding of their business model,

outsourc ing requirements and cost

structures

In the traditional piecemeal approach

to offshoring, only partial offshoring of

initial case review and processing and

payments, accounting for around 40%

of total jobs in policy management,

can be offshored

Suitable integrat ion of speci f ic

processes, IT infrastructure and

appl icat ions into domains can,however, eliminate most of the

const ra in ts ar is ing out o f the

tradit ional piecemeal of fshor ing

model


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4. Future-scope

4.1 Global Trends

Demand for bundled services: ITO contracts

will be signed with increasing amounts of

business and IT consulting, BPO, development

and integrat ion, and other services, as

organizations more often seek to bundle

requirements for new projects, innovation and

business performance improvement along with

those for day-to-day operations

Shift up the value chain: Although cost

reduction is still a top driver, the weighting for

value-added services that provide bottom-line

business impact will increase. Organizations will

continue to demand higher-value services as

they adopt more business focus in their BPOinitiatives

Creat ing test ing grounds: More large

corporations will sign BPO deals, but not at the

enterprise level. Individual business units, or

individual enterprise-level support areas, will

create BPO relationships to test the concept

before adopting solutions on an enterprise or

multi-geography level

Flexibility in services:Providers that can offer

end-to-end services, but are willing to start with

less than that, will dominate the market

Adoption of a win-win approach: Providers

and organizations will continue to realign scopeand pricing on established comprehensive and

multi-domain BPO deals to improve results for

the organization and profitability for the provider

Taking the Inorganic Route: Tier II & Tier III

service providers will spread their global

footpr int by making signif icant overseas

acquisitions

Evolution of new outsourcing models: New

strategic models of outsourcing (such as BOT)

will evolve to reduce risks and maximize benefi ts

BPO gaining acceptance: As the industry

matures, more and more BPO deals are coming

out into the open, with clients becoming more

transparent in their approach


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4.2 Estimated global spends

Worldwide BPO spends are estimated to grow from USD 462 billi on in 2007 to USD 617 billion in 2010.

Logistics and Sales and Marketing Outsourc ing will hold the larges t share, while Customer Care, Human

Resources and Finance and Accounting Outsourcing will be the other major segments.


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4.3 KPO The next wave in outsourcing

New-age marketing is powered by a confluence

of marketing research, analytics and data

0mining, giving companies a 360 view of their

customers. While marketing research has

evolved across the past 100 years, analytics and

data mining are recent tools that ride on the new

Business Intelligence (BI) technologies that are

evolving at rapid pace.

This confluence is stated to grow at a

Compounded Annual Growth Rate (CAGR) of

above 45% to touch USD 17 billion globally by

2010. And India stands to gain with its young,

highly qualified talent pool. The industry

expectation is that by 2010, the Indian KPO

sector will account for a market share of about

70%, hitting export revenues of an estimated

USD 12 billion. This estimated rate of growth is

much highe r than the estimated rate of growth ofIndias BPO exports.

40

35

30

25

20

15

10

5

0

2006 2010 (E)

Indias

BPO&

KPOR

evenues(US$Billion)

BPO KPO

6.3

1.2

25

12

The following figure demonstrates the expected growth in Indias BPO & KPO revenues.


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Documents

BPO: Past Present Future