| Platform-based BPO – increasing interest |
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| Wednesday, 21 November 2007 | |
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Infosys (Nasdaq:INFY), Wipro (NYSE: WIP), TCS and the likes have been making huge investments in developing new platforms for processing outsourced transactions. TCS has already announced two new platforms to support its BPO offerings in the human resources and finance and accounting space. In fact, the BPO part of the $1.2 billion contract that TCS got from Nielson Company will be executed on new platforms built by the company. Infosys too, is close to announcing its platform-based offerings in BPO. Benefits to buyers and providers Platform-based BPO has been around for a while in back-office, transaction-processing contracts such as insurance claims management, payroll, workflow management and some areas in healthcare and procurement BPO. But is gaining more interest over the years, as the early adopters and the more mature buyers have started to demand more and more from vendors. While cost reduction is still one of the objectives, companies are looking for more value from outsourcing contracts. For buyers, platform-based BPO offers economies of scale, process standardization, and improved quality through automation. Besides, the vendor runs, maintains and takes care of upgradations, freeing up buyer resources. The model requires a blend of IT, BPO, analytics and domain knowledge, and IT-BPO companies such as TCS, Wipro, Infosys etc will have an advantage owing to the in-house development capability and the expertise in service delivery. Others such as Mphasis, Firstsource and Perot Systems have made acquisitions and are resorting to backward integration of the platforms with their own offerings. For vendors, a platform allows productisation and improves the marketability potential. It allows non-linear growth as also better operating margins through efficiency improvements. Besides, there is certain minimum lock-in for the client, as there is a one-off cost for process migration. The model can help vendors differentiate their offerings, while allowing some creativity in pricing, which could be value-based or transaction based. Not without its cost While it is the ‘in’ thing, developing platforms is cost-intensive, and may not be feasible for vendors without the relevant technological expertise, or understanding of the space. Those without a large on-site presence will find it harder to sell. Even acquiring a platform, a strategy that is likely to be widely employed, requires investment in technology for integration. Moreover, a ready standard platform also has to be customized to each client’s specific requirement. Although the investment is high, some niche players have been pursuing this strategy. Kale Consultants, a niche software +services company in travel and transportation BPO has implemented a platform model successfully. This allows the player to move higher up the value chain, while the transactional tasks become more standardized. Going forward Large global vendors, and also niche players such as ADP, Amdocs or Ceridian have been providing platform BPO for a few years and have an upper hand in terms of the expertise and experience in building and operating platforms. Some of the larger players have also been able to scale down their costs by building an offshore presence, leaving limited labor arbitrage opportunity for the Indian players. The competition is consequently quite intense for the Indian players entering the space. ValueNotes Outsourcing Watch: Insights for Investors is a unique news and analysis service from the ValueNotes Outsourcing Practice, focused entirely on outsourcing; This weekly publication analyses events in outsourcing, outsourcing companies, trends in the sector, impact of global competition from offshoring to established US companies, and emerging investment opportunities. No responsibility is accepted for errors of fact or opinion. Neither the analyst nor ValueNotes has a position in the stocks covered above, or has received any payment in any form for this report. ValueNotes does not own or trade in the stocks of companies under coverage. ValueNotes does not provide investment banking services or investor relations' services to preserve the independence of its research. Neither ValueNotes nor the analyst incurs any liability arising out of use of the above information/ report. Reproduction in whole or in part without written permission is prohibited. ValueNotes Outsourcing Watch articles are distributed through FinancialWire, an independent, proprietary news service of Investrend Information, www.investrend.com |
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ValueNotes’ research indicates that the domestic BPO industry stands at an inflection point, with the growing scale of Indian buyers as well as the emergence of significant vendors with greater capabilities