Monday, February 23, 2004		Guest Speak

BPO bull on the run
Yajuvender Singh

BPO (Business Process Outsourcing) has attracted and fascinated VCs, Angels, business houses, job-seekers, legislators etc. What is so unique about it? Why is everybody diving in BPO? Western corporates are bullish on BPO, because they are in a position to pass more bucks to the investors.

BPO has attracted 40 per cent of the total VC investments in last two years. Global giants are chasing BPO and India as preferred destination. In India, BPO has provided jobs to 4 lakh persons as of now in the organised and unorganised sectors.

The party has just begun. There is a lot more to come. The bull is aggressive and running very fast.

A simple way to explain BPO could be "the tactical use of outside resources to perform process and tasks originally performed by internal staff." The objective of any business initiative is "to provide greater opportunities for generating innovation, speed to market and shareholder value."

From the above explanation and objectives, can we arrive at some bookish definition of BPO? The latest definition of BPO could be written as "the delegation of a business process or task or activity (more likely IT-intensive) to an external service vendor (onshore or offshore) who performs, oversees and manages it according to pre-defined set of standards."

Don’t you think, all these definitions and objectives are making it more complex and reminding us the good old school days; what could a simpler way to understand and remember BPO. Well, lets try this, "Do what you do the best and outsource the rest". Sounds simple.

BPO has created history in many ways. It has forced the management gurus to rethink the relevant potential of business jargons. We had SBU (Strategic Business Unit), divisionalisation, SQC in 1980s, Benchmarking, TQM, BPR, and ERP in 1990s.

On the similar lines, BPO is a business jargon of the late nineties, which has emerged as a full-fledged industry in itself and accounted for 24 per cent of the total exports in the last fiscal year.

Sounds crazy, to me also. It took me more than two years to understand the BPO and even today I can’t claim that I have understood it completely.

This has much to do with our perception of relationship among stakeholders in a business. As taught to us, I was trying to fit BPO in a factory-vendor relationship, typically a Maruti-OEM vendors set-up in Gurgaon. Like me, there were many others who thought the same way and that spurred off call centres/BPO boutiques in the bylanes of all cities with strong IT infrastructure creating a daisy chain. Once they understood the difference the hard way, they are either selling their stakes or liquidating their positions.

The reason why am I writing this lies in the attraction of BPO. The awareness of BPO didn’t keep pace with its emancipation as an industry. The result is growing number of mergers/acquisition in the 5th year of origination of industry. That’s very quick maturity for any industry.

But the bull doesn’t seem to be affected by all this. Bull is still running. First it was running towards India and now, within India from metros to Tier II cities. While the West maintained the head offices with principals, east graduated to core processes as well. Now, isn’t business supposed to keep core within premises. Then what had happened to the old definition of BPO, "keep the core and outsource the non-core"?

Bull again outpaced and understood the concept before anyone else did. Now, putting BPO logic on efficient frontier, things have become much simpler. Efficient frontier (originally developed for portfolio analysis) gives us a range where, maintaining the same risk you could play with the return or vice-versa. If we apply it to BPO processes; maintaining the same efficiency, if someone else could do it at a lower cost, its fine. Doesn’t matter whether its core or non-core, as long as expectation are met.

Bull is still on the run. It would take not just the monetarist but also a proactive and more mature approach from India as a country to make the bull feel at home rather than just betting on it.