Outsourcing News

The IT sector and BPO companies have seen only good times, except in early 2000. This trend of the rising rupee will force them to be more innovative in managing their treasury, operational efficiency and their geographic footprint. For last several years, many Indian companies (the top 10), were satisfied with their on-site /offshore (read India) model. Now it has become important to speed up plans to not only spread the geo-political risk but to manage the strategic risk. Indian IT/ITES companies have also started diversifying globally in order to reduce their exposure to the US market. For instance, the big five Indian IT companies, derive about 70% of their revenues from the US, have now started focusing on Europe in a big way (Infosys, WIPRO and TCS get about 28%-30 % revenue from Europe.) The Indian rupee is on a rising curve. In the past one month it has appreciated by 3.6% to the dollar and since January 1 by a whopping 12% to the dollar

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Rising Rupee: Boon or a bane for IT/BPO

In early 2003, HRO Today reported on the top 24 IT outsourcing transactions implemented over the past 15 years. These transactions amounted to over $100 bn in outsourced services. For my third post on the financial value of outsourcing, I’ve selected one off this list – the $3 billion / 10-year IT outsourcing agreement between General Dynamics (GD) and CSC that was inked in May 1998. Again, I’ve compared the firm’s post-outsourcing returns with the closest size and book-to-market matched firm in the same industry that has not engaged in an outsourcing initiative of significant value – Magna International, Inc. (MGA). As shown below, GD outperformed MGA by over 100 percent. The abnormal returns are consistent with the respective increase in operational performance of the two firms.

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Financial Value of Outsourcing – III

The BPO industry wants to initiate its notorious bunch of cab drivers into meditation to bring some sense of discipline into their driving. So, after senior-level employees and agents, it’s the turn of BPO cabbies to take to the stress-busting sessions. The initiative has been crystallised by the recent incident of a BPO cab mowing down seven people in Delhi. Even in the past there have been a spate of incidents of rash driving by BPO cabbies, which have caused fatal accidents. There’s a thought within the BPO industry that cab drivers, who are often on duty almost 16 hours a day, have little time to catch up with sleep or family. “We are looking at yoga consultants and mediation sessions to reduce their stress levels,” says the president of Call Centre Association of India, Sam Chopra. “We are also devising tools for stress management, as a rash cab driver not only endangers his own life, but also that of the other seven people in the cab.” Due to water-tight login times, cab drivers have to meet sharp deadlines every day. Cab drivers often over-speed to save on the penalty imposed by BPOs if they delay on reporting times. Courses like Art of Living will help alleviate their stress levels, the industry feels.

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Yoga stress buster for BPO cabbies!

The second example of the financial value created by outsourcing is presented in the context of Best Buy, Inc. In late January 2004, the company signed a seven-year outsourcing agreement with Accenture HR Services. As per the contract, Accenture would provide a range of services that included compensation, payroll, benefits, bonus administration, and performance management, among several others. Best Buy retained overall HR strategy, guiding employees to achieve its customer-focused transformation. The details of the deal can be found in this release here . As in the previous post, I compared the three year post-outsourcing stock performance of Best Buy (BBY) with its closest size and book-to-market matched competitors that have not engaged in an outsourcing initiative of significant value (this rules out Circuit City) – Bed Bath and Beyond (BBBY) and Radioshack (RSH). As shown in the graph below, BBY outperformed BBBY by over 45 percent and RSH by over 80 percent. The comparison is based on historical stock price information obtained from Yahoo Finance. As in all analyses, while the difference in stock performance may be attributed to other strategic choices of the firm, comparison with a firm from the same industry and with similar size and book-to-market adjusts for industry shifts and response to competitive pressures

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Financial Value of Outsourcing – II

I had earlier blogged about introducing a series of posts that compare the overall financial value of companies that have outsourced a critical business process or function with similar firms (in terms of market size) in their industry that have retained that function in-house. Much like my post on Boeing and Airbus. Considering that 177 visitors on BPO Journal believe that there is a spike in their stock price surrounding an offshoring agreement (I should have attempted to capture how many of these were clients versus service providers since in the case of the latter, the offshoring announcement represents a clear tangible increase in revenue), I thought it’s time I start the series. Every week, I’ll examine one or two deals. Of course, only contracts of significant value may be directly linked to increases in firm efficiency and ensuing investor response.

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The Financial Value of Outourcing – I

Democratic Presidential hopeful Hillary Rodham Clinton, who has received backing from leading Indian Americans, is walking a fine line on the sensitive outsourcing issue as key labour unions withhold endorsements pending clear position from the candidates on it, a leading American newspaper has said. Media has profiled the predicament of Senator Clinton in a front page article contrasting the two different positions she has taken on the issue over the last two years. Clinton has been pressed by Labour leaders on her support for expanding temporary US work visas that often go to Indians who get jobs in the US, the report said. click here

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Hillary Clinton walking fine line on outsourcing

GB Prabhat helped net in $200 million in revenue when he decided to quit Satyam Computer Services, one of India’s largest software companies. Prabhat left his cushy job to found a startup called Anantara Solutions which received investments of $6.5 million from Helion Venture Partners, Walden International Silicon Valley Bank. His new company focuses on Second Generation Outsourcing (SGO), a business paradigm that “radically improves first generation outsourcing which is predicated primarily on cost arbitrage.” Prabhat says “By pioneering SGO, we at Anantara Solutions are reinventing the offshore delivery model combining the efficiencies of a top-notch consulting firm and a high quality offshore delivery firm. In 1995, he co-founded Satyam Renaissance Consulting, a then subsidiary of Satyam Computer Services. Prabhat believed strongly that, much as IT services work was beginning to be offshored, all manner of consulting services could be delivered using the onsite-offshore model with India as the hub of such services

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GB Prabhat, CEO of Anantara Solutions, on Second Generation Outsourcing

Five years ago, when Wipro wanted to build back office outsourcing capabilities, it acquired Spectramind. Later, IBM built its business process capabilities in India by buying out Daksh. Such acquisitions gave companies a quick way to enter the booming sector or scale up existing capabilities. But acquisitions are no longer the only route for technology companies to achieve inorganic growth in India and new cost-effective alternatives are gaining popularity. Companies are experimenting with carving out of business functions, reverse build-operate-transfer and other means that don’t involve buying up a firm but still boost size and add expertise in new service lines. Infosys BPO, for instance, initially considered acquiring a stake in Citigroup Global Services but dropped the idea as it considered the asking price too high. Recently, it entered into a deal with Philips Electronics and took over the latter’s finance, accounting and non-product related procurement functions along with a staff of 1,400

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Acquiring a BPO’s no longer an attractive growth tool

To honour the achievements and successes of the BPO industry, Indiatimes is bringing the second edition of the awards for the industry. The function will be held in New Delhi on September 28 . The awards are divided across nine categories: Company of the Year; CEO of the Year; Emerging Company of the Year; Most Significant Contributor to Industry; Award for Operational Excellence and Quality; Most Admired Company to Work For; Technology Award; BPO Innovator of the Year; and the Award for Professional Excellence. The awards will be given after a through research and analysis done by QAI. An independent process auditor in PricewaterhouseCoopers will audit all the processes

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Indiatimes BPO Industry Awards on Sept 28

Knowledge Processing Outsourcing (popularly known as a KPO), calls for the application of specialized domain pertinent knowledge of a high level. The KPO typically involves a component of Business Processing Outsourcing (BPO), Research Process Outsourcing (RPO) and Analysis Proves Outsourcing (APO). KPO business entities provide typical domain-based processes, advanced analytical skills and business expertise, rather than just process expertise. KPO Industry is handling more amount of high skilled work other than the BPO Industry. While KPO derives its strength from the depth of knowledge, experience and judgment factor; BPO in contrast is more about size, volume and efficiency.

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KPOs

IT giants like IBM, Infosys, Wipro and WNS — providing offshore services from India to clients in the developed part of the world — have got a new rival on the fast expanding BPO landscape. More importantly, the new challenger is not some thousand-employees strong Business Process Outsourcing firm, but individuals who could be sitting anywhere alone before their personal computer, but have before them an addressable market worth over $20 billion in the US alone. Hindustan Times

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Got a PC? You can now work for a $20 bln market

” Strong partners have the knowledge to measure promise against reality, the flexibility to seize opportunity, and the experience to deliver certainty ” So reads Tata Consultancy Services’ ( TCS ) full-page ad in the Wall Street Journal. The message is reiterated in the company’s corporate brochure and other media outlets as part its $10 million ‘Experience Certainty’ advertising campaign. Why blog about an advertising campaign, you ask? That’s because unlike the myriad of campaigns run by global IT giants IBM, Accenture and so on, or even the Indian service providers Infosys or Wipro , this is the first branding exercise ever by India’s oldest and largest IT services company. And many might argue it’s due. A recent Business Today article reports that with annual revenues of over $4 billion, TCS is the eleventh largest player globally.

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Rebranding TCS

The Employment Trends survey predicts (and India Today reports) that the organized sector in India will expand by 5.34% resulting in approximately 1.5 million domestic jobs. Added to the four hundred thousand global jobs Indians are expected to bag, for the first time, Independent India will have a record 1.9 million jobs created in the organised sector. The nature of jobs too is evolving from being transaction-intensive to being knowledge-intensive. 10% of the jobs in India currently fall in this category, and the latter’s structure is also more diverse than ever

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The world’s a better place

The International Association of Outsourcing Professionals (IAOP) has announced its list of the best outsourcing service providers for 2007. The top ten service providers include four Indian companies – Wipro Technologies, Infosys, Genpact and Tech Mahindra. However, what speaks for the significant growth of outsourcing spend in emerging markets is not the presence of these Indian companies on the list but rather, what the list masks. In an ironic twist in the offshoring chapter, each of these Indian companies have leveraged untapped talent in diverse emerging markets such as Mexico and Eastern Europe to best service customers around the world. A significant part of the workforce of these companies comprises foreigners

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An elite group

Looks like I’ll have to deliver on my promise of analyzing the financial value of outsourcing sooner than I expected. Citigroup announced Wednesday its plans to create a more streamlined organization, reduce growth in expenses and drive future expansion as a result of a structural expense review conducted over the past three months as well as a previously announced IT optimization program in the company. The company will, it said: Continue to rationalize operational spending on technology. Simplification and standardization of Citi’s information technology platform will be critical to increase efficiency and drive lower costs as well as decrease time to market. Examples of this are: consolidation of data centers; improved capacity utilization of technical assets and optimizing global voice and data networks; standardizing how the company develops, deploys and runs applications; and maximizing value by limiting the number of software vendors to operate at scale. Such rationalization is part of the company’s campaign to cut $2.6 billion in expenses by 2008. Also included is the plan to cut 17,000 jobs – roughly 5% of its total employee base – and move an additional 9,500 positions to low-cost locations. Many of the 9,500 Citigroup jobs will be tech roles moving to India – where the company already maintains 19,000 workers who handle everything from call center support to number crunching for investment research. Citigroup’s outsourcing experience demonstrates that it’s not merely outsourcing that creates value but rather, smart outsourcing. As shown in the stock chart, the company has consistently failed to meet the performance standards of competitors in its industry, including JP Morgan Chase, Bank of America or Merrill Lynch

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Rehauling Citigroup’s IT

Inspired by the success of the Chinese LaCrosse , General Motors has stated that the Chinese design team for the company will design the next Buick LaCrosse , due at the end of the decade, for the entire world. The Chinese team will have complete control over the interior design and partial control of the exterior design and overall logistics. This is a discernible shift from the times when American tastes and preferences defined those around the globe. Now, with 50% of organizational sales coming from outside the United States and the Chinese market growing the fastest, it’s only reasonable that Chinese sensibilities inform product design and development for the American consumers. Now, that’s a carload of irony!

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A carload of irony

” Don’t ever take sides with anyone against the family again. Ever.” Michael Corleone to Fredo Last week, I was chatting with a friend of mine, who recently relocated to India as the human resources head of a leading US-based technology firm. In the first few months of her new job, she found that acquiring talented human resources in India did not just involve making a pitch to the pertinent candidate – it often involved wooing the entire candidate’s family. “Helicopter parent,” a tag coined in the early 1990s in the U.S. and made popular by the media, refers to a parent who hovers over a child of any age, and “Blackhawks” are extreme examples of this. However, “helopats” are ubiquitous in India and are in fact, the order of parenting. Parents and children live under a single roof in many Indian families, and often engage in cooperative decision making in both social and economic matters. Consequently, individuals well into their twenties and thirties typically defer to the authority of their parents who, in turn, take on significantly influential roles in directing individuals’ careers. My friend went on to say that what seems a mere cultural difference is now institutionalized in her firm as a recruiting strategy that addresses concerns of employee churn and attrition. Employee perks such as health insurance or club memberships extend to family members, the latter are flown in for company tours and events, and candidates are encouraged to bring along with their résumé, a family member who might well be the audience for the organizational pitch about culture, benefits and career potential.

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All in the family

An article in FastCompany provides examples of companies outsourcing brand invention and management – a truly core organizational function – to keep up with changing customer needs and preferences, manage the risk of staying cool and stay nimble and flexible. Ronald Coase sought an answer to the question, “Why do firms exist?” more than thirty years and answered it in Noble-prize-winning terms of costs of transacting and internal organization. The examples in the article are evidence that as advances in technology diminish costs of transacting and firm boundaries become increasingly fluid, firms in future may well be viewed as clusters of temporary interdependencies that come together to achieve a shared economic objective.

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Cool!

This report by the Boston Consulting Group suggests that offshoring hitherto considered a cost saving tool for transaction intensive business processes, is fast evolving into a powerful organizational lever for business transformation: Although 65% of India’s 180,000 outsourcing services work force is involved in transaction-intensive services like call-center support or check processing, the industry as a whole helps its clients save $1.5 billion annually, according to a recent research paper, “Offshoring: Beyond Labor Cost Reduction,” by the Boston Consulting Group (BCG). (India’s outsourcing services industries employed about 415,000 people as of March 2006, according to India’s National Association of Software and Services Companies).

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Counting the Savings

The benefits of technological advances and globalization have not yet touched the lives of many of India’s people. A quarter of the population still lives below the poverty line and the Internet penetration rate is a little over 3%. Consequently, innovations that pop in this space have the potential to generate maximal fizz or profits. One such innovation that only recently caught my eye is India Post’s ePost service that allows email to be delivered as snail mail and vice versa. Delivery times in the former case average a day compared with about a week by snail mail. And the profits? The launch of corporate e-post, which is being promoted as an inexpensive and effective means to reach the hitherto unconnected masses. An article in this Indian daily suggests that corporate customers can ” print their messages including text and picture on official letterheads and send them simultaneously to up to 9,999 addresses in one go “

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Bridging the Digital Divide