Indian BPOs need to widen their scope: McKinsey

BANGALORE: 'In the long run, the business model of Indian BPOs will become unsustainable and unless they re-engineer a transformation they will fail to exist as an industry,' said Ramesh Venkatraman, Partner, McKinsey and Company’s Mumbai operatins.

He was speaking along with Noshir F Kaka, Principal, McKinsey and Company, on the BPO landscape and possible end-game models at the NASSCOM ITES-BPO Summit.

Tracing the global trends in outsourcing, Kaka said, 'So far offshore outsourcing has been limited only to three horizontals — customer interaction, content development and HR. In this limited are India has grown a by leveraging largely on cost effectiveness. Considering that the industry is only five years old, this method has worked very well. But the future is another story altogether.'

Stating that offshore outsourcing constitutes only 5% of the total outsourcing industry, he said that targeting various verticals along with growing to be more than a mere service provider to a client are two sure-fire ways for the Indian companies to make more inroads.

'Most Indian BPOs today work on the replication model, where they simply copy the customer’s processes for a horizontal and work it offshore with the single advantage of cost. Evolution says companies will have to take the consultative approach and begin to extract processes across corporate boundaries and eventually offshore,' said Ramesh.

Supported by research graphs, Ramesh claimed that there are ultimately only two sustainable end-game models for companies in the BPO segment.

One is insight driven, the other platform and both of them leverage on proprietary capabilities of individual companies. 'Over time, a country’s competitiveness will eventually be commoditized and therefore become replicable. India is at that stage. For further growth a company will have to differentiate itself from the labor arbitrage and country competitiveness gamut and build on in-house capabilities that sets it apart,' said Ramesh.

In the platform model, a BPO service provider develops a niche capability in support of which it has created processes and technology based on its experience. When hired by a client, such a company will initiate these processes to the task rather than adopting the method followed hereto by the client. In the insight model, the service provider brings custom end-to-end solutions, which are designed and performed by them covering entire horizontals with the particular client in mind.

'Each model has its own methods and procedures but the common factor is that in both, the service provider has succeeded in differentiating himself from the competitor by initiating new knowledge levels and capabilities in his organization,' said Ramesh.

The pair stressed that Indian firms will soon have to make a choice of whether they are going to remain in the replication model or scale to the two other sustainable ones.

'The implications are clear. Indian BPO companies will soon face a fork in the road and the choice they make will decide the end-game for them. The game of survival dictates that they transform their present business models to sustainable ones based on their internal competencies and customer needs.

The same game also says that companies start working on differentiating themselves by building on focused skill and capability areas right now. After all, transformation is not an overnight process and there is no better time than today to start changing,' said Kaka.