The Indian business process outsourcing industry is taking a leaf out of its bigger peer IT services and remodeling its business on vertical basis. This is similar to what the IT services underwent many years ago as it started to become a key player.
In case of the BPO sector, too, the shift towards a vertical focus is happening due to the customers’ demand for more and more domain-specific capabilities. In some cases where companies have undertaken this shift, they are already seeing its impact.
Take the case of Mumbai-headquartered WNS Holdings. The company started its shift towards a verticalised firm towards the end of FY2010. For FY2010, the company had reported a decline in revenues by five per cent. But the shift towards this from 2011 onwards saw the firm’s organic revenue grow seven per cent for FY2011 and for FY12 the company has guided for a double-digit growth.
"Verticalised structure is the way to go. We as an industry and as a company have been more intrinsic to the customers’ business. And as we start to expand our work with clients, which is about being able to make decisions for them, we need to show them that we have domain expertise. The BPM business, while still at a nascent stage, in the longer term this is the way to go," said Keshav Murugesh, Global CEO, WNS Holdings.
Murugesh also added that going ahead the firm’s M&A strategy will be governed by this thought. "For us acquisition is not about adding revenue, it will be a tuck-in acquisition that will differentiate us," he added.
This point is endorsed by a study of AT Kearney and Nasscom that said customers are looking to increasingly outsource core processes, which would require industry understanding. The study stated that based on a sample of 10 companies, it was observed that for the period of 2002-07, around 30 per cent of acquisitions were focused on building vertical propositions. In comparison, this figure rose to 60 per cent during 2007-12.
Traditionally, the BPO sector has been aligned horizontally and sales functions have been driven by geographical units. Some of the horizontals the BPO sector has been known for are customer relationship services, finance and accounting (F&A) and human resource.
India’s leading BPO and technology firm Genpact moved to a verticalised business model last year. "The reason why it makes sense is because we are creating strong end-to-end domain knowledge and creating value for the customer. We are one of the largest players in the F&A space, but it does not mean that this process is same for all the sectors. We realised that 60-70 per cent might be similar in the F&A horizontal offering, but there is 30-40 per cent work that is very vertical focus," said Mohit Thukral, senior vice-president, Genpact.
Though its been just a year for Genpact, Thukral says the company has seen topline grow in the verticals it has focused on: "Over the last year, we have seen topline growth in our businesses like pharma and BFSI. Earlier in pharma, we just did F&A kind of work, but now we are getting into other segments. Rather, verticalisation drove us to look into new businesses in the pharma space".
"Almost 60 per cent of work the BPO industry does is industry agnostic. Majority of the stuff the companies went for was horizontal in nature. As the industry matures and as clients push the envelope on outsourcing, this change will become inevitable. Also, the vendors will need to know better, or at least have equal knowledge, about client business," said Gaurav Gupta, partner, A T Kearney.
The report also found that companies who do not adopt to a verticalised model will see two to five per cent erosion in rates and dip in volumes. In comparison, those who have moved to verticals are seeing a revenue growth in the five to eight per cent region.
Rajesh Subramaniam, MD & CEO, Firstsource, however, said companies should focus on customers and then work on their strategy: "We have had a mixed experience. We have verticalised at sales and solutions, but we have presence in three horizontals. Again, we have a single point of contact for accountability."
