Outsourcing trends–A Google eye’s view...

In past one month we have done lot of posts about outsourcing, BPO, KPO, outsourcing policies. It would make sense to see the search trends related to our buzzword “outsourcing”. Google insights is a tool that has become an important decision-making tool on the web these days. While doing the insight search on outsourcing, it is important to note that world business and IT business has gone through transition, so the search results obviously would be responsive to the “changes”.

Just to put it into perspective; say for example you decide to buy a laptop, it is expected that you would search for various brands of the laptop. After sometime, it is expected that you will search for laptop accessories, so it is quite possible that in a region for e.g. India, if insight search displays lot of density for search term “external drive”, then it is not necessary that laptop sales have gone down, it can simply mean that people are more aware about laptops now, and directly visit the brand site to buy the laptop.

It isn’t surprising that India tops the list, with it being the number one outsourcing hub during the last few years. Lots of SME’s have entered into the ITO and BPO, people have known about it and lots of new players have ventured into outsourcing. The outsourcing has flattened the world so much that even students who have heard about the term have searched for it on the Internet. Before we know—the same students have got together and put up a company.

Most of the searches in this area in recent years are related to IT outsourcing. It is interesting to note that the most rising searches are KPO and RPO.

More and more companies have started venturing out into KPO and RPO. KPO requires lot of research, so searches related to KPO will be high.

Like I mentioned previously that the trends would depend a lot on the current scenarios. There has been a lot happening since Obama has come to power. It is reflected in the search volumes of outsourcing in the last one year.

There is almost a break out on the searches for “Obama outsourcing policy”. No wonder, while writing this, I had gone through many SERP’s for the same term.

Overall, there are no surprises. Outsourcing search trends are very similar to the way outsourcing industry is progressing. It will be interesting to see the search trends next year after recession waters will recede and policies will take more concrete shape.

…From BPO to KPO…. Revisited...

Follow up to BPO to KPO.

We see how BPO is giving place to a new name i.e. KPO. World economy is opening up. Outsourcing is leveling the playfield in an unprecedented manner. The changing nature of technical work, equal opportunities as a result of globalization, huge talent pools in Asian countries etc, are few reasons of the dynamism.

UK and US still the key players

Many see KPO as the next big thing in the outsourcing industry. Earlier post talks about how KPO is different from BPO. It seems most of the outsourcing is concentrated towards Asian sectors, which is largely due to huge English speaking population in these sectors. KPO can work on the shortcomings of BPO i.e. concentrate on other European and Latin markets and tap these highly potential areas of doing business. Since KPO is more bent on research and engineering solutions, the “cultural” and “linguistic” gaps associated with doing business in respective countries shouldn’t be as huge as compared BPO sector. UK and US markets will continue to be the main contributors in KPO till then.

What can be done?

So what can SME’s and large businesses of India (and Asian for that matter) do to take the next step for realizing the KPO potential? Few actions might include:

• Continuous focus on infrastructure creation
• Continuous focus on the improvement of skill-sets in the talent pool
• “Engineering value” brand creation
• Gaining domain experience by the way of relationships with the experts
• Leveraging the local industry potential or aligning them with future targets.

If the reports [1] are held in true light, the growth in KPO industry will be relentless in the coming years. Few highlights from the reports:

• Engineering services market to increase to $1.1 trillion by 2020.
• India’s share in the market to increase from 12% to 30%

Are you already considering a change in your outsourcing strategy?

These results will have huge bearing on outsourcing trends. India and the Asian countries will have to look into their plans for incorporating this new avenue. Few trends, which are likely to be seen, are:

• Professionals with diverse work experience will be high on demand
• SME’s will play huge role as the “critical size” required by the KPO would be very low compared to the BPO’s.
• We might see a deluge of acquisitions and mergers as companies will collaborate and try to workout a strategy that will help the companies to gain domain expertise, and also allow them to become “multi-service” companies.

Any bottlenecks?

Yes, low employability will be a concern. There’s a feeling that the graduates might not fulfill KPO industry’s demand. Very few graduates want to work in a knowledge space. Well we cannot coerce people to work in an industry. May be such things need to tackled at “ground zero”, where graduates can be made aware of the industry and its prospects.

So is your company ready to take the “B” to “K”?

Outsourcing and Globalization –A review...

High school social science’s and economics books mention how goods and services are exchanged between various cultures/societies/countries. We read about how the exchange empowers different locations to tackle with the problems that are locally not possible (or inefficient)—Globalization, it is more of a realization, when we come out of the textbooks and enter the actual phenomenon. Globalization is finally living up to its meaning with outsourcing giving the required shot in the arm.

“Globalization has changed us into a company that searches the world, not just to sell or to source, but to find intellectual capital – the world’s best talents and greatest ideas.”

—Jack Welch

Outsourcing is unparalleled for its contribution to globalization. Outsourcing has been successful in merging trade boundaries, in a way never seen before; it’s not uncommon now, when a person sitting in Hyderabad talks about a new product that has been released by a company in Texas.

The previously cautious economies of developing countries are now breaking “shells” because companies and people are more fearless now. Not only has outsourcing generated knowledge and wealth in the developing countries, we now see organizations from emerging countries moving out to U.S, Europe and Japan for business development.

Outsourcing –> Globalization–> is leading to:

• World becoming a big single-market place
• More awareness among individuals, which is a direct result of exposure that people gain from working in different market environments.
• Narrowing of gap among the regional labor rates (across all the countries)
• Proactive approaches being followed for innovating existing models of doing business.

India is a key player in outsourcing (ITO and BPO). The cheap Internet and Human resources will enable India to continuously thrive in a Global and “ever-looking-to-make-profit” market. But Indian companies need to take a step further in order to call themselves global; Indian companies have to change their hiring model by becoming fully engaged local citizens in local markets, rather than becoming all-Indian companies that employ predominantly Indian staffs. Such a practice will not only be helpful to the “parent” country economy, but it will also sow seeds for further globalization when people from such countries bring more knowledge and skill-sets into India (and similar developing countries in other contexts).

Something that will need constant eyeballing:

As global competition will intensify, emerging-market businesses will fight aggressively for talent and would want to extract more effort out of every person, causing a degree of parity in compensation and improvements in workplace conditions globally, but a decline in the work-life balance. One would want to keep a check on such a thing.

Service globalization is truly a bringing-us-closer phenomenon, not only professionally but also in binding various cultures. There will be a time when the cost benefits gained due to outsourcing will attain “homeostasis”. As the global market space will expand, businesses will see how well they can adapt to various cultural changes [1]. Globalization is crossing the usual business borders, so where are you right now?

I remember reading in a social science textbook about how gypsies used to roam around the Europe in medieval times and parade “inventions” from time to time. I think the process started long time back, the various cultures exposed to outsourcing used to build upon the inventions that were brought to them by the gypsies. Gypsies, Outsourcing, globalization…I am confused—do u see where I am coming from?

Notes:

From BPO to KPO—The road ahead…...

Some “Number-facts”:

Indian KPO Market size in 2006-2007:  $3 billion approx.

Estimated KPO Market size in 2010-2011:  $11.2 billion approx.

Employing: from 75K in 2006-2007 to 255 K in 2011. [1]

Indian BPO industry estimates are here

Just in case we missed it:

Knowledge process outsourcing (KPO) is a form of outsourcing, in which knowledge-related and information-related work is carried out by workers in a different company or by a subsidiary of the same organization, which may be in the same country or in an offshore location to save cost. [2]

KPO is many times thought of as an extension to BPO, definition is worth advocating if the differences are retained well. “K” is the key in KPO. That is where KPO is so different from BPO. The level of complexity involved in KPO is immense; one would assume that it is for the same reason that KPO is taking rapid but small strides.

“So what makes KPO very different from BPO?” If somebody asks this, our obvious response would be– “Knowledge of course”. KPO demands:

• Very high technical and analytical skills from clients
• Intensive knowledge of domains of the client
• Ability to research and take business decisions on behalf of the client.

As Dr Richard Sykes puts it:

“KPO is merely a continuation of BPO, though with rather more business complexity. The defining difference is that KPO is usually focused on knowledge-intensive business processes that require significant domain expertise. The offshore team servicing a KPO contract cannot be easily hired overnight as they will be highly educated and trained, and trusted to take decisions on behalf of the client.” [2]

So KPO might mean delegating “power” and responsibility to the vendor. BPO generally involves hiring people at the lower stratum of a clients business to reduce costs by off-shoring. But KPO seeks to delegate “high-business-competence” activities to the vendor and gain cost benefits that are otherwise not possible. For e.g. a highly reputed U.S firm requires an R&D department for its new product. Setting up such an office in Bangalore would be called as KPO. Again, to maintain the patents and consistency in laws that accompany production in India have to be taken care by a LLB, and yes that would have to be another expert from India. So the whole process aims to set up an independent process through a vendor, which can coordinate with the client.

Of course, to achieve the required, vendors need to maintain high quality service levels by employing and training specialized professionals in various knowledge-intensive high-skill sectors. Unlike the BPO, which is process-centric, KPO concentrates more on knowledge expertise and requires service providers to possess very high technical and analytical skills.

KPO isn’t only about “arbitrage”, it intends to provide highest quality business expertise by improving clients time to market, absorbing pressure and by enhancing overall efficiency. In doing so, KPO invents seeds for new business models, since vendors have huge knowledge base in their own country, which can lead to further emergence of new players in the industry. “New players” means varied expertise, which means further expansion.

All said and done, it is not easy to set up KPO unit, because unlike the BPO, wrong hiring in BPO can lead to quality compromise. The recruitment for KPO has to be of highest quality, and should ensure that people have very high domain experience on the road reaching to this “job”. Of course, such an industry would thrive only if the experts are retained.

KPO is to outsourcing industry, what a joker is to game of poker, but if not used properly, “risks” are high. But lots of highly specialized vendors have come to spread the awareness of KPO that will prompt  SMEs to take a step towards “BPO—KPO” integration [3].

U.S outsourcing policy and its implications...

Follow up to what happens to my IT department, Outsourcing ethics

Individual business policies adopted by the governments can impact the way businesses are done. In the previous post, there was a mention about how government can have a control over the outsourcing policies, so that jobs are not outsourced indiscriminately.

Well that is true, a recent bill proposed by President Obama does deal with the outsourcing issue.

The proposed policy suggests increasing the tax on the benefits gained from outsourcing the jobs from U.S. Basically, the policy will succeed in achieving its target if there are fewer incentives for the U.S companies to outsource their operations. Although the policy aims at a beginning to create and conserve more jobs in U.S, it’s worth to look at the implications of the policies, especially, to see how that affects Indian outsourcing market.

The policy will definitely affect the foreign companies that are operating in U.S. The policy will mean that the foreign companies will have to pay lot of tax on the labor imported by them. WSJ and LA estimate a tax rate of 55% on foreign companies. That will be a setback for countries like India, which is the biggest player in outsourcing industry. A present slump in number of H1B visas taken up is anything but a reflection of the same.

Foreign companies might savor the advantage due to lack of competitiveness from U.S companies (owing to a high cost). But, in the long term, it will hurt all the economies, since U.S investment is a big factor and reduced investment from U.S means reduced money in all the markets, especially India.

But the policy will not lead to automatically stop the U.S companies from outsourcing work from home to India. Chances are that comparative cost advantages that countries like India might still provide, would outweigh the loss incurred by the tax loss companies will face in the US.

Indian third party companies who outsource work will still continue to rise, because these companies operate within the supplier country and may not be affected by the tax policy.

A rise in domestic BPO sector is an indicator of that. It is possible that some third party companies will be affected because of regulations on the US counterparts, but that is yet to be seen.

The world market is highly competitive and one has to compete in a free market, “closing doors” and “protectionism” is not a solution. The policy makers will have to realize that and instead concentrate on stronger ways of tackling the situation, for e.g. by investing in education, science and technology, renewable energy sources, etc.

Ensuring a stable economic environment is prerogative of every government. But the world economy cannot be put on balance to attain such a balance. Outsourcing has been number one player in world economy globalization, economic growth, and generating employment. So one would need to think about policies that are mutually exclusive of the benefits they provide by retaining jobs in home country as well as overall growth.

Outsourcing ethics– a case for retrospection...

Outsourcing is now a huge hit. It is probably like a direction style in the movie “pulp fiction”, which has been adopted widely ever since. The details are worked out, every business that can take benefit from the strategy is going for it. Why not? Isn’t business about surviving? If a business is a family, the heads must ensure that the family is doing good, whatever be the means to achieve the end. Really?

Outsourcing is nothing new (more about this later), IT outsourcing probably stands out because of the reason that outsourcing in this area has crossed-boundaries with respect to traditional ways of outsourcing; no longer outsourcing is restricted to “parts” of business being outsourced; many businesses now believe in outsourcing to get “finished products”.

But, there is something larger (is it?) than just the business, which might have to be dealt with. “Where’s my job?” “What happens to my IT department?” “Is my future a function of outsourcing?” and above all, “Do the ends justify the means?” These are the few questions that have to be answered, not at the business level per say, but certainly at a level closely related to it—“business ethics”.

At a macroscopic level, outsourcing means lesser jobs in the native country or the provider company!! Nobody can probably deny that. That is obviously disappointing for the native country citizens as well as the aspiring “job holders”, and the job seekers.

Economic benefit of outsourcing is lower costs. Lower cost is attributed to greater efficiency and competition. Lower cost is a result of greater competition among the “in-house” workers, which ultimately leads to driving down salaries and benefits. So the economic benefits of outsourcing are mostly to do with the pockets of the employees.

The above scenario takes us back to the Karl Max days, where high value was given to “economic justice”. Businesses increasing profits at the cost of employees will lead to social economic imbalance and to social injustice in the end. Business or no business, everybody wants a means to survive, a job to support him or her. These are the bare minimums that are expected by a social human being.

Outsourcing definitely has put a question mark over the future of graduates who want to pursue an IT career. Already existing employees in the organizations also face the danger of being replaced. The benefits of low cost seem to be available to only few. After all, a corporation has a legitimate interest in self-preservation, which it does by offering competitive prices to the customers and providing monetary rewards to top managers and those who assume risk by buying the company’s stock.

Although, there are “Bill of rights” and a legal system in place to tackle such situations, corporate world is certainly a place where “cost as end is used to justify the many decisions” (more on the recent outsourcing policies in later post).

Those familiar with ethics would probably know that there isn’t a single definite answer that will prove to be a “cure for all”. The actions taken by a government or state to ensure the social prosperity of the locals will vary from country to country, place to place.

Saying that however, outsourcing has obvious benefits and it raises the economy and the standard of living for the society as a whole. So the “ends” definitely are good, but the question remains about how well the benefits are distributed and do the society good at a more practical and individual levels. Questions have to be asked if the policies and resulting gains should come at the expense of hapless commoners’.

So where does all this discussion lead us to? As already pointed out, discussions such as these have no single answer, but the discussions are [means] and important to effect the results. Thought has to be given if alternative policies can do better than the existing ones. Necessary “win-win” policies have to be in place, which challenge us to outsource only when the displaced employees also benefit in the process.  As they say—“Only that good is good which is good for larger group”. Time has come that the problem is actively addressed and tackled “ethically”.

“What happens to my IT department?”...

If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business.  –Once quoted by former Singapore prime minister.

“If you don’t adapt, you will not survive” or “If you will see outsourcing as a bane, you will perish”. Not trying to sound dramatic, but an American IT graduate would question the above “hyperboles”. “IT outsourcing will mean I have fewer options to choose from or I may end up jobless”. To this, one would respond—“so u think competence and business strategies should give way for Americans, just because the jobs happen to be in America?”

From a young American perspective, one would say that asking the questions like those is valid and very human. It’s about Darwinian survival, people and businesses both need to survive (more on those emotional aspects in a later post). We have already witnessed great dynamics in IT outsourcing world, esp. with respect to American IT outsourcing.

A source (link at the end) quotes that there are more than 14 million jobs in America, which are vulnerable to offshore outsourcing. An obvious question an IT employee in America would ask—“What happens to my IT department”.

Many big IT companies that currently have huge in-house IT departments also raise the question.

“Outsourcing a part or complete IT department frees up a company’s valued IT personnel so they can support their mission critical business processes. In addition many companies today are finding that they cannot take the risk or endure the financial burden of running their whole IT department in-house.”

So whether to outsource or not is no longer an option anymore. How to strategically outsource so that the whole exercise is dealt without any derived problems? Yes, that is something more of a practical question and needs to be thought upon.

The answer to the question lies somewhere in the middle of going for a complete IT department outsourcing and not doing it at all. One has to carefully plan and cut the IT department gradually, increase outsourcing, while still retaining best of both worlds. The best way to start can be waiting until one finds a suitable supplier, which suits the business needs, the best.

After one is convinced that the work can be outsourced, next step should be planning the activities leading to cut down of IT department. And even after that, one should consider retaining experienced employees who can manage the outsourcing exercise.

But wait! The question is still unanswered- “I am an IT graduate, what happens to me?” Well, the Obama government has already proposed few restrictions on outsourcing, some of which have been already implemented (more on this later).

McKinsey quotes- “This may sound obvious, but probably the biggest stumbling block to offshore outsourcing is that after all the contracts have been signed, companies abdicate responsibility for projects to the provider…”

The above quote just corroborates the point about retaining the experienced employees of the IT department in the provider company

All sounds good, but there is a problem which most of the IT clients’ neglect. Many a times the suppliers internalize the operations of the client and lose the fresh ideas, which, they would have otherwise brought about had they been still working for the client, instead of becoming a “part” of the client. Of course, that does help by giving supplier deeper insights into the client’s business. But again, a finer balance and following a median path might do the trick. Which essentially means that companies should opt for right mix of experienced employees and some people from the outsourcing department.

Outsourcing is there to help existing IT departments, not to replace them. So the hue and cry about “Where’s my Job” or “What happens to my IT department?” are not as valid as people make them sound. The providers and suppliers need to sit down and work out the best possible solution to handle the situation. Sounds like a nice coffee topic? (We know it more serious than that).

Security Management Outsourcing Brings New Players...

Security management outsourcing is one of the hottest topics these days. There are new countries that are emerging in this field. Most of these countries belong to Asia Pacific, Middle East, and Africa. These countries have already replaced many developed countries like North America, and Western Europe. These providers are called Managed Security Service Providers or MSSP.

India, thanks to the financial investments made by the government here, is leading the table followed by China. Overseas companies find it quite cost effective and manageable to offshore their security related tasks. This helps companies to help their security managers concentrate on other important tasks. By outsourcing these jobs to the above-mentioned regions they make sure that the quality of the work is not compromised.

The number of these companies outsourcing their work is increasing year after year. Apart from private sectors there are many public sector companies who are also showing much interest in outsourcing their security management responsibilities.

There are also companies in India that also handle the security of the cash transaction system. This has become very important because many customers are now interested in taking cash rather than making the transactions through credit cards. The North American and Western European countries are witnessing a lesser growth rate.

These MSSPs provide 24×7 monitoring of the system. In 2007 Forrester conducted a survey that mentioned about 30 percent of small and medium businesses at that time were interested to offshore there security management responsibilities. Moreover, this year at least 52 percent companies have said that they want to go for outsourcing of security management process.

It is estimated by experts that this market will grow even further because of the current economical recession and the availability of trained and well skilled personnel. These people have all the necessary knowledge to handle the security of a company.

MCPO-New Opportunity in Outsourcing Market...

As Alexander Graham Bell once said, “When one door closes, another opens” and that is what, it seems, recession has done. It is due to recession many IT companies have found a new way to make their balance sheet look good. The new opportunity that has now got their fancy is Multi-Country Payroll Outsourcing. It is true that this particular kind of outsourcing is there for a long time now but what is new is the popularity of this particular business.

There is so much growth in this market that it forced Everest Research Institute to conduct a study that showed a hopping 49 percent growth between 2006 and 2008. It is predicted that this trend will continue this year as well. There are many big Indian IT companies that are now investing their talents and energies in this outsourcing business. These companies include Infosys, Caliber Point, and TCS.

Multi-Country Payroll Outsourcing or MCPO as it is popularly known in the industry already has a market revenue of $ 202.9 million. Earlier it used to be only $ 90 million. It has also overtaken the popularity of the off shoring of HR related jobs. According to the study the practice of Multi-Country HR Outsourcing or Multi-Country HRO only has a growth rate of 12 percent.

The reason behind the popularity of MCPO is that it helps various multinational companies to cut down their cost, which is quite important during this time of economical crisis. It helps a company to control its costs immediately and also simplifies the whole process.

The study also shows that 58 out of 79 deals signed in 2008 include various outsourcing companies that work in the Asia-Pacific region. That is why outsourcing companies should take a cue from this and try to gain some profit by starting MCPO.

Indian IT Sector Hopes a Better Financial Year 200...

Despite Barack Obama’s explicit threats about not letting American off shoring companies enjoy tax benefits any more Indian IT sector is looking hopeful and jubilant. The reason behind this is the successful deals that some of the Indian IT majors have clenched this year. These companies include Tata Consultancy Services, Wipro, and HCL Technologies.

The success story of these reputed IT companies make the Indian businessmen hope that time are going to change finally and the dwindling economy will soon see a steady recovery. These assumptions also get stronger when one sees that other companies dealing in Pharma, retail, and energy and utility have also earned some profits.

Many experts think that the quarter of April to June may see some more positive developments. The finalizing of deals by then IT companies is definitely a better result compared to that of last financial year 2008. It was during that period that Wipro has seen a severe drop in its client’s tally.

Right now the IT industry is expecting a growth of about 5 to 8 percent. This would be definitely better than the last quarter of the previous financial year. That is why people like Girish Paranjpe are hopeful of “a phase of stabilization” that is probably not far away.

However, there are other reputed companies that still want to wait and watch and Infosys Technologies is one of them. But still many are hoping that by the end of the third quarter of the current Financial Year the industry will witness a recovery.

Anyway encouraged by this trend many IT companies are now providing various incentives to their clients so they continue to give them steady business. That is why most of the deals include cost cutting options, offer of doing some of the research work like feasibility studies for free, and making contracts that have fixed price.

Companies like Infosys believe during these tough times nothing will work better than flexibility. These companies are also making an attempt to use its bench strength as well. That is why right now the total utilization percentage has gone up to 70 from the previous 65 percent.

We hope that the assumptions ad expectations will become true and Indian IT sector will again rule the world.