GLOBAL SERVICE DELIVERY : Light in the Dark

Thanks to the economic slowdown, the Global Service Delivery (GSD) model is
likely to witness a surge in the coming times since the enterprises would like
to maintain margins as well as move to lean and globally competitive cost
structures. Traditionally, companies have been averse to outsourcing core
functions and activities. This is changing now with recession forcing them to
look at outsourcing as a serious strategy to reduce operational cost.

The growth drivers continue to be cost, language skills and availability of
specific types of capabilities. Companies that have tasted success in global
outsourcing are driving more volumes, looking for new geographies, while those
who have begun global sourcing are looking to get a foothold in established
geographies. This is further forcing the enterprises to undertake a number of
steps like re-engineer processes to eliminate non-value generating activities,
define harmonized processes that are scalable and flexible, and increase
utilization and productivity. Apart from that, the firms want to automate to
reduce time and cost of delivery-integrated IT/BPO services to extract the most
from processes and IT systems in real time.

The current economic situation is likely to inspire companies to adopt this
model. The companies operating in this arena are also innovating their tools,
processes and methodologies to provide higher value services and better
alignment. Customers are increasingly looking at the service providers to reduce
their capital expenditure. This could be achieved through multiple means like
innovative pricing solutions or leveraging new technology trends like SaaS or
cloud computing.

Increasingly, enterprises are looking at having the same vendor for
infrastructure, application and business service. There is also an increased
expectation from service providers. Rather than providing only cost arbitrage,
service providers are expected to provide higher value by implementing process
best practices, upgrading business domain skills, and strong technology
consulting services.

There is also a definite movement towards tier-2 cities since attrition is
low and the cost of running operations is also substantially lower than in the
metros. Apart from this, many outsourcing firms are exploring having agents
working from home in an effort to reduce cost and attrition. However, there are
certain technological challenges being faced in the implementation of that
concept.

Tech Trends

In the technology arena, platform BPO, which is also known as
software-as-a-service (SaaS) is the strongest trend. Platform BPO basically
moves customers from a capex to opex model. While investments are high in
developing a platform for different verticals, the services are based on number
of transactions.

The trend is likely to catch on as enterprises start looking for solutions
which are low on capital expenditure. This offers an exciting opportunity to
move away from the traditional domain 'call center' service model to a domain
intensive 'transformational' service model. The firms which can partner
companies in their drive to launch new services as well as reduce opex or
improve gross margins are likely to be in great demand.

Experts panel

Gopal Devanahalli, VP and head of the communication service providers SBU, Infosys BPO PV Kannan, CEO, 24/7 Customer Subramanya C, global CTO, HTMT Global Solutions Naveen Joshua, executive director India, vCustomer Dhiraj Sinha, head of technology Practices & CoEs, Perot Systems' Applications Solutions Group

Technology consolidation is another important emerging trend in this arena.
It plays a vital role in the BPO industry as it helps save cost in various areas
of operations. Consolidation is key to resource optimization and builds a
framework to share resources optimally. The economic recession is further likely
to drive technology consolidation.

The firms are also adopting unified communications as a collaboration tool.
The lure of UC lies in the fact that it not only helps in increasing the
productivity per day, per employee but also promotes green advantages by
reducing travel and thereby reducing carbon footprints. BPO firms are actively
using UC by deploying IP networks as the foundation technology and then
deploying UC applications to provide a multimedia collaboration experience.

Many firms are also investing in next generation solutions in customer
lifecycle management that predict and optimize customer interaction. These
solutions combine advanced mathematical modeling and complex algorithms based on
data from the telecom network. There has been an increase in the adoption of
dynamic network routing based on the best path available. This can result in
lowest latency as well as best cost and efficiency.

Business trends are moving toward a more open and standardized technology
community. Voice and data protocols are no longer based on proprietary
technology to open standards. Open source systems are also making significant
progress.

In technology, there are many advancements being made in voice to data
conversion and in network management of the data. As a result, technology costs
are lowering and quality is increasing rapidly. From a telecom point of view,
VoIP, VPN, MPLS and encryption that protect the integrity of global data
transport have been around and are in different stages of adoption.

There is also an increase in the deployment of Multi-protocol Label Switching
(MPLS) networks in a big way because they offer a lot of flexibility, while
ramping up. More and more companies are also exploring the domestic market in
outsourcing especially in sectors like government, retail, BFSI and hospitality
services industry.

The Speed-breakers

Traditionally, enterprises have not looked beyond call centers as far as
outsourcing is concerned. The most significant challenge for GSD players has
been to convince the client of their ability to understand their business and to
provide tangible value.

While GSD has evolved over time, there is still a part of work that has to be
delivered from customer location or closer to customer location. This is going
to pose significant challenge for the pure play Indian vendors in stricter visa
regimen by the US and European nations.

Apart from that, the year gone by saw a substantial increase in labor costs
in offshore services, affecting margins. Since, typically, technology is the
second highest cost (labor being number one) as labor costs increase in offshore
services, they are affecting margins; and technology becomes the focus of
attention. Fortunately technology infrastructure costs have decreased.

Another challenge is the emergence of new destinations like the Philippines
and central America. There is a strong competition from new destinations and
Indian firms are under pressure to offer the best services at the most
competitive rate.

This year has also seen the industry grappling with another challenge, that
of managing currency, which has consumed a lot of time and effort of global
service providers. Establishing global standards that work locally and creating
a global culture are some of the other challenges.

The industry pricing models are changing from the traditional 'fixed' to
'variable' pricing model which are driven by the performance of the GSD vendor.
Many organizations also offer outcome-based pricing which converts the clients
fixed costs to variable costs.

India will continue to dominate the global BPO market. However, there is
certainly a surge in the emergence of other destinations like the Philippines,
China, Mexico and Romania.

The industry is likely to grow in the recessionary environment and
introduction of new technologies, maturing of processes and practices will
further increase the confidence of the enterprises in the GSD model.

Gagandeep Kaur

gagandeepk@cybermedia.co.in