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By almost any measure, the Business Process Outsourcing (BPO) industry remains
robust. What began in the IT, telecom and nancial sectors has moved into sectors like
pharma, government, utilities, manuacturing and more. BPO has also spread beyond
the geographies o only a ew high-cost markets to become a global phenomenon with
large companies in Latin America, Arica and Asia now seeking its benets. Since 2004
the global sourcing business has grown three-old and is expected to continue growing.
Figure 1 Projected BPO Industry Growth
While the outlook or the industry is very robust, with continued investment and anincreasing amount o work being transitioned to centers o excellence, the pressures o
increased eciency and cost reduction are increasing. A number o global majors have
created large centers in low-cost countries, and the commoditized low-end BPO
business is acing competition rom ultra-discounted cost centers like Vietnam,
Philippines and Chile, among others. This has put revenues, and thereore margins,
under pressure.
The challenge or the BPO industry is to determine how to continue to grow protably.
Given that the labor arbitrage model o yesterday is no longer enough to build
sustainable competitive advantage, BPO providers need to nd new ways to grow
by delivering higher-value services to their clients.
As the model or success continues to evolve, so does the requirement or truly efective
leadership. The current stage o evolution is an exciting one, as the right kind o
leadership continues to have signicant impact on the direction the industry can take.
In this paper, we discuss some o the ways the industry is re-gearing itsel and what that
means or leadership requirements.
Winning the BPO Leadership Challenge
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the labor arbitrage model o yesterday is no longer enough tobuild sustainable competitive advantage.
2008 2012
1200
1000
80 0
60 0
40 0
20 0
0
Market Size
(in US$bn)
$188
$975
Source: BPO Watch News Desk
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Emerging challenges
Excelling at Being a Low Cost Provider
As with any industry, the BPO sector has begun to mature. With the prolieration
o several large and small players it has become ar more cost-competitive than in the
early days o the industry. Further, more transparency in cost models has resulted in
additional price pressure rom clients. And that pressure has been increased by the
growing phenomenon o erstwhile captive BPOs being sold and joining the rankso 3rd-party providers.
As competition grows, it is becoming increasingly important to work smart and squeeze
costs out o standardized processes. Thereore companies must strategically ocus on
establishing strong operational capabilities with continuously improving processes
and systems.
This leads to the continued requirement or strong operational leaders who bring
signicant leadership in process excellence to the table. Industry leaders such as
Genpact leverage their GE manuacturing processes heritage in this regard and
other market-leading BPOs both 3rd party and captive have built strong
practices and approaches in this context as well, whether inherited or developed
as a competitive advantage.
We are transerring and adapting the same manuacturing best-in-class principles, like Lean, Six Sigma, and Continuous Improvement
to the Services sector to enhance our own operating excellence. Hartmut Liebel, President Jabil Global Services
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Increasing Need or Domain Expertise
Typically, or low-end process outsourcing (data entry, or example), the BPO provider
does not need to deeply understand the business domain in which the client operates.
However, in order to provide greater value-add, companies increasingly need sector-
specic insights and understanding. This is especially true in contexts where judgment-
based decisions must be made, as opposed to rule-based decisions.
As a result, providers need a deeper understanding o the customers core business,
or at the very least, an in-depth understanding o the customers industry. As the level
o accountability o BPOs towards their clients is increasing, the seniority o people
expected to have that domain intimacy is also increasing. It is no longer enough to have
someone on the team that can speak to process comort. Instead, it is important that
the clients counterpart within the BPO be able to speak the customers language and
engage on business issues.
Within the IT services world, this trend began a ew years ago, with leading services
providers recruiting senior leaders rom the industries they wished to serve. A similar
trend is emerging in the BPO sector today. From a process perspective, in act, some
BPOs are beginning to use their support o (and insight into) multiple clients in a
given industry to develop best-in-class processes in the domain, a competence that is
increasingly becoming a strong competitive diferentiator.
The need to have domain expertise has also had a critical impact in the way BPO
companies are organized internally. New verticals have been created within BPO
companies that allow them to develop and retain critical domain expertise, which in
turn allows or ar more meaningul discussions and business engagements with clients.
In the Analytics domain, or example, we are getting our people towork within the global organization, gaining insights into operationaland customer requirements and uncovering opportunities orsignifcant process improvements.
Sandeep Dhar, CEO Tesco Hindustan Service Centre
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Up the Value Chain Becoming an Integral Part o the Clients Business
The initial ocus o BPOs on the reduction o costs due to labor/process cost arbitrage
typically yielded a majority o cost savings in one large step. Beyond that, incremental
improvements in eciency have led to incremental cost gains. While continuous
improvement is important, BPO providers are extending their ocus rom being a
cost-saving solution to becoming problem-solving business partners or their clients.
This shi t in ocus rom cost-o-process to business outcome is changing the value
propositions (and thereore the revenue prospects) o BPO providers. For example,
enlightened companies are asking their BPO service providers to move away rom
managing the cost o the accounts receivable process to lowering the cost o
capital thereby directly impacting uture revenue. This also necessitates a move
rom being an order-taker to becoming an integral part o the value chain.
Interestingly, this challenges the notion o having a customer whether internal or
external. At the end o the day, given the integral part o the operations that the BPO
team provides, the BPO and the client are working together to address the needs o the
same person the end customer. This dicult change o mindset requires both the
BPO provider and the client to change their approach to what has traditionally been
a client /supplier relationship. BPO companies must thereore develop the right
measures to ensure greater accountability towards business outcome within their
teams, and clients need to increasingly give authority and ownership to their
ofshore counterparts.
One needs to think about a global delivery model that leveragesTime & Knowledge across the entire value chain to increase capacityo the whole system. I done right, any changes are sel unded andwill improve EBITDA.
Rohail Khan, Executive Managing Director,
ACS, A Xerox Company
Domain expertise is critical in scoping a BPO arrangement anddelivering results beyond outsourced unction cost savings. Inaddition, without domain expertise, a BPO provider risks adverselyimpacting their clients business as well as their own.
Chris Draper, Former Accenture BPO Partner
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As Figure 2 shows, BPO leadership thereore needs to both evolve and elevate:
Evolve rom being task masters to masters o the process or the domain. BPOs need
to think o themselves not as being cost optimizers but as being business optimizers or
their clients. This will help in thinking through both the kind o skills that are needed
on the team as well as the kinds o knowledge that are needed to make a diference to
the client.
Elevate rom being a contractor to being a partner and a trusted advisor. BPOs should
aim to set benchmarks in the domains in which they operate and to get the best talent
in the horizontals they service so that they can engage with clients on critical business
issues. This makes them a part o the competitive strength o the client which is the
only way or both parties to get value out o the relationship.
Criic
Ieci
Pis
Basic contact/callcenter
Email management
Inbound calls
Helpdesk
Data entry
Back ofce processes
Finance & Accounting
Outbound calls
Documentmanagement
Complex transactionprocessing
HR/Beneftsoutsourcing
Logistics outsourcing
Sotware development
Investment research
Equity research
Biotech/Pharmaresearch
Business research
Customer analyticalresearch
Risk modeling
Data mining
Telecom services
Network outsourcing
Legal services
Reengineering services
Enterprise applicationservices
Program management
Business continuitymanagement
Basic transactions/
services
Simple, standardized
activities, basic skillsrequired
Specialized
services
EvolutIon
valuE/ComPlExIty
Advanced technical skill
and some judgmentrequired
Complex analytical
& knowledge based
services
Extensive judgment
and analytical skillrequired
End-to-end
business processes
across value chain
Comprehensive set o
multi-dimensionalskills required
Figure 2 Moving Up the Clients Value Chain
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8 Egon Zehnder International
Winning the BPO Leadership Challenge
Leadership imperatives
The continuously evolving business model in what is still a nascent industry is both
exciting and challenging or practitioners. Far-sighted leaders are recognizing the
changes that their senior management teams now need to adopt and champion
throughout their organizations. Some o these changes, like domain specialization,
process excellence, and a deeper understanding o the end-customers mindset, can
be taught. Others are more dependent on managers intrinsic capabilities like thecommercial savvy to leverage organizational assets to address client problems, the ability
to see opportunities where others see business problems, and the ability to take risks.
As these changes compel BPOs to develop empowered and strong business managers,
leadership selection, development and retention become increasingly important.
This evolution in the critical competencies required, and thereore the implications or
the people strategy or the business, is becoming top-o-mind or business leaders in
the industry.
Our best perormers are those that not only look out or challenges
that clients recognize, but also or those that they may not yet seecoming at them. The not-so-great perormers are the risk-aversemanagers who ocus on Business As Usual while they should beocusing on Judgment, Risk Taking and Decisiveness, to deal withemerging competitive and economic challenges.
Piyush Mehta , Global Head o HR at Genpact
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Critical leadership competencies
What, then, should the enlightened leader o tomorrows BPO look like? In the past
ve years we have conducted more than 25,000 appraisals o VP, SVP, and C-level
talent and their external benchmarks. These appraisals provide a wealth o insight into
the critical leadership competencies required to succeed with transormative strategies.
These competencies include:
Commercial Orientation BPO companies
will need to bolster their traditional low-cost
mindset with marketing sophistication and
true customer insight. Without this
perspective, even a strategically-minded
leader can all into the trap o thinking that
the process coners competitive advantage.
Genuine customer insight includes the ability
to anticipate customer needs, to innovate in
service and delivery models, and to provide
a customer experience that is diferentiated
rom the competition.
Strategic Orientation Customers want service level agreements and transparency.
BPOs need the ability to develop multi-business platorms and strategies that move up
the value chain to add value to outsourcing complex processes. Instead or remaining
entrenched in the operational mindset, the winning providers will be externally-acing,
agile, and able to seize strategic opportunities.
Change Leadership BPO leaders need the ability to understand and overcome
barriers to adopting change not just in their own organizations, but also in client
organizations. Getting the organization and clients to adopt new ways o working can
be dicult. The best players create joint teams that bring current in-house personnel
along while integrating resh perspectives into the modes o engagement betweenprovider and client.
Team Leadership and People Development Talent is the ultimate game-changer.
Providers must be able to create a strong and cohesive team, recruit and retain top
talent, and develop high potential talent through stretch assignments and strategic
succession planning.
Winning the BPO Leadership Challenge
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COMMERCIAL
ORIENTATION
COLLABORATIO
N
LEADERSH
IP
TE
AM
DELIVERY
ORIENTATION
STRATEG IC
INFLUENCIN
G
CHANG
E
LEADE
RSH
IP
RESULT
S
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Collaboration and Inluence The days o command and control management are over.
A customer-acing organization, rich in talent and intent on moving up the learning
curve rapidly, requires a culture o collaboration. Facing a whole new breed o
competitors and new terms o competition, providers need the innovation that thrives
in such cultures and todays talent, or whom BPOs are vying, expect such a culture.
Results Orientation The ocus on low-cost processes honed a actory management
mindset in operational leaders. However, to up their game, leaders have to shit
their ocus to metrics that measure and motivate higher value-added services and
an end-customer ocused business. They should invest the time to understand and
communicate what success and its underlying drivers look like and then put in
place the processes and measures that will achieve it.
How to Compete and Win on Talent
BPOs can do three things to ensure that they have the right mix o competencies in a
rapidly changing, increasingly competitive, insight-driven, and service-centered business:
Assess existing talent Whether the business needs a major overhaul in strategy or just
a candid assessment o its ability to compete going orward, it will need a clear set o
key competencies to execute successully. The organization not only needs to under-
stand that inventory o competencies but also to understand what level o competency,
both in individuals and collectively, will be required. An objective appraisal o the
companys team on both dimensions reveals where the gaps lie, provides a develop-
mental roadmap or the organizations high-potentials, and depoliticizes evaluation and
career progression. (See Figure 3)
Create a culture that attracts and retains talent With the competition or top talent
more intense than ever, BPO companies must strive to create a culture that enables
people to grow and to contribute to the companys success. Its not simply a matter o
compensation, but o ofering the kind o proessional opportunities and challenges
that talented and ambitious executives seek. That means a culture marked by diverse
leadership reely exchanging ideas, a high-velocity learning environment, and an
embrace o agile, creative, intuitive thinkers who are intensely customer-oriented.
Winning the BPO Leadership Challenge
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Visionary leaders in the industry understand that their mix and levelo talent will be the single most important determinant o success.
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Continue to bring in talent rom client industry segments As more BPO companies
move toward new market segments, traditional players need to expand their talent to
include knowledge o those segments such as retail, travel and leisure, and other service
industries. They need talent who can develop deeper domain and unctional expertise
in, or example, supply chain, hospital management, and more. They must nd people
who can expand geographic strategies beyond low-cost countries to other geographies
closer to clients. And they must bring in people who can innovate, as with digital plays
that add value to clients processes.
No matter where your company alls on the spectrum o players, thenew terms o competition in the industry present a stark choice:
transormation or slow death. Visionary leaders in the industry under-
stand that their mix and level o talent will be the single most important
determinant o success. For an industry that grew out o leveraging
low-cost talent, the time has come to ocus on leadership competencies
that will take companies to their ull potential as genuine business
partners with their clients.
Winning the BPO Leadership Challenge
11 Egon Zehnder International
MAK
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FEEDBACK
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Figure 3 Leadership Development at Egon Zehnder International A Comprehensive Process
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Egon Zehnder International is the worlds leading
privately owned search frm with over 380 consultants
working in 63 ofces in 37 countries. The frm
specializes in senior level executive search, board
consulting and director search, management and
team appraisals and leadership development.