Developing a strategic response to recession

Introduction

When the going gets tough, the tough go cost cutting! A brief analysis of industry’s response to earlier recessions indicate the first knee jerk initiatives are budget cuts in manpower, facilities, services and a freeze on all investment plans. However, this excessive focus on short term gains will lead to long term heartache in the organization's ability to recoup and exploit new opportunities that follow a recovery – as Bonoma (1991) puts it “summer follows a long and bitter winter and the wise one, is one who is prepared for both”.

Organizations will have to skillfully retain and develop those resources that will build competitive advantages and aid future growth.

Traditional offshoring models focused on generic corporate functions such as FAO, HRO, Procurement and in more recent times Legal and Knowledge Services. But we see that each of these functions are different across industries and individual companies and a “one size fits all” strategy does not help the client build competitive advantages that can be enabled by differentiated service offerings.

Customized Industry Offerings

The ecosystem of a particular industry is peculiar to the products it sells, the regulatory environment under which it functions, its market characteristics and its relationships with its trading partners.

For example, the current meltdown in the financial services industry would indicate governance and risk management as both a cause and a solution to deal with falling demand for services. The healthcare and pharmaceutical industry on the other hand would not have an issue with falling demand but more an issue with actualization of sales or the ability of the customer to pay for services. Hence these industries would respond to a downturn by analyzing and addressing pain points associated within their individual environment.

For instance the software industry is characterized by a digital supply chain and a revenue model based on license agreements which are complicated by rampant piracy prevalent in the market. Infosys BPO understood that the absence of a physical supply chain indicated special challenges for the software industry and created service offerings such as Pricing & Licensing that addresses these issues.

The BPO industry will hence have to necessarily move away from offering generic “corporate” solutions across industries like FAO, Procurement or HRO and tailor their offerings to “operational functions” within industries. These operational functions will be unique across industries and more focused on processes than on functions. Some examples of industry and the service offering that could be customized for it are listed below:

Customized Company Offerings

Companies within an industry strive to differentiate their businesses along core competencies to develop a set of value differentiators which enable them to build competitive advantages over other firms within the industry. Organizations for instance may choose to design and function under a vertically integrated supply chain for reasons of their ability to control and align the goals of the components of the value chain with their corporate mission or may choose a more laterally (horizontally) integrated supply chain structure to enable economies of scale. Similarly the growth strategies for a firm maybe focused on inorganic growth fuelled by mergers and acquisitions or through a more staid organic expansion of existing businesses.

The BPO industry’s prime responsibility will now focus on supporting their client’s strategies with customized offerings for individual clients. For instance a client with visibility issues due to multiple legacy systems from a history of acquisitions will benefit from a custom built “pay-as-you-go” platform based solution that will provide an integrated view across various legacy systems.

Similarly. a client with a loosely coupled horizontally integrated supply chain would benefit from service offerings that enable trading partner support such as PSS (Partner Sales Support) which will help align and manage the varying goals of the different components of the value chain with the corporate mission of the nucleus firm.

Implications of customization to the BPO industry

Customization of service offerings will present the BPO industry with several challenges which must first be addressed in the path to customization such as:

Building partnerships with clients: The need to custom build solutions will require BPO to build relationships with the client that goes beyond the standard buyer – seller-of-services model. Gain-sharing revenue models will gain prominence

Creation of knowledge base: The BPO industry will be required to acquire industry specific knowledge and capabilities in order to design customized solutions

Investment and higher risks: Investments in effort and manpower will be required to move up the value chain. The creation of niche solutions will also involve increased risk in the reduced marketability of these investments across industries/customers

HR management: Higher quality of resources needed to staff these engagements will bring a renewed focus on attrition, skill management and talent retention.

Conclusion

In spite of the recession companies will continue to make strategic investments in developing capabilities to differentiate and build competitive advantages.

The BPO industry will need to support these initiatives by acquiring industry and company specific knowledge and building customized service offerings to their clients. This partnership will require higher level of investments but will enable the relationship between client and service provider to move up the value chain and develop sustainable competencies for future growth.

(Shyam Rao is a solution anchor in the Order Management practice at Infosys BPO. The views and opinions expressed in this article are that of the author and do not necessarily represent those of CyberMedia)