thesmartmanager,sanjaypatro, feb-mar 08_475

8/13/2019 TheSmartManager,SanjayPatro, Feb-Mar 08_475

1/22


2/22


3/22


4/22

www.thesmartmanager.comT H E S M A R T M A N A G E R Feb-Mar 08 28

DEVELOPING INFRASTRUCTURE THROUGH MANAGEMENT INNOVATIONS

There is little doubt that several aspects of infrastructure

in India will have to improve dramatically for the country

to sustain its current stellar rates of growth. How will

these improvements come about? The case studies

you are reading in this issue of The Smart Manager

were developed in the belief that innovations in

management will play a key role in overcoming India's

infrastructure shortfalls; and in the optimism that some

of these innovations are already underway.

Early last year, the Aditya V Birla India Centre at

the London Business School invited proposals for case

studies about development and innovations in

infrastructure and the public sector in India, from faculty

at all the leading business schools in India. We received

an overwhelming response of more than a 120

proposals, of which the nine cases you see before you

are the result of multiple rounds of selection,

development and polishing.

These nine cases cover interesting problems in

management from a variety of sectors such as retailing,

telecom, post, banking, airlines, primary education,

rural electrification and water supply among others.

Two threads connect these cases. First, they are truly

representative of both the "hard" as well as the "soft"

infrastructure of the economy. Second, the management

challenges each case highlights are both mind

boggling, as well as capable of unleashing enormous

social value if solved competently.

Consider the problems of completing rural electrification, providing

safe drinking water and effective primary education in rural areas.

Few would dispute the critical importance of these aspects of the

economic infrastructure, as well as the immense challenges that we

face in resolving these problems in India Yet, as the cases you read

will show, headway is being made against even these daunting problems

through innovative management- whether practiced by the government,

the private sector or a combination of the two. Other cases in this

collection highlight the challenges that former state owned monopolies

in airlines, banking and postal services face in a brave new competitive

world, and perhaps surprisingly point to the strengths on which these

organizations are able to draw in their struggles. Finally, some of the

cases document exciting developments in areas like retail and telecom,

which are vital components of the broader economic infrastructure of

the economy, and where productivity improvements can have wide

ranging consequences.

The Aditya V Birla India Centre at London Business School was

launched in 1999 with the vision to be the leading centre outside India

of research and teaching that enables a mutually beneficial academic

exchange between Indian business and the global business community.

The case development initiative we launched last year fits well with

this mandate and we are hoping to make this case development program

a regular activity for the Centre. Our hope is that these cases will be

read with pride by students of management in India and with considerable

interest by those outside. While the cases and contexts are uniquely

Indian, the management problems they highlight as well as the innovative

solutions they describe are not necessarily bound to any particular

geography. We hope you agree.

phanish puranam

Assistant Professor, Strategic and Information

Management, and Co-Director for Aditya V Birla India

Centre at London Business School, Puranam's

research focuses on the organization of inter-firm

relationships: strategic partnerships, outsourcing/off

shoring arrangements and acquisitions. In particular,

his work seeks to highlight the importance of organi-

zation and coordination both within and between firms.

developing infrastructure throughmanagement innovations

By Nirmalya Kumar & Phanish Puranam

nirmalya kumar

A Phd from Northwestern University, Kumar is currently

the Professor of Marketing, Director of Centre for

Marketing, and Co-Director for Aditya V Birla India

Centre at London Business School. He is passionate

about marketing and believes that for marketing to be

relevant to CEOs, it must become strategic, cross

functional, and bottom line oriented. In his leisure

time Kumar likes to travel, ski and write.


5/22


6/22

www.thesmartmanager.comT H E S M A R T M A N A G E R Feb-Mar 08 179

S M A R T E N T E R P R I S E

the management team at Vasant Scribes had just completed their

semi-annual meeting to review progress during the past six monthsand plan for the future. Although the company had taken steps

to diversify into higher value added areas of medical billing

and marketing analytics, in line with its plans two years ago, there

had been very little achieved to speak about.

Vasant Scribes Limited was established in 1999 with a

primary objective of establishing ITES (IT enabled services) which

was then considered a sunrise business.

An IT enabled services firm company, faces the classic dilemma of growing its business organically

or by diversification.

it was May 2007, G K B Chowdary, Managing Director and

vasant scribesby Sanjay Patro & Vinay Kumar

Founder, Datawise, Kumar has worked

both in India and abroad and has about

17 years of experience. His company

provides strategy and management

consulting to small and medium

companies. A graduate from IIM,

Ahmedabad, he is currently pursuing

his fellowship from XLRI Business

School, Jamshedpur.

Chairperson of Marketing Area at

XLRI Jamshedpur, Patro's areas

of interest are strategic marketing,

brand management, product manage-

ment and rural marketing. With

over twenty years of experience in

teaching, research and training, he

has conducted several training

programs on effective marketing,

industrial marketing, customer service,

brand management and rural marketing

to several MNCs and Indian firms.


7/22

www.thesmartmanager.comT H E S M A R T M A N A G E R Feb -Mar 08 180

VASANT SCRIBES by Sanjay Patro & Vinay Kumar

exhibit 01 : medical transcription process overview

indian transcription process

doctor

transcriptionist

proof reader

doctor

transcriptionist

doctor dictatesaudio file

doctor dictatesaudio file

transcriptionisttranscribes the file andtransmits an electronicfile back to the doctortranscriptionist

transcribes andsend electronic file

to proof reader

proof reader edits theelectronic file andtransmits back to thedoctor

the us transcription process

It had grown to figure among the top ten

medical transcription companies in India.

Among the leaders in the Indian medical

transcription companies were companies that

had headcounts of 1,000 plus and invariably had

a strong US base, such as CBay, Healthscribe,

Heartland, and Spryance. Second tier trans-

cription companies consisted of companies

which were primarily home-grown but had

come close to the first tier with headcounts

ranging from 500 to 1,000. These included

companies such as Acusis, Focus Infosys, and

Transdyne. Vasant Scribes was in the third tier.

One of the key decisions that was taken

at the time of setting up the medical transcription

business at Vasant Scribes was that the company

would not source business from third parties, that

is, it would not approach brokers or agents for

outsourcing business. It would be directly in touch with its

customers and deliver services to them. The Indian ITES sector had

witnessed a boom in recent years, with average growth of more

than 30% being posted by companies in this sector. With its large

base of English speaking people, and the advantage of a time zone

difference between India and the western world, growth was

expected to continue at a rapid rate even in the years to come.

G K B Chowdary was concerned with the lack of progress

on the diversification and was questioning whether to stick with it.

On the other hand, the transcription business of the company

had a breakthrough in the form of a new contract with MedQuist,

the worlds largest medical transcription service provider. This

contract alone was enough to catapult Vasant Scribes into one of

the biggest medical transcription companies in India. If the

company were to continue its efforts at growing the medical

billing and marketing analytics business, the management

would have to formulate a new mechanism to promote growth,

as previous efforts yielded minimal gains.

with its large base of ENGLISHspeaking people and a TIMEzone

difference, GROWTHwas expected to continue at a RAPIDrate


8/22



Chowdary needed to decide whether the

company should proceed with its earlier plan of

persevering with the new lines of business,

or concentrate on the new found thrust to

medical transcription business?

the medical transcription industry:

a background

Medical transcription was the process of

converting voice dictation (typically either

cassette or digital format) into a permanent

written record utilizing word processing

equipment and software. US legal system

demanded patients medical history be recorded

and maintained.

The doctor dictated those records in

audio form in his audio system. Medical

transcriptionists (MTs) listened to the audio

and transcribed into written formats. In India,

there was a further level of proofreaders who

would proofread these written documents.

Thereafter, the word files were uploadedinto the clients system.

Medical transcription was traditionally

carried out by secretaries in the US clinics

and hospitals. However, clinics and hospitals

realized that with their greater focus on

profitability, they could not afford to pay

high salaries to these secretaries. They also

realized that this was a non-core activity that

could easily be outsourced.

At the same time, the advent of Internetmade it easier for transcriptionists to work

out of remote locations. Whereas earlier

physical presence of the transcriptionists

at the workplace was considered a must,

now secretaries could receive voice files from

the hospitals or clinics and type out of

their homes.

This comfort in outsourcing gave rise to the outsourced medical

transcription industry. To begin with, secretaries to clinics and

hospitals decided to work from home, undertaking to work for

more than one physician or clinic, thus maximizing their own

revenues. This was a win-win situation for the transcription

secretaries as well as the clinics and hospitals.

Over time, there was consolidation of some of these companies

that resulted in the emergence of a few large medical transcription

companies in the US.

The biggest among these was MedQuist, a company that

had a relatively recent heritage. MedQuist, a company owned

by Royal Philips Electronics (71% of the shareholding vests

with it) claimed to have revenues of close to $500mn annually,

and had grown largely fueled by a series of acquisitions.

MedQuist employed about 6,500 medical transcriptionists.

However, MedQuist contracted transcriptionists out of their

homes, and did not have them as their employees (until recently:

MedQuist revised its policy recently to ensure that all its

transcriptionists compulsorily become its employees.).

Spheris was recognized as the second largest medical

transcription company in the world. Spheris had more than

6,000 direct employees, including more than 5,500 professionalmedical transcriptionists. Spheris was headquartered in Franklin,

TN, with major operations in St Petersburg, FL; Sterling, VA;

Milpitas, CA. After the acquisition of Healthscribe in 2005,

Spheris got a presence in Bangalore and Coimbatore in India.

Spheris acquired Healthscribe at a price of $75mn. As on 31

December 2006, Spheris had net revenues of $207mn.

Barring these few giants the medical transcription industry

consisted of a number of small or home based transcription

companies; the medical transcription industry had remained

a cottage industry.It was therefore difficult to determine an accurate estimate

of the exact market size of medical transcription market in

the US. According to a corporate spokesperson of Spheris, The

clinical documentation outsourcing industry is highly fragmented.

We estimate that the top ten firms in the industry account for

less than 10% of the total outsourcing market. There are several mid-

sized service providers with annual revenues between $10mn and

the MEDICAL transcription INDUSTRY

had REMAINEDa COTTAGEindustry


9/22



$40mn, and hundreds of smaller, independent

businesses. Most of the outsourcing providers are

US based, but there are several companies,

including us, that have a global presence.

We also compete with in-house medical

transcription departments of hospitals and group

practices. We believe that approximately 50%

of medical transcription services in our

addressable market currently are performed

in-house by healthcare facilities. To compete

with in-house medical transcription departments,

we must be able to providea cost effective

alternative to in-house transcription by offering

technology improvements, lower costs, faster

turnaround times, higher quality, a scalable

model and access to professional MLS.

In addition, as technology evolves, including

the continued refinement of speech recognition

technology, health information technology

providers are attempting to provide services

that replace, or reduce the need for, medical

transcription. Furthermore, companies thatprovide services complementary to medical

transcription, such as electronic medical records,

coding and billing, may expand the services they

provide to include medical transcription, and

therefore, become competitors of ours.

According to US Bureau of Labor Statistics

(BLS), MTs held about 105,000 jobs in 2004.

About four out of ten worked in hospitals and

other three out of ten worked in offices of

physicians. Others worked for business supportservices; medical and diagnostic laboratories;

outpatient care centers; and offices of physical,

occupational and speech therapists, and audio-

logists. Less than 15% were employed by

professional outsourcing service providers.

What was most noteworthy was the fact that

between 1999 and 2004, the overall employment

of MTs in the US increased by only 1.5% per annum. This was

despite the fact that the Bureau had predicted an employment

demand growth for MTs faster than the average growth for all

occupation.

The sluggish growth in MTs in the US was triggered by

a number of reasons:

American transcriptionists were aging; most were aged between

47 and 51 years

IT vendors were providing new technology including EHR

(electronic health records) and speech recognition technologies

which were increasingly reducing the need for transcriptionists

medical transcription was no longer considered a paying career

in the US, and transcriptionists had to remain content with

low salaries

the ITES industry in india

According to NASSCOM (National Association of Software

and Service Companies), Indias ITES sector, the primary destination

of business services outsourcing from Western countries,

employed over 400,000 people with revenues expected to exceed

$8.3bn, of which over 70% were to the US. While the sector was

still small it was growing at a rate of more than 30% per annum.NASSCOM forecasted that exports would hit the $50bn mark

in five years. By that time, the business process/business services

outsourcing segment would employ over 2mn people, and the

total exports of the IT industry would support over 8mn jobs.

India offered many advantages to serving as an ITES

destination for major global companies. These included:

a virtual twelve hour time zone difference with US and other

major markets for ITES

a huge pool of English speaking and computer literate man-

power that continued to cater to the growing demand forprofessionals for ITES. These professionals were skilled as

well as quality conscious

cost of qualified personnel was amongst the lowest in the world

stable legislative and economic framework

many state governments in India offered special incentives

and infrastructure for setting up ITES

thrust by Government of India to make India an IT driven

while the SECTOR was still small it was GROWING

at a RATEof more than 30% per ANNUM


10/22



nation with a focus on the services sector where

potential for value addition and thus premium

was higher.

India enjoyed very strong brand equity in

major markets, thanks to its growing and

globally competitive software industry. The

proliferation of ITES and its continuing demand

led growth had become a strong opportunity

for India, both in terms of generating employment

and export.

medical transcription in india

In 1993, Healthscribe became the first medical

transcription company to be set up in India. The

companys base was in Delaware, US which

controlled all its marketing efforts while

transcription was carried out of Bangalore, India.

As a pioneer in offshoring, Healthscribe

found it difficult to break into the American

medical transcription market and to convince

its first customers to send transcription work to

India. Typical concerns were data security and

uncertainty whether Indians could transcribe at

all. Countering these concerns were some big advant-

ages that Indian off shoring companies offered:

the rates charged by Indian companies weresignificantly lower than those charged by US

based transcription companies or trans-

criptionists. Sometimes, the difference in

rates was as high as 40%-50%, a high incentive

for clients to consider shifting business to India.

The huge English speaking workforce gave

India the advantage of being able to offer

these services at competitive rates.

india, with its unique geographical position,

was able to offer transcription services duringthe American night (the time difference between

US and India was approximately twelve hours).

As a result, while corporate America was asleep,

the transcriptionists in India would transcribe

the dictations during the Indian day, and

transmit the transcriptions back in time for

the clients in the US.

Once Healthscribe managed to break the barriers of offshoring

medical transcription work to India, a number of companies followed

suit; some of the early pioneers included, Heartland, and CBay. As

a result, by the late 90s there was a proliferation of medical

exhibit 02: the top six medical

transcription companies in india

company ceo no. of current employees status

C-bay v raman 3,500 - own centers kumar and franchisees

Heartland bryan 1,500 merged with

own center, jv black Spryance

Healthscribe suresh 1,350 acquired by Spheris,

own center and nair the second largest hbt medical transcription

company in the world

Spryance raj 1,000 merged with own centers/hbts malhotra Heartland

Acusis coo: kb 550 -

own center/hbts anand

Focus Infosys jayesh 4,500 acquired by nuance, own centers nagda a company specializing in

speech recognition technology (owned by Dictaphone)

50,000

jan05 feb05 mar05 apr05 may05 jun05 jul05 aug05 sep05 oct05 nov05

60,000

70,000

80,000

90,000

100,000

110,000

exhibit 03: the overall business

volume of vasant scribes in 2005

average lines per day


11/22



IT services

exports

ITES-BPOexports

ES+productexports

domesticmarket

fy 07

fy 06

NASSCOM July 2007

6.7

8.2

4.0

4.9

6.3

8.4

13.3

18.0

Some of the key trends in the medical transcription industry were as follows:

the demand for offshore MT outsourcing services in the US was growing at about 20% per year.

there had been a steady 10% decline in the number of transcriptionists in the US every year.

American transcriptionists were aging (most were aged between 47 and 51)

the US MT industry calculated that it needed at least 25,000 medical transcriptionists per year for it to grow at the same rate at

which it has grown in the past

according to IDC, US spending on medical outsourcing services totaled $2.3bn in 2004

IDC's research further showed that although MT was still being performed with antiquated technology, IT vendors were providing

new technology including Electronic Health Records (EHR) and speech recognition technologies.

forecasts showed that the market would increase to $4.2bn in 2008 with a five year CAGR (compound annual growth rate)

of 16.1%

US industry medical transcription

employment breakup

US states with highest medical

transcription employment

industry employment (%)

general medical and 40.2 surgical hospitals

offices of physicians 33.2

business support services 12.5

offices of other health 2.3 practitioners

medical and diagnostic 2.0 laboratories

others 9.8

state employment (%)

Michigan 5,590

Wisconsin 3,830

West Virginia 980

South Dakota 780

North Dakota 520

may 2003 figure. source: US Bureau of Labor Statistics

figures in $bn

exhibit 04: medical transcription industry statistics

Indian IT software and

services revenues

transcription companies in India, all eager

to cater to the US markets. Most of them

were drawn by the lure of easy money. The

barriers to entry into medical transcription

were very low. According to Ramakrishna, the owner of WorldTech,

Every proof reader considered himself capable of starting

his own unit. He would break away and take another twenty

trained people with him and start a transcription centre.


12/22



exhibit 05: the top six medical transcription companies in India

It was estimated that the medical transcription market would continue to grow year on year, as shown in the table below:

year us medical outsourced #mts projected total value of gap between transcription market for mt employed by value of the output of us demand for market @10% @13% mtsos productivity mts employed services and

growth/yr growth/yr (declining increase of us by us mtsos supply of mts (in bn) (in bn) @ 5%/yr) mtsos @3%/yr (in bn)

2000 $10.00 $4.60 178,000 $33,000 $5.87 sufficient supply

2002 $12.10 $5.87 161,000 $35,000 $5.64 $0.24

2004 $14.64 $7.50 145,000 $37,100 $5.38 $2.12

2006 $17.72 $9.58 131,000 $39,400 $5.16 $4.42

2008 $21.44 $12.23 119,000 $41,800 $4.97 $7.25

Larger companies required large infrastructure

such as servers, security systems, bandwidth,

power back-up systems, etc. They also invested

more in senior management who were capable

of managing operations.

In contrast, smaller transcription outfits

operated with a proof reader-owner who

doubled up as the manager for all allied

functions (personnel, administration, finance,

and IT). Such companies were therefore able

to keep overheads low. Since the key deliver-

able requirements (quality and turnaround)

were largely independent of these over-

heads, customers, especially the physician

practices did not insist on specific standards

in this regard. Smaller transcription companies

therefore managed to have much better

profitability than larger transcription companies.

Even in the US, it is interesting to note that

none of the top ten medical transcription

companies makes profit, says Ravi Rajagopal,

COO, Elico, a medium sized medical trans-cription company based in Hyderabad. Elico

had moved into medical billing business and

was providing services to its US based partner who maintained

the interface with the clients.

The top six transcription companies (refer exhibits 02, 03, 04,

05, 06 and 07) accounted for 75% of the revenue and close

to 70% of the employment. There were another five to six

companies that had hundred or more people. In that sense,

the average employees per company among the rest turns out

to be less than twenty. Medical transcription had assumed the

form of a cottage industry in India, not very different from

that in the US.

In spite of this rapid increase in the number of companies,

in reality, Indian transcription companies found it difficult to

survive because they miscalculated a number of factors:

offshoring was seen as attractive only when the price differential

was high. As a result, most outsourcing contracts were at rates

significantly lower than what they were worth in the US. Medical

transcription contracts were typically based on a payment per

line of transcription. In the US, these payments ranged between

14-15 per line. In India, transcription companies started

with quotes at a 40%-50% discount to the US rates, but under-cutting

resulted in prices in the range of 2-3 per line in many cases.

Clearly, transcription business was not viable at these rates. quality of the transcription was paramount, and even with

good english speaking graduates recruited for the job, transcription

smaller TRANSCRIPTIONcompanies therefore MANAGEDto have

much better PROFITABILITYthan larger transcription COMPANIES


13/22



category no. of share of indias performance players total it/bpo export revenues

IT services 10.4 13.5 17.5

tier i players 04 march 45% of IT services revenues greater than $1bn 4-5% of BPO

tier ii IT players 10 july 25% of IT services revenues $100mn-$1bn 4-5% of BPO

offshore operations of global 20-30 10-15% of IT services revenues $10mn- $500mn IT majors 10-15% of BPO

pure play BPO providers 40-50 20% of BPO revenues $10mn- $200mn (excluding top provider with $500mn)

captive BPO units 150 50% of BPO revenues $25mn- $150mn

(top ten units)

emerging players >3000 10-15% of IT services revenues less than $100mn (IT) 5% of BPO revenues less than $10mn (BPO)

* based on last comparable annual report** earnings before interest, tax, and depreciation and amortization margins (last reported)*** including captive centres for independent software vendors (for example, Microsoft, Oracle)

source: nasscom mckinsey report 2005

employment trends

the total direct employment in the Indian IT-ITES sector was estimated to have grown by over a million, from 284,000 in FY 99-00

to a projected 1287,000 in the current fiscal (2005-06)

in addition to the nearly 1.3mn strong workforce employed directly in the industry, Indian IT-ITES was estimated to have helped

create an additional 3mn job opportunities through indirect and induced employment. Indirect employment included expenditure on

vendors including telecom, power, construction, facility management, IT, transportation, catering and other services. Induced employment

is driven by consumption expenditure of employees on food, clothing, utilities, recreation, health and other services.

key industry highlights:

the leading publicly- listed players have reported a top line year-on-year growth of nearly 34%, over the first half of the current

fiscal.

multi national company owned captive units have been scaling up their operations steadily with the headcount forecast to grow

by at least 30% this year.

IT-ITES activity in the domestic market is also witnessing steady growth with the services segment coming into its own reflecting

sound optimism for the year end results.

India based service provider landscape

exhibit 06: medical transcription industry statistics

companies quickly realized that it was not easy

to transcribe. Doctors demanded accuracy levels

of 98.5% and more, which companies failed

to achieve. Quality in transcription had

been a much debated concept. The AAMT

(American Association of Medical Trans-

criptionists) had evolved definitions and standards

for quality, and most customers agreed that 98%

and above accuracies were acceptable. In reality, though even

one simple mistake could irritate the customer on a bad day.

Some doctors insisted on transcriptions without any form of

editing whereas others encouraged edits and grammar corrections.

in order to achieve the required levels of accuracy, companies

had to pass each transcript through two levels: a transcriptionist

and a proof reader, a concept alien to the US markets. This

immediately doubled the costs of transcription companies in India.


14/22



a typical American transcription could produce

about 1,000 lines per day of work. Indian

companies assumed that they could achieve

similar productivity with transcriptionists in

India. In reality, the productivity of Indian

transcriptionists was typically about half of that

of American transcriptionists. On top of it,

whereas American transcriptionists were

accustomed to working eight hour day shifts,

Indian transcriptionists typically worked based

on flexible timings. Productive time rarely

exceeded four to five hours. Very often, when

work was not available to keep the pool

of transcriptionists, their employers would

let them off.

marketing their services proved to be a big

hurdle, especially since most companies did not

have an established US presence. Credibility of these

companies and the scare of data security

kept large clinics and hospitals away.

According to Ramakrishna of WorldTech, a

pioneering Indian MT firm, We have toconstantly keep managing supply and demand

continued BUSINESScame through the US based INVESTORS,

whereas the Indian INVESTORSwere incharge of OPERATIONALcontrol

situations. Work may suddenly come in one day without any

notice and it is not possible to postpone or decline it. On other

days, there would be no work at all. Planning for the ups and downs

of work becomes very crucial. We have to maintain a buffer of at least

15% excess transcriptionists at any time.

The transcription industry in India had evolved different

models to counter the fluctuating demand and supply patterns.

the joint venture model: a number of companies were grown

based on the investments made into a transcription company by

an interested US based entity (either a hospital, clinic or group

of physicians). The assurance of continued business came through

the US based investors, whereas the Indian investors were

incharge of operational control.

the sub-contracted model: another model was that of a sub-

contract. Indian transcription companies sub-contracted either

with US or India based transcription companies. This was typically

a win-win for both entities. The provider of the contract did

not have to worry about maintenance of adequate manpower and

issues of operational control and the transcribing company was

assured of a steady source of revenue. Elico, a mid-tier transcription

company in India had opted for this model. In a sub-contracted

model, the transcription company did not have direct contact withthe end-customer. Also, the rates that were offered were

exhibit 07: medical billing process

The typical stages involved in a medical billing process were as follows:

charge entry, which consisted of entering the details related to a patient's visit, upon completion of the visit, in a billing software.

verification, which was typically done by a senior level resource to ensure that the entries were made correctly in the software.

coding, which consisted of entering appropriate codes based on the pre-designated codes depending on the type of medical service

provided to the patient. Depending on the nature of the billing, the abilities of the software and the insurance company that a patient

had subscribed to, either electronic or paper bills were generated. Electronic bills were directly received by the insurance provider

whereas paper bills needed to be printed and dispatched by another intermediary process.

denial management, which consisted of reconciling the amounts billed to the insurance companies and the amounts accepted, and

accounting for the differences based on billing errors or other established protocol.

accounts receivable follow-up, which consisted of following up with the insurance provider for payments. This was usually done

through voice calls and required a VOIP (voice over internet protocol) or similar telephonic set-up.

finally, depending on the arrangements with the client, payments were either received directly by the billing service provider and

credited to the client after deducting the service charges, or were arranged through a lock-box facility, where the service provider had

the ability to 'view' the account.


15/22



significantly lower than what the transcription

company could make through a direct contract.

the partnership model: in a partnership

model, there were two separate entities, a

US based company which was only in the

business of marketing transcription services,

and the India based company, which was

only in the business of transcription operations.

Each company had core competencies related

to its area of specialization, and it was a

win-win. However, unless there were any

binding or exclusivity arrangements, there was

a risk of each of them losing the support

of the other, should the relationship not

work out.

build-operate-transfers (BOTs) and acquisitions:

a number of companies had adopted a

strategy where either a US transcription

company decided to enter the Indian tran-

scription industry through an acquisition

or a build-operate-transfers route, to

combat increasing difficulties in hiringtranscription talent in the US. Indian

companies too had explored the possibility

of acquiring US based transcription companies

to increase their customer base.

There had been failures and successes

with each of the above models as companies

in India and the US continued to explore

various possibilities.

recent developments in the medical

transcription industry in indiaThe main domestic players in the medical

transcription industry in India had recently seen

significant changes:

Healthscribe: the pioneer in the medical

transcription market in India was acquired by

Avicis, which was subsequently acquired by

Spheris in 2005.

Focus Infosys:viewed by many to be one of the largest medical

transcription companies in India (transcribed about 1mn lines per

day) was acquired by Nuance Communications in late 2006.

C-Bay Systems:a company that had rapidly become one of

the largest medical transcription companies in the world, was

rumored to be planning a public issue which would enable the

existing promoters to exit. It had, over the past few years,

been acquiring some of its sub-contractors (at one time, it

had 28 sub-contactors, many of whom were now acquired by C-Bay).

MedQuist:which had earlier tied up with Spryance (a medical

transcription company with a base in India), was scouting for

new partners in India to outsource its work. Medquist had

recently established an ILP (international labour partner)

program with this in mind.

history of vasant scribes limited

Vasant Chemicals Limited was the flagship company of the

Vasant Group. After being in the bulk chemical category for about

25 years, Chowdary, wanted to move into a new economy

business. Vasant Scribes Limited (VSL) was the outcome of

a brainstorming by the promoter of Vasant Scribes, who had a

desire to make a foray into the IT services sector. With the help ofconsultants and internal reviews, the group narrowed down on

medical transcription services as the main focus area to enter

the services business.

Vasant Scribes transcribed about 100,000 lines of transcription

per day. It had about 320 employees spread over three locations

in Hyderabad. The company also outsourced some transcription

work to franchisees in Vijayawada, Coimbatore and Kolkata.

Vasant Scribes was a closely held company with a majority of

its shares held by Vasant Chemicals and the directors of

Vasant Scribes and their family members. The shareholding patternof VSL was as follows:

management team

The managing director of VSL was G K B Chowdary, a

seasoned entrepreneur with more than 25 years of successful

experience in running businesses. Although Chowdary was

a lawyer by profession, he had mastered the ability to manage

unless there were any BINDINGor exclusivity ARRANGEMENTS,

there was a RISKof each of them losing the SUPPORTof the other


16/22



businesses in which he had little or no

knowledge to begin with. The companys

operations were led by Alok Singh, an MBA

from the Indian Institute of Management,

Ahmedabad, a reputed business school in India.

He was instrumental in setting up the initial

processes and procedures in the firm.

In the US, Vasant Scribes was led by

Jagannathan an alumnus of an US Ivy League

Business School. Jagannathan was also a

professor of marketing in the University of

Wisconsin and was on the board of Vasant

Scribes Limited.

About two and a half years ago, the company

inducted Vinay Kumar as the Chief Executive

Officer. Kumar was also an alumnus of the

Indian Institute of Management, Ahmedabad

and had about fifteen years of experience in

various companies in India and abroad.

Vasants second line of leadership comprised

of technical graduates and was entirely home-

grown. Most of the senior staff with Vasantstarted their medical transcription careers with

the company. Most of them had no prior

corporate experience. About three years ago,

some of the senior proof readers were promoted

to supervisory level both as a career enhance-

ment and retention mechanism. Supervisory

positions were felt necessary to create optimum

team size for management and control.

Barring a couple, none of the second line

of management had any professional manage-ment exposure. In the transcription industry

in India, this was common to a number

of companies. Often Kumar had to spend

long hours on day to day functioning of the

firm. He had strengthened the process driven

focus and was proud of the systems driven

approach of VSL.

phase 01: initial years and growth pangs (1999-2001)

In the initial years, the company decided to target known doctors

of US who were either known or related to the promoter.

Companys key management made a number of visits to these

clinics/doctors. However, after showing initial willingness to

try the services of Vasant Scribes, most of the doctors shied away.

The most often quoted reason was a lack of credibility.

All of Vasant Scribes medical transcription staff was fresh

graduates who were trained. The process of recruiting talent

was relatively easy since there was availability of unemployed

graduates. Each training program consisted of six months of

rigorous class room training where staff was imparted knowledge

in the language of medicine, and basic english grammar.

By 2000, the company was able to build a transcription team

that had the capabilities to handle about 15,000 lines of

transcription per day.

The period from 1999-2001 was of loss and consolidation for

most companies and Vasant was no exception. Transcription

companies that had survived the initial period continued to

incur losses for the first 2-3 years when capabilities were

established and yet business did not pour in as initially anticipated.

If one company starts a new business all others willfollow blindly in the next six months says Ramakrishna,

CEO, WorldTech. However, a number of companies that had

mushroomed during the first wave of medical transcription

and which did not have the financial backing to survive

quickly died. Some of the more persevering companies dug

into clinics which were run by their friends and family (Indian

doctors who had settled in the US).

Most of the smaller companies decided to outsource work from

agents who would offer work to the lowest bidders. Prices of

transcription services plummeted to as low as 2-3 per lineand companies quickly realized that it was not possible to run

a financially viable business at these rates.

With the surviving companies seeing a stabilization of their

revenues and profits, a number of companies started entertaining

thoughts of diversification during this period (2001-04).

Vasant Scribes also took a decision to establish a US subsidiary

in the same year on the premise that clinics and hospitals would

TRANSCRIPTIONcompanies that had SURVIVED

the INITIALperiod continued to incur LOSSES


17/22



be more comfortable working with a US based

entity rather than with an Indian company.

In August 2000, the company started its own

marketing efforts by setting up a US based

subsidiary, Vasant Scribes Inc, with a president

and a COO (chief operating officer). The COO

was sent from India, whereas the president

was an Indian who had been working in the

US for the past 25 years.

In addition, the company also sent a couple

of people as marketing staff from India to the

US. However, they could not win any accounts

partly because of their poor knowledge of the

American cultural nuances, and partly because

of their poor knowledge of the medical transcrip-

tion industry. They soon left the company.

The company achieved its first nominal

revenues of about Rs1500,000 ($37,736.80) in

the 2000-01 while incurring a loss of about

Rs700,000 ($17,610.51). By the end of 2001,

the company had built transcription capacities

of 50,000 lines per day. However, the volume

of contracted work was not adequate to fill

the capacities. Vasant had created production

capacities in anticipation of work volumes.

These work volumes continued to come in atrickle, thereby creating a huge pressure on

maintaining high redundant manpower costs.

In early 2001, Vasant Scribes had to take the

harsh decision of releasing some of the staff since

the company was not able to gain enough

business to keep all staff busy. The key challenges

that the company faced during this phase were:

01 establishing credibility in the US transcription

market

02 winning its first clients03 managing manpower and maintaining a

redundant workforce.

phase 02: the years of rapid growth

(2001-2004)

In 2001, the company initiated a number of

measures to improve marketing efforts,

including engaging the services of a US telemarketing services

company. This strategy started showing results in the second half

of the 2001. At the same time, the efforts in establishing a US based

subsidiary and sending the COO to the US started paying off.

Business had started growing at the rate of 5,000 lines per day

per month from October 2001, and most of the staff who were

earlier let go were recalled. In the 2001-02, the company

achieved revenues of about Rs6600,000 ($166,058.63) and yet

incurred a loss of about Rs12,000,000 ($301,924.77). It built

capacities of 50,000 lines per day.

While the company continued to gain clients in a trickle,

the first major break-through for the company came in 2002.

An account that was being sub-contracted from one of the

Indian Medical Transcription company decided to seek new

bids. Vasant Scribes was one of the bidders, and was viewed

favorably in view of its previous track record with the client.

This account catapulted Vasant Scribes from a small company

to a medium sized company. At the same time, some of the early

clients of Vasant Scribes also started referring other clients

to the company.

In order to further strengthen its production capabilities

without taking on the burden of additional manpower, the

company decided to enter into a sub-contracting relationship

with two smaller companies, a Vijayawada based medical

transcription company and another Hyderabad based medical

transcription company. Both these companies were initiallyentrusted with small transcription volumes that could engage

around twenty to thirty transcriptionists.

2,000

oct 00

thousand

s

apr 01 oct 01 apr 02 oct 02 apr 03 oct 03 apr 04

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

exhibit 08: growth in

transcription volumes


18/22



Some of the key achievements of the

company in this phase were as follows:

01 wins of some medium sized clinic accounts.

Most of the initial clients were a result of door-

to-door campaigns. Subsequent wins were a

result of references from these clients.

02 winning a large account due to previous

relationship and experience with the client.

03 establishing sub-contractors in order to

increase capacities without risk of redundant

manpower.

In the year 2002-03, the company also

took a decision to increase price to some

of its long-standing customers by about 10%.

By the April 2004, the growth in trans-

cription volumes of the company, in terms

of lines per day (see exhibit 08).

The year 2004 was a defining year in

the history of Vasant Scribes. It won

two large clients. In addition, as a result of its

telemarketing efforts, the company was able to

sign a contract with a large clinic, which wasequivalent to about 40% of the total business

of the company.

marketing of medical transcription

in the us

By 2004, the company had already exhausted most

of its business leads in medical transcription.

Telemarketing did not yield any additional

business. Also, the sales efforts of the COO

were bearing no fruit. It was decided by themanagement to engage the services of native

Americans as sales persons. The decision was based

on the premise that native Americans could

relate better to the Americans and therefore

could close sales faster.

According to Ramakrishna, When an Indian

salesman approaches a potential client, the

first question that is asked is regarding the price of the offering,

whereas when a native American salesman approaches a potential

client, the main area of interest revolves around the more

important factors of quality and turnaround time.

However, despite efforts from the new salesmen, most of

the business continued to come primarily from references only.

Since these references consisted of low volume small accounts,

the earlier high volume growth of the company started to peter

out. The breakdown of business gained during this period from

various sources is given in exhibit 09. Through this entire period,

there were no significant additions to the transcription volumes.

Most of the staff who had joined the company at the time

of incorporation also started to look for other avenues. As a result,

the company was once again faced with a dilemma of retention

of manpower. Whereas in the first phase of growth, the company

had excess manpower without adequate work, by the mid-2005,

the company had a steady stream of attrition which was

compounded by increasing trainee recruitments.

Vasants clients could broadly be divided into the following

three segments: those who generally gave consistent and high

work volumes and were prompt on payments, those who were

inconsistent on work volumes as well as payments, and thosewho gave work only sporadically and were delinquent on payments.

Almost 70% of the business came from about 20% of the customers

who belonged to the first segment and the worst 20% of the business

came from a large number of customers from the third segment.

despite EFFORTSfrom the new SALESMEN, most of

the business CONTINUEDto come primarily from REFERENCESonly

exhibit 09: breakdown of business

sources total converted % leads leads conversion

current customers 8 5 62.50%

references 31 14 45%

associates 8 4 50%

telemarketing 60 0 0%

advertising 3 0 0%

exhibitions 3 0 0%

sales persons 17 0 0%


19/22



In 2004-05, the company once again

proposed a fee increase to some of its customers.

The company performed a customer analysis

using parameters such as volume of business,

consistency, frequency and payment track

record and identified 49 customers who

contributed about 5% of the total revenues. Only

five of the customers dropped out as a result

of this exercise. At the end of this exercise,

Vasant was able to gain some additional

revenues while maintaining business volumes.

diversification dilemma

Based on these successes, and the hope of

continued business success, the company also

decided to pursue diversification. The idea to

diversify was fueled by the desire to continue

to grow rapidly while at the same time not

exposing the company to the risks of continuing

to operate in a single sector. There have been

continuing discussions amongst industry players

about the changing face of medical transcriptionincluding the role of technology.

Also, the management felt that medical

transcription, by nature was a low skill business,

and sustaining the business operations would

prove to be difficult in the long run, since

costs of operations were expected to continue

to increase while the US dollar to Indian rupee

rates would remain steady at best. A natural

corollary to growth was therefore seen to be

to diversify into areas that offered highervalue. Some of the key areas that were

considered for diversification included:

appraisal transcription (being similar in nature

to medical transcription)

medical billing and coding (being a natural

forward integration into a high end outsourcing

business)

legal transcription/outsourcing (unrelated business)

voice mail transcription (being a natural extension to

medical transcription)

marketing analytics (unrelated business)

Among these, the company decided to pursue appraisal

transcription. While there were some differences in the delivery

requirements, the client company agreed to provide all the

technical support and training to start this business.

While the desire to diversify was clear, the actual decision

to expand and diversify was primarily driven by client requests.

In some cases, clients specifically asked for these services from

Vasant Scribes. Since no market studies or surveys were conducted,

this was identified as the first step leading towards starting these

new businesses.

Marketing analytics was identified as a growing industry

(commonly referred to as the knowledge process outsourcing,

or the KPO business), and was identified as a potential

area for growth. This was supported by the fact that

Jagannathan was an expert in the area of marketing and had

considerable expertise to lead this business. However, the

company decided to defer the plans for growth in marketing

analytics since it would not be possible to handle too manynew growth areas at the same time.

The idea of pursuing the legal transcription/outsourcing

business was dropped since it entailed gaining expertise in a

new area, and would call for significant investment of time

and effort. The company did not believe that it could afford

to dilute management attention, nor could it afford to hire

additional management talent.

phase 03: challenges of diversification (2005-2007)

In late 2004, a decision was finally taken to pursue medicalbilling business. It was viewed as a natural forward integration

of existing medical transcription business. Also, based on a

preliminary feedback from existing medial transcription clients,

it appeared that the company could expect a few quick wins.

The company set up a medical billing operations team in

India. Deviating from its policy of recruiting only fresh graduates

as in the case of transcriptionists, the company decided to hire

COMPANYdecided to defer plans for growth in marketing ANALYTICS

as it will not be POSSIBLEto handle too many new GROWTHareas


20/22



experienced talent. This was possible since

in the meanwhile the medical billing

outsourcing industry had also matured in India,

and talent was available. It was also felt

necessary to hire such talent to cut short the

learning curve in establishing a medical

billing business.

The medical billing business was inaugurat-

ed in early 2005, with the win of one client.

This client was already a medical transcription

client who moved out of its existing service

provider relationship in medical billing to sign

up Vasant Scribes.

The medical billing services were offered

under a different brand name of Vantage Villing

Services to distinguish it from Vasant Scribes,

which had already gained repute as a medical

transcription client.

medical billing industry overview

The medical billing industry was mainly divided

into the payer side billing (providing services tothe health insurance companies) and the provider

side billing (providing services to the clinics

and hospitals). Vasant Scribes has decided to offer

provider side billing services only.

Medical billing consisted of taking care of

the revenue cycle management of the clinics

and hospitals. Unlike medical transcription,

which was viewed as secretarial activity, medical

billing was a function that was typically

controlled by the CFOs or directly by the doctors(in the case of smaller practices). Also, since

medical billing involved the money purses of the

facilities, clinics and hospitals were less keen to

change service providers.

Medical billing processes were more

complex as compared to medical transcription

and required registration of a billing software

in the state of the US where the service was provided, and

establishment of specialized back end processes which

were technology dependent.

Unlike in the case of medical transcription, where payments

were on a flat basis of cents for every line of transcription, in

the case of medical billing, there were two broadly accepted

industry practices:

in cases of companies that offered manpower irrespective and

not based on the actual degree of claims submitted, a flat rate

per employee was agreed.

in other, and more typical cases, fees were a percentage of the

amount billed and received from the insurance companies.

These percentages ranged from 2% to 5% depending upon

the complexity of the physician practice and therefore the

expected amount per patient.

Most medical billing companies in India continued to

source work from existing medical billing companies in the

US, and did not have any direct relationships with clinics

or hospitals, and were agreeable to either of the above basis

of payments.

Relative to medical transcription, medical billing was

also viewed as a relatively high risk area, since an incorrectbilling could make a company liable to damages and legal

suits. To de-risk their businesses, a number of medical billing

companies refused to do the coding. The coding, in such cases,

was done directly by the physician practice. Since it involved

revenues to the practice, the decision to outsource was

taken at the CFO or CEO levels of hospitals or healthcare

facilities, as opposed to administrative incharges in the case of

medical transcription.

Just as in the case of the medical transcription industry, the medical

billing industry in the US was also highly fragmented. No clearestimates were available as to the size of the industry or

the number of people employed.

The BLS classified information about medical billing

employment under the heading medical records and health

informatics technicians. According to the BLS, in 2004, there

were about 159,000 staff who were employed in this profession

in the US. About two out of five jobs were in hospitals. The rest

MEDICALbilling consisted of taking CAREof the

REVENUEcycle management of the clinics and HOSPITALS


21/22



were mostly in offices of physicians, nursing care

facilities, outpatient care centers, and home health

care services. Insurance firms that dealt in health

matters employed a small number of health

information technicians to tabulate and analyze

health information.

Even in India, the information on the

medical billing industry was scarce. Some of

the major players in the medical billing

industry in India were:

Nittany:was one of the first companies in

India to start medical billing practice. It had

gradually lost clients as well as people to other

smaller medical billing companies in India.

Vision Health: a dominant player in the

Medical Billing industry in India was recently

acquired by Perot Systems, one of the largest

outsourcing companies in the US.

Ajuba:employed around 1,500 staff out of its

office in Chennai and concentrated on a few

medical specialties. Ajubas owners were based

in the US and assisted in sourcing new business

for the company.

Apollo Healthstreet:was a part of the Apollo

Hospitals Group in India and had grown rapidly

since late 1990s, and had about 1,000 staff on itsrolls. Apollo Healthstreet acquired a US based

medical billing company with a view to move

the billing business to India. It had proposed

to acquire other similar companies in the future.

marketing analytics business

overview

Marketing analytics was an emerging area of

analytics where companies attempted to use

analytical applications in the area of marketing.Services could range from data cleansing

and data entry (at the low end) to high end

marketing analytics, including blog analytics.

Specifically, the following areas were required

to be addressed in the case of any analytics

assignment:

01 data collection

exhibit 10: india (offshore) marketing

analytics services market size and

forecast, 2003-06

100

2003 2004 2005

inus$m

n

2006 2007 2008

200

300

400

500

0

4382

169

279

384

456

02 generation (and storage) of unique identifiers. In order

to help merge information from several records and remove

duplicate records, systems needed to generate unique keys

to join data and store them.

03 integration with multiple data sources. Analysis was more

effective when data was available from multiple sources.

04 hardware sizing. Analysis required significant hardware to deal

with large amounts of data. Companies had traditionally

underestimated the need for sophisticated IT infrastructure

and powerful hardware to make analysis feasible in a timely manner

Marketing analytics companies could broadly be divided

into Analytics product companies (such as SAS and SPSS), IT

Consulting firms (such as Accenture), Large service providers

(such as EDS and IBM), Specialist Marketing analytics

companies (such as GE Analytics, eXelligent), global advertising

groups (such as WPP-Kantat, Interpublic) and market research

companies such as Ipsos and VNU. The overall market was

estimated at around $2.1bn in 2003 by Ernst &Young. Ernst&

Young had further estimated that the marketing analytics

offshoring market would grow rapidly in the next few years and

this was estimated at more than $450mn by 2008. Unlike

medical transcription or medical billing, in marketing analytics, the

key decision maker was the chief marketing officer of an

organization. However, since the decisions typically also involved

significant budgets, the CFO was a key influencer.

Also, unlike in the case of medical transcription and medicalbilling where the need already existed, in marketing analytics,

mostly the onus of identifying a need rested with the service provider.


22/22


In the case of marketing analytics, typically a

project with a customer was likely to result in

benefits (and potential savings) to the customer

far in excess of the required investment. The job

of a service provider was therefore two fold: to

demonstrate that they had the capabilities and to

show the potential client that there was a need.

Not only did the provision of marketing

analytics services require a highly skilled

sales force, even the operations team requires

highly qualified resources, typically consisting

of experienced people with a background

in statistics and proficiency in some of the

analytics packages.

According to Chowdary, MD, VSL, If in

medical transcription, we make say, $1 per person

per hour, we make $5 per person per hour

in the case of medical billing and nearly four

times as much in marketing analytics. We believe

that the company must continue to grow on the

value chain for growth and survival.

vasant scribes today

The medical billing business continued to

remain where it was last year. While the business

was not making losses, it failed to gain any new

clients since its first client gained in early 2005.

The company had pursued a number of measures

including hiring a team of marketing experts in

the US, but they failed to yield any results.

Early in 2007, VSL signed a contract with

MedQuist to provide medical transcriptionservices to its clients in the US. This deal was

one of the largest of its kind and had the

potential to treble the revenues of the company

in the next two years. This was however not

in line with the policy of direct acquisition of

clients and was mainly a result of the marketing

efforts of one of the marketing staff in the US.

The company also decided to launch its marketing analytics

initiative and actively started canvassing for business in the

US. A salesperson was recruited specifically for market analytics

services to companies in the US. He would make calls

to companies based on requirements identified by him. A number

of demonstrations were made to reputed companies in the US.

In early 2007, a Fortune 100 company engaged Vasant to conduct

a pilot study for them. However, there continued to be a

dearth of clients for the company.

While the business development efforts continued in the

US, staff in India, hired for medical billing and marketing analytics

areas was getting restless. Retention of staff, always a difficult

issue, was getting more difficult to manage.

With the issue of continued sustenance in medical transcription

temporarily put away, the company was now gripped with the

challenges of growing the medical billing and marketing analytics

businesses. Some of the key issues before the management were:

01 should the company continue to pursue the medical billing

business? If so, how should it attempt to grow it? In the past,

the company had looked at potential acquisition of companies

to gain initial credibility. Should the company pursue this option?

Or, alternately, should the company look to tie-up with a reputedmedical billing company in the US (essentially repeat the same

trick as with medical transcription)?

02 should the company continue to look to grow in marketing

analytics, or should it temporarily defer the plans until the

establishment of the medical billing business?If the company were

to aggressively pursue the marketing analytics business, what

should be the strategy?

03 finally, since medical transcription had become a very large

and profitable business, should the company concentrate all

its energies on this, and de-emphasize the growth anddiversification plans?

Post your views on this article at www.thesmartmanager.com

while the BUSINESSdevelopment efforts CONTINUED

in the US, STAFFin India was getting RESTLESS

For a complimentary copy of the teaching notes send a request [email protected]. The case study was supported by the AdityaBirla India Centre at London Business School.

thesmartmanager,sanjaypatro, feb-mar 08_475

Documents