Introduction: -

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 quality. 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 specific 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.

The Paper attempts to explain what it takes to setup a BPO facility in India. Actually, setting up a call center is capital intensive. An ordinary BPO center that takes care of pure back office operation [e.g. payroll, data entry] will not be as expensive as a call center.

BPO [Business Process Outsourcing] has been the latest mantra in India today. As the current sources of revenue face slower growth, software companies are trying new ways to increase their revenues. BPO is top on their list today. IT services companies are making a quick entry into the BPO space on the strength of their existing set of clients. We hope to address all issues related to BPO in India on this portal.

The philosophy behind BPO is specific, do what you do best and leave everything else to business process outsourcers. Companies are moving their non-core business processes to outsource providers. BPO saves precious management time and resources and allows focus while building upon core competencies. The list of functions being outsourced is getting longer by the day. Call centers apart, functions outsourced span purchasing and disbursement, order entry, billing and collection, human resources administration, cash and investment management, tax compliance, internal audit, pay roll...the list gets longer everyday. In view of the accounting scandals in 2002 [Enron, WorldCom, Xerox etc], more and more companies are keen on keeping their investors happy. Hence, it is important for them to increase their profits. BPO is one way of increasing their profits. If done well, BPO results in increasing shareholder value.

Typically, a customer calls the call center [usually a toll-free number]. After pressing numerous numbers [1 for English, 2 for Spanish, 3 for bank balance!] the operator will answer your query by accusing the database. Call centers address sales support, airline/hotel reservations, technical queries, bank accounts, client services, receivables, tele marketing, and market research.

If a bank shifts work of a 1000 people from US to India it can save about $18 million a year due to lower costs in India. According to Mckinsey, giant US pharma firms can reduce the cost of developing a new drug, currently estimated at between $600 million and $900 million by as much as $200 million if development work is outsourced to India.

Benefits derived from BPO can be summarized as follows:

Ø      Productivity Improvements

Ø      Access to expertise

Ø      Operational cost control

Ø      Cost savings

Ø      Improved accountability

Ø      Improved HR

Ø      Opportunity to focus on core business

  Outsourcing is not new - it has been a popular management tool for decade. One can safely say outsourcing has evolved: -

Ø      1960's - time-sharing

Ø      1970's - parts of IT operations

Ø      1980's - entire IT operations

Ø      1990's - alliances/tie-ups

Ø      2000's - IT-enabled services

India has one of the largest pools of low-cost English speaking scientific and technical talent. This makes India one of the obvious choices to outsource to. Dell, Sun Microsystems, LG, Ford, GE, Oracle all have announced plans to scale up their operations in India. Others like American Express, IBM and British Airways are leveraging the cost advantage India has to offer while setting up call centres. Several foreign airline and banks have too set up business process operations in India. Indian revenues from BPO are estimated to have grown 107 per cent to $ 583 million and this particular area employs 35,000 people in the year ending March 31, 2002.

Many European and US companies have realized that they should focus on their main business and outsource their Human Resource Department, accounting department etc. Bingo! it is here exactly India fits in! Today US corporations have embraced BPO wholeheartedly.

Managed Care Companies, which is more popularly known as Healthcare payers, are increasingly outsourcing business processes due to changing and challenging business environment and technological and legislative changes. There is a good opportunity for Indian BPO vendors in this space. BPO vendors will need to have good domain knowledge, process know-how and competence with technological solutions to cater to these Manage Care Companies.

The BPO industry has witnessed a phenomenal growth over the past few years and today is an industry of choice for many young professionals. The industry is now responsible for providing stable career paths to its young workforce within the age group of 21-25 years. Retaining these young professionals and keeping them motivated and engaged is a challenge that is giving HR manager’s sleepless nights.

Companies are adopting multiple strategies to become the employer of choice and create long-term career opportunities for their employees.

Rural BPO Scores high on Staff Satisfaction in Andhra:

A firm is only as happy as its staff and by this measure the BPO operations of Satyam Computers’ social arm in two Andhra Pradesh villages have been scoring high on employee satisfaction, unlike their urban counterparts.

While business process outsourcing industry workers in cities are known to work under stress resulting in high attrition rate, employees of Byrraju Foundation’s outsourcing units paint a different picture

“It’s a great pleasure for me to work in the IT sector from my own village. This opportunity gave me chance to fulfill my ambition of being part of the IT sector and also to live happily with my family,” says P Sunitha Kumari, an IT professional working for Eetaha Kota Rural BPO.

Besides Eetaha Kota, Byrraju Foundation has another unit functioning at Jalli Kakinada in West Godavari district.

The foundation too is happy with the business it has been attracting since commencing operations eight months ago.

“The 100-seat BPO units are making a mark in handling back-office work like creating HR data base, type-sheet management, bill passing in a digitized format,” Sarat Chowdhury, partner, Byrraju Foundation, Satyam Computers’ social arm, said.

These rural BPOs are handling a big chunk of business given to them from Satyam Computer Services Ltd and the Andhra Pradesh government, among other clients, he said. Sarat Chowdhury partner of Byrraijy Foundation.

These rural BPOs are handling a big chunk of business given to them from Satyam Computer Services Ltd. and the Andhra Pradesh Government among other clients he said.

Graduates are being trained by the Foundation to handle the BPO processes. As of now, they are being paid amount Rs. 3500 per month, but this can go up with increase in operations in days to come, according to PK Madhav, director of the foundation.

  The salary is considerably low compared to what a similar unit has to pay its employees in the city and thus results in significance cost savings. “About 10% of our staffers are IT professionals who moved back to rural areas after a stint with IT Companies in cities. This way, there is a reverse migration which is good for the industry,” he said.

The foundation plans to set up 15 rural BPOs as part of its gramit initiative. Already, several leading BPO players have branched out to villages, including in neighboring Tamil Nadu. Besides cutting costs, such rural operations also help companies meet their social obligations.

According to industry pundits, it is only a matter of time before the trend of rural BPOs picks up. There has always been a need in the industry to segmentise high –end work and low-end work and the rural BPO can easily handle later, they say.

“Through it is too premature to talk of full-pledge rural BPO revaluation, it is a fact that a viable business model exist for the rural BPOs and it should augur well for the balanced growth of industry,” says a chief technology officer working for a city-based IT major.

Comparison of India Vs US BPO operating costs?

US$ Cost per FTE (Full Time Employee)	United States	India	India as % of US costs
Personnel	42,927	6,179	14%
G&A Expense	8,571	1,000	12%
Telecom	1,500	2,328	155%
Property Rentals	2,600	847	33%
Depreciation	3,000	1,500	50%
TOTAL EXPENSES	58,598	11,854	20%
Source: Industry Sources, Merill Lynch 2003 (From the Nasscom Strategic Review 2003)

The U.S is expected to be the largest source market for the ITes accounting for nearly 60% of the market. The share of the offshore component is expected to increase to 23% of the total spending by 2007. Europe is expected to be the second largest market for the ITes sector, accounting for 22% of total spending which is expected to reach Euro 129 billion by 2008. U.K and Ireland being the main markets for BPO in Europe are likely to account for about 45% of the European market followed by countries like Germany, Switzerland and Austria with a 20% share. The fastest growth expected within the European market is in the U.K and Ireland with a CAGR of 14%. However the maximum growth is expected n the Asia-Pacific region, with ITes-BPO spending to grow at 14.7% for the next two years.

What are the current salaries in the BPO world in India?

 Specialized ITeS professionals who posses MBA, BE, B.Tech, C.A. [CPA] and other expert qualifications or experience may be paid higher salaries depending upon the expertise required for the desired work profile and their level of experience. Frankly, this doesn't apply to just BPO field but to all fields.

 Besides the salary employees are paid incentives depending upon attendance regularity, achievement of targets. Don't be surprised if the incentive exceeds the salary!

 Note: Rs 1 lac

This was last modified on June 21, 2004. We observed that only the CSR and Team Leader salaries are changing.

What are the pros & cons of outsourcing?

Pros	Cons
1.      Third Party Service Providers (TPSPs) 2.      Usually TPSP already has expertise and experience with other clients in similar business lines. 3.      Very competitive pricing / flexibility to assess various TPSPs 4.      No infrastructural / capital investment. 5.      Payback period very less (usually between 6 months to a year). 6.      Flexibility to source multiple TPSPs. 7.      Flexibility to scale up and down business relationship. 8.      Can exit from one relationship and move to another . 9.      Retains decision-making, therefore relationship with TPSP is clear (fee-based, quality-based); no staff backlash. 10.  As TPSP works towards a profit there is more business commitment. 11.  Customized solutions ensure data security and safety.	1.    Captive centres 2.    Build expertise from scratch by redeploying resources. Latter option more expensive. 3.    Unit costs higher. 4.    High capital investment. 5.    Payback usually between 3 and 5 years. 6.    Committed to bringing in economies of scale, hence the need to establish a sufficiently large centre. 7.    Committed resources reduces such flexibility, else training costs could shoot through the roof. 8.    No exit possible without incurring high costs. 9.    May or may not retain decision-making. Possibility of backlash from senior management personnel. 10.              Captive units are usually cost centres. 11.              Long-term strategy looks for establishing centres to first move work as-is, and save costs first.
Source: neoIT

 To fix this problem BPO firms are trying to solve this big problem:

Ø   By hiring mature talent [i.e. people over 35 years in age].

Ø   HR must realize that fatter pay cheques can never be a sure-shot way to retain employees. More important aspects like a secure career, benefits, perks and communication cannot be overlooked at any level.

Ø   Employee retention must be the focus, which means that talent must be recognized and suitably rewarded.

Ø   Hire outstation candidates (from small towns) and provided them with shared accommodation.

Ø   Offer management diplomas and MBA courses.

Ø   Only 5 out of 150 employees become team leaders in a year, hence cash incentives are one way to keep the employees happy. Daksh shells out about Rs 4,000 bonus per onth to almost 85% of its workforce.

Ø   Use psychometric tests to get people who can work at night and handle the monotony.

Ø   BPO must concentrate on becoming an 'employer of choice'. A comprehensive process framework and access to proper infrastructure in the work place goes a long way in retaining employees, as a congenial work environment is critical.

 BPOs may go, KPOs to stand strong:

 Neeraj Bhardwaj, CEO of RocSearch, a London-based knowledge process-outsourcing firm, believes that even though BPO business may migrate to other countries, India will emerge stronger in the KPO segment. The founders of RocSearch have another Indian connection too and own RocMedia, the movie production house, which produced Gurinder Chaddha’s Bend It Like Beckham.

Going forward, the KPO industry will be driven by domain knowledge which will also have to be structured and packaged according to the needs of clients,” feels Bhardwaj who was born and bred in UK where his parents immigrated in the 1960s. “I’ve always had strong cultural links with India and can read and write Hindi. However, now with the RocSearch job and our Noida operations, I have strong business and career links too,” he says.

Prior to joining RocSearch too, Bhardwaj has Indian links as MD of Source Partners, a boutique-consulting firm, which helped UK companies source and manage cost competitive technology and service solutions from India. He built up a team of professionals in UK and India, providing consulting as well as project services from dedicated centres in India. He has helped a number of fast growing technology firms evaluate and implement offshore sourcing strategies in India.

“At RocSearch we are trying to create a strong brand through customized research consulting. Clients are global and research is done in India and often the content is India-specific,” says Bhardwaj. He feels that a small and boutique firm has an advantage over larger consultancies that may not sometimes want to scale up in India. “The research and analysis are value for money because RocSearch prices are a fraction of what one of the major consultancies would charge,” he says.

His own experience in both BPO and finance has been diverse. He started his career at Bank of England and later joined Financial Services Authority. He was the first employee of Inaltus, one of the first finance and accounting BPO firms in the UK..

And now, while he is enjoying the growing importance of India in his business, Bhardwaj feels that global firms go beyond ethnic cultural affinities. “In fact, while more and more people of Indian origin are coming back to India to seek business opportunities, expats too are seeking to come and work in India because they find it exciting,” he says.

Bhardwaj, who is an alumnus from London School of Economics and London Business School, feels that prominent global educational institutions too are getting increasingly multicultural. “At LBS, along with some classmates, I had co-founded India Business Forum, a platform to promote India and business opportunities with India to a European corporate audience,” he says. He is still a member of the executive committee of IBF. “The India theme is even stronger today that when I was in college and the forum helps students and faculty to understand and promote the India brand. We as alumni members also help them organize high-profile events,” he says.

Bhardwaj is a member of TiE in UK and supports the high-profile charity Pratham. “These organizations give me more reasons to link with India,” he says.

How big is the Indian KPO market?

According to industry estimates, by 2010, the size of the KPO industry would be worth $17 billion globally, out of which India would hog almost $12bn. Nasscom and Evalueserve estimate that by 2010, 300,000 jobs would be created in the KPO space and 70% of these jobs are expected to come to India. But the picture is not as rosy as it looks. The KPO industry will have to wade through many challenges to keep up the expectations and predictions for its bright future.

One of the major problems faced by the KPO industry is the dearth of skilled manpower with domain expertise. The client's expectations and quality requirements are very high. Also in the KPO space, client conversion and development takes longer compared to other processes. If India wants to get 70% of KPO jobs by 2010, then serious intervention at the educational level and investment in training are imperative.

Lason India implements BPO curriculum:

Lason India, a Chennai-based BPO firm, has announced implementation of its new ‘campus model’ in a college in Tamil Nadu to make the students employable as soon as they complete their degrees. Under this campus model, the company has developed a BPO course curriculum, which focuses on healthcare BPO services. The company implemented this model in Nehru Memorial Arts and Science College (NMASC) at Puthanampatti, near Tiruchi. In the pilot batch, about 150 students opted to take up the course and 87 students were selected and given training in two different batches. Out of 87, Lason absorbed 32 students. Addressing a press conference, Thomas Denomme, director, Lason India, said that the results of the model were encouraging as the students absorbed by Lason were 'industry ready.' As the BPO industry is faced with the challenge of shortage of skilled manpower, Lason came out with this initiative to involve colleges in creating a curriculum for BPO industry and helping the graduates start their work from day one, once employed, he said. This would result in a reduction of at least 30 per cent in training time for BPO firms. The implementation of the first campus model in NMASC is an extension of the already existing relationship between Lason and NMASC as the former has been a regular campus recruiter at NMASC. However, Denomme said that Lason had plans to launch similar programmes in other educational institutions across Tamil Nadu. Even if Lason doesn't take the graduates, the programme will go on, he added. S Ramalingam, principal, NMASC, said that at present, the BPO curriculum was offered as an elective subject to M Sc and MCA students in the college and soon it will be offered to other graduate and postgraduate courses. The curriculum fits into 3 semesters, which includes both theory and practical exposure. "The course enhances the confidence level of the students coming from rural areas and makes them employable," he added. Three of the faculties from NMASC, the first college to introduce graduate course in computer science in Tamil Nadu, took up the course on BPO-healthcare at Lason during last summer vacation. Designing of the curriculum followed this for the BPO-healthcare. Senior offices of Lason would visit the college and provide lectures to the students on a regular basis. Lason, a 100 per cent subsidiary of US-based Lason Inc, is also planning to design a BPO curriculum for other verticals like finance and legal services.

Conclusion

The next generation of Business Process Outsourcing has emerged as a priority for businesses looking to better options in managing their application portfolios. The first wave offered low-cost, offshore development labor, but today firms are demanding new, less risky options for applications that are strategic, complex, or mission-critical, while still taking cost into consideration. Outsourcing has moved from a niche technology management tool to a mainstream strategic weapon. Business Process Outsourcing leverages process driven efficiencies in terms of organizational excellence, responsiveness & branding, financial efficiency and customer relationship. BPO is emerging as a powerful and flexible approach that business leaders can use to achieve a wide range of tactical and strategic aims.