Contemplating the BPO industry with Wipro’s Ashutosh Vaidya

One of the most enthusiastic leaders in the BPO industry is the man who has overseen Wipro’s rapid rise in recent times:  Ashutosh Vaidya.  In-between playing squash, watching cricket and clocking up a ridiculous quantity of airmiles, Ashutosh has overseen a series of Finance & Accounting, HR and supplier management wins that have moved the service provider into the BPO industry’s top tier.  I asked Ashutosh to share his views of the current state of the BPO industry and what steps need to be take to ensure the continual growth of the business in these times.

PF: Ashutosh, we’ve been through a tremendous development in the world of BPO over the last decade. What, in your opinion, has worked, and what hasn’t?

AV: Indeed the BPO world has come a very long way over the past decade. In fact, 2009 really marks the 10th anniversary of the meaningful 3rd party BPO industry emerging out of India. We have seen significant change in the market, both from buyer and supplier perspectives. Buyer requirements have evolved across the board to enhance the range of processes that they outsource and the way they structure the engagements and what they demand out of a BPO partner. Providers have evolved to keep pace with buyer interests, and in many ways have also influenced the same by creating and demonstrating capabilities which have strongly contributed to the evolution of the buyers’ thoughts. Overall, from my perspective here is what that has worked and what has not:

What has worked well:

• Seamless transition and execution of a broad spectrum of processes across various functions and industries – from simple rule based processing to complex decision/judgement based work.

• Replicating the Services Factory model into BPO services, replicating and further evolving the overall quality models; leveraging concepts like Six Sigma, Kaizan and Lean into BPO services to bring about continuous process improvements. Customers started outsourcing for cost saving but stayed on because of better quality

• Scaling up the people factory in lower cost locations like India, Philippines and establishing Global Delivery models with the inclusion of East European centres in the delivery mix.

• Raising the bar on Risk/Compliance practices – in most cases exceeding the standards in the client’s home country

• Development of a very strong support eco-system (hiring, training, transport, facilities management, etc.) to facilitate 24*7 BPO

• Redefining the concept of ‘Shared Services Centers’ by setting up world class delivery centers – greatly enhancing the concept that started with just the notion of putting people doing similar work under one roof.

What has not worked well:

• Scaling up on the domain knowledge for vertical domain processes… moving up the value chain faster

• Building transformation capabilities – in addition to the process improvement capabilities

• Platform play – it is still in the infancy

• Moving seriously into business benefits, outcome based pricing and a good model of sharing gains.

PF:We’re clearly at an inflection point in the industry as the fog lifts from this Great Recession. Do you see companies approaching BPO any differently? And which areas of BPO do you see developing in the near/long term?

AV: I believe what companies expect out of BPO engagements is going to change. The objective is no longer going to be only – “my mess for less”. Instead, it will more and more get into asking “can you solve this business problem for me”? Companies are going to view BPO not just as a means of cutting costs, but as a way for changing the operating model for the organization. A stronger need for flexibility, speed, variability of costs as well as a sharper focus on risk/reward is going to come up from the buyers.

Customers are also realizing that to achieve the transformational gains, the business, IT and the Ops have to collaborate on a regular, proactive manner. Pure play BPO is no longer going to be enough.

TCO plays could become more important – partnerships where client + providers work towards reducing the TCO of clients and trying to make it win-win for both parties. Vendors will try and increase the “stickiness” factor by executing different types of deals – ‘5/10 year outsourcing with YoY productivity and penalties for breakage / partial termination’, ‘end to end outsourcing – ITO, Operations, Infrastructure’, ‘Platform BPO plays – where the customer gets hooked on to the providers platform’ etc.

We’ve experienced a significant surge in client requests for BPO services over last few quarters. There is a very serious and determined mindset in the client groups to make this happen in accelerated time frames. This is reflected by the fact that we are seeing outsourcing initiatives being driven hands-on by leadership of line functions and CFOs in several cases rather than the procurement team.

As far as areas for Outsourcing are concerned, the focus is going to be on horizontal functions which impact business metrics and results – both in current BPO relationships and new ones. E.g. how do I reduce my OTC cycle? What can I do to manage WC better? Etc. On the other side, there is keen interest in areas in the true vertical processes which are domain/ technology intensive.

The other trends would be a level of Protectionism – the way this pans out could alter the business projections and business models – e.g. larger share of local delivery centres and near shoring instead of full off shoring to low cost locations. One interesting aspect here is that the this will not keep the offshore vendors out. Unlike in the early stages where labour cost saving was the key driver of the business case, the vendors are now very capable and mature. Even though a local delivery centre may mean no saving due to labour arbitrage, there would still be significant gains from process standardization and transformation that the good vendors can offer.

PF:Do you really see this concept of “Platform BPO” taking off, or are you expecting a lot more of the classic “lift and shift” deals in the coming couple of years? Do you really believe we’re going to see a strong inter-linkage between IT and BPO service delivery in the next three years?

AV: Overall, ‘lift and shift’ deal demand continues to be larger part of outsourcing opportunities. For these cases, the degree of disruption from as-is process environment is relatively lower and clients seek to realize business case built on technology investments e.g. ERP platforms and other applications. However, we are seeing movement away from this to other models like “transform, lift and shift”, “lift and shift with accelerated transformation”, “platform BPO” and “ITO+BPO” type deals. In the last 10 deals we have done, 4 of them are the non-lift and shift areas. Hence, while “lift and shift” will continue, over the next 3 years the % of deals will increase in the favor of non-lift and shift deals.

We really believe we’re going to see a very strong inter-linkage between IT and BPO service delivery in the next 3 years due to the following reasons:

i. Most deals today have a fair amount of transformation or YoY productivity improvements baked in. While six-sigma, lean, shared service creation can give improvements for the first 12 to 18 months, over a 5 year horizon it becomes increasingly difficult to give significant benefits without a technology play. Technology change/rationalization is an extremely important aspect of transformation.

ii. By having both ITO-BPO, the deal size increases, hence making the commercials more attractive to both the client and to the vendor and therefore sharper focus from the vendor.

iii. Monetization of IT / process assets is becoming a reality with the vision of forming industry utilities – giving even more potential benefits to clients and to the providers (at-least a possibility exists)

iv. Cost of Governance – due to large deals, the costs of vendor management comes down for the clients AND the management attention they get from the provider organizations goes up.

v. Change management – often in the clients organization IT and Operations work in silos – but these silos can be more effectively broken in provider organizations…. hence conceptualizing, rolling out and sustaining change initiatives become far more possible.

The potential down side is single vendor concentration risk – but this can be mitigated in multiple ways.

PF:How do you view India’s role in the continual development of BPO, and what is your opinion of the emerging Latin countries as nearshore hubs for US-driven BPO? Do you see China playing a more influential role in delivering BPO services in future? Are there other sourcing locations you believe have a pivotal role to play?

AV: I believe that India based providers will continue to provide thought leadership and retain the pole position from a location perspective at least for the next 5 years. There is significant lead that exists today in talent pool, process maturity, leadership capabilities etc. that the Indian providers will build on and enhance their capabilities for delivering BPO services. This includes an expanding footprint in terms of the scope of services, how they are delivered and from where. The expansion of service delivery from LatAm countries is a natural progression, not just to serve US driven BPO, but also to deliver BPO services to the businesses in those geographies.

It is not only about having good BPO capabilities now – it is about domain, transformation/change and IT-Ops integrated capabilities that will be important. Though other countries are becoming interesting areas from a pure play BPO perspective, India is ahead in though leadership in domain, change, platform and IT…. hence I think India will play a ‘hub’ role. We are also seeing a host of best practices being transferred to other geographies as each of the Tier I players opens up delivery locations in other countries – so to that extent, India will influence/champion best practices globally.

The other countries/continents such as Latin America, central / eastern Europe and China/Asia will play a role for 3 reasons – language, proximity, comfort (for MNCs – a European office will be more comfortable with central European operations than India) and cross country BCM/BCP for critical operations.

Over a 5+ year horizon, non-Indian countries could become important from the perspective of diversification of people (cost inflation) and currency concentration risk ….. this needs to be monitored closely.

China could play a more influential role in the future – not necessarily in 3 years – but in 5 to 10 years due to the talent availability and education focus of the govt. For the next 3 years it will primarily service Japan, Korea and the growing local need from MNCs operating in China.

We also believe that several locations including new emerging countries like Egypt will play a role – in a Hub and Spoke strategy – there would/could be several spokes.

PF:And finally, how do you see the service provider landscape playing out in this market? Has this recession come at a good or a bad time for the leading Indian-headquartered providers?

AV: Obviously the service providers have been impacted significantly in the downturn. I believe that the jolt which the industry has received due to the recession can be looked as timely! The industry has seen a phenomenal growth rate over the past few years and most of the providers have not really experienced a difficult and tough environment that we face today. In my view, this jolt is well timed as it provides significant learnings to the India based providers to cope with this environment and learn from it when they are still relatively small in comparison to global peers. This will hold them in good stead the next time the business cycle goes south and they are much larger in size!

Due to the rapid growth, the industry had picked up some negative characteristics over time. Attrition, wage inflation along with a strengthening rupee was starting to be a concern. This recession has given us breathing space to start focusing on our core processes as an organization (e.g. training quality improvement) and building new capabilities (such as platform BPO, IT-Ops integration)

From employee perspective in India, The other aspect which I think is going to be beneficial overall is expectation management. We were getting to a situation where 23 year olds were managing teams (15+) of younger 20/21 year olds! …. And if a promotion did not happen every year, then these same young folks would switch jobs . The current scenario will act as a good wakeup call and will be which is going to be good for the future of our people and the industry.

Valuations have become very attractive, while the ability to invest has also been eroded. As the market improves, we could be seeing some consolidation as smaller niche players may get acquired by the larger ones as they look to expand footprint and build wider capabilities. Some small /medium players will also exit as they will run out of cash. The big 3/5 in India and the big 3/5 non-India behemoths like IBM/Accenture will get bigger due to economies of scale and wide variety of offerings which they will bring together to add incremental value to customers. Having said this, there will be niche providers focusing on specific domains who will also do well if they have differentiated products and good management.

For Wipro, our sustained focus and early decisions on delivering services out of most economical delivery locations has proven to be an asset in a challenging economic environment.

PF: Thanks for your time, we really appreciate it Ashutosh.

Ashutosh Vaidya (pictured) is Sr. Vice President & Head – Wipro BPO Solutions. Industry veteran of over 23 years, Ashutosh is the Head for Wipro BPO Solutions. In this role he reports to the Joint CEO for Wipro’s IT business. His rich experience in the IT industry includes leadership roles in a variety of businesses including Products, Solutions and Services for Global markets. He has spent over 13 years at Wipro and has handled multiple responsibilities in diverse businesses.

Posted in : Business Process Outsourcing (BPO), Finance and Accounting, HR Outsourcing, IT Outsourcing / IT Services, Outsourcing Heros, Procurement and Supply Chain