Several of my friends have told me that my blog has a doomsday-ish ring to it. If you think I sound like an alarmist, you should read a book called The Elephant and the Dragon by Robyn Meredith. Robyn is a foreign correspondent for Forbes magazine and reports on China and India. And I must say that she has done a fantastic job of recapping the development of China and India as the next economic superpowers. And the fact that she is reporting from the field, based on first-hand observations, does add credence to her estimates and projections.
Robyn has a couple of very innovative concepts she pushes through in her book. First, she calls the development of China (as the factory of the world) and India (as the back-office of the world) as the Third Industrial Revolution, at par with the developments in Britain in the 1800s and the assembly line invented by Henry Ford in the early 1900s. Second, she introduces the concept of the Disassembly Line. With recent developments in supply chain management, technology and network connectivity, one of the drivers behind the growth of China and India is the ability to disaggregate the manufacturing and back-office processes into more and more granular levels.
Just to highlight a few quantitative and qualitative observations that Robyn makes in her book:
There are significant downsides to this growth spurt as well.
What does all this mean for the US? I mentioned in an earlier post that the only way for the US to stay competitive is to keep innovating. Robyn articulates this point much better by emphasizing that:
All in all, Robyn has done a phenomenal job of paraphrasing such complex issues as the emergence of China & India, projections for the next few decades and the implications for US companies & employees. Highly recommended reading.
Sampath
The Management Consulting industry has changed quite a bit over the past decade or so. And the off-shoring phenomenon has added a new element to the mix. Thought I would put together a back-of-the-envelope model for how I see Management Consulting continuing to evolve over the next 10 years.
If you mentioned Management Consulting in the 1990s, the key firms that came to mind were McKinsey, BCG, Bain and then, the Big 6 (Anderson, C&L, PW, KPMG, E&Y and Deloitte). The first 3 firms were focused exclusively on strategy consulting. The Management Consulting units of the Big 6, however, had more expansive offerings that included BPR and IT Design & Delivery. That is, the Big 6 not only advised on solutions to their customers' business problems. They also delivered these solutions. One of the things I distinctly remember about the 1990s is how Management Consulting firms would shy away from “low-value”, long-term, outsourcing relationships. These types of deals, typically focused on IT outsourcing, were pursued by EDS, IBM and maybe towards the end of the decade, by Accenture as well.
Off-shoring in the late 1990s and specifically in the early part of the current decade created new markets. The SWITCH companies (Satyam, Wipro, InfoSys, TCS, Cognizant and HCL) all have significant traction in IT markets (Engineering, R&D, Custom IT, ERP / CRM). The business process outsourcing market took a long circuitous route to maturity and now compares favorably with the IT market in India. As I mentioned in a previous article on BPO, the SWITCH companies have established sizeable BPO lines of business as well, either through acquisitions or organic growth.
The most interesting development I find in this context is the development of the KPO market. I view this as the natural evolution of strategy consulting. I remember the days in the 1990s, when a handful of well-dressed management consultants would engage with a customer for a couple of months. And after a series of interviews and mid-night sessions, we would deliver a well-crafted presentation on the strategic solutions to the customer’s imminent business problems. In the industry, we used to call our deliverables “credenza-ware”, because most of our presentations would gather dust on the CxOs’ credenzas. What the last few years have revealed is that with India’s large, latent pool of well qualified research analysts, strategic advise can be delivered at such a granular level that it is immediately actionable. This is what we have been doing at SalesQB. We do not just deliver PowerPoint presentations to Sales VPs on how they could execute their sales strategy. We provide personalized sales support to individual sales reps on specific deals & accounts that they are chasing. This is what I call Operational Analytics.
Fast-forward to the 2010s. I think Management Consulting firms will have to evolve and demonstrate strong Advise & Analytics capabilities that are tightly coupled with their current BPR, BPO and IT capabilities. And I think Accenture is already on the right track with its emphasis on Consulting, Outsourcing & Technology. It will be interesting to see how the SWITCH companies morph their identities from IT service vendors to business service providers to leading Management Consulting firms …
Sampath
John Chambers, CEO of Cisco, once said that “there is no substitute for being in the right industry at the right time.” By that account, the BPO industry in India is where one should be today. Several of my readers have asked me to put together a primer on BPO. So here goes. We will look at what BPO is, the key numbers, the industry structure & its evolution, key trends and some potential roadblocks.
Outsourcing is a well understood, tried & tested management process that global companies have been using to move to a “boundary-less” organizational model. From its initial focus on cost-cutting, outsourcing is now increasingly viewed as an enabler for long-term competitive advantage, process efficiencies and co-innovation. Most of the media noise over the last decade has focused on IT outsourcing (ITO) – Think helpdesk support, data center operations, application delivery & support. Business process outsourcing is the process equivalent of ITO – Think payroll processing, financials & accounting and customer support. And then, there is the off-shoring dimension. Countries such as India, China and South Africa have been vying for a share of the global outsourcing market. In this post, I will treat outsourcing & off-shoring differently to the extent I can, so that the big picture is a little clearer.
The Numbers
OK, let’s dive right into it:
These numbers aren’t as outrageous as FaceBook’s reported $15B valuation by Microsoft, but are staggering nonetheless. The IT, BPO and KPO sectors in India are looking at a CAGR of 20-40% over the next 5 years. Remember John Chambers’ pearls of wisdom?
The Services
Let’s come back to the topic of our blog – BPO. What is it? PwC suggests that the BPO market could be broadly broken down into three functional areas:
More specifically, the key BPO services that have been offered by Indian vendors over the past 5 years are:
There is a fair bit of grey area between BPO and KPO services. I think of BPO services as those that resemble the proverbial assembly line, with maybe a little bit of data reconciliation and research involved. Processes that require deep domain or industry knowledge, research & analysis, taking a step back & looking at the larger picture, are what I would consider to be in the realm of KPO services. Having said this, BPO services now include a number of sub-categories such as:
The Industry Structure & Evolution
According to a recent PwC report, BPO in India evolved in four distinct waves:
Sanjeev Kumar, a PhD candidate at UMich’s Ross School of Business, and his advisor, Prof. M.S. Krishnan, have come up with the following model to describe how BPO is evolving. I think this model is very descriptive, though I would argue that what they call BPO 3.0 is being referred to as KPO in the trade rags. For Sanjeev’s complete article, click here.
The Key Trends
The Key Roadblocks
The Key Takeaway
I understand that most of us in Corporate America who wear IT or business operations hats are wary about BPO & off-shoring. We can continue to debate what these trends & numbers mean for the American economy and employee. My key goal in this post is to establish that BPO & off-shoring are real, big, growing and here to stay. Make sure you think about this when launching your start-up or planning your next career move.
Sampath
Nicholas Carr has made a career by telling all who will listen that IT Doesn’t Matter. Even though my career is deeply entrenched in the IT & high-tech industries, I have to admit that Mr. Carr has a valid point. During many afternoon musings over tea with my friends (you know who you are!), a hotly debated topic continues to be “Whether IT is really headed the way of electricity”. A seasoned IT executive we have worked with for a while continues to remind us that not long ago, most large enterprises used to have Vice Presidents for Electricity. This was a time when uninterruptible power supplies (UPS), diesel generators and battery packs were complex technologies. Generating enough power to run a large corporation used to take quite some doing. Today, in most contexts, we can afford to take uninterrupted power supply for granted and hence, we do not see many senior executives holding the Electricity portfolio. The question then begs – Will the CIO become obsolete in a similar vein?
The high-tech industry has seen several inflexion points that have significantly influenced its course. Key course corrections were driven by:
• Mainframe computing (The 1970s – 1980s)
• Client / Server computing and ERP / CRM (The 1990s)
• Web-based computing (Late 1990s and early 2000s)
• Software as a Service or SaaS (Early 2000s)
• IT off-shoring (Mid 2000s)
Each of the above trends drove significant new market activity and IT spending from enterprises. If Mr. Carr’s predictions are correct, what will drive the nail in the coffin for IT? One scenario comes to mind. SaaS vendors like Salesforce.com have established traction with small & mid-market customers and are beginning to make a dent with larger enterprises. It is not hard to imagine that in a few more years, SaaS vendors could deliver fully functional (ERP scale), industry-specific, reliable, secure, configurable / customizable offerings? If larger enterprises do indeed jump on to the SaaS band-wagon, Mr. Carr’s predictions don’t just seem on the mark, but they seem rather imminent.
My goal in this posting isn’t just to validate Mr. Karr’s predictions, but to take the argument a bit further. The figure below portrays my humble perception of how enterprises are already undergoing significant transformation.
As I mentioned earlier in this posting, just better adoption of SaaS by larger enterprises will be enough to drive IT outside the enterprise. My contention is that this argument could easily be extended to non-core business processes in an enterprise. The already existing & viable business process outsourcing (BPO) market is testament to this trend. Companies such as GE and Citibank set up call center, customer & technical support operations in India several years ago. More than a dozen mid-sized BPO companies in India are now offerings services that include payroll processing, financials & accounting, billing and other back-office functions. And at the heels of the BPO trend is knowledge worker outsourcing, also called KPO, which addresses business processes that require deep domain & industry knowledge. Examples include legal research & patent filings, market analytics, sales & marketing support, drug research & discovery and financials equity research. McKinsey, the management consulting company, has had a research & analysis shop in India for a while now. As has Gartner. Just the simple fact that a large, educated, low-cost and easily accessible labor pool is available off-shore has put the BPO & KPO trends on over-drive. And if Mr. Carr’s predictions about IT are true, the commoditization & outsourcing of non-core business processes isn’t far behind.
What does all this imply? I believe that the enterprise of the future will look a lot different from what we are used to today. Just a quick anecdote here. We recently had a few new cities incorporate themselves in the greater Atlanta metro area. Two of these new cities have outsourced most of their operations to CH2MILL. This includes all their payroll, billing, tax collection and other back-office functions. The elected council members legislate and drive the cities’ agenda. Everything else in the background just hums along, like electricity.
Sampath
There is a mind-numbing amount of information in the public domain about how Web 2.0 and Enterprise 2.0 will change the world for ever. This article attempts to provide an entrepreneur’s perspective on these trends and distill the key issues with a bit of common sense. The term Web 2.0 was first coined by Tim O’Reilly to denote a new breed of Internet services companies. The key traits of companies in this new breed, according to O’Reilly, were:
Whether the above differentiators really warrant a new category or not is debatable. One could easily argue that these basic characteristics should have been incorporated into most, well thought-out “Web 1.0” Internet companies that were launched in the mid 1990s and that we are only now coming around to fully understand the implications. Nevertheless, Web 2.0 is a handy way to characterize these companies & somewhat comprehend the implications.
From its consumer underpinnings, Web 2.0 evolved over 2005 – 2006 to take on an enterprise flavor. Terms like Me, Inc., Prosumer and Enterprise 2.0 have been used to describe companies adopting this approach. Examples of companies in this space include SalesForce.com, SugarCRM, NetSuite etc. The case that is being made here is that business services can be delivered using a consumer model to professionals, hence the Prosumer go-to-market strategy. According to Philip Lay at TCG Advisors, the cornerstones of Enterprise 2.0 are
Philip rightly points out that now (2007) is not the time for us to get overly excited about Enterprise 2.0. We are not going to see Fortune 500 companies jump onto this bandwagon and move all their front & back office applications to an Enterprise 2.0 model in a big way. What we will see is niche solutions being brought to market with this model, focusing on narrow audiences & their key business problems. Over the next decade or so, the broader Enterprise 2.0 market should pick up a good bit of steam.
OK, now for the entrepreneur’s perspective. My thoughts on launching an Enterprise 2.0 start-up:
Thoughts?
Sampath