Changing Face of Outsourcing Industry in India

Starting in the mid 1980’s, the ways of doing business changed forever. The business world was for the first time introduced to the concept of ‘outsourcing’ whatever it thought was not core to profit making. Slowly, through the subsequent decades, we have learnt how to make a sharp demarcation between what makes profits for the business and what is simply undifferentiated cost.

As time passed, most businesses came to understand that non-core activities i.e. those things that were not important to the money making machinery in a business could be given to someone else to do. It was a smart thing to do. One could get more time and investment to spend on ‘profit centers’ rather than diluting efforts with the time and management effort needed to manage ‘cost centers’. Moreover, simultaneously moving work to the low cost production locations helped to cut down costs further. This phenomenon gave us the multi-billion dollar outsourcing industry. Eventually, somewhere down the line, we will have translated all those enterprise functions such as HR processes, customer administration, finance services, manufacturing etc. into a set of transactions that could be processed by someone else at a lower cost. However, a number of reasons are changing this industry, helping it to evolve and taking it beyond just low cost transaction processing.

The number one reason for this is a change in the nature of customer demands. As global competition and pressure on margins increases, a company’s outsourcing relationships are assuming ever-greater significance, becoming more strategic than they were originally thought to be. Companies are taking a more strategic view of outsourcing. It is true that global sourcing can lead to substantial cost savings, but often the primary reason today for sourcing is to gather the expertise that a company may lack. This expertise applied in the non core functions can directly or indirectly lead to gains in efficiency, productivity, and revenues that can be achieved by fully leveraging outsourced talent.

Therefore, customers of outsourcing companies are becoming more focused on service, competence and creating value as customers are looking for business process excellence, speed to market, improvement in quality and benchmarking to world-class standards. Outsourcing decisions are now being considered far more strategic than they were years earlier. Businesses realize the long-term value that outsourcing can add to the bottom-line profitability. Moreover, as quality becomes the most important differentiator in competing organizations, how an organization handles its non-core as well as core functions will decide the fate of the business in the long term. Therefore, sourcing organizations will need to bring about a cultural reinvention of these non-core functions and transform them so that they generate substantial value addition, not just cost reduction.

Secondly, in the context of India specifically, as more of these ‘low cost’ destinations sprout up, a veteran in the business such as India will need to turn to a service-based value proposition. Making ‘service’ its core strength, the country needs to move from delivering processes to delivering services. This will require thinking beyond ‘transactions’ and creating a high level of service, a philosophy that is closely intertwined with the Indian culture. ‘Restructuring’ the approach to value creation will surely call for some radical thinking on the part of business processing service providers. The third important reason in India is the workforce potential that the industry has. It is clear that Indian people value achievement.  They want to learn and they want to develop.  They also value scientific and rational disciplines which make India an ideal location for a global IT and business process centre of excellence. Such young minds filled with vibrancy and the desire to make a difference, do not wish to be packed away in a place that is the ‘back office’ for someone. If the industry wishes to keep pace with its growth, it will need to offer them something more than a ‘back–office’. One will soon see these back offices turning to front offices. And in a way, with specialized certifications being introduced for the business processing work force and with the likes of lawyers, engineers, academicians and medical experts joining the industry, it will be the most logical step to effectively use their potential.

Over a period of time, the word ‘outsourcing’ has attained quite a negative connotation. In layman’s terms, it today stands for a low cost producer that does the non-core work at least cost regardless of quality. The word still creates a narrow, two-dimensional opinion in the minds of many. This is why one sees companies moving away from this terminology. Few entrepreneurs who had a vision of bringing the rural India into the mainstream of knowledge economy have found an opportunity here – setting Rural BPOs, which was a change in usual trend. The transformation of rural India started with the emergence of these Rural BPOs. The major hurdle that these BPOs faced is quality man power. As a result these rural BPOs have remained targeting low end jobs like data entry. Business processing, the talent it has acquired and the potential, that the market offers today, has redefined the scope of the industry. Soon it will no longer be driven by the accuracy of transactions, but by the levels of service it can deliver, by the value that these non-core activities add to the profit generation capacity in an organization.