CIOL:360-degree view of Indias BPO IT industries

NEW DELHI: Clients are highly satisfied with their offshore experiences with over 80 per cent of customers satisfied with the performance of their offshore units, according to a Nasscom study.

The study also revealed that performance has been the result of capable people, not institutionalised practices and rapidly evolving client focus will place increasing pressure on offshore units. These three broad trends were revealed based on the data gathered from over 30 leading captives and third-party providers.

The study Operational Excellence: The Next Frontier in Offshoring by McKinsey & Company, is in continuation to the third Nasscom-McKinsey Report, 2005 that highlighted India’s potential to realize $60 billion in exports from these industries and operational excellence as one of the imperatives for achieving this potential. Nasscom released the study today.

Conducted over the last 12 months, the assessment involved working closely with leading companies to develop unique operational excellence frameworks - Process 360° for BPOs and Project 360° for IT services companies.

These frameworks are one of the first operational excellence tools developed explicitly for offshore centers. They collate inputs from all stakeholders–clients from global corporations in the originating countries, engineers/ associates, operations managers and senior executives at remote centers.

Process 360° covered 162 processes and surveyed over 4800 respondents across six groups – basic voice processes, specialized voice processes, basic data processes, specialized data processes, rules-based decisioning processes, knowledge services and, research and analytics. Project 360° included 58 projects and garnered responses from about 400 respondents across 3 groups – application development, application maintenance, and packaged software and implementation support.

Highlights of the study

Process 360° (for BPOs)

Data operations are generally performing better than voice operations due primarily to higher retention rates resulting from effective training and employee engagement practices;

Third-party providers usually outperform captives in practices and metrics; but best-in-class captives show this gap can be bridged. The difference is a result of higher wage costs, lower span of control, and poor infrastructure procurement and utilization;

Operating practices, rather than location, determine performance on key metrics such as cost and quality;

There is a lack of consistent performance within and across companies;

While clients focus initially on cost and quality, their priorities shift rapidly to higher order benefits like innovation and productivity once offshore services are well established.

Project 360° (for IT services companies)

Productivity improvements are evident across projects in which practices have been institutionalised, particularly application maintenance;

Despite excellent customer satisfaction scores and robust outcomes, significant variance exists across and within service providers on critical metrics like proportion of projects with cost over-runs and people fulfillment rate;

Customers are increasingly looking for upstream services like requirements gathering and solution design. However, at present, these practices are not robust enough to meet their demands;

An industrial mindset that encourages institutionalisation of practices separates average from leading performers. The latter are able to absorb 15-18 per cent annualised wage increases without impacting margins;

The industry needs to focus on improving performance and consistency across six practice areas. These include requirements gathering, solution design, and training amongst others.

Releasing the report, Ramalingam Raju, founder and chairman, Satyam Computer Services Ltd, and chairman, Nasscom, said: “While the study validates that customers are highly satisfied with remote centres, and as a result are ramping up operations in India, it is also clear that their expectations are rising. Frameworks like Process 360° and Project 360° that help companies to benchmark and improve their operating processes are vital for the continued growth of the sector.”

Added Noshir Kaka, partner, McKinsey & Company, “Focusing on operational excellence is critical for the industry to maintain its market leadership by capturing a disproportionate share of the $300 billion addressable market for offshore services. Our study suggests that in BPO, companies at which effective practices are at work, enjoy at least 20-30 per cent lower operating costs vis-à-vis their peers. In IT services, we have seen that this could translate into a 3-6 per cent EBIT improvement for average providers”.

Kiran Karnik, president, Nasscom, said, “India has clearly been the market leader with over 50 per cent of the global market in offshore services. As the market leader, it is imperative that we continue to set standards for the global industry. By focusing on operational excellence as the next frontier in offshoring we can realise our aspiration of achieving $60 billion in export revenues by 2010. As the report says – even greater things must lie beyond.”

© CyberMedia News

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