Stanford’s “The Globalization of Services” session on “Understanding Business Models” educated me big time on one point above all others: Nothing is standing still in the service provider industry, particularly in India. Yet at the same time, the dye has been cast for a certain way of operating in outsourcing engagements, and there are few signs that major change — such as a ready acceptance of the risk-sharing model — will happen soon.
This panel included people from Gecis Global (a GE captive that was spun off earlier this year); GTL, which was India’s first Internet service provider as part of Global Tele-Systems Ltd.; IBM Daksh Business Process Services; and The Resource Group, which buys companies in the services sector. (There were a few other participants, but they were “odd men out,” since they weren’t really providers along the same lines.)
As one panelist described the business process outsourcing space in India, “There are maybe four or five really large players. Then [there are] 300 players below that.” Sounds good, right? After all, all those companies are scrambling for your work. In reality, it leaves a lot of wading through to make the right vendor selections.
Let me share the story of Gecis and how it views the world of services. You could look at it as a model for how most service providers aspire to operate — but don’t.
Gecis Global was started in 1997 as a captive of GE to provide offshore back office services. The goal was just plain access to less expensive staff.
At the beginning of 2005, GE spun 60% of the company off to private equity investors, which means Gecis is now in the market competing against other providers, trying to attract new business — and, probably, trying to retain GE services business too.
The company has 13,000 employees in India; 1,250 employees in Dalian, China; 2,700 employees in Mexico and the US; and it’s just setting up a 700-person operation in Bucharest. It’s big. The domain focuses include: insurance, finance & accounting, analytics, customer service, collections, document management, IT services, software, content management and industrial/supply chain. In other words, the goal is to provide end to end service across major industry vertical and horizontal markets.
In the course of its evolution, as you’d expect, Gecis has moved up what everybody is now calling “the value chain” — doing work that’s more complex, higher priced and more strategic to the client company. The service becomes more about business impact than simply about cost arbitrage. A lot of BPOs stay in that cost-savings market. They’ll do it faster and cheaper. The work at this level consists of data entry and or transaction processing. Service levels measure aspects such as call quality or data accuracy.
In the next stage, Gecis adheres to constant process improvement — through Six Sigma. As speaker Tiger Tyagarajan explained, the company takes a process that has 200 people and squeezes out the inefficiencies that allow the process to be done by half as many. Obtaining continuous improvement isn’t something that requires a master’s in operational logistics. For GE, as Mr. Tyagarajan wrote in his presentation, it encompasses:
- Practice: simply making fewer mistakes, avoiding rework, and getting it right the first time.
- Scale: gaining efficiencies from sheer volume.
- Technology: using hardware and software improvements as well as process improvements and better honed management practices to deliver better results more economically.
- People: viewing people as a competitive advantage, investing in them and empowering them to offer improvements on how to streamline processes until they run like a well-oiled machine.
The service levels might target customer satisfaction or idle time.
From there, the company moves into best-in-class with the process. The service measures revenue per agent or customer retention. It becomes highly strategic in nature. He gave the example of a finance unit within GE that wanted to improve collections. Analysis showed that only 30% of all overdue accounts were being called and that about two-thirds of all accounts would pay on the 10th or 12th day after being overdue — without being called. The trick was to identify the people in that group. Then staff could focus on calling the 30% that weren’t paying even after the 10th or 12th day. Overall, it cut losses by about $2.6 million. That’s a strategic approach.
Choosing a different provider might have resulted in that client continuing to ask for the requisite 30% of calls a month. And perhaps the vendor could make the calls faster or could increase it to 40% or 50% by adding to the number of people working on the function. But without that strategic piece, the company wouldn’t improve the process.
Yet few providers truly reside in that rarified strategic-thinker stratum. (Many aspire to but don’t have the exceptional management resources to carry it off.)
How do you identify “exceptional management skills”? Mr. Tyagarajan offered this: “If there was one variable to define who was going to be a success… I would say retention of people, attrition management [and the] ability to retain knowledge.”
I would add that there’s a level of business maturity that needs to be present as well. Yet, until Indian providers feel safe in their business space, change will continue to be a constant. With most customers and providers focused on price, vendor stability will remain a question mark. As GTL’s Michael Clark expressed it, “If somebody sees something, then somebody else comes in and underprices.” Over the long term, customers will move to where the price is lower. At least that’s the theory. When providers get together, the conversation centers on headcount and growth and size — rather than, say, technology. (Why talk about technology, when a simpler solution is to just bring in more staff?)
Of course, the situation is exacerbated as the work becomes higher value. Vendors that need a constant infusion of new business into their “pipelines” will find the sales cycle stretching out. As Mr. Clark said, “You need to get deeper into this kit to get it moving.” Selling on price rather than business value looks easier.
So, it appears that the world of BPO as framed by India is a long way off from a risk-sharing model. That won’t be commonplace for a long time. In a risk sharing model, the provider invests more in the relationship with the client at the same time the client gives up some of the potential rewards to the provider. “Customers want to see that you have skin in the game. They’re saying, ‘How are you going to share risks?’; and we’re saying, ‘How are you going to share rewards?’” said Mr. Clark.
If these people — who get to observe the machinations of outsourcing up close and personal in India — are right, we’ll see small signs of business-value genius coming out of some BPO providers, but the bigger crowd of them isn’t prepared to work that way, no matter what they say to the contrary.
