How Far Can Outsourcing Go?

I notice I mentioned Cognizant in my last blog. Without meaning to start mentioning them every day, I just want to recount a few comments made when I had a chat to Martin Kochman today. Martin is the head of Business Process Outsourcing (BPO) operations for Cognizant in Europe and we had a chat on the phone earlier about some of the changes in the BPO sector.

What was particularly interesting were some of his views on the hard times faced by many companies as we head into recession. Martin remains very positive about the business outlook for the BPO sector as a whole. He said: “I still think that the total size of the market is growing, but we may see a slowing in the rate at which earlier growth targets are met. The fundamentals are still in place for this to be a significant market.”

He added: “Cost reduction will always drive some activity, but the boundaries between what organisations have considered ‘outsourcable’ will continue to be pushed and more is going to come into the realms of outsourced contracts.”

Martin clearly believes that the retained organisation is going to shrink. This implies that as times get harder, companies may even be exploring the outsourcing option even more than usual. In summary, Martin thinks it’s going to be a busy time for companies in IT and BPO services: “The market will grow. On the demand side there is more global recognition of the skills and standards required and so things like Knowledge Process Outsourcing (KPO) are becoming easier to package up and deliver remotely.”

Source from: Markkobayashihillary.computing.co.uk/2008/11/how-far-can-out.html

BPO Companies Have Taken a Hit as US Crisis Deepens

The BPO-KPO sector in India is facing the heat of the US slowdown , particularly following recent events in the financial markets. Businesses of a host of small- and mid-sized firms have taken a further hit in the industry since a major chunk of business comes from banking and financial services firms in the US.

“The slowdown is going to impact the BPO firms in India. This will eventually result in overall slowdown of the BPO industry . But now a large pool of professionals will be able to provide quality services to the Indian BPOKPO industry at much lower prices,” says IDBI Capital Market Services research head Shahina Mukadam.

According to a report released by Nasscom, the BPO and KPO industry together generated Rs 1,160 crore revenue and provided employment to 7 lakh people in 2007-08 . The share of the US in the Indian BPO-KPO export market was 61%, making it the largest contributor to exports in the segment in 2007. Ahmedabad-based KPO, Azure Knowledge Centre, foresees a slowdown in the financial services by 25% and in the insurance services by 15% by the end of this year.

Azure Knowledge Centre director Jay Ruparel says, “The debacle in the US will create a lot of uncertainties regarding the continuity of current financial services contracts and also raise doubts as to how the future contracts are signed with the US financial companies.” So far, this company has hired four people from Lehman Brothers and Merrill Lynch.

“The employment scenario in the KPO-BPO industry is going through an extremely dull patch and this in turn will have an effect on the growth in this industry,” says Karvy Stock Broking vicepresident Ambareesh Baliga.

Gurgaon-based KPO, The Smart Cube, has 130 employees at present and it is expected that the employment rate of the firm will go down by 30% till next year.

The Smart Cube managing director Sameer Walia says, “Future hiring rate of BPOs will be far worse off as compared to the KPO firms. The BPO employment rate is projected to decline by 60% within a span of one year.”

However, Exevo COO Vivek Sharma says, “I see an immediate-term negative impact, which will continue for around six to nine months. But in the long term, any other financial institution will fill up the space vacated by Lehman Brothers. We have received around 50 resumes from ex-employees of Lehman Brothers in the past two days.”

Source from: Economic Times

KPO Firms Don’t Lose Heart Despite Wall Street Woes

The Wall Street collapse will take the most toll on the knowledge process outsourcing (KPO) business in India , according to industry experts, but firms are optimistic that the meltdown will still create opportunities for outsourcing. The filing of bankruptcy by investment bank Lehman Brothers has hit its KPO services provider eClerx Services, hard. The KPO firm earned around 13% of its business from Lehman Brothers.

“Lehman Brothers was one of our top five clients, and their collapse will definitely affect the business in a negative way. But it will be a short-term affect,” commented PD Mundhra, executive director, eClerx Services.

Mundhra also added that the fall of such investment firms are more like to affect KPOs rather than the business process outsourcing firms (BPOs).

“Since investment banks are more likely to work with KPOs. In such a cenario, KPOs are more likely to get affected,” said Mundhra. However, according to an industry analyst, things are not as gloomy as they seem to be.

“The service providers dealing with the investment firm will definitely be affected. But on the other hand, if the company gets taken over by someone else, the same businesses would need to be dealt with.

Hence, the KPO and BPO services will be required as before. Whether the projects stay with the same service provider or go to competition is a different issue,” commented the analyst. “The outsourcing work will stay, only it might go to some other provider,” he added.

eClerx is hopeful that the buyer of the US business of Lehman Brothers will continue with eClerx’s services.

“We are hoping that the buyer of Lehman’s US business will continue with our services. We’ll come to know about the situation in a couple of weeks,” said Mundhra.

Industry experts are also hopeful that during such a financial meltdown, outsourcing assignments are more likely to increase as the companies overseas are keen about cost cutting.

“During such a financial turmoil, companies will be looking at every opportunity to save cost, since this is the time where more and more work should be outsourced,” commented an analyst.

Knowledge Process Outsourcing Represents the Next Generation of Outsourcing Services

KPO is likely to gain traction as business process outsourcing providers conttinue to build financial services-specific expertise.

Knowledge process outsourcing, or KPO — in which service providers take over high-level tasks requiring professional judgment and industry experience — looks to be the next frontier for the outsourcing industry. Many expect financial services companies to lead the way in KPO, and there’s data to support such a view. For example, 45 percent of financial services executives who participated in a recent InformationWeek Analytics survey said they see the industry knowledge of their business process outsourcing (BPO) providers significantly improving. That’s more than any other area of improvement.

Top Five Drivers of Business Process Outsourcing: Financial Services vs. Other Industries

Business Process Outsourcing: Financial Services vs. Other Industries

Another reason is that there’s a notable “strategic minority” of companies, according to the InformationWeek Analytics survey of 372 business technology professionals, including 110 in financial services, that see BPO as a road to competitive advantage, with goals such as transforming processes and increasing revenue, not merely cutting costs and meeting short-term goals. In financial services, that strategic group is about 15 percent (with another 24 percent responding that BPO is “more strategic than tactical”).

Yet the top concerns about BPO revealed by the survey will only be magnified as financial services companies consider KPO, which might be used for capital market functions such as equity research in support of domestic analysts. It takes a high degree of trust to transfer custody of customer data, share tacit knowledge and work as a single team. Yet the No. 1 concern financial services companies have about BPO is data security, according to InformationWeek Analytics, a sibling property of Wall Street & Technology. No. 2 is the difficulty of managing BPO, followed by tension between employees and outsourcers, the difficulty in reversing deals, and reduced flexibility to change processes.

Where’s the Outsourcing Innovation?

There’s also the question of whether outsourcers have the innovation capability needed for KPO. Just 10 percent of financial companies gave providers high marks for innovating process change. Only 16 percent of financial services respondents said they see improvement in vendors assigning quality people for their projects. Companies that aren’t getting bright ideas and top people on everyday projects won’t likely rush vendors up the knowledge stack.

All signs point to companies’ use of BPO continuing to grow. The survey finds 28 percent of companies plan to increase BPO, about four times more than those planning to decrease the use of outsourcing. Yet cost cutting through additional outsourcing only goes so far. Given that outsourcing is mature — with organizations having made significant investments in offshore BPO capabilities — any increase in the amount of outsourcing has to press beyond self-imposed limits and barriers with which companies have become comfortable. Market pressures — including troubles within the financial services industry — may compel companies to push those limits into areas such as KPO.

By Chris Murphy, InformationWeek
August 14, 2008
Source: Wallstreetandtech.com/operations/showArticle.jhtml?articleID=210100188

Web Exclusive | KPO industry to grow globally to $17 bn in 2010

Fielding questions on how KPOs are making inroads in India and how they compare vis-a-vis BPOs, is Anil Kaul, founder & CEO, AbsolutData Research and Analytics, in an interview with Nishu Kakkar

As India becomes a hub for multinationals to set up back-end offices, armed with a young, agile and cheap work force, job opportunities have soared in the IT sector, be it in the already established BPOs, (Business Process Outsourcing) fast emerging KPOs (Knowledge Process Outsourcing) or the niche RPOs (Research Process Outsourcing) and APOs (Analysis Process Outsourcing). Nishu Kakkar meets Anil Kaul, founder & CEO, AbsolutData Management, a company that provides consulting-oriented Advanced Analytics and Market Research services to organizations around the world. Excerpts from a free wheeling chat

Q: The average person is still unsure of what a BPO is and now you have KPOs, RPOs and APOs joining the list. What are their distinguishing features?

A: Basically there are two big categories – BPO and KPO. Processes like RPO and APO falls under the KPO umbrella. Whilst the former is a straightforward process restricted to following instructions, the latter focuses on outsourcing of a particular project to maintain expertise.

In terms of complexity of hierarchy, at the bottom is the BPO which is the simplest. Following that is the KPO family where you deliver a service by applying knowledge relating to multiple levels above the support function.

KPO typically requires advanced skills, judgment, talent and hard-core analysis. It calls for awareness of statistical programming that helps break monotony of BPO processes, as each task here is different from the other. Processes like analytical research requires data, calling for analysis and presentation of the same in a cogent concise manner.

Q: Is it safe to deduce that it is the evolution and maturity of the BPO that has led to the birth of the KPO?

A: Indeed. KPO undoubtedly is a logical progression or an extension of a BPO. There have been numerous ways in which BPOs have helped KPOs grow. The former succeeded in generating a level of confidence about the capability of Indians to take up crucial projects. This made it easier for establishing India as an ideal destination for outsourcing work. It also laid the foundation by installing infrastructure required for delivering services out of India, which KPOs are today benefiting from. However, BPOs are considered as lower-end value adds whilst KPOs are perceived to be higher-end.

Q: Lower wages and overheads – are these chief reasons for India emerging as a foremost outsourcing destination?

A: Attributing India’s cost-effectiveness as the only reason that makes it eligible for being a mega outsourcing destination would not be fair. The significant ‘other dimension’ is that we have a rich pool of intellectual capital.
Source from: Livemint.com

Talent Crunch May Eat into India’s KPO Pie

The growth of knowledge services business in India will be determined more by the size of available labour force than the dynamics of business demand, according to a study by UK-based research services company RocSearch.

With relatively low labour costs, skilled professionals proficient in English and software skills, there is a high probability of India cornering a sizeable chunk (around $5 billion) of the estimated $17-billion knowledge process outsourcing (KPO) industry by 2010-11.

“But knowledge services players have been finding it increasingly difficult to get the right talent, especially at the middle-management level. This talent crunch is becoming pronounced in spite of an annual addition of over 3 million graduates and professional degree and diploma holders to the existing talent reservoir of over 100 million,” it said.

Every year, around 950 business schools in India produce about 90,000 MBA degree holders, compared with 13,500 in the UK. Over 4,50,000 engineering graduates and 1,500 PhDs are added to the country’s workforce every year. About 55,000 masters in computer applications and around 25,000 pharmacists graduate annually.

Only China and Russia come close to India in terms of number of professionals. But in spite of the impressive number of the qualified professionals that the country produces every year, the available pool of usable talent is smaller than the total labour supply, the study said.

Further, jobs in India are growing faster than the workforce, with off-farm jobs rising 2.5% a year between 1998 and 2005, whereas the labour force grew only 2%.

Currently, under 0.1% of the total number of people employed in the public and private sectors are engaged in KPO jobs. Only a few Indian KPOs have over 1,000 employees in their rolls today. The study estimates the total number of people working in this industry would not be more than 1,00,000 by 2010.

“A burgeoning manpower-supply gap, therefore, is likely to limit India’s ability to take advantage of a knowledge services boom,” it concluded.

Source from: Financialexpress.com

What Differentiates Knowledge Process Outsourcing from BPO

Financial services knowledge process outsourcing (KPO) industry is expected to be worth $5 billion by 2010, a study by KPMG said.

Sharing his views on the report, Pradeep Udhas, Global Partner-in-Charge, Sourcing Advisory, KPMG, has said that the success in offshoring business operations has encouraged many multinationals to start outsourcing key business processes and high-end knowledge work. The KPO phenomenon will have far reaching consequences for the global financial services industry over the next three years.

He feels that there is likely to be a significant shift in the boundaries between ‘outsourceable and ‘non-outsourceable activities; offshoring strategies are expected to embrace new locations and most global banks and insurers are expected to adopt KPO strategies, the study says.

Decisions about outsourcing may be accelerated to preserve and increase competitive advantage; boutique providers will leverage KPO to create new services and offerings and more rigorous regulatory and compliance control will likely be demanded as KPO providers deliver more complex services.

India is expected to remain a preferred location for KPO activity but organisations are expected to look for alternative locations for additional delivery centres, both from customer and service provider perspective.

The study also says that there are a few limitations on the potential growth of the KPO industry over the next three years like skill-set shortage, a declining U.S. dollar and compliance and regulatory pressures.

Some of the key challenges that can emerge in the industry are: maintaining high quality standards, investment in KPO infrastructure, lack of talent pool, requirement of higher level of control, confidentiality and enhanced risk management, it points out.

It says that the KPO industry has indeed come off age. Clients are recognising that process complexities, higher billing rates and skilled resources requirements differentiate KPO from BPO.

Source from: Hindu.com

Outsourcing Wish List

Mumbai, India: At the NASSCOM conference for India’s IT services industry, CIO of Best Buy and CEO if its international operations Robert Willet shared his list of reasons why an organization should outsource and according to him if cost savings are the No.1 reason you feel you should outsource then, you probably should not outsource at all.

His wish list includes –

1. To harness new and better skills and capabilities
2. To implement projects, take on additional, more challenging projects and add skills and capabilities to your forte
3. To reduce risks
4. To leverage specialized, technical skills that your organization may not be able to afford on a full time staff
5. To lower cost

Willet also offered other insights into the IT industry. He believes that projects should be customer centric and not product centric. So the IT team must assess each project from the point of view of whether it is customer centric or not. He says that organizations do not necessarily require retail specialists to improve customer management and relationship.

Willet goes on to say that the one skill that IT companies including his Best Buy need to perfect is the skill to pick up and learn from the ideas and experience of peers, competition and the industry in general. These ideas, advice and experience need to be assessed, learned and put to use.
Source from: Informationweek.com

Indian Cities Leading the Outsourcing Pack

A joint study by Cyber Media’s Global Services magazine and investment advisory firm Tholons listing the ‘Top 50 Emerging Outsourcing Cities´ has found India leading the pack listed with six cities while China is listed with five cities and Philippines with one. This is a clear reflection of the potential the IT skills and outsourcing prowess that India wields. Emerging at the top is Chennai followed by Hyderabad at second position and Pune at No.3, Kolkata at No.5 and Chandigarh at 9th position.

Developed infrastructure, highly skilled work force and lower costs and attritions are factors that worked to Chennai’s advantage. The report claims that Chennai is expected to house more than 73,000 workers of the top three Indian Information Technology services companies. Also, it has emerged as an established location for automotive engineering, productive development and healthcare BPO.

Indian cities are attracting outsourcing industry biggies due to various reasons such as infrastructure development which is attracting many foreign investors. Better planned roads and public facilities, cost of living, prominence of educational institutions, lowering operating costs and lower attrition rates are also leading factors for making India a leading outsourcing destination.

Among other cities, Bangalore, Mumbai, Chennai and Hyderabad have been ranked among the best for their application development and maintenance skills. Established destinations, according to the report in the field of business analytics, are Delhi NCR and Mumbai with Bangalore ranking as an emerging destination. For engineering services established leading cities include Bangalore, Chennai and Pune with Delhi NCR ranking as an emerging location.

The cities are ranked according to scale and quality of work force, the inclination towards identifying skill-sets and work force related metrics, and financial, infrastructure and risk environment.

BPO to KPO: Profitable Transition

As the KPO market is expected to rise and touch $17 billion by 2010, the transition of leading Business Process outsourcing (BPO) companies to knowledge process outsourcing is but obvious. NASSCOM predicts a 45 % per annum growth in the KPO industry till 2010 and lucrative areas include engineering, design, biotechnology, pharmaceuticals, basic data search and integration and management.

According to Boston Consulting Group, Indian outsourcing industry is facing a rupee rise that reduces rupee profit margins. Analysts advice that increasing the percentage of KPO inclusion along with BPO services is a effective way to improve the condition of the balance sheet. Moreover, the global economy is increasingly driving towards knowledge intensive processes and hence, the creation, protection and monetization of knowledge is becoming increasingly important. BPO services are process intensive while KPO services are more domain knowledge intensive.

It has been established within most leading Indian BPO companies that BPO services alone can keep the profits flowing. Though BPO services remains the support business of many KPO services offer a 15-20 % higher profit margin than pure and plain BPO work such as data entry, mortgage processing and customer support. Global markets are becoming more flexible and products more complex, creating a demand for higher level of analysis of trends based on technical data. Hence, growth is more or less parallel to delivery of high-end competency on demand.

Niche KPOs in areas such as decisions support services and financial data services are built on domain capabilities and will thus remain unaffected by any future advance in BPO services. It can be safely said that a business model based solely on the execution of outsourced non core tasks cannot sustain a company anymore as it is in BPO outsourcing. The money spinners are the knowledge based, domain expertise intensive processes. Which is why niche KPO companies are battling higher competition and attrition of clients to newbie KPOs.