The Hindu Business Line : BPOs can trim costs by 30%: Nasscom study

OPERATIONAL EXCELLENCE VITAL: (From left) Mr Kiran Karnik, President, Nasscom; Mr B. Ramalinga Raju, Chairman, Nasscom; and Mr Noshir Kaka, Partner, McKinsey & Co, at a press conference in the Capital on Thursday. - Kamal Narang

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New Delhi Feb. 1 As the country's IT-BPO industry is set to achieve its target of $60 billion exports by 2010, `operational excellence' would be one of the key drivers for companies to scale up operations even while reducing costs, states the findings of a joint Nasscom-McKinsey report.

While the industry faces cost-price pressure, IT companies can improve operating profits by 3-6 per cent and BPOs could reduce costs by 20-30 per cent by adopting a slew of measures.

"Focussing 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," said Mr Noshir Kaka, Partner, McKinsey & Co.

The report highlights that over 80 per cent of customers are satisfied with the performance of their offshore units, which has been the result of capable people, not institutionalised practices. However, with increasing client focus, there would be a greater pressure on offshore units. Despite wage inflation of 15-18 per cent per annum, offshoring would continue to remain robust.

According to the report, data operations performed better than voice operations primarily due to higher retention rates. The trend suggested that third-party providers outperformed captives.

Location vs cost

The survey reveals that operational practices and not location determined performance on key metrics such as cost and quality. For instance, a Mumbai-based data processes provider could offset the higher wage and infrastructure costs by containing attrition, ensuring an optimal skill and tenure mix among employees and achieving higher infrastructure utilisation and, hence, operate at 40 per cent lower costs than his counterparts in relatively cheaper cities such as Chennai.

Some hiccups

The Nasscom-McKinsey report said 30 per cent clients reported delays in deployment of people on particular projects or in certain cases higher deployment of senior resources on sub-critical projects.

It recommended that companies broaden their employee base to keep average employee costs down. This must be supplemented with robust recruitment, training, and stronger account management and larger projects.

"India has over 50 per cent of the global market in offshore services. By focussing on operational excellence, we could achieve the target of $60 billion in export revenues by 2010," said Mr Kiran Karnik, Nasscom President.

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