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OBJECTIVE
The objective of this paper is to understand the value chain of BPO
operations, and identify some of the major factors that can have an
impact on the future developments of BPO. The paper also attempts to
propose the possible strategies that the Indian companies can adopt for
a sustainable growth in this business. Though the issues and options
analysed are with respect to Indian service providers, the same may be
applied to service providers across the globe as the issues and options
remain the same irrespective of place of operation.
INTRODUCTION
In the dynamic environment, building and maintaining competitive
advantage is becoming more challenging. Competitive advantage in the
market place is derived through two means. One is by providing better
customer value for equivalent cost (Differentiation) or equivalent
customer value for a lower cost (low cost). The ultimate situation to be
in will be to provide better value at a lower cost (1). This made
businesses to focus on reducing cost and also to maintain or enhance
customer value. As an outcome, it became imperative for organizations to
focus on their “core competencies” (2). The term “core competence” was
used by Prahalad and Hamel (3) to deal with capabilities within
diversified firms. Several measures have been proposed how to identify
unique resources and capabilities (4)-(9). Once the core competencies
have been identified, organizations wanted to focus only on their core
competencies and withdrew from everything else. Outsourcing as a tool
has taken shape based on this principle.
Organizations outsource processes to leverage on the fact that
outsourcing service providers could do the same job at a fraction of
what it costs the organization to run a in-house department and thus
resulting is cost saving. Based on this, organizations have built
inter-organizational arrangements with organizations with complementary
resource capabilities (10)-(13) or sometime even with competitors (14),
(15). This inter-organizational arrangement is not limited to
geographical boundaries, but are even made with organizations in
different countries. The numbers of such arrangements have been on the
increase specifically with reference to the latter (16), (17).
This phenomenon has provided a great business opportunity to India and
other similar countries. Lower labour costs and technology improvements
in these countries have made organizations to ship tasks to such
countries. These tasks vary widely. At the simpler end are functions
such as data entry and expense form processing. Then there are contact
centers, which can include inbound or outbound calls, email responses,
and technical support. At the higher end are duties such as processing
insurance policy applications, suggesting improvements to existing
procedure and animations (2).
Gartner, a market research firm, based on its survey states that the
global market for BPO (Business Process Outsourcing) in 1999 stood at
$208 billion and is expected to grow to $543 billion by 2004. According
to IDC report, out of this 0.5% is capitalized by India, and this can go
up to 3.8% by 2007 – 8(18). This is one of the biggest opportunities for
India. According to the ICICI Securities report, the global outsourced
processes market is expected to grow at six percent per annum in the
next five years having grown by seven percent in the last five years.
This huge opportunity has resulted in most of the software companies to
go down the value chain BPO services in order to enable them to balance
their portfolio. They also reckon that it would be easier to gain
customers by offering them a wider repertoire of services years (19).
BACKGROUND
Gartner, the market research agency, defines BPO as the delegation of
one or more IT-enabled business processes to a third party that owns,
administers and manages the business process (es) according to a defined
set of metrics (19).
Based on this definition, the BPO operations can be classified into
three categories. The first category of operations are sales, marketing
and customer care. The second set of operations is related to business
administration, and the third is Supply chain management. The various
possible operations under each of this is shown in the figure 1.1.
Similarly, the second type of classification
of BPO operations is based on who manages the operations. One is that
the organization itself sets up its facility in India to reduce cost.
The other alternative for organizations is to outsource operations in
India through a service provider. Under this, many of the software
companies are playing a major role.
THE SIGNPOSTS ALONG THE BPO HIGHWAY
The value chain of BPO operations in India is explained below. It is
called the BPO ladder. The adjoining figure depicts the various levels
of the value chain (18). The first level of operation in the value chain
is data entry and conversion. Call centers and medical transcriptions
fall under this category of operations. The second level of the value
chain is Rule-set processing. In this the worker makes judgements based
on rules set by the client (Awarding points to frequent fliers of an
airline). The third level of the value chain is problem solving. At this
level of operation, the worker is given freedom to use discretion in
taking decisions. Approving insurance claims and altering credit card
limits are some of the operations that fall under this category. The
fourth level in the value chain is direct customer interaction. In this,
the worker directly handles the customers of the clients. Providing on
line service tips and sorting out customer complaints on line are some
of the operations that come under this level of the chain. Finally, the
fifth level of the value chain is where workers are able to give expert
knowledge services for their clients. The database created based on the
interactions with the customers of the client, enables the workers to
provide valuable information about customer behaviour in the form of
customer preference, customer profiling, etc.
SUBSTITUTIONAL EFFECT
In the perception of the client, service providers who operate at
the fifth level of the value chain add maximum value. The first two
levels and the third level to a larger extent consists of operations
that have tight specifications provided by the client as constraints.
This clearly indicates that if these constraints are built as an
algorithm, with little human interventions, these operations can be
managed by expert systems. Michael Hammer, the noted reengineering
author, observes “The new operating principle is, ‘If I can tell you
precisely what to do, then I don’t need you to do it. I can tell a
machine to do it, and the machine is cheaper and doesn’t need
vacations.’ The only work left for humans to do is that truly requires
human capabilities.” (20). While Mr Hammer’s claim may be exaggerated,
it certainly is interesting to think about. In many of the routine
operations where there is less ambiguity and more rational thinking,
machines have replaced human beings. This is a major threat for both
service providers and individuals aspiring to build a career in
operations at this level of the value chain.
THE MASQUERADE
A survey was conducted by a British telecom consultancy Teleconomy
to understand if customers calling into a call center were able to
identify the nationality of the person attending the call (21). The
survey indicated that 78 per cent of the Britishers couldn’t identify
the nationality of the person attending the call and took the person to
be a fellow Britisher. Out of this 78 per cent, 18 per cent were of the
view that the call center agent had a regional English accent. The
survey report also goes on to say that 22 per cent of the respondents
where able to gauge that an Indian sitting in India was answering the
call, and whenever a British customer relaized that an Indian agent was
answering the call, the customer satisfaction dropped considerably. The
satisfaction level was 57 percent when the accent was not identified,
and it dropped to 44 per cent when the accent was identified. The drop
in satisfaction levels according to the survey was lack of clarity and
understanding in the agent’s interaction during the call (11 per cent).
The other interesting finding of the survey is the ratings given by
customers for tailoring responses and personalised care. The British
call center agents were rated 71 per cent and 70 percent respectively.
On the other hand, the Indian agents were rated 60 per cent in both the
cases.
Two important findings have to be noted from the survey. One is the drop
in satisfaction level as soon as the caller identifies a different
accent. The second important conclusion is that maximum satisfaction (57
per cent) for customers with reference to calls centers. Will customers
prefer to receive services on the telephone lines, or would they prefer
to have a more personalized service in the future? An answer to this
question holds the future for call center business.
PITCHING ON COST
A recent study by Merrill Lynch on global outsourcing destinations
classifies various global destinations in three categories. These
include main, upcoming and others. The ‘main’ destinations include
Ireland, India, Israel, Canada, Philippines and South Africa. According
to the report, India and Ireland are the most preferred outsourcing
destinations among this category. The study identifies Argentina, China,
the Czech Republic, Ulkraine, Russia, Poland, Mexico and Pakistan as
‘upcoming’ destinations. The ‘others’ category include countries such as
Chile, Venezuela, Thailand, South Korea, Malaysia, Vietnam, Singapore
and Romania. Among all this, the study says that China is emerging as a
strong contender. (The study compares these countries on parameters such
as total size, average IT employee costs, total workforce, number of
quality certifications, main clients and main positives or negatives.)
The study states that Ireland is the largest IT services outsourcing
destination in the world followed by India. Philippines is India’s
closest competitor in terms of low average IT employee costs (22).
The above study is a clear indicator that India is having an advantage
over its competing countries mainly on the cost front. Sustaining
competitive advantage only on the cost front is very difficult and
risky. In the future, the cost advantage can be reduced by various other
factors in addition to an increase in the standard of living of Indians.
THE HOME RUN
Companies have started talking about Strategic Value Analysis (SVA).
According to this, a company is typically only a part of the larger set
of activities in the value delivery system in which it participates.
Gaining and sustaining competitive advantage requires that a company
understand the entire value delivery system, not just the portion of the
value chain in which it participates. Suppliers and customers and
suppliers’ suppliers and customers’ customers have profit margins that
are important to identify in understanding a company’s positioning,
since the end-use customers ultimately pay for all the profit margins
along the entire value chain. Companies focusing only on their “value
added” (revenues minus purchases) instead of its value chain involves
two major shortcomings. It starts too late and stops far too soon (1).
Strategic Value Analysis suggests to companies to identify those links
in the Value delivery chain where the differentiating value is added or
cost saving is the maximum, and gain control of those links. This
process has to be done continuously as the differentiating link or the
cost saving link can keep shifting on the value delivery chain from time
to time. By doing this companies can gain and maintain competitive
advantage. Most of the BPO operations directly come under the value
delivery chain. That being the case, if companies outsourcing today
identify differentiating value or cost saving maximization opportunities
in any of those outsourced services, they may decide to gain control or
bring them in-house.
THE UNCERTAINITIES
Apart from the issues mentioned, the most important issue that is
gaining more significance in choosing outsourcing destination decisions
is security. Post September eleventh this factor has become very
important. One of the countries that is closely competing with India is
Philippines. The labour costs here are as low as India. The only
disadvantage is on the technical support front and voice skills. One of
the major advantages is lower geopolitical risk. Given this scenario,
companies may prefer more stable and safe locations to outsource their
operations. Disadvantage for India in this aspect is much more
significant.
MANEUVERING THE BPO SUPER HIGHWAY
The various operations in business can be classified into five broad
processes. They are value creation processes, value delivery processes,
value enhancement processes, HR processes and financial processes. All
these processes create link between the supplier and the customer. Core
competencies of a firm are built around
these processes. Any firm’s competencies are valuable capabilities in
terms of “enabling the firm deliver a fundamental customer benefit”(6).
Competencies are usually a network of capabilities rather than single
activity-based (23).
BPO
operations can be classified based on two important factors. They are
Customer interaction and Intelligence requirement. Operations can
have high and low level of customer interactions. Similarly, the
operations may require a high and low level of Intelligence. This is
pictorially represented in the diagram below.
ENABLING DISCONTINUITIES
BPO
operations that fall in Q1 and Q2 are the ones that have the highest
probability of being replaced by programmed machines. To overcome the
threat, service providers have to continuously work towards pushing
their service into Q3 and Q4. Q4 is the ideal location to be as that is
when the service providers become indispensable for clients. BPO service
providers need to develop strategies to move in this direction. In
short, clients must see value in the services offered by the service
providers. The current trend in BPO operations showing value to clients
is through process improvements and data warehousing. This trend if
followed by companies will only result in incremental revenue growth. On
the contrary, if service providers have the capability of helping
clients to create discontinuities in their businesses, the value
addition to clients will be phenomenal. If this has to happen, service
providers need to move from being just a part of the value delivery
chain of the client to the value creation and value enhancement
processes of the client.
VALUE
LINK
The
second option available to the service providers is to identify methods
to get linked directly or indirectly with those processes that create
differentiating value or maximum cost saving opportunity to the client’s
end customer. One of the most important characteristic of the
differentiating value and maximum cost saving processes is that, they
keep changing over a period of time (Dynamic). This makes it imperative
for service providers to continuously scan the value processes of
clients. By doing this, the service provider can gain and sustain
competitive advantage over competition and also become indispensable for
the client. For both the options mentioned above, the Strategic Value
Analysis method can be used to identify the positions on the value
processes.
SPOTTING THE LEVER (INTANGIBLE ASSETS)
The
third option service providers have is to create differentiating value
or cost saving opportunities for client’s customers. This can be
realized by spotting the higher-order needs of the client’s customers.
These are client’s customers’ needs that lead to improvement of their
overall economics in which the client’s product or service plays just
one role. Once these higher order needs are spotted, it becomes
mandatory to identify assets that are suited to addressing the client’s
customers’ higher order needs. Most companies know how to leverage
traditional intangible assets such as brand, intellectual property, and
competency in a particular area. But these represent only a fraction of
the capabilities and advantages that companies have at their disposal.
There are few non-traditional assets and resources that get built for
companies over a period of time as natural by-products in the process of
creating and delivering core products and services. These assets are
hidden and remain underutilized. These have been broadly classified as
customer relationships, strategic real estate, networks and information.
This is where the role of service providers can become crucial. If the
service providers are capable of spotting those hidden assets, they can
directly have an impact on the growth of the client. Some of these
hidden assets can be at the service provider’s disposal. Some examples
for hidden assets that could be at the service provider’s disposal are
Reach - being able to touch a large number of customers,
Interactions - having frequent or meaningful contact with customers,
Insight - possessing detailed knowledge about customers and their
business problems, and By-product information - possessing
information gained through current business operations that has value
outside the business in which it was generate (24).
An example for the above
case is General Motors. Most automakers do not consider their installed
base to be a valuable asset. GM’s installed base totals more than 80
million vehicles and grows by 5 million annually. That gives GM
countless opportunities to maintain a customer relationship or create a
recurring revenue stream. Now, with its OnStar business, the company is
moving to take advantage of this huge hidden asset. The OnStar system
offers a collection of in-vehicle services for the driver, including
one-button access to route planning information; notification to a
central information center when a vehicle’s airbag is deployed; remote
unlocking capabilities; remote engine diagnostics monitoring; access to
customized financial, traffic, and other information; and even concierge
services. OnStar improves the economics of using a car by reducing many
of the hassels associated with driving. And it opens up growth
opportunities for GM by creating recurring revenue streams in the form
of monthly subscriptions, which will mount substantially as OnStar adds
more services (24). This is clear indication of the enormous
opportunities service providers have in becoming a part of the
differentiating value and maximizing cost saving processes of the
client.
NARROWING THE GAP
In
all this, the main objective BPO service providers need to remember is
that the client at no point should feel that they are far away from the
customer. The BPO service provider should provide services that this gap
between the client and their customer is always intact and intimate.
THE
NEW FRONTIERS
The
Indian service providers should also keep the option open with reference
to opening up centers in other countries that may provide some kind of
competitive advantage. As the threat from terrorism looms large on most
parts of the globe, security to data may become one of the most
important factor in determining the destination of BPO operations. So,
the concept of cost being the only criteria to decide on destinations
may give way for security. India being one of the major targets of
terrorist attacks, security as a factor may become important in the
future. Under such circumstances, proposals to start operations in other
countries should not be ruled out. Indian companies with their expertise
in BPO should not flounder on such opportunities by being rigid. This is
another means of overcoming the disadvantage that the business may have
due to Indian operations.
PROVIDING THE PERSONAL TOUCH
All
BPO operations have two components. One is the human interaction
component, and the other is the technology component. Currently, India
has the advantage over other BPO operations destinations mainly based on
cost. Increase in productivity is one way of reducing or sustaining the
cost advantage. Among the two components, technology is the only area
where drastic improvement in productivity can be worked out.
Productivity improvements on the human interaction side will have
limitations because, beyond a level, improvements in productivity can
result in deterioration of service provided. So constant investments in
technology are a must to improve on productivity. In addition to this,
technology improvements can also redefine the BPO operations especially
with reference to call centers. As stated earlier, the satisfaction of
customers serviced through call centers is only at 60 per cent. One of
the reasons could be the impersonality in the service provided. To
overcome this, BPO service providers can leverage on technology
improvements to have something like a video conferencing facility to
bring in that missing personal touch.
SPREADING THE NET
An
investment in technology has to take into account one important factor.
Rapid changes in technology. This requires that return on investments
have to be realized within a short period of time. If this has to
happen, without affecting the cost benefit to customers, one of the
options BPO service providers have is to build a wider customer base and
improve the yield factor. Getting a wider customer base is the biggest
challenge in BPO operations. As most of the data are confidential and
sensitive, signing up with competing clients can become difficult. This
is one of the biggest challenges facing the service providers with
reference to increasing customer base. In order to build and sustain
competitive advantage on cost and service quality, Indian BPO operators
need to workout on increase in customer base.
CUSTOMER CARE TRAINING
We
shall now consider some of the operational improvements required for
sustaining the present competitive advantage India enjoys in the BPO
business. One is the importance of training in accent and call handling.
Tailored responses and personalized care can be provided to customers
only when the call agent is capable of having personalized knowledge
about the situation of the caller. This can happen only when exposure is
given to agents to understand the culture of the callers. All this
involves extensive training.
FROM
FAD TO CAREER
The
other challenge in front of the service providers is attrition rate, as
this will have a direct impact on the quality of service and the cost of
training. This aspect of business is of paramount importance if service
providers have to build and maintain their competitive advantage. A way
to do this is to change the perception of a job in call centers from
lifestyle to that of a career.
TRUST
– THE ESSENCE IN RELATIONSHIP
The most important and
significant factor to overcome most of the threats mentioned above is
trust. In a networked business environment, trust plays a crucial
factor in the continuation of businesses relationships. As uncertainty
towards future is very high, trust between partners becomes imperative.
Trust has been defined as “one party’s willingness to be vulnerable to
another party” (25) and as “the mutual confidence that no party to an
exchange will exploit another’s vulnerabilities” (26). The most
important characteristic of trust is that, the bond or trust grows in
strength the more it is utilised, i.e., each success based on trust
raises the level of trust that facilitates even greater levels of
confidence in the relationship (27). The above observations clearly
state that as the service provider provides more and more value for the
client through various means, trust grows and hence competitive
advantage is built and maintained.
CONCLUSION
The
trend of global outsourcing has benefited India to a larger extent. One
of the main reasons for this is the cost advantage India enjoys over
other countries. BPO as a business opportunity in India has certain
threats. Some of the threats that have been identified by the authors
are listed.
(i)
Automation of low end operations that are outsourced currently;
(ii)
The
high level of dissatisfaction among customers of the clients’;
(iii)
Problems of sustaining the cost advantage India has over a long duration
of time;
(iv)
Strategic Value Analysis by clients resulting in some of the processes
being made in-house, and
(v)
The
increasing importance on data security.
There
are various strategic options that the BPO service providers have to
overcome the threats listed above. Some of these have been identified
and suggested as part of the paper.
(i) BPO
service providers moving into value creation and value enhancement
processes of clients;
(ii) Identifying
and getting linked to those processes that are involved in creating
differentiating value or providing maximum cost saving
opportunity
(iii)
Identify and utilize the hidden assets of clients;
(iv) Improving
the training quality for more personalized service;
(v) Changing
perception of employees from life style to career to reduce attrition
rate;
(vi) Keeping
open the options of expanding or relocating into other countries to
counter security threats;
(vii)
To
increase customer satisfaction through technological improvements;
(viii)
To build and sustain cost advantage through increased customer base;
(ix) Build
and use trust as a shield to overcome most of the threats
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Authors:
R. Raman,
B.E., P.G.D.S.M., M.B.A., M.Phil
Assistant Professor, Kohinoor Business School,
Eric Sprott School of Business, Affiliated to Carleton University,
Canada, Kandala- 410 301
&
C. Allen Rajadas
Sr.Lecturer, Vellore Institute of Technology,
Deemed University, Vellore. |
