Cognizant scouting for a BPO acquisition

CHENNAI: Cognizant Technology Solutions, provider of IT services, forayed into Business Process Outsourcing (BPO) last year. Though the company is yet to sign any major projects, it is looking forward to make minority investment in a BPO company and steering it towards the higher value-added BPO activities that can generate higher margins before acquiring it outright. Raju Bhatnagar talks about the company’s plans and strategies. Prior to heading the BPO operations at Cognizant, Bhatnagar was Business Process Management VP at eFunds. Excerpts from an interview.

How would you define BPO?

Gartner defines BPO as ‘the delegation of one or more IT-intensive business processes to a service provider who, in turn, owns, administers and manages the outsourced processes in accordance with pre defined and measurable performance metrics.’

We prefer to look at BPO in a wider perspective with a view to partnering with the customer to transform their business processes. In a sense, we look at BPO as a process where strategic value is created for the customer through outsourcing by creatively examining processes and changing the way they are executed. In effect, the vendor takes over process and partners with the customer in re-engineering processes to release embedded value.






How do you differentiate it from call center business?



Generically ‘call center’ is a term that relates to any voice related process. However, the connotation of call centers–stemming largely from the nature of work that call centers were handling in the US–is the type of work that does not require process specific skills and can be managed using staff who have minimal qualifications.






Voice related work, which requires additional skill levels, is not usually clubbed in the call center nomenclature. These could include technical help desks, handling inbound CRM related calls, investment advisory services, insurance validation/pricing services, etc. These processes do not have a generic nomenclature though they are not usually clubbed as ‘call center type work’.





In India, the initial work that companies started handling was the work which is denoted by the ‘call center type work’–i.e. low risk, less complex work. This is the reason why call center work has replicated the impression that this activity carries in the US.





I believe that over time, given the fact that the industry is still in its infancy, the seemingly derogatory reference to ‘call center type work’ will give way to an equal amount of respectability that ‘BPO work’ commands today and that all voice processes, simple or complex, would get clubbed under call center business.

How serious is Cognizant in its BPO initiative, as it has been maintaining quite a low profile ever since the announcement of getting into the BPO business?

Cognizant is serious about this initiative, as it is customer driven and not speculative. We are approaching the call center business opportunity cautiously because we are not convinced that the call center business is a good, long-term profitable business. However, we want to be in the BPO game as many of our clients are interested in it.

We are looking at the option of making a minority investment in a company that will allow us to play in that game and steer it or change it towards the higher value added BPO activities that can generate higher margins before acquiring it outright. You will probably see a two-step process in that area from Cognizant.

We are also focusing on the high value administrative processes of the BPO market–the likes of claims processing, revenue accounting, card processing, mortgage or loans processing, payroll and personnel administration and billing–where the business processes to a client’s operation is as critical as our application management business. The focus will be on the verticals we specialize in such as financial services, banking, insurance, healthcare and retail.






We have already implemented the remote-processing model internally by consolidating all our financial processes in Chennai for our facilities worldwide. These processes include budgeting, financial planning, forecasting, management and statutory reporting, cost analysis, invoicing and receivables management.





Do you believe in the inorganic route to growth, for there have been instances where M&As have failed?

Yes, Cognizant is looking at the option of making a minority investment in a company, so that we can change it towards the higher value added BPO activities that can generate higher margins before acquiring it outright. Merger and acquisition is an avenue for growth that all dynamic companies continuously look out for. A mergers or acquisition is like a marriage–just because some marriages don't tick, it is not reason enough to conclude that marriage as an institution does not work.






Which are the potential cities according to you to set up BPO centers in India and why?



Cognizant's current plans are to offer its BPO services from two geographically diverse locations–Bangalore and Pune. Both these centers have demonstrated availability of manpower with appropriate skill sets and we currently have our IT Services functioning out of these cities, which makes the task of establishing easier.