Pulling up the bootstraps

TECH TALK

Akshaya Bhargava, CEO of Progeon Ltd., Infosys Technologies' call centre unit, is an interesting person to talk with. The former banker has had a contrarian approach to the market his company wants to grow in.

Unlike most of its peers, Progeon thinks the work at global corporations prime for outsourcing is split 30:70 into voice-related and data processes.

That is, for the business potential in each call made or received by way of outsourced back office work, the opportunity is more than double in data.

That's a very unusual thing for Bhargava to say. Call centre companies in India have an 80:20 split for their call and data business. This sample, of course, does not include the emerging breed of 'knowledge processing companies' that aim to capture the more expensive white collar jobs like investment research, consumer analytics or radiology diagnosis.

In other words, the Indian back office industry earns about $4.64 billion handling calls and just $1.16 billion from data work"" for instance, reconciling bills, parsing invoices and correcting errors in customer statements.

Data-related outsourced work is attractive for Indian call centres in more ways than one. Such contracts, typically, are more sticky. They involve a longer transition phase ""when the work gets shifted from, say, East Anglia to Salt Lake, Kolkata"" given the lengthier training needed to ship processes offshore.

In most instances, especially in banking and financial services that account for two-fifths of BPO work India handles, the processes have been perfected over long years and clients insist on shipping them offshore intact.

This results in transition phases spread over three to six months. For Progeon, its first client GreenPoint Mortgage, now a subsidiary of North Folk Bancorporation, Inc. transferred 19 processes - right from creation of a customer record to handling tax issues to payment reconciliation - to the Bangalore-offices of the BPO company.

And, not, surprisingly, GreenPoint continues today as one of Progeon's larger customers.

For a customer outsourcing data work, shifting from one back office service provider to another becomes painful allowing a call centre firm a tied-in stream of revenues for three to five years.

Data-dominant contracts at Progeon are even getting extended to eight years, compared to the six months-one year tenors of pure voice contracts elsewhere in the industry.

And, of course, the icing comes by way of higher pricing of such data work compared to plain old voice processes such as telemarketing.

Given the benefits of data work, more and more Indian BPO service companies want to move to data and other value-added work. This trend is reflected in the increasing revenue productivity of the industry, according to data released by industry association Nasscom last fortnight.

In the fiscal year April-March 2004/05, revenues vaulted 48.72 per cent over the previous year, but employees of the industry grew only 37 per cent. In fiscal 2003/04, the productivity leap was not so apparent: employees grew 41.11 per cent and revenues 44.44 per cent.

Revenue per employee has climbed from $15,000 a year in 2002/03 to $15,354 the next year to $16,667 in 2004/05.

We don't know the real impact of this revenue productivity increase because most BPO shops are not listed and profitability data is not very transparent in the ones that are.

But, going by the compression in costs achieved by tight hiring controls and thrift in spending, the industry could be working on new levels of efficiencies.

"Earlier, when a customer said he wanted 10 more people, we'd say "No problem" and go and make those hires. Now, we're much more careful," says PV Kannan, Founder-CEO of 24x7 Customer, a Sequoia Capital-funded call centre in Bangalore.

Operating costs at industry leader GE Capital International Services or GECIS, formerly a wholly-owned business services outsourcing unit of General Electric Co., have shrunk 14% since 2003 (see graph) despite an increase in employee compensation and a steady appreciation of the rupee versus the dollar.

Yet, keeping productivity on the uptick is going to be hard. Employee costs will continue to push upwards, especially at the mid-level management, but this can be attenuated to some extent with new centres in cheaper locations like India's second and third tier cities and towns.

Data security will increasingly gain in importance as sensitivity to such breaches increase in the US and Europe directly proportionately to jobs shipped to India.

Spending on infrastructure like dual-level power backups and transport for employees, which are not borne by employers in competing Asian economies, will continue to erode bottomlines as will expensive leased telecom circuits.

And, with no signs of a clamp down on the yawning U.S. trade deficit, a strengthening rupee is here to stay and will shave off 1-2 per cent of receivables in hedging costs.

Moving to more lucrative slices of the business such as data-related work and reducing costs through process innovations may be the only way to go if competing countries are to be left behind.

The author can be reached at josey@vsnl.net