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Business Challenges for KPO/ BKO/ BPO in India

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High Marketing Costs:

BPO industry consists of large as well as small firms (with less than 300 employees). The major weakness of these smaller BPOs is the high marketing costs. These costs are mostly incurred while searching for new market opportunities.  Further, a need to have onsite offices adds to the costs. These costs prohibit emergence of new BPOs.

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Smaller BPOs have explored subtracting of work from larger BPOs as a revenue alternative. However, unlike manufacturing sector, a lack of onsite presence of the firms coupled with quality concerns of subcontracting of work add to challenges faced by such organizations.

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High Attrition rate and Training Costs:

Higher attrition rate and poaching are other weaknesses of the industry. Though India has graduates with a good command on English but it is difficult to find skilled and qualified personnel. This paucity of skilled workers adds to recruitment and training costs. Further attempts towards poaching of qualified personnel have increased.  According to NASSCOM, this problem is seen as a major factor is decreasing global competitiveness of India’s outsourcing industry. NASSCOM estimates a demand-supply gap of trained personnel to the tune of 206,000 in 2010. This lack of qualified personnel has lead to increase of salaries of trained professionals due to which the country is losing its low-cost advantage. Cost advantage of off-shoring to India has reduced from 1:6 to 1:3. This talent crunch has lead to increased poaching as can be seen by significant movement of middle and senior management level personnel between jobs.

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Lack of infrastructure:

Lack of infrastructure facilities (particularly in Tier-2 and Tier-3 cities) such as transportation, power, and internet bandwidth have created strong bottlenecks in the industry’s growth. BPO/BKO industry has been unable to grow into Tier-2 and Tier-3 cities. Movement of business from a Tier-1 city such as Bangalore to a Tier-2 city such as Mangalore can save up to USD 0.4 per year for a 1000 employee company in terms of employee salaries.

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Nature of work:

Physical strain from work, unconventional working hours, and detrimental effects on personal life are other factors that have lead to decreased attractiveness of outsourcing services among working professionals.

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Ease of doing Business:

Launching a business in India is another challenge that is faced by the industry. The long approval processes in India take twice than it takes in China, and 12 times than in Singapore. Such lag of time can lead to loss of competitive advantage of India’s outsourcing industry.

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High Costs of Telecommunications:

Though India’s telecommunication costs have reduced but these costs are still higher than those in most the competing countries. Telecommunication facilities are rapidly getting liberalized in countries such as Philippines, and China.

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Future market opportunities for

The Indian BKO/ KPO/ BPO Industry

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The achievements to date of Indian BPO industry are impressive. However, there is significant headroom to tap the addressable market opportunity from exports and from serving the domestic market. A bottom-up analysis shows a total export BPO market opportunity of US$ 220-280 billion by 2012. The domestic Business Process Outsourcing market provides an additional US$ 15-20 billion opportunity for the industry by 2012.

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The addressable market opportunity for Indian BPO industry shows that traditional areas of focus will continue to be large, but several other areas also have significant untapped potential for buyers and providers alike.

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Market opportunity by verticals:

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There is a large market opportunity not only for established industry verticals like Banking, Insurance and Manufacturing, but also for buyers and providers in many other emerging verticals. The Banking & Capital Markets, Insurance and Manufacturing verticals together constitute almost 70 percent (US$ 160-190 billion) of the total US$ 220-280 billion export market opportunity over the next five years.

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However, emerging verticals such as Technology, Telecom and Travel & Transportation verticals also provide opportunities in excess US$ 10 billion by 2012. Other verticals such as Media & Publishing, Pharmaceuticals & Life Sciences, and Energy & Utilities too represent significant untapped opportunity.

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Market opportunity by type of services:

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Another way to look at the total export market opportunity is by type of services demanded — vertical-specific BPO services and horizontal BPO services.

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Over the next five years, vertical-specific BPO services provide larger market opportunity (60 percent; US$ 145-175 billion) compared to horizontal BPO services. Horizontal BPO services, which currently account for a greater share of services offshored to India, also provide a significant addressable market opportunity — a total of US$ 75-105 billion spread across traditionally mature areas like CIS and F&A as well as emerging segments like HR, Knowledge Services, and Procurement Services.

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Market opportunity by nature of work:

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Buyers and providers need to expand their relationships into middle-office and front-office services, which together represent an opportunity in excess of US$ 100 billion by 2012. However, back-office processes are expected to remain the largest opportunity areas over the next five years (providing more than 50 percent of the overall market opportunity).

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Back-office opportunities extend beyond traditional SG&A (e.g., F&A, HR) functions; services such as transaction processing activities in Banking and Capital Markets, investment operations in Capital Markets, supply chain and logistics support for the Manufacturing, Retail, and Travel industries are some examples of high-potential back-office services.

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Market opportunity by source geography:

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There is significant BPO opportunity for buyers and providers across geographic markets. While North America is expected to contribute roughly 70 percent of the total market opportunity for the Indian BPO industry, both providers and buyers should increasingly look at exploiting opportunities in the UK, Continental Europe and Asia Pacific. English-language based business processes from these geographies represent a huge market opportunity of US$ 45-75 billion by 2012. Furthermore, domestic Business Process Outsourcing market (in verticals such as, Banking, Retail, Insurance, Media, Telecom, and Government) provides an additional US$ 15-20 billion opportunity for the industry.

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It is possible for Indian BPO providers to maximize the available market opportunity by developing a stronger near shore presence and distinctive value propositions along with strengthening language and cultural capabilities.

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Different Types Of Services Being Offered by

Indian BPOs / KPOs Currently

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There are many types of Business/ Knowledge Process Outsourcing services being outsourced to India. A complete list of such services under their respective categories is given below:

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1. Technical Support Services

Technical support offerings include round-the-clock technical support and problem resolution for OEM customers and computer hardware, software, peripherals and Internet infrastructure manufacturing companies. These include installation and product support, up & running support, troubleshooting and Usage support.

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Service Example:

Customers calling to resolve a problem with their home PC, customers calling to understand how to dial up to their ISP, customers calling with a problem with their software or hardware.

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2. Employee IT Help-desk Services

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Employee IT help-desk services provide technical problem resolution and support for corporate employees.

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Service Example:

Of this service include level 1 and 2 multi-channel support across a wide range of shrink wrapped and LOB applications, system problem resolutions related to desktop, notebooks, OS, connectivity etc., office productivity tools support including browsers and mail, new service requests, IT operational issues, product usage queries, routing specific requests to designated contacts and remote diagnostics etc.

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3. Insurance Processing

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Insurance processing services provide specialized solutions to the insurance sector and support critical business processes applicable to the industry right from new business acquisition to policy maintenance to claims processing.

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Service Example:

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New Business / Promotion:

Inbound/outbound sales, Initial Setup, Case Management, Underwriting, Risk assessment, Policy issuance etc.

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Policy Maintenance / Management:

Record Changes like Name, Beneficiary, Nominee, Address; Collateral verification, Surrender Audits Accounts Receivable, Accounting, Claim Overpayment, and Customer care service via voice/email etc.

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.4. Data Entry Services / Data Processing Services

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Service Example:

• Data entry from Image file in any format
• Business Transaction Data entry like sales / purchase / payroll.
• Business Card Data Entry into any Format
• Receipt and Bill Data Entry
• Catalog Data Entry.

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.5. Data Conversion Services

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Service Example:

• Conversion of data across various databases on different platforms
• Data Conversion via Input / Output for various media.
• Data Conversion for databases, word processors, spreadsheets, and many other standard and custom-made software packages as per requirement.
• Conversion from Page maker to PDF format.
• Conversion from Ms-Word to HTML format
• Conversion from Text to Word Perfect.
• Conversion from Text to Word to HTML and Acrobat
• Convert Raw Data into required MS Office formats.
• Text to PDF and PDF to Word / Text / Doc
• Data Compilation in PDF from Several Sources.
• E-Book Conversion etc.

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6. Scanning, OCR with Editing & Indexing Services

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Service Example:

• High speed Image-Scanning and Data capture services
• High speed large volume scanning
• OCR Data From Scanned page / image
• Scan & OCR paper Book in to CD.
• ADOBE PDF Conversion Services.
• Conversion from paper or e-file to various formats

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7. Book Keeping and Accounting Services

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Service Example:

• General Ledger
• Accounts Receivables and Accounts Payable
• Financial Statements
• Bank Reconciliation
• Assets / Equipment Ledgers etc.

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.8. Form Processing Services

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Service Example:

• Insurance claim form
• Medical Form / Medical billing
• Online Form Processing
• Payroll Processing etc.

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9. Internet / Online / Web Research

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Service Example:

• Internet Search, Product Research, Market Research, Survey, Analysis.
• Web and Mailing list research etc.

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Industry Analysis of the KPO/ BKO/ BPO Industry,

and The Indian Advantage

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Growing at more than 35 percent over the past three years, BPO is the fastest growing segment of the overall offshore market, and is currently estimated at US$ 26-29 billion. While labor arbitrage has been a key driver for this growth, other factors such as access to talent, service quality, productivity, and time-to-market have gained importance.

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The Indian BPO industry’s growth and increasing maturity is reflected across multiple dimensions. In just over a decade, the industry has grown to reach nearly US$ 11 billion in export revenues, employs more than 700,000 people, and accounts for more than 35 percent of the worldwide BPO market. This growth has been driven by:

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1)      Accelerated adoption by buyers of different sizes, from across industry verticals and geographies, and

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2)      Rapidly evolving supply-side maturity across service segments.

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This is reflected in widening service portfolio, increased scope of services, and greater penetration across vertical and geographic markets served, evolution of business and engagement models, and development of global delivery capabilities by the Indian BPO industry.

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Most horizontal BPOS segments (e.g., Customer Interaction and Support), Finance & Accounting,   Human Resources, Procurement Services, and Knowledge Services) have matured significantly and account for more than 70 percent of the Indian BPO industry. While Customer Interaction & Support (CIS) and Finance & Accounting (F&A) have been the dominant horizontal market segments, other service segments like Knowledge Services are increasingly becoming important and continue to drive market maturity. Many horizontal services are now demanded and offered across verticals — Everest’s full-service index for the aggregate industry shows providers offer CIS, F&A and Knowledge Services across multiple verticals. In addition, both buyers and providers increasingly cover end-to-end services within each horizontal.

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Another dimension of increased maturity of the industry is reflected in the growing importance of vertical-specific processes. More than 25 percent of the Indian BPO market today consists of delivering functions and processes that are specific to a particular industry or vertical. In response to evolving buyer needs, providers have expanded their service footprint into core vertical-specific processes and are developing vertical specialization to increase breadth and depth of service delivery. As an example, our analysis shows that more than 50 percent of providers servicing Banking, Capital Markets and Insurance verticals have developed credible vertical specialization.

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Further, the buyer (i.e. customer) profile of the industry shows increased diversification in terms of   geography and size. Buyers from the UK, Continental Europe and Asia Pacific are increasingly offshoring delivery of business processes to India. Similarly, there is increased awareness and adoption amongst mid-sized and small buyers. The provider landscape has also witnessed significant changes. In addition to establishing captive BPO centers, buyers now have a substantially large choice of third-party vendors to engage. In addition, several hybrid sourcing models like build-operate-transfer and virtual captives are also being used. The market is witnessing increased merger and acquisition (M&A) activity, as providers are looking to build scale and acquire new capabilities rapidly, particularly to increase geographic reach and acquire key service segment capabilities. Efforts are also underway to deliver value beyond cost savings and sustain high growth levels through increased use of tools and technologies, adoption of standards and best practices, and leveraging a global delivery model. The delivery footprint of the Indian BPO industry now extends to over 75 cities across 25 countries outside India. Within India, the delivery footprint of the BPO industry now extends to more than 30 cities across the country, and covers many Tier- 2/3 cities.

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Knowledge Process Outsourcing

Choosing The Right Strategy:

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There are several options for how a company can outsource or offshore research and other business processes. The most common approach is to band off the process to another entity, which performs the work on the requesting company’s behalf. The location of choice for outsourcing has been India, which has a long list of companies offering these services, the major ones being Integrant, Copal Partners, Evaluserve, Intergeon, and Office Tiger.

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Choosing the right company, one that is compatible with your company’s business approach and culture, is central a successful outsourcing experience. We know of one global bank that developed a test pack of 500 research requests. They gave this pack to four India-based outsourcing firms and made their choice based on research results. Other companies’ have picked their outsourcing firms based on general market research. Some firms have changed companies several times, or are now dealing with two or three Indian partners. A number of large global companies are off-shoring and have built and staffed a complete organization and Infrastructure in other countries. In general, off-shoring results in a higher level of control as compared with outsourcing. The staff is employed by the firm, and the firm controls the infrastructure with appropriate backups for power grids, telephone service, internet connectivity, and other similar factors. Our research tell us that companies that offshore are more satisfied with the quality of the work and have better results than companies that outsource.

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However, captives are also more expensive, with costs roughly 30% higher than outsourcing. The higher cost is now getting close scrutiny and is causing companies to rethink what they will do going forward. In a Wall Street journal article from Feb. 11, 2008, called “Rethinking the India Back Office,” by Jackie Range, it was reported that global firms with large captive operations are “looking to get out of part or all of the business by selling either to Indian companies that specialize in outsourcing services, to private equity firms or through initial public offerings.” The reasons include a sharp rise in India-based costs, the slowdown in the U.S. economy, and the weak U.S. dollar.

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There are numerous options beyond India. In the last 5 years, companies have been outsourcing and offshoring to the Philippines, China, Eastern Europe, and, more recently South America. The primary reasons are cost and a better cultural mix with U.S. and U.K. companies. And last, but certainly not least, there are options within North America. A number of firms are now building research centers in lower cost locations with access to good labor pools in the U.S. or, they are “in-sourcing“ functions to U.S.-based firms, who have a staff of U.S. employees in low cost locations, an example being Fargo, N.D.

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Key Success Factors In The Outsourcing Industry

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Before trying to understand what drives BPO (Business Process Outsourcing)/ KPO (Knowledge Process Outsourcing)/ BKO (Business Knowledge Outsourcing) jobs to India, and what are the opportunities and threats in the offering for India, we have to first understand the key factors that lead a business to be outsourced from one country to another, and what are the key drivers of success for the outsourced work. The critical question in the success of any out-sourcing or offshoring project is determining what should be outsourced. This may vary from company to company. Following are three key factors that influence what work can he outsourced:

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The Skill Level of the Outsourced Staff: -

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This is the most critical factor for a successful outsourcing relationship. Experienced researchers in offshore/outsourced companies are scarce. Complicated requests should not be sent to new, untried researchers. Routine, easily codified requests (company descriptions, credit reports, government ISECI documents) can be sent to offshore staff. Moreover, even that work must be carefully vetted before passing the results to the requester.

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Research Request Review Process: –

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The amount of time it takes the information services staff to review each request to determine if the task is suitable for outsourcing.

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Information of Suppliers’ Contracts:-

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The level of contracts and their terms and conditions are important. Many information suppliers are unwilling to open their data contracts to either outsourcing companies or offshore locations. Each vendor’s contract must be individually negotiated, without access to the proper level of information sources; an offshore location cannot perform the research.

The intent and benefits of outsourcing research is to move low-level and mundane research, often called the point-and-click-level research (or, as one person described it to us, the “the plain vanilla and boring” research), to off-location staff. This allows the onshore research staff to focus and work on interesting, challenging, and deep thought research. The biggest challenge is the time necessary to determine i f the research task should be outsourced, to monitor the quality of the work, and to mentor the offshore/outsourced staff. This is not always successful and often leaves the requestor frustrated with low quality results.

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Neural Networks

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Our brain consists of approximately 10¹¹ neurons, in a densely connected and functionally related in a peripheral nervous system. These neurons are biological cells which get energized by the reaction of chemical ions, which generates an electrical signal which then propagates the neural network. These neural networks are nothing but a network of all of these 10¹¹ neurons, in which each of these neuron is interconnected to several thousands of other neurons. The axon (output node) of one neuron is not connected to the dendrites (input node) of other neurons, through synapses (connectors between input and output nodes).

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The excitation of the neurons by chemical ions causes electrical spikes that travels along the axon of the pre-synaptic neuron (transmitter neuron) that further triggers the release of neurotransmitter substances at the synapse. The neurotransmitters cause excitation or inhibition in the dendrite of the post-synaptic neuron (receiver neuron). The integration of the excitatory and inhibitory signals may produce spikes in the post-synaptic neuron. The contribution of the signals depends on the strength of the synaptic connection. Through a network of these electrical signals and flows, various senses and motor nerves are energized and and information flows from one part of the nervous system to another.

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Although at a unit level the system is very simple, but the very complexity of the interconnections and the huge number of the network nodes makes possible the accomplishment of extraordinary complex tasks through these networks.

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Profiting From Data Mining

Apeoplens by SAS, IBM, Oracle, CA and Microsoft help customers gain valuable insights. Data mining is $1.85 bn industry.

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Uses of Data Mining:-

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• 1. market segmentation
• 2. Customer churn – predicting factors that cause customers to leave a business and go to a competitor
• 3. Fraud detection
• 4. Direct marketing – identify best prospects for highest response rate
• 5. Interactive marketing
• 6. trend Analysis

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Diamonds in Data Mines

Data Mining Digs In

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The Changing Consumer Perception

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India is poised to become a major Auto hub in the near future. Indian car industry is changing rapidly, so is the mindset of Indian Consumers. We, at the Great Lakes Institute of Management, took an initiative to find out that whether the changing ground realities have also changed the India Auto Consumer’s mindset vis-a-vis their perception of the abilities of various Indian and foreign Auto manufacture to deliver the much sought after attributes in a car.

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We deliberately, instead of taking individual cars, took BRANDS (as we wanted to analyse the brand perception mapping), and let the consumer decide which brand will he buy (Note: It is important to note that in some cases, though a consumer may covet a brand highly e.g. BMW, but might not intend buying it due to many reasons. So we specifically framed question to analyse the purchase intention), and the attributes for which he will go for that particular brand.

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It was surprising to find the changing perception of the consumer towards TATA, especially after it being the proud owner of Jaguar and LR on one hand, and the maker of the worlds smallest, and the most economical economical (& affordable) car Nano on the other.

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There were many more surprising results as well, have a look…

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The Result (Survey Dated 8th Decemper, 2009)

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Attribute Mileage:

Highest: MARUTI- Car people would like to buy the most for its fuel efficiency (eg. NANO).

LOWEST: FORD- Car people are least like to buy it were for its fuel efficiency (mileage).

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Attribute Safety:

Highest: TATA- Car people would like to buy the most for its Safety preparedness.

LOWEST: FORD- Car people are least like to buy it were for its Safety preparedness.

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Attribute Cost:

Highest: TATA- Car people would like to buy the most for its cost effectiveness (eg. NANO).

LOWEST: FORD- Car people are least like to buy it were for its cost (value for money).

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Attribute Comfort:

Highest: FORD- Car people would like to buy the most for its Comfort (e.g. Jaguar).

LOWEST: MARUTI- Car people are least like to buy it were for its Comfort.

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Attribute After Sales Service (Maintenance cost, frequency and accessibility):

Highest: MARUTI- Car people would like to buy the most for its After Sales Service.

LOWEST: TATA- Car people are least like to buy it were for its After Sales Service.

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The Process

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Cars Analyzed

(Survey Question: Which Brand of car will you choose?)

1. Tata
2. Honda
3. Maruti
4. Ford
5. Hyundai

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Attributes Surveyed

(Survey Question: What factor motivates you to buy this brand?)

1. Comfort
2. Safety
3. Mileage
4. Cost (Price)
5. After Sales Service

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Respondents

Number: 114

Age Group: 24 to 35

Education: Graduation and above

Profession: Management Students

Ethnicity: Indians- Representing all states of India

Social Class: Middle class and above

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Analysis Carried Out

Statistical Tool: Correspondence Analysis

Mapping Dimensions: 2

Test: Chi Square

Test Value: 73.897

Test Significance: 0.000

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Available Downloads:

SPSS Output File For the Data Analysis

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Relative Importance of Attribute of a Car

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Various attributes goes behind selecting a car for purchase. Even more of these attributes goes in a consumers mind before evaluating the supremacy of a car over another.

After good literature review, and discussion with experts, we came to the conclusion that the most sought after attributes for a car are:

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1. Quality
2. Price
3. Image (Perception)
4. Environmental Friendliness

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Although as such these attributes look to be “Soft-attributes”, but we went ahead, and made them “hard”, with further discussion with the experts, and cluster analysis.

The sub attributes for each of these attributes are:

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Quality

• Fuel Efficiency (Mileage)
• Speed (Top Speed and acceleration)
• Saftey (Saftey of life and against theft)
  
• Comfort

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Price

• High (Above INR 14 Lakhs)
• Medium (Between INR 7-14 Lakhs)
• Low (Below 7 Lakhs)

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Image (Perception)

• Elegant
• Convenient
• Sporty

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Environmental Friendliness

• Recycleability of Parts
• Reduced Particulate Emissions
• Availability of CNG Option

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On performing Conjoint analysis of these main attributes (20 attribute cards, 50 respondents, 15% margin of error), we found that level of importance of these attributes are as under (Kendall’s Tau 0.611 with sig 0.001, Pearson’s R 0.795 with sig 0.000):

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• Rank 1: Price
• Rank 2: Quality
• Rank 3: Image
• Rank 4: Environmental Friendliness

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