By Piyush Singh, for CMP Media's new monthly publication, Managing Offshore. To download a free issue of the publication, visit www.managingoffshore.com.
If there's one thing U.S. companies have mastered since the industrial revolution, it is the fact that the principles of a successful economy -- i.e., survival, innovation, excellence and competitive edge -- are all based on the engine of entrepreneurship. We have seen it numerous times in brands such as Wal-Mart, Southwest Airlines, Microsoft, Starbucks and JetBlue. It is with this mind-set that one has to view the world. Despite election-year rhetoric, every business leader with a drive to take his or her company forward is viewing this offshoring opportunity as strategic and not just a short-term tactical play.
My insurance company, RLI Corp., has strived for innovation and creativity since its inception in 1961. While we were definitely not part of the early innovation cycle of business-process outsourcing, we chose to study the emerging landscape and seek the optimum benefits for RLI. RLI's chairman, Gerald Stephens, set a goal for us to become a billion-dollar company more than six years ago, and everyone thought we were nuts -- it was just not possible. We are proud associate owners of RLI today and have more than a couple of billion dollars in assets, and our market cap is at $1 billion. To be big, one has to dream big and then successfully execute the game plan. RLI has always prided itself on having one of the highest revenues per employee in our industry. We have achieved this by simplifying our operations and by the effective use of technology. We believe that tomorrow's industry leaders will innovate by removing the friction costs of commerce and provide for an enriched customer experience. Remember, this is an industry plagued by people-centric workflows, lack of measurement of efficiency and lack of customer orientation (we still call insureds "claimants" and claim "adjusters" people who "settle" a claim). We believe RLI is well-positioned to make the most of the future by being in an environment of continuous improvement and cost-optimization.
Going to India to investigate BPO services was almost an inevitable part of our effort to innovate.
The Trip: Planning and Value Proposition
Unlike others, we avoided the death-by-PowerPoint syndrome. We carefully planned the itinerary and agendas to avoid hours and hours of marketing monologues. We allowed each of the companies we visited 15 minutes to tell their stories and did not get into infrastructure architecture, voice-training programs, candidate selection, etc. We considered all these issues hygiene factors -- features everyone had to have to exist. We spent most of our time listening to how the vendors work for clients (actual data was withheld to ensure confidentiality), how they addressed the logistics of the transition, and the actual work effort. We observed it in real time by walking the floors at night when the bulk of work is done (to sync with U.S. time zones). We sat in a voice-training class for call-center agents. We talked to actual workers about their backgrounds, work effort, motivations and long-term aspirations. We even had conversations with our cab drivers to learn how the industry had affected them.
Ideally, you will short-list five to seven vendors that you would like to visit. If you don't have a resident expert on India, hire a consulting company that helps you in the evaluation process for short-listing. It's also very important to clarify the factors that you will use to evaluate the candidates up front.
To experience the true phenomenon of BPO, there's nothing like actually visiting the place. We chose to do our trip quickly, covering four cities in five action-packed days. While everyone has nice PowerPoint presentations and neatly bound proposals with wonderful resumes, talking to BPO workers and observing them do the job on the floor was an invaluable experience. Although I grew up in India, my travel companion, RLI chief operating officer Mike Stone, was seeing it for just the second time. The difference was as dramatic as hiring someone based solely on a resume versus actually having a candidate spend time with his future boss and colleagues. We could see and feel where the real focus was, where the passions existed, where the vendor stood on the innovativeness scale, what level of partnership could we expect, what was the extent of domain skills among the people who were present, etc. While the majority of Indian executives do not spend time on the golf course, they can be good hosts over meals and drinks and are quite open-minded, and it's worth planning for the same.
As to visiting India, the images you see on the Discovery Channel and National Geographic programs tend to highlight the social issues and poverty, which clearly concerns and worries many U.S. managers. The natural beauty, the historical significance, the monuments, the helpful and courteous people, the lavish hotels with exceptional service, and the fact that our baggage always made it before we reached the conveyor belts are never mentioned. Traveling with someone who understands local places is a tremendous asset for first-timers. Eventually, what you need to find is a partner, not merely a vendor.
The Indian BPO Industry
Broadly, the industry is divided into three segments: pure-play BPOs, IT-industry BPO outfits and captive BPOs. Two of the largest pure-play BPO organizations have been gobbled up by IT outfits in the last couple of years. Spectramind was acquired by Wipro and Daksh was acquired by IBM just before we left for the trip. While the IT companies were late to the table, they've capitalized on the opportunity and, given their contacts, customer base, proven track record of offshore work and the existing infrastructure, they are expanding very quickly. The world's larger companies have set up captive BPOs and also use third-party companies to reduce their geopolitical risk as well as create competition by distributing their work processes.
One thing we learned was that the employee growth rate was a very difficult-to-fathom metric. Wipro's Spectramind, a gorilla in the industry, was established in March 2000 and had 8,500 employees when we met (it probably crossed 10,000 by the time we flew back!). As candidly admitted by a few of the companies, the industry does not hire proactively. It only hires as new contracts are signed. However, it guarantees a two- to three-month turnaround for trained staff, regardless of the scale of operations. Imagine a job market where jobs available at this scale are no longer newsworthy because of the frequency with which it is happening!
The BPO industry is spearheaded by a group of people called transition leaders -- the vendor's select group of domain experts -- who work with you to transform the service industry's typical ad hoc, people-specific and unmeasured work efforts into a clearly defined, rules-based and fully measurable "process." The fact that they offer organizations (labor) cost arbitrage, variable costing, measurable process output, guaranteed annual productivity improvements of 10 percent to 15 percent for the first three years, and a level of scalability (both up and down) makes it almost a no-brainer for any service-based organization.
In our evaluation, we rated our company's potential BPO initiatives on a scale from zero to 180, wherein zero represented the lowest level of complexity and 180 stood for a high degree of complexity. Operations from zero to 45 represented clearly defined processes that have specific rules of engagement -- each question or step has a clear chart of action. These processes also tend to be high-touch with our customers. I liken this framework to the capability of making someone follow a parrot-like behavior, and it is very easy to "lift and drop" these processes from one location in the world to another.
Tips for Evaluating BPO Vendors
RLI Corp. CIO Piyush Singh suggests using the following criteria to complete your evaluation process:
Before the visit:
- Match corporate size and your set-up (will you be a valued customer based on your size of effort projections or a small fry?).
- Agree beforehand on some base "hygiene" factors that you expect to have in place (e.g., infrastructure, training, etc.) because you don't want to waste your time.
- Seek demonstrable process and domain expertise relevant to your industry segment.
- Seek demonstrable expertise in areas of operations in other industries.
- Talk to other companies in your industry doing offshore BPO.
- Focus on corporate positioning.
- Focus on client history and performance metrics.
- Discuss and evaluate other processes/possibilities based on your nature of business versus "lift and drop" of existing processes.
- Observe simulated or actual work processes being handled by the vendor that have relevance to your industry segment.
At the other extreme are processes requiring high subject-matter expertise and low customer touch, but which are more analytical in nature -- actuarial analysis in insurance or market-data analytics for Web-site sales for the retail industry, for example. In evaluating the current BPO industry, we estimate that almost 90 percent to 95 percent of the current industry is focused on the zero- to 45-degree marketplace, accounting for the ease with which companies can "lift and drop" processes. Credit-card calls, frequent-flier updates, airline baggage tracking, cellular program enrollment, broadband provider enrollment and retention programs, simple technical support, and catalog order sales are examples within this framework. Examples of the other extreme are very few. Not because of lack of interest from companies, but more from a lack of true subject-matter expertise. Also, the industry's reactive versus proactive hiring approach limits its industry-focused outfits.
The monotony and rote nature of most jobs in the current BPO market, the timing of the jobs and their societal and health implications, as well as a lack of long-term career growth, does result in a significant turnover rate -- about 10 percent to 25 percent. However, the tremendous resource pool and ever-increasing job opportunities seem to ensure that the market will continue to be vibrant for years to come.
The workers we spoke to in Gurgaon, Pune and Bangalore India were a mixed group. Some were genuinely thrilled to have a job and enjoyed making someone else's life happier by resolving their difficulties over the phone. One thing was common across the board -- all the BPO workers seemed to enjoy the work environment, especially as the BPO companies have gone out of their way to provide all kinds of concierge services to keep employees happy and motivated. We even met a person with the title of chief fun officer!
These workers were very comfortable seeing their measurable team and individual-performance metrics posted at the entrance of every team area. Peer pressure and competitiveness begins with orientation and has become part of the fabric of their work environment. This will have a dramatic impact on the service industry's future workforce. Everyone will be held accountable for counting widgets and demonstrating true productivity gains.
Infrastructure and Government: Challenges
The BPO industry has also been a boon for other industries in India. The construction industry is going great guns, with the larger companies building seven to 10 buildings every year. The automobile industry is selling more vehicles, as even cab drivers are operating regular shuttles for employees. The mobile-phone industry is hot in a country in which it used to take 10 years to get a land line. Airline travel is up significantly, with several new operators running at capacity in a market formerly monopolized by the national carrier. The hotel and tourism industry is booming as travel spreads beyond family weddings and tourism for the affluent. The retail industry has taken off. Other industries enjoying a surge in business include banking, restaurants, housing and security. Taken together, these are all signs of a developing economy on steroids.
While the private sector has made great strides, the government's apathy toward improving the country's infrastructure is appalling. Roads and civic facilities such as parking, garbage, sewers, electricity and water supplies, bus terminals, railway stations and airports are in a state of neglect. While these issues are being addressed, they're typically done in a short-term tactical manner with no long-term strategic viewpoint. The government's solution to current traffic issues is building flyovers-the equivalent of American overpass.
The challenge for American managers operating in India is to adjust to both the government bureaucracy aimed at throttling progress and the neglected infrastructure. However, most Indian outsourcing companies have created a world for themselves in the form of campuses and the houses where the executives stay; once inside you cannot differentiate between the Western world and India. And yet the biggest difference is that you always have someone opening the door for you, someone bringing you a cup of tea/coffee, and a chauffer to drive you around. As for dealing with the government, there's a suite of brokers who make the dealings transparent, but the further you are from them the better off you are.
Where Do We Go From Here?
From RLI's perspective, we will choose a vendor that will match up with our corporate size to ensure that we're a valued and strategic partner. As a midsize company where layers of bureaucracy do not exist, it's important for us to engage the vendor as a strategic partner wherein every level of both companies value the relationship. We're also looking for demonstrable domain-level expertise.
As to specific initiatives, that's a tough exercise for any company, and there's no magic bullet. What's critical for any company is a deep understanding and commitment at the higher levels to discovering what's cost-effective and adopting a global sourcing strategy. For companies with call centers or back-end processing centers, the choices are obvious. RLI is small and thin on the processing side and, lacking a call-center kind of set-up, we will seek opportunities that keep the slope of growth of our fixed costs at a level that will keep us profitable in different economic cycles -- something we owe to our shareholders, customers and all employees.
Professionally speaking, I see the BPO industry moving to the higher end of the complexity spectrum in the near future. The question that we have to eventually answer is, "Can I adapt to this changing environment, and do I have the vision to offer global sourcing at my workplace?"
When we finalize our vendor agreement, we won't impose a BPO process on one department to the exclusion of all others. Whomever we partner with for a BPO application in India will be our primary and perhaps sole source. The next time I go to India again it will be on vacation. Of course, I may take some time to do further due diligence while I'm there.
-- Piyush Singh, CIO of RLI Insurance in Peoria, Ill.
Singh was named CIO of RLI in January He joined the company in 1994 after having worked at Price Waterhouse, ANZ Bank and Citibank. He studied in colleges in both India and the United States. For more information about RLI Insurance, visit rlicorp.com.