(Published in the Business Mirror under the Mirror Image Column, Sept 12, 2007)
The BPO sector has grown by spectacular levels, providing employment to more than 200,000 BPO professionals. It is projected to grow on the average 38 percent until 2010, contributing more than $12 billion in revenue.
Similar to the experience of India, much of the growth in the Philippine BPO sector has been driven by relatively lower labor costs. This has been the salient characteristic of the first phase of global BPO development which took place in the 90’s through the early 2000’s, where clients and providers alike placed emphasis on cost, efficiency and productivity. As clients in the US and Europe searched for ways to bring down cost further, they turned to providers in India, Philippines, and others to provide low labor costs to perform customer care, HR, and accounting BPO services.
As established BPO providers are besieged by new entrants from China, Latin America, and other relatively lower cost countries, new sources of service differentiation become crucial to maintain and get more clients. This is when the second phase of BPO development took place starting in the early 2000, which is characterized by the focus on quality.
Adoption of quality standards is the direction of local BPO players now through the implementation of quality standards and practices such as Six Sigma, Total Quality Management, ISO 9000, and Capability Maturity Model. To survive in the long run, it is a must for BPOs to adopt any or a combination of these quality programs.
But these advantages in cost and quality are fast eroding as BPO services become commoditized and the sector reaches maturity. In fact, the global business process outsourcing sector is likely to see only a modest growth of 2 percent in 2007, after a continuous average growth of 14 percent annually during the last five years, according to Technology Partners International, a sourcing advisory firm.
It is now imperative that BPO providers set the stage for their next phase of evolution and momentum - the third phase of BPO development which focuses on innovation. In fact, a 2005 IDC survey among BPO clients in the US suggested that 35 percent of the respondents look for BPO providers to drive innovation.
Moreover, a 2005 McKinsey Study makes a strong case for innovation by suggesting that the Indian IT-BPO sector can generate over US$ 10-15 billion of additional revenues by 2010—over and above its US$ 60 billion export target—provided it makes innovation its chief growth catalyst.
This is the reason why the National Association of Software and Service Companies (NASSCOM), the BPO trade body in India which is credited for the growth in the Indian BPO, established the NASSCOM Innovation Forum to build innovation as the key differentiator for the Indian IT and BPO industry.
Corollary to this, it also instituted the NASSCOM Innovation Awards in 2004 to promote and recognize Indian IT and BPO companies who have instilled innovation into existing competence and have created new ideas, products, processes or technologies that drive businesses to achieve higher profits.
Similar to the experience of India, much of the growth in the Philippine BPO sector has been driven by relatively lower labor costs. This has been the salient characteristic of the first phase of global BPO development which took place in the 90’s through the early 2000’s, where clients and providers alike placed emphasis on cost, efficiency and productivity. As clients in the US and Europe searched for ways to bring down cost further, they turned to providers in India, Philippines, and others to provide low labor costs to perform customer care, HR, and accounting BPO services.
As established BPO providers are besieged by new entrants from China, Latin America, and other relatively lower cost countries, new sources of service differentiation become crucial to maintain and get more clients. This is when the second phase of BPO development took place starting in the early 2000, which is characterized by the focus on quality.
Adoption of quality standards is the direction of local BPO players now through the implementation of quality standards and practices such as Six Sigma, Total Quality Management, ISO 9000, and Capability Maturity Model. To survive in the long run, it is a must for BPOs to adopt any or a combination of these quality programs.
But these advantages in cost and quality are fast eroding as BPO services become commoditized and the sector reaches maturity. In fact, the global business process outsourcing sector is likely to see only a modest growth of 2 percent in 2007, after a continuous average growth of 14 percent annually during the last five years, according to Technology Partners International, a sourcing advisory firm.
It is now imperative that BPO providers set the stage for their next phase of evolution and momentum - the third phase of BPO development which focuses on innovation. In fact, a 2005 IDC survey among BPO clients in the US suggested that 35 percent of the respondents look for BPO providers to drive innovation.
Moreover, a 2005 McKinsey Study makes a strong case for innovation by suggesting that the Indian IT-BPO sector can generate over US$ 10-15 billion of additional revenues by 2010—over and above its US$ 60 billion export target—provided it makes innovation its chief growth catalyst.
This is the reason why the National Association of Software and Service Companies (NASSCOM), the BPO trade body in India which is credited for the growth in the Indian BPO, established the NASSCOM Innovation Forum to build innovation as the key differentiator for the Indian IT and BPO industry.
Corollary to this, it also instituted the NASSCOM Innovation Awards in 2004 to promote and recognize Indian IT and BPO companies who have instilled innovation into existing competence and have created new ideas, products, processes or technologies that drive businesses to achieve higher profits.
Innovation in BPO may come from three fronts: business model innovation which entails significantly changing the structure and/or financial model of the business; services/markets innovation which entails creating new or significantly differentiated services or go-to-market; and operations innovation which involves improving the effectiveness and efficiency of business processes.
One Indian BPO that bagged the Innovation Award in the area of business model innovation is Kale Consultants which created `a platform-based BPO business model' for the travel and transportation industry.
Explaining the difference between a BPO and a platform-based BPO, Mr Vipul Jain, CEO and Managing Director, Kale Consultants, said that in the former, the customer had the infrastructure and process manual in place where payment is settled on hourly basis. "In a platform-based BPO model, we run the customer's revenue accounting system on our "platform" in our premises with the data shared by him. We actually transform from the customers software to run the process on our platform” said Mr. Jain.
Another Innovation Awardee is Evalueserve, the global research and analytics firm, has been recognized for its business intelligence services, customized reports and value-added research for clients in different industry verticals. Evalueserve is a pioneer in services innovation and has created the new business segment called KPO (Knowledge Process Outsourcing). The company is one of the first KPO providers of research and analytics services from India serving the global market. Evalueserve has been successful in differentiating itself from the traditional offshoring models.
An Innovation Award finalist in the area of operations innovation is Genpact, a global BPO player based in India with 19,000 employees. which developed a model to curb BPO employee attrition. This eventually helped the company reduce its direct cost by 12 percent amounting to about $3.3 million, thereby improving operational efficiency.
The list of innovative BPO companies in India goes on, which is testament to the focus of the Indian BPO sector in innovation as a differentiator. Our local BPO players can likewise take the innovation route to differentiate its services and compete against the emerging low-cost countries.
Local BPO players can incorporate innovation initiatives in the strategic planning process to provide focus in this area. A culture of innovation should likewise be promoted by management, and creative and innovative ideas should be rewarded.
Government and industry bodies alike should emulate the NASSCOM Innovation Forum and Innovation Awards to promote and recognize innovation in the BPO sector, so as to sustain its growth in the future.
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Reynaldo C. Lugtu, Jr. teaches management and marketing courses in the MBA Program of De La Salle Professional Schools. He may be e-mailed at rlugtu2002@yahoo.com or visit his blog at http://rlugtu.blogspot.com/
See other citations on this article: BPOs evolution from cost-saving to innovation
and Innovations by Indian BPOs
Comments
Thank you for posting this and talking about the Innovation Awards.
Just wanted to let you know that we have announced the Innovation Awards 2007 and nominations are being submitted. This year we look for Innovations in the following categories:
1. Market Facing Innovation
2. Process Innovation
3. Input Innovation.
More details about the awards are available at www.nasscom.in/innovationawards2007
Best Regards,
Avinash - NASSCOM
http://phykon.com/