Companies will increasingly look at outsourcing IT and BPO work to the same vendor

Yes, the combination has an inherent value proposition. It is separated today because an effective, combined service is not generally available

A very senior O&T manager of a global US financial institution recently said to me that one of his biggest headaches was getting his IT and BPO vendors to work together effectively. The statement not only captures the essence of this situation but is all the more significant if you take into account that this company has captives in India for both IT as well as
BPO!

Akshya Bhargava CEO, Progeon

The customer does not want to manage too many partnerships today. Separate IT and BPO deals are more of a supply-side constraint

As the BPO industry matures in India, it will need to re-invent itself in many ways and one of these is to be able to combine effectively with IT. There are several reasons for this:

• BPO will evolve into an issue of competitive advantage for the outsourcing company rather than one of cost advantage. True competitive advantage will create true partnerships between customers and BPO service providers, with pricing based on savings achieved rather than hours spent.
• In order to deliver on this new paradigm, service providers will need to provide end-to-end solutions–because end-to-end services are what align best with the customer’s business and have the maximum margins for the service providers. 
• These end-to-end services will necessarily include technology because when customers are looking at business solutions, they do not separate IT and process. Indeed, it is separated today because an effective, combined service is not generally available. This is validated by my experience with several major companies who have either come to us looking for a combined BPO/IT proposition from Progeon/Infosys or during discussions, have indicated a very strong desire for a combined solution.
• However, effective combination of IT and BPO will begin to change both IT and BPO providers from their current position. Some resulting trends:
• BPO will drive IT: As customers outsource more and more processes, the core-process knowledge will begin to move from client organizations to vendors. Over time, product innovations will require process input before they can be translated into IT requirements. It is not hard to imagine one of our existing customers asking Progeon to translate new product features into process maps and then into a requirements document, which is the starting point for an IT project with
  Infosys!
• IT will define BPO: All major companies are slaves of quarterly performance and the pressure to show year-on-year savings is immense. The true success of a BPO deal is not only its year-one savings, but savings generated in year-two and beyond. BPO vendors will need to provide meaningful and measurable year-on-year savings to their customers and while some of it will come from process improvement techniques (Six Sigma and so on), much of it will come from automation of processes. It will be technology tools, a deep understanding of the domain and the effective application of this knowledge to workflow that will create a long-term competitive advantage for BPO service providers. A world class IT capability is an essential ingredient to world class
  BPO.
• Larger companies will benefit: As IT and BPO begins to converge, single providers will command a premium. They will also tend to be larger companies, with larger balance sheets, stronger financials and better ability to absorb some of the contractual liabilities that accompany this type of outsourcing. Combined deals will automatically play to the
  
  advantage of larger, integrated providers.
• Sales pitch will change from outsourcing benefits to solution selling: As vendors get better at offering integrated IT/BPO deals, the sales emphasis will shift to selling solutions than selling outsourcing deals. Further, as vendor sales-staff get better at positioning solutions, the basis of pricing will begin to change from a cost-plus to savings-based or transaction-based. Making this internal transition will be both painful yet necessary!
  
  Finally, I believe that the biggest competitive advantage that the Indian BPO industry has, is the existence of a mature, world-class IT industry in the country. Mutual leverage will be a key advantage because even though each business can, and does stand by itself, an integrated offering is not only something that the market is increasingly looking for but makes for an immensely powerful value proposition. 

No, it’s not true. The success of pure-play BPO companies globally is an indication of nullity of the hypothesis

It is my belief that the three keys to success in services are execution, execution and execution. Hence, with all things like domain expertise, access to capital, referenceable customers, ability to provide high-quality service, world-class infrastructure being equal, the fact that a company also provides IT services, will not provide any competitive advantage to any company.

Prakash Gurbaxani CEO, Transworks

The people, processes and even technology required to deliver BPO and IT services are dramatically different and so there is no reason for a corporation to look at one vendor to do both

There are several reasons for this belief.

• Nature of business: Inherently, IT services and BPO services are two different businesses, and a presence and success in one does not necessarily imply a success in the other. A lot of the BPO services work is real-time and needs to be performed throughout the year (more like an annuity requirement), whereas a bulk of the IT services work tends to be project-driven or initiative-led. Consequently, the people, processes and even technology required to deliver these two services are dramatically different and hence, there is no reason for a corporation to look at one vendor to do both if they find capable delivery partners for each kind of business.
• Market requirements: If we look at some of the largest BPO/contact center service providers in the US or UK today, they do not have an IT-services arm. However, they have been providing outsourced services running into multi-year, multi-million dollar contracts for almost all the leading corporations in the world. Some of these service providers have their own proprietary platform for delivery–Convergys for telecom billing, Exult for HR services, etc, built in partnership with other IT services companies. 

Further, our study of the market reveals that a majority of the companies do not necessarily have IT and BPO outsourcing requirements at the same time. While there are organizations that are looking at bundled IT/BPO development, these are few and far in between. My hypothesis is that in such cases, Indian IT services companies with a BPO arm will be competing with the likes of EDS, Accenture and IBM Global Services for the deal. For the majority that is looking at outsourcing pure BPO work, the delivery capabilities of the service provider in the specific process–call center, transaction processing, etc.–is the key driver for partner selection. 

Decision making/sales cycle: The decision making for offshore CRM/BPO in larger corporations takes place at the board level with the head of operations/customer service driving the initiative. However, the CIO with whom most of the relationship exists drives IT outsourcing. 

The sales cycle/process in IT and BPO deals are also different. In many cases of IT outsourcing, the due diligence process may not include an actual visit to the partner site and reference checks or conference calls with the delivery team may suffice.

However, in the case of BPO outsourcing deals, site visits and meeting with delivery people onsite in India is a key element.

Experience: Delivery of IT services is very different from delivery of customer interaction/back-office processing services on the key aspects of people and processes. Also, IT services companies run a significant risk of mixing their existing business with a business that carries risks that they may not be traditionally used to handling–high attrition and commoditization risks.

In fact, recently IT analyst firm Gartner, has raised a red flag on the BPO operations of existing software services companies.

The firm has given the BPO initiatives of existing Indian software services companies a ‘caution’ rating. The ‘caution’ rating is an indicator to clients that they need to conduct proper due diligence, tread with caution and not confuse or equate successful practices in the software services arena with those in the BPO space.

In summary, for pure-play BPO services outsourcing deals, the existing IT services companies do not hold any competitive advantage by the mere fact of being in the IT services business. However, for larger ‘total outsourcing’ deals, they may hold an advantage. However, ‘total outsourcing’ is a different business where they will have to compete with companies such as EDS and IBM Global Services. Maybe in the industry/media there is confusion between pure-play BPO services business and ‘total outsourcing deals’, and hence the confusion on whether or not the existing IT services companies in India hold a competitive edge in winning deals by the mere fact of being in IT services business.