The Hindu Business Line : BPO: Beyond information technology

THE slowdown in the global economy has led to many Western companies concentrating on their core business and outsourcing support activities. Outsourcing is not entirely new to India. It had its origin in the pre-Y2K days, when India was seen as a "code paradise" by panic-sticken Western software companies. Now the difference is that the work being outsourced goes beyond information technology.

There are two main reasons for this sudden rise in business process outsourcing (BPO) activity in the country. One is the huge market potential, and the other is that it is a survival option for many software development firms.

The basic requirement is to understand the various aspects of business process outsourcing before trying to establish synergies between the type of work done in software companies and what is needed to for them to transform into BPO units.

Contracting and outsourcing

Transferring select functions or services and delegating day-to-day management responsibility to a third party is known as business outsourcing. Outsourcing is not `contracting out'. While `contracting out' is often for limited duration, outsourcing is a long-term commitment by a company which agrees to provide the service to the client.

The risk in a contracting relationship is held by the customer and managed by the supplier. In outsourcing relationships there is a greater sharing of risk. Greater trust is needed to engage successfully in outsourcing than in a simple contracting situation.

This is because in outsourcing the supplier also assumes the risk, but the customer is more permanently affected by any failure on the supplier's part. While contracting is done within the model of a formal customer supplier relationship, the model in outsourcing relationship is one of true partnership.

The advantage of an outsourcing relationship is that it helps the client company focus on its core business processes. Further, its focus will be on improving its competitive position and searching the market place for opportunities in which the client company is expected to compete. It may be noted that the type of contract for software development falls under the category of `contracting out'.

New skill requirements

In any business organisation, the top management takes responsibility for determining the strategy of identifying resources and support. The key business processes of an organisation are taken care of by the operation and marketing departments. All other functional areas, such as finance, human resources and management information systems, function only to support the above processes.

The sub-processes of the above functions can be easily relocated in a process-managed organisation, in what is known as business process outsourcing (BPO). The components of information technology are used by BPO entities just to speed up the above sub-processes.

The competitive pressure on business enterprises to meet customer expectations is growing at a fast pace. The steady improvement of products and services is no longer sufficient to survive in the global market. Hence, enterprises are forced to realise that there is a need for a change in the way their workforce operates.

New skill requirements among the workforce in business enterprises underline the distinction between thinkers and the doers. This has made many business enterprises look for BPO units for their services and support functions, creating fresh opportunities for the latter.

Services from BPO units

Activities related to business enterprises, such as financial services, insurance, customer services and accounting are generally considered for BPO activities.

The sub-services to the above main services, such as data entry, analysis and interaction support have become the core activities for BPO units. The Table gives an idea of the service segments and the software required for handling a BPO activity.

Reengineering phase required

It is no longer enough for software companies to perceive their functions as converting business specifications into workable systems. Software companies that want to venture into BPO businesses have to adopt business process reengineering in their organisations.

The concept of BPR talks about the radical changes to be carried out in business enterprises. This has increasing relevance in the present globalising scenario for software companies, which are moving from just development of software to providing services as BPO units.

The relationship between a software development company and its client ends once the development work is completed. In a BPO unit, the business relationship with the client continues for a considerable time. Further, a BPO unit may even be considered an extension department of its client.

Keeping this in mind, software companies have to redesign their business processes, and need to rewrite the job description of their employees.

The emphasis will be on the training programmes and online learning, the functional activities and business processes in respect of enterprises such as finance institutions, trading organisation, manufacturing units and service organisations.

Now they are required to add value to business process of the above business enterprises rather than merely automate procedures.

New perception

Software professionals not only need to know the kind of software required to manage a particular business process, but also the processes that relate to the specific segments of the services provided.

They may feel they are familiar with the functional aspects of business enterprises when they have been involved in the development of software for a certain clients. Their familiarity in the function areas is restricted to the specifications given to them for the development of software.

In a BPO type of business, they need to know more of the functional activities of the business enterprise concerned. Now it has become necessity for software professionals to develop the skill of thinking out of the box.

Online learning

Though there are functional consultants in software companies, software professionals who are in BPO group require some kind of clarification while they are on the job. Keeping their requirements in view, software tools related to business processes are to be provided.

These tools should contain the details of all the functional activities and the business processes of the different kinds of enterprises. Software professionals can choose the required portion of the module for learning. They can also get an idea of the other aspects of business enterprises though they are not involved directly. Learning need no longer be after working hours. Continuous learning is becoming a necessity in a fast-changing global scenario. Clearly, a new learning paradigm is called for, especially for software professionals.

Opposition, opportunities

In pursuit of savings in operational costs, business enterprises in many Western countries are opting to outsource some of their business processes.

This decision results in many of their employees losing their jobs. Consequent to the backlash against such outsourcing, the US government recently passed a law banning the outsourcing of government contracts to companies outside the US.

However, according to Nasscom, the business impact of this law on the Indian IT industry will be limited, as less than 2 per cent of the share of US Government contracts in exports of IT software and services comes from India. This may come as solace to the software sector.

It may be interesting to note from a study by McKinsey Global Institute that the offshoring industry in the US is still in its nascent stage and is expected to grow 31-40 per cent annually in the next five years.

Commenting on the US law on outsourcing, the Disinvestment Minister, Mr Arun Shourie, advised Indian companies to diversity their market.

Giving an example of diversification, he saw that the German IT market is $66 billion in size while India's trade with that country is just $250 million.

Software companies need to realise that the components of IT alone are not being outsourced.

Any shoddy piece of work in a software development project will affect only the software company that is involved, but it is not the same with BPO business units. Here, a badly executed work component will not only affect the company but its clients as well. Further, the clients run the risk of losing their customers and their image may be at stake.

Actually, business enterprises want to concentrate on their core business activities and they consider BPO units as part of their business process. In fact, BPO business units are like extended departments of their clients.

Mr Shourie rightly said that we must continue to move up the value chain and evolve such solutions and services which are good and cost effective. As per his observation on the market diversification to Germany and McKinsey's study on the offshoring industry in the US, the opportunity certainly appears to be great for software companies, but they have to understand that software services and BPO require different sets of skills.

(The author is Professor, SSN School of Management and Computer Applications, Kalavakkam, Tamil Nadu.)

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