Key Challenges Faced By The Bpo Industry Management Essay

Peter Drucker says innovation is a change that creates a new dimension of performance.

In today’s business world, competition has become fierce and sophisticated. Companies worldwide are striving hard to operate as efficiently as possible and pass on the savings to the end consumers, in a bid to stay ahead of the competition. In the process, many companies are forced to innovate to come up with ways to reduce costs, increase efficiency and identify differentiators not only for their own organizations but also for their customer organizations. In the midst of this dog eats dog global competition, customers are true beneficiaries by demanding additional value, process innovation and business transformation from suppliers.

In today’s dynamic world, innovation is the hallmark of a competitive and leading organization. With attrition rates and competition in the BPO and ITES sectors rampant, innovation is the logical solution to stem the rot of this exodus and surge ahead of competition. Innovation, however, is not only about discoveries or new inventions; it is a concerted initiative to implement new ideas and methods of doing business to increase the overall efficacy of results (read topline and bottomline). 

Innovation in BPO and ITES sectors is now picking up after companies have woken up to the fact that innovation is indispensable for survival and also in creating a competitive edge. Innovation occurs not randomly or accidentally but when there is a proper system/structure in place to encourage it. Any business is the sum total of its capabilities, which may differ from person to person. Nourishing innovation involves understanding the various capabilities in an organization and harnessing them to the best of its ability. These capabilities include:

Differentiating capabilities – an organization’s primary assets that describes its special nature and the real differentiating factor

Core capabilities – those that are critical to the organization’s survival, but may not necessarily help in differentiation

Support capabilities – those that support the organization’s core capabilities and foster them.

This paper aims to analyse innovation in the Indian ITES industry, success thereof and the focus needed to excel in the space. In particular, the organozation I was working for was suffering from all the symptoms mentioned in the report.

Key Challenges faced by the BPO industry today and ways to fight it

Flight to Scale

Galloping Manpower Costs

Increasing investments in Infrastructure

Customer Retention

Customer Acquisition

People Retention

To face these challenges, BPOs are forced to innovate and differentiate themselves in the market place.

There are various types of innovation that a BPO can resort to:

Business Model Innovation

Services/Markets innovation

Operations Innovation

Business Model Innovation would mean changing the structure of doing business or even changing the billing model. From an hourly billing rate or transaction based billing organizations are now looking at outcome based financial models and sharing the risk and reward with the customer.

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Services/Markets Innovation would mean targeting entirely new markets based on new or existing offerings. BPOs can also innovate by coming up with entirely a new range of services. For example, many organizations are now talking about platform Platform BPO is about providing ‘Business Processing’ services using a domain rich vertical or horizontal application (platform). Good examples for Horizontal application would be F&A, CRM etc. There are innumerable vertical platforms. Some examples are Mortgage Processing, Collection Management, Insurance Benefits Administration, Policy Administration, Claims Processing and the list goes on. The purpose of the platform is to give credibility to the BPO provider’s capability.

Operations Innovation aims at providing operational excellence with new offerings. Organizations are increasingly investing in analytics to provide the client insights into the way business is conducted and identifying areas of improvement. In one sense, it is akin to consulting services.

Other forms of innovation could be in the areas of employee practices and investments in new technology.

This is a significant change, which is true also of what is happening in IT and has a remarkable parallel with the transformation and rise of Japan in the post-war period. The transformation first occurs in transiting from cost advantage (wage arbitrage) to quality. Then comes the stage where quality is taken for granted, like hygiene, and clients start demanding innovation as a matter of course. Indian BPO as also IT is here right now and the ability of Indian players to innovate, in which they are still beginners, will determine their future. 

A few examples of innovative players to help employee retention

Intelenet Global Services, one of the leading BPO companies in India and rated among top-10 by NASSCOM, offering BPO and technology consulting services to clients in various sectors across the globe, has capitalized on its capabilities through employee innovation practices. To eliminate the boredom of the employees and keep them motivated to give their best for continuous value-addition to their clients, it offers its employees three career paths in the form of vertical growth, horizontal growth, and shift to parent company. While 70% of promotions in the organization are internal, only 30% is external. After 2 years of service, if an employee doesn’t want to be a team leader (vertical growth), but desires to get into HR or training or other areas, he is allowed to shift diagonally across functions. Moreover, if someone who has worked for 2 years wants to move from nightshift to dayshift, then he is given first preference, subject to a vacancy in the parent company. Intelenet has sponsored offshore domain specialization training programmes for its employees, besides certification programs such as ‘Train the Trainer.’ It has sent its employees to participate in seminars and conferences of top management institutes and also got them ‘Customer Operations Performance Centre’ (COPC) certified. Similarly, Prudential Process Management Services (PPMS), the wholly-owned BPO subsidiary of Prudential UK, also offers vertical and lateral growth for its employees, thus enhancing value for its clients as well as employees through employee innovation.

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eFunds International, a US-based company providing technology solutions in financial risk management and electronic payments, and consultancy services, is creating continuous value for its clients through employee innovation. Whenever an employee joins the organization, he is given a ‘Magic Score Card,’ which serves as a ‘training passport.’ eFunds provides its employees training expertise in domain areas and also focuses on leadership skills. Because of its innovation initiatives, eFunds’ net revenues increased 11% from $532 million in 2003 to $552 million in 2004.

Infowavz, another BPO company, offers a 1-year ‘Management Development Program’ for fresh employees who join the company after completing their MBAs. It also offers an ‘Accelerated Career Development’ programme for highly motivated and self-driven employees who look for continuous challenges and opportunities to maximize their potential. It has designed a unique “Team Innovation” programme for top performers who are associated with new projects at the pilot stage or ‘proof-of-concept’ stage. Infowavz lucidly communicates its career path to employees at the recruitment stage, defining the Key Result Areas, and conducts an exhaustive ‘Training Needs Analysis’ programme to identify the deficiencies and build employee competencies.

There are quite a few BPOs investing on platform technologies to differentiate themselves from competition and also to improve margins. Wipro’s experience in the outsourcing industry has led to the development of Base, a technology platform that integrates outsourced services with the customer’s internal business processes and fulfils the following requirements:

Flexibility and continuous improvement

Control and transparency


Faster time to benefit

Accuracy and Quality

What it takes to be an innovator

A Partnering Attitude. What’s key here is “a strong, long-term relationship between the two organizations. Both organizations must discourage adversarial, us-versus-them attitudes. If the provider fails, the client fails–and vice versa. This is not about warm, fuzzy feelings; it is about clarifying synergies between the two organizations during the RFP cycle and ensuring alignment of interest just like in joint ventures.

The Right Technology Platform. IT should support innovation. The technology platform provider must be able to make new technologies available quickly through the provider. This requires close collaboration between the BPO provider and the technology vendor–not just marketing agreements. Also, buyers should select technology vendors with a demonstrated track record in bringing innovations to market over extended periods of time. BPO is long term; it is an innovation marathon, not a sprint.

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The Appropriate Governance Mechanisms. “Buyers must ingrain innovation in their governance. That includes creation of an innovation and technology council with members from both buyer and supplier who meet regularly to review progress, ensure the technology evolves, and check the benchmarks at regular intervals to identify where performance falls behind. And technology evolution must push innovation efficiently, meaning integration is easy because the platform conforms to standards. Buyers can insure their tech platform does this using proactive oversight and agreed-upon standards.

Standardized Process Redesign and Related Technology. Buyers need to limit their customization demands whenever they can. If buyers want innovation, the service delivery economics must work for the supplier. Suppliers that make money can afford to bring in innovation. This often becomes tricky because both buyer and supplier have to clearly understand the cost structure of the service delivery. A provider forced to accept a service delivery model that does not harness economies of scale, process optimization, or access to labour arbitrage is never going to be able to innovate, and customers forcing BPO providers to tweak their offerings may inadvertently kill the very root of the economic advantage suppliers are supposed to bring to the table. Better discussions about standardization pains and gains must happen between the client and the provider organization.

Absolute top management commitment. No innovation can happen without top management commitment for both human and capital resources. This is very important because when investing in innovation sometimes results are not immediate. The senior management must have the vision and patience to reap the benefits.


Innovation in the BPO space continues to be a challenge for the following reasons:

BPOs are normally under margin pressures and resource commitments for innovation are difficult to make.

The SLAs are very stringent and time bound. Moreover daily performance could affect the commercials in a big way. This is because organizations see this as a window to reach out to their customers and a slip here would directly affect their customer satisfaction. Hence contracts are very tight and normally followed to the dot. This leaves very little room for innovation. Running the operations everyday is a struggle in itself

People related issues are much higher when compared to the sister industry – Information technology. The work hours are odd and the compensation less. This means a good amount of time being spent of motivational issues and coaching and training.

Due to all these reasons, innovation in the BPO space continues to be a challenge. But in future as competition stiffens and the line between IT and ITES fades, there is a good chance that the scene gets better, including the organization I was working for.

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(275 words)