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Introduction to BPO

Introduction to BPO

Presented by:INAM UL HAQ

Presented by:INAM UL HAQ

We will Cover…We will Cover…

What is Business Process Outsourcing? Importance of outsourcing Fundamentals of outsourcing Evolution Outsourcing in India Services being offered and Employment Attrition rate : A big Challenge Statistics Challenges Conclusion

What is Business Process Outsourcing? Importance of outsourcing Fundamentals of outsourcing Evolution Outsourcing in India Services being offered and Employment Attrition rate : A big Challenge Statistics Challenges Conclusion

Outsourcing is often defined as the delegation of non-core operations/jobs from internal production within a business to an external entity that specializes in that operation.

BP- A collection of interrelated work tasks, initiated in response to an event, that achieves a specific result for the customer of the process.

Business process outsourcing (BPO) is the leveraging of technology vendors to provide and manage a company's critical and/or non-critical enterprise applications.

Outsourcing is often defined as the delegation of non-core operations/jobs from internal production within a business to an external entity that specializes in that operation.

BP- A collection of interrelated work tasks, initiated in response to an event, that achieves a specific result for the customer of the process.

Business process outsourcing (BPO) is the leveraging of technology vendors to provide and manage a company's critical and/or non-critical enterprise applications.

What is Business Process Outsourcing?

What is Business Process Outsourcing?

BPOBPOOn the basis of Operations Back Office Outsourcing : Includes internal business

functions . Ex- billing, purchasing, management. Front Office Outsourcing : Includes customer-related

services. Ex-marketing, tech reports, claim processing

On the basis of Contracts Off-shore outsourcing : Contracted outside a

company's own country Near-shore outsourcing : Contracted to a company's

neighboring country On-shore outsourcing : Contracted within the

company's own country

On the basis of Operations Back Office Outsourcing : Includes internal business

functions . Ex- billing, purchasing, management. Front Office Outsourcing : Includes customer-related

services. Ex-marketing, tech reports, claim processing

On the basis of Contracts Off-shore outsourcing : Contracted outside a

company's own country Near-shore outsourcing : Contracted to a company's

neighboring country On-shore outsourcing : Contracted within the

company's own country

Why do companies outsource?

Why do companies outsource?

Cost Reduction Factor Cost Reduction Factor being the main reason there are some other benefits :» Improve efficiency» Reduce operating costs» Offload non-core functions» Provide value-added services» Get access to specialized skills» Increase customer satisfaction» Save on manpower and training costs

Cost Reduction Factor Cost Reduction Factor being the main reason there are some other benefits :» Improve efficiency» Reduce operating costs» Offload non-core functions» Provide value-added services» Get access to specialized skills» Increase customer satisfaction» Save on manpower and training costs

OutsourceOutsource Outsource if:

» Comparable or better service levels» Significant cost advantages from outsourcing» Skill competencies not available in organization» Function non-core and/or not a competitive

niche» Tasks which are Economically unviable for the

companies. » Tasks which are Economically unviable for the

companies. » Example: IT, HR, Sales & Marketing, Data Entry

Outsource if:» Comparable or better service levels» Significant cost advantages from outsourcing» Skill competencies not available in organization» Function non-core and/or not a competitive

niche» Tasks which are Economically unviable for the

companies. » Tasks which are Economically unviable for the

companies. » Example: IT, HR, Sales & Marketing, Data Entry

InsourceInsource Insource if:

» No cost advantages from outsourcing» Critical to the business -Processes that

incorporate your core competencies.» Processes that are associated with the

reputation of your company.» High cost of monitoring/administering

outsourcing partner.» Service levels better within organization-

Processes that require access to intellectual property of your company.

Insource if:» No cost advantages from outsourcing» Critical to the business -Processes that

incorporate your core competencies.» Processes that are associated with the

reputation of your company.» High cost of monitoring/administering

outsourcing partner.» Service levels better within organization-

Processes that require access to intellectual property of your company.

EvolutionEvolution 1970s to early 1990s

» Shortage of skills» Cost was the prime driver» Own skills were preferred

1994 to 1998» Post liberalization » Companies focused on acquiring diverse

skills » Achieving client delight

1970s to early 1990s» Shortage of skills» Cost was the prime driver» Own skills were preferred

1994 to 1998» Post liberalization » Companies focused on acquiring diverse

skills » Achieving client delight

Evolution Contd…Evolution Contd… 1999 to 2001

» Customer relationship management» Achieve excellence in quality of output» Making investments in R&D» Expanding services to IT consulting

2002 to present» R&D, architecture and business

integration» Gaining more and more IT expertise» Focus on providing all problem’s

solutions

1999 to 2001» Customer relationship management» Achieve excellence in quality of output» Making investments in R&D» Expanding services to IT consulting

2002 to present» R&D, architecture and business

integration» Gaining more and more IT expertise» Focus on providing all problem’s

solutions

HurdlesHurdles Idea of outsourcing (competitive advantage) was

propagated in 1776, ‘The Wealth of Nation’ by Adam Smith

Till 1994, the Indian Telecom sector was under direct governmental control.

In 1994, the government announced it liberalized and private participation was encouraged.

The New Telecom Policy (1999) introduced IP telephony and ended the state monopoly on international calling facilities.

American Express, GE Capital and British Airways

Idea of outsourcing (competitive advantage) was propagated in 1776, ‘The Wealth of Nation’ by Adam Smith

Till 1994, the Indian Telecom sector was under direct governmental control.

In 1994, the government announced it liberalized and private participation was encouraged.

The New Telecom Policy (1999) introduced IP telephony and ended the state monopoly on international calling facilities.

American Express, GE Capital and British Airways

BPOs in IndiaBPOs in India India has become the hottest destination

for outsourcing because it has:» Head start in the global IT revolution» Availability of manpower» A friendly tax structure» Cheap Labour » Number of companies offering ITES services» Largest pool of English speaking scientific and

technical talent» Offering 24*7 services services based on

geographical location

India has become the hottest destination for outsourcing because it has:» Head start in the global IT revolution» Availability of manpower» A friendly tax structure» Cheap Labour » Number of companies offering ITES services» Largest pool of English speaking scientific and

technical talent» Offering 24*7 services services based on

geographical location

Attractiveness IndexAttractiveness Index Depends on

» Talent pool» Govr. Support» English speaking

staff» Education level» Cost Factor» IT industry

Depends on» Talent pool» Govr. Support» English speaking

staff» Education level» Cost Factor» IT industry

Rank CountryAttractivene

ss Index

1 India 7.12

2 China 5.61

3 Malaysia 5.59

4Crzech

Republic5.58

5 Singapore 5.45

6 Philippines 5.45

7 Brazil 5.44

8 Poland 5.33

9 Hungary 5.29

10 Thailand 5.20

Services Being OfferedServices Being Offered

Customer Support Services» Order status, Services, Products, Acc.

status, Reservation status Technical Support Services

» Home PC, Software and Hardware problems, About ISPs

Employee IT Help-desk Services» OS, Connectivity, Browser, Mail, IT

operational issues

Customer Support Services» Order status, Services, Products, Acc.

status, Reservation status Technical Support Services

» Home PC, Software and Hardware problems, About ISPs

Employee IT Help-desk Services» OS, Connectivity, Browser, Mail, IT

operational issues

Services Being Offered Contd…

Services Being Offered Contd…

Telemarketing Services» Sale and purchase of products and

services, cross-sell or sell online Book Keeping and Accounting Services

» Managing accounts, General ledger and financial issues

Insurance Processing» Policy Insurance, Claim payments, Record

Managements Data processing services

Telemarketing Services» Sale and purchase of products and

services, cross-sell or sell online Book Keeping and Accounting Services

» Managing accounts, General ledger and financial issues

Insurance Processing» Policy Insurance, Claim payments, Record

Managements Data processing services

US Jobs Moving Off-shoreUS Jobs Moving Off-shore

Job\Year 2000 2005 2010 2015

Management

0 37,477 117,835 88,281

Business 10,787 61,252 161,722 48,028

Computer 27,171 108,991 276,954 72,632

Architecture

3,498 32,302 83,237 84,347

Life Sciences

0 3,677 14,478 36,770

Legal 1,793 14,220 34,673 74,642

Art, Design 818 5,576 13,846 29,639

Sales 4,619 29,064 97,321 26,564

Office 53,987 295,034 791,034 1,659,310

Total 102,674 587,592 1,591,101 3,320,213Source: U.S Department of Labour and Forrester Research, Inc.

EmploymentEmployment Education level doesn't matter Good work environment & Good Benefits Flexibility of time & Attractive life style

Education level doesn't matter Good work environment & Good Benefits Flexibility of time & Attractive life style

Employment: Indian Software and Services sectorSector FY 2004 FY 2005 FY 2006 FY 2007 E

IT Services 215000 297000 398000 562000ITES-BPO 216000 316000 415000 545000

Engineering Services and

R&D, Software Products

81000 93000 115000 144000

Domestic Market

(including user organizations)

318000 352000 365000 378000

Total 830,000 1,058,000 1,293,000 1,630,000

Cost Per Full Time Employee

Cost Per Full Time Employee

US$ Cost per FTE(Full Time Employee)

United States India India as % of US costs

Personnel 42,927 6,179 14%

G&A Expense 8,571 1,000 12%

Telecom 1,500 2,328 155%

Property Rentals 2,600 847 33%

Depreciation 3,000 1,500 50%

TOTAL EXPENSES 58,598 11,854 20%

Source: Industry Sources, Merill Lynch 2003     (From the Nasscom Strategic Review 2003)

Why people leave the BPO's?

Why people leave the BPO's?

No growth opportunity/lack of promotion For higher Salary For higher education Physical strains Uneasy relationship with peers or

managers Misguidance by the company Policies and procedures are not

conducive Got a better job in other area

No growth opportunity/lack of promotion For higher Salary For higher education Physical strains Uneasy relationship with peers or

managers Misguidance by the company Policies and procedures are not

conducive Got a better job in other area

S. No

2004-05 2005-062006-2007

Exports in INR (crore)

1 WNS Genpact Genpact 2,220

2 Wipro BPO WNSTransworks(15th

)1,510

3 HCL BPO Services Wipro BPO IBM Daksh 1,260

4 IBM Daksh HCL BPO Services TCS BPO(14th) 1,107

5 Exl Services ICICI OneSourceCambridge Solutions

1,000

6MphasiS (Earlier

MSource)IBM Daksh

WNS Global Services

990

7 Intelenet Global Progeon Wipro BPO 935

8 ICICI OneSource Aegis BPO Services Convergys India 890

9 GTL EXL Service Holdings First source 809

10 Progeon 24/7 Customer (11th) HCL BPO 746

Source: Nasscom 2005 Survey Last updated on 21 Aug 2007

Top 10 BPOs in IndiaTop 10 BPOs in India

Indian Market size estimatesIndian Market size estimates

Revenue \ Year 2002 2003 2004 2005 2006 2007 CAGR

Offshore BPO Revenue

1,322 1,825 3,017 6,439 12,563 24,230 78.91

Indian BPO Revenue

912 1,205 1,961 3,928 7,412 13,811 69.35

Total BPO Market110,16

7121,68

7131,17

1143,09

0157,03

3173,07

09.45

Figures in $ million CAGR(Compounded Annual Growth Rate) in % 2002-

07 Source: Gartner Dataquest

Estimates For Year 2008Estimates For Year 2008

By Gartner DataQuest By Gartner DataQuest

India's BPO Market in 2008

Service Line First Estimate (1999) Second Estimate (2001)

HR 5.4 3.5-4.0

Customer Care 4.1 8.0-8.5

Payment Services 2.9 3.0-3.5

Content Development 2.6 2.5-3.0

Administration 1.3 1.5-2.0

Finance 0.7 2.5-3.0

Total 17.0 21.0-24.0

Figures in $ billion

Indian IT SectorIndian IT SectorIndian IT Industry by Sector

USD billion FY 2004 FY 2005 FY 2006 FY 2007E

IT Services 10.4 13.5 17.8 23.7-Exports 7.3 10.0 13.3 18.1-Domestic 3.1 3.5 4.5 5.6ITES-BPO 3.4 5.2 7.2 9.5-Exports 3.1 4.6 6.3 8.3-Domestic 0.3 0.6 0.9 1.2Engineering Services and R&D, Software Products 2.9 3.9 5.3 6.5

-Exports 2.5 3.1 4.0 4.9-Domestic 0.4 0.8 1.3 1.6

Total Software and Services RevenuesOf which, exports

16.7 22.6 30.3 39.712.9 17.7 23.6 31.3

Hardware 5.0 5.9 7.0 8.2Total IT Industry (including Hardware) 21.6 28.4 37.4 47.8Source: NASSCOM STRATEGIC REVIEW 2007

India’s GrowthIndia’s Growth

IT industry has grown its revenues ten fold in the past decade, from $4.8 billion in FY 1997-98 to $47.8 billion in FY 2006-07

contribution to GDP is estimated to have grown from 1.2% to 5.4%(4.8% last year) in the same period

BFSI, Telecom and Hi-Tech verticals continue to account for approximately 60% of the market for Indian IT

IT industry has grown its revenues ten fold in the past decade, from $4.8 billion in FY 1997-98 to $47.8 billion in FY 2006-07

contribution to GDP is estimated to have grown from 1.2% to 5.4%(4.8% last year) in the same period

BFSI, Telecom and Hi-Tech verticals continue to account for approximately 60% of the market for Indian IT

BPO on RiseBPO on Rise

0.81.8

3.1 3.1

4.9

8.7

19.877%

38%

44%40%

29%

13%

45%

0

5

10

15

20

25

Mexico China Philippines Central &EasternEurope

Others Canada India

$ B

0%

15%

30%

45%

60%

75%

90%

% (CAGR)

2002 2005 2008 CAGR

High Attrition Rate: A Challenge

High Attrition Rate: A Challenge

Attrition : Its basically reduction in the number of employees through retirement, resignation or death.

Attrition rate : The rate of shrinkage in size or number.

In terms of numbers, Attrition Rate means:

Total Number of Resigns per month (Whether voluntary or forced)

(Total Number of employees at the beginning of the month + total number of new joiners - total number of resignations)

Attrition : Its basically reduction in the number of employees through retirement, resignation or death.

Attrition rate : The rate of shrinkage in size or number.

In terms of numbers, Attrition Rate means:

Total Number of Resigns per month (Whether voluntary or forced)

(Total Number of employees at the beginning of the month + total number of new joiners - total number of resignations)

X 100

Attrition Rate in INDIAAttrition Rate in INDIA

In India, the average attrition rate in the BPO sector is approximately 35-40 percent.

about 35% in nonvoice and 45% in voice call centers At an attrition rate of 40%, the cost of attrition in

the industry is 1.5 times the annual salary. The IT enabled services (BPO) industry is being

looked upon as the next big employment generator (Nasscom predicts 1.1 million job requirement by the year 2008). It is however no easy task for an company in this sector to bridge the ever increasing demand and supply gap of professionals

In India, the average attrition rate in the BPO sector is approximately 35-40 percent.

about 35% in nonvoice and 45% in voice call centers At an attrition rate of 40%, the cost of attrition in

the industry is 1.5 times the annual salary. The IT enabled services (BPO) industry is being

looked upon as the next big employment generator (Nasscom predicts 1.1 million job requirement by the year 2008). It is however no easy task for an company in this sector to bridge the ever increasing demand and supply gap of professionals

CausesCauses

The much hyped "work for fun" tag normally associated with the industry has in fact backfired, as many individuals (mostly fresh graduates), take it as a pas-time job. Once they join the sector and understand its requirements, they are taken aback by the long working hours and later monotony of the job starts setting in. Many individuals are not able to take the pressures of work.

The toughness of the job and timings is not adequately conveyed.

Besides the induction and project training, not much investment has been done to evolve a "continuous training program" for the agents. Motivational training is still to evolve in this industry.

The much hyped "work for fun" tag normally associated with the industry has in fact backfired, as many individuals (mostly fresh graduates), take it as a pas-time job. Once they join the sector and understand its requirements, they are taken aback by the long working hours and later monotony of the job starts setting in. Many individuals are not able to take the pressures of work.

The toughness of the job and timings is not adequately conveyed.

Besides the induction and project training, not much investment has been done to evolve a "continuous training program" for the agents. Motivational training is still to evolve in this industry.

Causes Continue…Causes Continue…

The high percentage of females in the workforce (constituting 30-35 percent of the total), adds to the high attrition rate. Most women leave their job either after marriage or because of social pressures caused by irregular working hours in the industry.

The industry has concentrated on hiring young, dynamic and these are looking for more than just a job.

If a person leaves after the training it costs the company about Rs 60,000. For a 300-seater call centre facing the normal 30 percent attrition, this translates into Rs 60 lac per annum.

The high percentage of females in the workforce (constituting 30-35 percent of the total), adds to the high attrition rate. Most women leave their job either after marriage or because of social pressures caused by irregular working hours in the industry.

The industry has concentrated on hiring young, dynamic and these are looking for more than just a job.

If a person leaves after the training it costs the company about Rs 60,000. For a 300-seater call centre facing the normal 30 percent attrition, this translates into Rs 60 lac per annum.

RemediesRemedies By hiring mature talent i.e. people over 30 years in age. Employee retention must be the focus, which means that

talent must be recognized and suitably rewarded. Hire outstation candidates (from small towns) and

provided them with shared accommodation. BPO must concentrate on becoming an 'employer of

choice'. A comprehensive process framework and access to proper infrastructure in the work place goes a long way in retaining employees, as a congenial work environment is critical.

However, it is interesting to note that the attrition rates in India - and the costs associated - are so high that they can override the benefits of lower wage costs.

By hiring mature talent i.e. people over 30 years in age. Employee retention must be the focus, which means that

talent must be recognized and suitably rewarded. Hire outstation candidates (from small towns) and

provided them with shared accommodation. BPO must concentrate on becoming an 'employer of

choice'. A comprehensive process framework and access to proper infrastructure in the work place goes a long way in retaining employees, as a congenial work environment is critical.

However, it is interesting to note that the attrition rates in India - and the costs associated - are so high that they can override the benefits of lower wage costs.

Other ChallengesOther Challenges

According to Gartner India is likely to lose market share in offshore business process outsourcing, from its current 80% to about 55% by 2008.

The BPO business requires English-speaking employees with a basic education - available in abundance in most countries where English is spoken.

According to Gartner India is likely to lose market share in offshore business process outsourcing, from its current 80% to about 55% by 2008.

The BPO business requires English-speaking employees with a basic education - available in abundance in most countries where English is spoken.

Thank YouThank You

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