Today, most of the services offered by IT-BPO providers are aimed at improving efficiencies. Outsourcing is directed towards enhancing cost savings and efficiencies in operations, essentially support functions. Going forward, the scope of outsourcing will move beyond support functions to encompass line functions.

Needless to say, the opportunities will multiply - as spend on business or line functions is much higher than on back-end operations, and also more strategic. For service providers, this transition from providers of outsourced BPO and IT functions to providers of a variety of complex business services will not be easy. The focus needs to shift from cost arbitrage to enhancing the top line of their clients. This predicates a shift from vendor to partner, and a significantly higher level of advisory or consulting capabilities.

Providing advisory services calls for top management relationships across the client's business functions, deep domain expertise, a problem solving mindset and a new work culture. BPO vendors have taken different routes to try and accomplish this.

For instance, Infosys has tried to build a separate consulting division. However, despite all the hype, this subsidiary is still posting losses and the management says that break-even is still another financial year away. Also, the presence and share of the revenues from consulting services remain miniscule as compared to share of other traditional outsourcing revenues.

EXL acquired Inductis for its high-end analytics and consulting capabilities, and is now providing business transformation services to clients. This model is now being replicated by others. Recently, Cognizant acquired MarketRx, a leading analytics firm.

With a common client base to work on, MarketRx and Cognizant can leverage on each other's capabilities to gain incremental business. Strategically, MarketRx provides Cognizant the capabilities to offer high-end consulting. However, the jury is still out on how successful this will be. The business models of healthcare customers may not be adequately aligned for Cognizant to derive significant mileage from its combined offerings.

TCS too will have to address this problem for the captive analytics and data collection center, which it has acquired from Nielsen. This deal was notable, both for its size and the entry of TCS into research and analytics.

Interestingly, both Inductis and MarketRx were acquired at extremely robust valuations. This indicates that large IT-BPOs believe that the cost of building this capability is even higher, and/or will take too long. Given the high valuations and risks of cultural incompatibility, we're not sure how successful such ventures will be. However, the stakes are high - as all the large service providers are desperate to make the transition from outsourcing vendors to providers of integrated business services - a capability that is expected to define the leaders of tomorrow.

This article has been extracted from "SourcingNotes Quarterly Journal". To know more about this product from ValueNotes please write to This e-mail address is being protected from spam bots, you need JavaScript enabled to view it