Business Process Outsourcing (BPO) is important for Business Strategy of major organisations across the globe. BPO has been positively related to the quest for more efficient organisational designs: reduced cost, growth in productivity and innovative capabilities. So, BPO is important source for strategic advantage. There are a number of recent market research surveys that have indicated the CEOs around the world in all the companies feel that BPO is key for survival in today’s extremely competitive atmosphere of business. There are multiple benefits of BPO. It allows the organisation to focus on their core activities by releasing resources which have constrained in noncore activities. It helps organisation reduce costs by cutting down the HR Costs – salary bills, perks, employee benefits, administration overheads. The client only has to make payment for useful quality work duly accomplished by BPO. It goes a long way in reducing recruitment and training expenses. This also improves the quality of service and productivity by ensuring greater accountability and transparency in production standards. This enables an organisation achieve huge volume of paperwork and routine administration work done very quickly at significantly lower cost. BPO also offers 24 × 7 service throughout the year which is crucial to operations related to customer service.
Almost a century ago, George Santayana noticed that, ‘Those who cannot remember the past, are condemned to repeat it.’ Today, the same sentiment is applicable to Indian BPO aspirants. When I hear about companies—Indian and foreign—creating a near frenzy in setting up BPO operations in India and dominating the world back office processing marketplace, I only hope that they have spent time studying the history of the Indian IT Services industry.
Let’s look at this history. Today, Indian IT services providers are ensuring huge growth in their revenue. The success of IT services providers has been attributed to skilled IT services at a much reduced cost as compared to American or European companies. This business model has its origin in the history of Indian companies offering low cost data entry services. The formula for ‘winning’ business from indigenous, well-established companies was based on the creation of a market by providing programming services at a much cheaper rate. Y2K helped feed this frenzy and many Indian IT services companies got into the business. It also helped India produce well-qualified software engineers from its schools and that there was an availability of a ready labour pool to persue low cost programming. The mantra thus became: ‘Come to India, where IT is done cheaper
BPO or Business Process Outsourcing in itself is a complete industry wherein businesses in a certain country outsource some of their operations (most often back office) to other places in the world to reduce costs through the use of cheap labour in these countries. This helps them enhance their profits and focus on their core business activities. The Business Process Outsourcing industry in India offers primarily to Western business activities of multinational corporations. BPO provides annual revenues of about $11 billion, around 1% of GDP.
In the early 1980s, outsourcing of businesses to India got started when many European airlines began using the national capital of Delhi as a base for back office operations. Later, American Express consolidated its JAPAC (Japan and Asia Pacific) back office operations into New Delhi. The head of this centre was Raman Roy. In the 1990s, Jack Welch of GE was persuaded to consider Gurgaon as a base for back office operations. By 2002, all important Indian software organisations were having BPO, among these, Infosys, HCL, Satyam, TCS and Patni were important. The international 3rd party BPO players such as Convergys and SITEL also entered and strengthened the BPO movement in India. Service arms of organisations such as Accenture, IBM, Hewlett Packard and Dell also established shop in India. The BPO industry bloomed in India because of its service delivery at a reduced cost. But due to increases in infrastructure costs, real estate costs, and salaries, BPO cost was significantly increased. So, Indian BPOs saw a shift of their operations from Tier-1 cities like Chennai, Bangalore, Hyderabad, Delhi and Mumbai to Tier-2 and Tier-3 cities like Mysore, Trivandrum, Kochi, Chandigarh, Mohali, and so on.
The transformation of rural India brought about the emergence of rural BPOs. The estimated global BPO Industry is worth 120-150 billion dollars. India has 5-6% share of the total industry, and 63% share of the offshore component. BPOs have spawned many industries which depend on them like Catering, BPO training and recruitment, transport vendors, (for home pick up and drops for night shifts), Security agencies, Facilities management companies, etc.
Indian IT companies achieved quality certifications (CMM, ISO etc.) so as to build a service value besides lower labour rates. However, my experience says that not much has changed. Lower cost is still the major factor put forth by Indian companies. It makes one wonder: what is the value proposition? Cheaper rates; where is the service advantage? Cheaper rates. Where is the differentiation with the Western market place? Cheaper rates. The new mantra still is: ‘Come to India, where CMM level 5 IT service is done cheaper.
Yet based on their history of moving from low priced data entry services to low price programming services, Indian companies do not seem to have learned the lessons of the past. What do you see on looking at the offerings from these companies? Most of them are touting ‘low level’ transaction processing services at a lower price. For instance, they offer a staffed call centre (popularly called as Customer Relations Management (CRM) services), or an accounts payable/receivable operation popularly called as Cash Management services. A bankcard application data entry and processing centre is called a ‘Credit Management services center’ and keypunching services are disguised in new name, medical transcription services. In the name of BPO, these companies are building a business niche where rates will prepare the battleground, cheaper services will be the value proposition and competition will be among each other. To me, the mantra is: ‘Come to India where transaction processing services are done cheaper.
Some controversies have caused an eruption around the industry. BPO employees are scornfully considered as cyber coolies. Also, some cases of rape and murder of a few female employees by cab drivers underlined the safety issues surrounding BPO industry. In spite of this, undoubtedly BPO industry has lifted the standard of life for many young Indians and resulted in increasing the ranks of the Indian middle class and building an atmosphere of economic boom. However, recently emerging trends of global economic downturn has affected the industry negatively as new contracts from countries like the US and other client nations might dry up due to the demands of jobs within the borders of these countries.