CHIRANJOY SEN
TIMES NEWS NETWORK[ THURSDAY, APRIL 20, 2006 12:00:43 AM]

What started off as pure cost game, is now evolving into a process gambit. Cost has been the main reason for turning to India-based offshore business process outsourcing. However, technology experts and analysts feel that global enterprises should now also factor process improvement and enhancement into their sourcing decisions.

According to IT research firm Gartner, offshore BPO started as pure ‘lift and shift’ deals to exploit the labour cost advantage of lower cost locations. But now, BPO is evolving into a sophisticated delivery mechanism where Indian offshore service providers are using their acquired process knowledge to deliver a range of enhancements and modifications to the inherited process.

They are no longer just doing work at a lower cost, but they are also contributing ideas and suggestions on how to do the work more effectively and differently. This is especially true of third-party BPO vendors.

Says S Nagarajan, COO, 24/7 Customer, “We believe that generation III in offshoring is beginning. Companies in offshoring have evolved from generation I which was pure cost play to generation II that has been productivity play to generation III which will be value creation (not value addition) through innovation.”

In fact, Gartner in a recent report says by 2010, offshore service providers will be as well-known for their process innovation capabilities as they are today for their process cost advantages. Says Sujay Chohan, research vice-president, Gartner: “To overcome natural resistance to performing core business processes halfway around the world, some Indian-based service providers feel they need to increase their added value to compete more effectively with onshore outsourcing providers.”

Although not yet mainstream, there is increasing evidence during the last two years to show that Indian players are offering proc-ess enhancement in their services.

Process Innovation: How IT Helps

But what then is process innovation, one that is expected to drive the next level of BPO growth? “Process innovation, in essence, implies making substantial improvements to the client’'s business performance. Innovation in business processes encompasses a lot of factors like providing value-added cost savings to customers through tangible increases in efficiency and outcome; re-engineering business processes through effective utilisation of technology, workflow and resources,” says Ranjit Narasimhan, CEO & President, HCL BPO.

Ananda Mukerji, CEO, ICICI OneSource, points out that process innovation is the redesigning of existing business processes to achieve breakthrough improvements in performance measures. Mukerji goes on to add that Indian BPO companies have made real head-way in differentiating themselves from other outsourcers by not just high-quality delivery but a strong focus on continuous process improvement by using Six Sigma, Kaizen and a number of other techniques.

“Today, Indian offshore providers have developed significant process management expertise that results in real business impact. For example, in CRM processes delivering increased customer retention, helping increase average revenue per customer, identifying gaps in the customer’s product offering based on market intelligence and so on and so forth," he explains.

So the real differentiator will be managing and transforming processes so that customers’ business objectives are met and exceeded. Echoes Nagarajan of 24/7 Customer: “Many Indian companies have already been demonstrating on minor innovations that improve existing processes. We have not only focused on minor innovations but also on major innovations that enhance performance effectiveness. The most important aspect of major innovations is that they transcends boundaries in terms of onshore/offshore and creates true value for the customer on a long-term basis.”

“To sustain India’s number one position as an outsourcing destination, companies will have to focus on enhancing customer interaction and solution delivery (effectively influencing customer thinking and decisions), improving resource management (hiring people with the right skills at the right tenure); and upgrading support processes (accurate and quick financial reporting to facilitate decision making),” points out Susir Kumar, CEO, Intelenet Global Services

Cost Vs Process

But if process dominates the future, will cost remain the prime differentiator? And what benefit does process innovation bring to the client, as well as to the offshore service provider?

“Cost will always remain an important business differentiator. However, the customers will not be content with pure cost arbitrage,” says Narasimhan of HCL BPO. Ananda Mukerji of ICICI OneSource has a similar view: “Cost is an important factor but certainly not the main driver to offshore. Customers are looking at Indian operations to deliver better quality and process improvement and innovation.” Susir Kumar of Intelenet Global Services says a paradigm shift in the customer acquisition process is becoming evident.

Customers are demanding solutions based on domain familiarity that extend beyond technology services and enhance their business competitiveness.

All that’s fine, but what are the benefits to the customers? Narasimhan says companies look to partner with organisations that can provide innovative solutions to help ensure reliability and enhanced performance of their mission-essential operations. Further, he says companies looking to outsource have a straightforward approach to quality control by identifying parameters that are ‘critical to quality’.

Ananda Mukerji is more specific: “Such process improvements can help companies attain greater flexibility in operations, faster go-to-market delivery and potentially new revenue streams which were not possible without an offshore operation”.

But there’s a twist in the tale. Gartner says that s everal of the companies offer their process innovation knowledge free of charge to clients for evaluating possible process improvements, enhancements and transformation prior to bidding on potential deals. More-over, when considering their offshore strategies, global companies rarely factor in the savings and additional revenue that these hidden benefits generate.

Emphasises Gartner’s Sujay Chohan: “Potential clients must calculate the savings potential possible from transferring their business processes to India-based offshore service providers that have demonstrated competency in process innovation.” But wouldn’t cost go up once the BPO firms start charging for it.

“No,” says Chohan because the charge is for a value-addition, an incremental service — and not for the existing offerings.” Further, costs wouldn't go up simply because Indian BPO companies are increasingly improving and transforming processes, as well as automating them or performing them for less money than domestic (read: US-based) providers, according to the Gartner report.