BPO Trend: Standardization at the Back End, Differentiation at the Front

BPO Giant Wipro's head of outsourcing on what's driving his growth strategy Wipro BPO, one of the leading global BPO providers, has a new man at the helm of its operations: Manoj Punja. Six months into his new role, Manoj believes that what the market wants today is standardization at the back end and differentiation at the front end. He is busy aligning Wipro to this new landscape. BH: Manoj, you’ve been in your new role as Head of BPO at Wipro for six months now. What are the areas you plan to breathe new life into? Where are your main challenges? MP: We are seeing changes in the market, and we are seeing opportunities as a result of that. Our primary focus as a company, meaning both BPO and the organization at large, is to address these opportunities. Firstly, the BPO business is largely a leadership business – in other words, we are always striving to lead, or stay ahead of, the rest of the pack. BPO started out with labor arbitrage, then moved into an efficiency play, and then into a technology play. Now, we are seeing requests for utilities or business processes as a service. This is a relatively new area, consisting of an IT-BPO technology combination, and an IT-utility combination. It’s an interesting trend and one that we are focusing heavily on. The other important play is around the engagement models that we have with customers. Depending on the risk appetite of the customer or depending on the nature of the services that we provide to them, we are broadening the engagement models. Of course, there is still the traditional FTE (Full time employee)-based pricing model, but we are moving away from that to transactions-based pricing, outcome-based pricing, risk-reward pricing, or a combination of any of these. That’s point number two. Point number three is around building processes, especially in the vertical space. The shared services or the back office space continues to be a big space and there are significant opportunities out there. The interesting mix for the business is the vertical space. You’ve got to basically be clear about where you want play. We are gearing ourselves to address that trend by building capabilities in our chosen space. Those are the three trends that we are addressing today. BH: Let’s take a closer look at business process as a service and the utility combinations you described. What exactly is happening in these areas? MP: Again, there are three models that are emerging. First, we have an IP or a platform; we build an operational layer on top of that, and then we combine both and provide it to customers as a utility or a service. The second model is where we custom build it, meaning: we provide the customer knowledge, the industry knowledge, the technology knowledge, the business process knowledge … and we work with the customer to build the service for them. We’ll either deliver it as a single customer product, or start that way and then take it across many customers, depending on what our engagement is with the customer. Here the IP could be owned jointly, or owned by Wipro. The third model is where the customer owns the IP, the systems, the tools, … and we manage those systems, adding an operating layer, which is the BPO layer, on top of it. We can offer these kinds of engagements in different commercial models. Let me give you some examples. We’ve got a mortgage platform, which is loan origination platform called NetOxygen, which came to us through an acquired company, Wipro Gallagher Solutions (WGS). We are building a utility, or a platform, around it; you could also say we are building a business process as a service around it. It’s priced as a "price per loan originated" model, so that’s an example where we have the IP, and we sell it as a complete utility or a business process as a service, largely to banks. The other example of owned IP is a technology-enabled process layer called Base)))™. Base)))™ has two facets to it; one, of course, is as a broad operations platform. It’s also a benchmarking platform, so it’s a complete utility platform. We’ve built a utility for dividend coupons, for example – interest payments for the investment-banking sector. So that’s another example of an IP that we developed and that we have converted into a utility model. The other two models I mentioned are very specific. To illustrate, we are doing work on the IT infrastructure for a customer, a standard product that is out there in the market. We’ve customized it, and are also adding the operating layer on a very interesting model, which is a price per user model. So, that is how the utility model or business process as a service model is evolving. [inlinead] BH: What’s driving this whole platform-based BPO? Is it primarily the client’s desire to get more standardization and lower cost? And how are you balancing standardization with the client’s desire for a differentiated service? MP: I think what clients want today is standardization at the back end and differentiation at the front end. And all our services are today aligned to this strategy. At the back end clients want to standardize processes, drive efficiencies, gain productivity, gain variability – and they’re calling that out separately. And then they’re also calling out a set of processes that give the user a competitive advantage, and that is where a significant amount of customization happens. Today, of the large number of utilities being built, a significant number are in the standardization space. There are far fewer being developed at the front end, which is the differentiation side. So what are the drivers? The drivers are obviously cost of production, efficiency, customer satisfaction, and ability, in the sense that if the business is going well, they want to scale up; if the business not going well, they want to scale down. A final driver is simplicity, in the sense that nobody wants to spend time on what is a fairly non-differentiated standardized stack. BH: How about domain-based expertise? When you talk about collaborating with customers to develop IP, and perhaps rolling this out across other customers in the industry, to what extent might a customer have reservations? If they’re getting a competitive edge through technology they’ve developed with you, is it not feasible they would not want this shared with their competitors? MP: We are open to that model. It’s really about balancing cost and risk. If the customer wants something for himself or herself, we’re open to that, but they don’t get the full benefit of a utility model, even though they’ve created a utility for themselves. I would say a quarter of our customers would be in this space. The other 75% would say, no, I’m comfortable as long as I own my piece of IP or my platform, and the rest you do whatever you want to do with. There could be specific discussions around certain business processes that are very unique to that customer, and which we may have to change or modify or not use. We could use 90% of the utility, but not 10% of it, because that 10% could be custom; which means that when we do an architect sold solution we may have to say, "This 10% is unique to this customer, I can’t take this piece of business learning or business knowledge or a business process onto the next customer; so I have to build it separately." The point I’m making here is that there are very different approaches used by different customers and we are fairly flexible. So some customers may say, "everything is mine". Another set of customers will say, "look, I don’t mind sharing 90% of it, but I want my own part that is different from others". And then there’s a third set of customers who are saying, "look, I don’t care, you can put it on a shared network, on a cloud, and I will share it along with the rest of your customers." So there are three different buckets. The trade-offs, the costs, the architecture, the solution itself … all vary and we are open to having all three discussions. BH: Do you think this trend will mean that providers and their customers will have longer lasting relationships than may have been the case in the ‘90s? MP: Obviously these contracts are longer-term than the other sort of contracts and there’s going to be more stickiness. But you’ve got to consider that five years down the line there may be six different platforms for similar facilities. In other words: many of these processes may move into a standard set of platforms down the line, so there are other options again. In fact, it’s not purely about a technology platform; it’s also about the businesses changing. Five years down the line the customer’s business may have changed so much that he may think he’s better off looking at something completely new. BH: As businesses become more digitalized, right? MP: Yes. BH: Which industries are you building a strong muscle in? And how are you developing this domain expertise – by building or by acquiring companies that provide extra service specialization for these selected industries? MP: We are a broad based player. We’ve largely focused on the commercial enterprise and there we’ve tried to cover fairly large portions of industries. We cover about 22 industries, so it’s a fairly large number of industry groups that we address on a regular basis. What’s interesting is what we are doing within industry groups – focusing on a certain space. For example, we might decide not to focus on the back office space for a variety of reasons, but we might address one particular processes while ignoring another. We might do, say, the sales and marketing piece here, but not the supply chain piece. What is interesting in my position is that I work across so many customers in so many industries. And I have to know who my counterparts are, what their priorities are. For example, the classic contacts are the CPO, the CFO, the HR head … there’s the supply chain, there is sales, there is marketing. So where we focus on within an industry is probably the bigger debate for us than which industries to focus. BH: What are some of the smart companies doing to bring these six or seven internal stakeholders together so that they get the best out of a contract or relationship with an outsource provider? MP: We are seeing that there’s significant collaboration that can be built through the processes, so let’s take, for example, procure to pay processes, which combine procurement, supply chain and finance. We bring them together and communicate the effectiveness of approaching it as a single process, rather than as a combination of the three different processes. The other approach relates to creating a model for shared services where you can have a common layer that supports this it – common governance, common benchmarks, common tools – and then you drop different sets of processes onto the shared services. Those are two broad approaches that are being used. BH: As an India heritage provider, how do you compare the relative strengths of Indian providers in terms of delivering services from India, or from other global locations? Is talent management a problem outside your home market? How do you leverage the strength of an Indian-based operation and make the best out of opportunities presented by locations around the globe? MP: If you look at our management, we’ve been conscious of the questions you ask. We’ve shifted our management across the globe. In fact, a large number of our senior management – one level below CEO – are now based abroad, especially the business folks, in the markets that are relevant. Now for business support, it is different. My head of telecom does not sit in London; my head of procurement does not sit in the US. To go back to your question, one of the strategies I am prioritizing is globalization. India was a natural destination for BPO related services, and continues to be a natural destination for BPO services because of certain advantages – not just cost, but also knowledge, flexibility etc. But what’s happened is that we’ve started aggressively globalizing ourselves, creating hubs across the globe. Today, the Philippines is my second largest location. Second, we’re building these hubs across the globe and we are telling customer, "you choose what’s comfortable for you, and here are our best options." We have got hubs in two cities in the Philippines; we are building a second hub in Europe, in Romania. It’ll be our second hub in that country as we were one of the early ones into Romania. I’m running a lot of processes there today. We are building up in Poland, too, largely to handle other European countries. For North America, I have near-shore centers in Canada, in Mexico, in Brazil. I have centers all the way in China and in Japan, too. So we are globalizing ourselves rapidly. Now, to go back to the talent pool question that you asked. If I look at the Philippines, the top 20 employers are companies that are headquartered somewhere else. The point I’m making is that you are on a neutral footing, and as you gain size, or as we have gained size, we’ve gained far higher levels of brand recognition than in the past. It’s a battle everybody has to fight. We’ve invested in understanding the local people, we are building local leadership, and we are then giving them equal opportunity in terms of their ability to move across our locations or into source markets like yours, we’re building that complete culture and entire system for these people. BH: Do you find that on the part of clients there is a sometimes-irrational pushback against going offshore? You mentioned setting up near-shore operations. MP: I think the primary drivers for our customers are based on what is good for their customers, and shareholders, and employees. The order could change depending on how they look at the business. The biggest driver for a lot of customers has been customer satisfaction. Customer satisfaction can manifest in different ways: language, culture, accent, local knowledge, or simply the way customers perceive these companies. So, our being near-shore is a big driver for our customers. If that becomes a bigger driver, as opposed to cost and efficiency, then they’ll make the decision to pay a higher price for it. I think to some extent that pendulum keeps swinging. Obviously, some of the broader political messages are linked to this – how do their consumers see this? How does their community see this? There is an efficiency play. To go back to your earlier point, there is hardly any differentiation. If there is a lot of customer community play, then they have tended to go near-shore. I think a third important point here is the culture of the company. We recognize that and we are in the same business. We are not forcing customers to go to A location or B location, that’s one of the reasons we have globalized our locations. As long as it makes business sense for us and for our customers, we’re willing to serve them from anywhere across the globe. BH: We talked earlier about the incredible changes that the industry has witnessed in the last decade. If you take into account all the trends we’ve discussed in this call and you project them forward, how would you imagine that BPO, if it’s still called that, might look like in five, ten years time? Do you think that you might become more and more engrained, for example, with the front office part of your customer’s business? MP: The business will increasingly move from back office to middle office space, and, to some extent, even front office. But there are going to be far more utilities, more of a combination of utilities, that are likely to happen. I believe that customers that feel more confident are likely to use more providers than in-source. They will take a piece of the in-source process run through shared services across the world and probably move it to a provider and drive more efficiency. So, those are some of the trends that I see. Players like ourselves obviously must now invest accordingly, meaning we need to take more risks, invest in understanding the customer’s business process far more deeply, and develop a knowledge play, ie, higher levels of knowledge play than we’ve had in the past. The model for us is not going to be purely FTE- or people-based; the model for us has to be a combination of knowledge, tools and technologies, and that’s about selling investment – significant investments upstream, understanding the business processes, driving more knowledge, as well as downstream, driving more investment into tools and platforms. For example, I have made a significant investment and continue to make significant investments around tools and technologies in our BPO business today. BH: To get to these tools and this knowledge, what’s the strategy that you’re pursuing? Do you build it? In other words, do you invest in research and development yourself? Or do you buy it? MP: Some of them we build, and will continue to build. It depends on the analysis that we do around build versus buy, the complexities of a build, the timelines to build, the risk associated with a build … so if there’s a market that’s emerging and we can’t wait, we obviously have to buy in knowledge. We are constantly looking for acquisitions, either knowledge or IP that can be leveraged. So the NetOxygen Gallagher platform that I mentioned for loan origination is an example of a buy. The Base)))™ layer that I spoke to you about earlier is an example of ;build’. It’s not ‘either or’ – it’s ‘and and’. BH: Thank you for speaking with me. More from Wipro BPO: The Changing Face of Siocial Media – and how you can leverage the data thus created for better decision-making.

BPO Trend: Standardization at the Back End, Differentiation at the Front

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