How Are BPO Providers Bringing Innovation to Customer Relationships?
To address a frequent criticism from the buy side, each month, SSON puts a BPO provider under the spotlight, challenging them to outline innovations they are bringing to client relationships. This month we speak with Cognizant, an IT and BPO provider that bases its delivery services on an onshore/offsite model, offering -- as Kaushik Bhaumik explains -- the best of both worlds: economics and 24/7 leverage of offshore development combined with vertical expertise, technology capability and locally tailored consulting. The company has just announced the expansion of its Phoenix delivery center. SSON checks it out.
SSON: Kaushik, we hear a lot about the changed requirements of the end user in today’s market. How is this being felt at your end?
KB: Yes, a lot of our clients are going through a fundamental restructuring – there’s been a large-scale reset in customer demand, which has prompted client companies to reconsider how they are organized and rationalize their operational structure and costs to a new demand environment. This has obvious implications for us as service providers. Specifically in BPO, clients want more flexibility and variability.
Our business is set up somewhat differently to many of our competitors. Cognizant focuses on industry specific BPO -- healthcare claims processing for healthcare companies, for example. We don’t focus on horizontal processes – we believe a vertical orientation allows us to best leverage our IT capability for the client’s benefit.
That said, one of the challenges we’ve experienced in the past 6-10 months is that clients want to be able to contract or expand their services as their requirements change – and they want to do that quickly. So they are looking for more of an accordion-style delivery mechanism. We specialize in the financial services and healthcare sectors, among others, and they have obviously seen huge shifts as of late. To match these changed requirements, we – like all others – leverage our global operations: we run four centers in India, one in Budapest, one in Shanghai and now also an expanded center in Phoenix. Global networks provide flexibility as well as access to talent pools, thereby offering staffing and expertise flexibility.
SSON: How does the expansion of your US operation fit into this scenario?
KB: In part, the Phoenix center is being developed to match our clients’ demands. The US expansion is driven by the fact that portions of the work – predominantly for one particular healthcare client -- are still being done in-house by the client. So the requirement is not just for same time zone, but also for fast response, which means we really need to be as near to "on-site" as possible. Especially in some of our life sciences work, where in the area of clinical data management and analysis, researchers want instant accessibility.
SSON: So does this mean an end to offshore work?
KB: No, there will always be a need to leverage scale and talent for certain aspects of BPO work. In the case of this client, we were already taking care of a significant portion of claims work from India. But a new tranche of work opened up, some of which was being done (and would continue to be done) by an internal team. So, to avoid the time-intensive toggling back and forth between the client team and our center, we chose to build up a local team, in Phoenix.
This trend towards an increased demand for onsite work, or tailored services, requires us to have a local presence with skilled staff. The requirement for staff with industry or process specific experience had a bearing on where we set up. Phoenix has a number of healthcare back offices operations, and a number of local colleges that train healthcare adjusters in 24 -36 months. That ready stream of talent was a major consideration for us.
SSON: Back to accordion-style mechanisms: How are you adapting your delivery models to offer clients increased flexibility?
KB: I’ll give you an example from our BPO activity in the life science or pharmaceutical sector. A service particular to that industry involves "clinical data management" (CDM), whereby data from drug trials is managed and analyzed to determine the efficacy of drugs under development. Recently, this type of work was dominated by the Indian offshore model – i.e., taking advantage of labor arbitrage. We built up a strong name in Mumbai for this type of work. Over the past 12-18 months, however, we noticed a shift in client demand towards globalizing the CDM model, and not being so India-centric. Where trials were conducted in Japanese, for example, we needed to build out a Japanese services center – hence the expansion of our Shanghai center. Additionally, many research centers for this kind of work are based in the Northeast of the United States, so we have co-located portions of our CDM operations teams with those research centers because there is a need for a shorter feedback loop between the CDM statistical analysis team and the researchers (end-users) using the data. The CDM team needs to be nearly down the hall in order that our clients can discuss or follow up on particular results with no time loss.
So this is one example of how we’ve responded to an evolving need: by supporting our clients’ abilities to address new markets (Japan) and offering greater flexibility by co-locating our expert teams and/or developing local consultancy-type operations to support customers.
SSON: So the BPO model seems to be back-tracking?
KB: I think it has always been clear to many of us that the business process outsourcing has a different operations trajectory to IT outsourcing. The latter was driven by the availability and quality of talent in India. That still holds true, so India still trumps.
BPO has other considerations, however. The ability to be close to other parts of the value chain, for one, which has geographic implications; also the ability to tap into talent pools around the world. India doesn’t have the lock on talent for lots of these operational-style skill sets. BPO is always going to be a more globally distributed operation, requiring and leveraging different centers.
SSON: What are the implications for cost, of this co-location trend?
KB: The cost is initially higher, yes – but there are things you can do on the operations side to manage the team, maximize infrastructure and office space, etc., to keep resources heavily utilized. If you manage the cost 24/7, you spread the fixed costs so that the total cost ends up not being that dissimilar from that of offshore operations – and the value is obviously greater to the client. There are other service levers besides cost that matter.
SSON: And how are clients reacting to this, particular when it comes to renewals?
KB: Clients in general are adopting much more of a total cost view these days. They don’t look just at the labor cost anymore but take a process outcome view of what it takes to process a particular transaction or invoice, and the technology that supports it. Clients are maturing, and as they do so they have more of a handle on what their real costs are. So now when they look at outsourcing, they are looking at reducing the cost to deliver a certain outcome.
It’s fairly standard to offer clients an up-front cost saving, and then year-on-year savings of 5-10%. Those savings naturally slow down over time. For the next step quantum improvement in cost you need to fundamentally alter how the client does things. They need to overhaul their end of the architecture. Ultimately the way to really drive out cost is to automate, and create more efficiencies in the workflow. We are trying to leverage the technical expertise we’ve built up to do just that. But it requires clients to agree to fundamentally change their systems. Often they’re just not at the stage where they can commit to that, so it narrows down the options.
SSON: Give us an example of a step change.
KB: One example I could name relates to provider credentialing. This is a process specific to the healthcare sector whereby, every 6-12 months, large insurance companies update the credentials of all the doctors they work with. It’s a time-consuming and detailed activity. With one client, when we started, this was a very manual process: we got faxes, emails and even phone calls with individual updates. Initially, we took over the process and just worked with labor arbitrage to achieve savings. But then we actually developed a portal for this process, which allowed physicians to post updates directly. The job that originally required 10 staff now works with four, which focus on specific validations or inquiries, etc. But the up-front bulk gathering and analysis has been automated.
SSON: So what is the challenge for you on the BPO side?
KB: To develop the optimal service delivery structure. That is where everyone’s focus is at right now. Labor arbitrage is still there, and the cost savings dimension is still there. But we are working more sophisticated processes today, and we need to be able to leverage global operations so that we can take advantage of the best each location has to offer. Many clients are now asking for voice services to be done out of the Philippines, which has a much closer cultural understanding of the US than many of its neighbors, given the long-time existence of a US Navy base there. So some voice work, which would historically have gone to India, is now going to the Philippines. On the other hand CDM type work, which does not require that much voice contact, is still ideally suited to the Indian market. So if we look according to vertical slice, and process slice, each location has a unique set of offerings.
However, as you get into processes, especially industry-specific processes, that axiom no longer holds true. Different geographies have different things to offer: Eastern Europe, for example, has exceptional accounting talent in Poland and Budapest, which we’d want to leverage – especially for European clients, many of whom have unique language requirements such as Spanish and French. These are hard to fill in India.
So in BPO we think in terms of "where do I get the best critical thinking?" or "where do I get the transformation I am talking about?" In order to improve processes you need people who don’t just execute but who are real thought leaders – former CFOs, for example, who’ve built finance organizations and know first hand about driving down the cost of AP.
SSON: What are your growth areas?
KB: In both ITO and BPO there is still a long way to go. Our analysis shows that in terms of the addressable market for IT services, less than a third is currently outsourced. The majority of operations are still run as internal IT shops. Globalized offshore activity is an even smaller proportion. Similarly in BPO: the total addressable market is ten times that of IT – and penetration is still in the single digits. So we are confident that our business model has a long way to go.
SSON: But you must have some pain points? What are those?
KB: One area in which we are still learning to improve is in coordinating work across different locations to offer customers a seamless, invisible, fluid service across centers -- irrespective of whether the work is done in India, Eastern Europe or the North East of America. In some instances this depends on investments on our side, in terms of technology, or upgrades on the part of the client to more enterprise robust systems. Historically, the industry processes we work with are notorious for under-investing in technology.
A second challenge is talent. Really good talent is always scarce, no matter where you operate. And irrespective of the current economic climate, there is still a really strong demand for experts in their field. So we need to develop strong people value propositions that are attractive to those folks.
A third challenge lies in the IT/BPO fusion. Bringing business process improvements and technology improvements together is how we’ll have the greatest impact on our clients. We need to develop and tighten up robust working models around that strategy.
About Kaushik Bhaumik
Kaushik Bhaumik is vice president and global head of Cognizant’s Business Process Outsourcing organization. BPO is the fastest growing service line within Cognizant, delivering step-function value improvements to clients through vertical-specific business process outsourcing coupled with technology-based process optimization. Kaushik also started and led Cognizant Business Consulting (CBC), which numbers over 1,600 consultants globally. CBC provides thought leadership and consulting services to clients in outsourcing, IT management, strategy, process improvement and technology-enabled business solutions, across all major vertical sectors. Kaushik is based in Cognizant’s San Ramon, Calif., office.
Prior to joining Cognizant in 2003, Kaushik was a junior partner with McKinsey and Company for nearly eight years. During his tenure there, Kaushik helped found its Business Technology Office, served clients extensively in the asset management, insurance and banking sectors and was its foremost thought leader on the topic of offshoring and IT Strategy.
Cognizant is a provider of information technology, consulting, and business process outsourcing services. With more than 50 global delivery centers and over 64,000 employees, Cognizant combines a unique onsite/offshore delivery model. It recently announced the operational expansion of its Phoenix delivery center. Cognizant is a Forbes Global 2000 company and a member of the Fortune 1000 and is ranked among the top IT companies in BusinessWeek’s Hot Growth and Top 50 Performers listings.