How Are BPO Providers Bringing Innovation to Customer Relationships?

First published in Shared Services News: Volume 12 Issue 5 July 2009

Each month, SSON is putting a BPO provider under the spotlight, asking them to explain how they are bringing innovation to their clients—a frequent criticism from the buy-side. KPIT’s Pawan Sharma brings an interesting angle to this debate, centered on the maturity index of some of KPIT’s customers. As Sharma explains it, his firm is working to push the benefits of best practices and streamlined processes far beyond their immediate customers, out to their ecosystem. It’s an approach that only applies to those operations that have already mastered the Gen1 and Gen2 phases—and are ready to take on some of the risk. The benefits, as he explains it, are transformational.

SSON: Pawan, you have talked about Gen3 and bringing in a customer’s ecosystem as constituting somewhat of a paradigm shift. Explain the concept to us.

Pawan Sharma: Let me start with defining an ecosystem, as this is crucial to understanding what we are trying to do here. An ecosystem is that part of the downstream, or even upstream, business that extends beyond our customer, i.e., the shared services outsourcer. So it is our customer’s suppliers, our customer’s customers, and our customer’s employees—all those who are touched by our customer’s business.
So, as the markets have become tougher over the past year, BPO providers like us have had to think hard about how we innovate and create value for our customers. In Gen3, we focus on helping the ecosystem partners improve their business processes, thereby helping them reduce costs, improve customer satisfaction and gain market share.

SSON: And what have you come up with?

Pawan Sharma: In a nutshell: leveraging the learnings, deliverables and best practices, and passing it to the ecosystem. More specifically, it’s about partnering closely with a select handful of mature customers, those that are at Gen2 (click to see Gen2) and ready to move to Gen3 (click to see Gen3). And bear in mind, we refer to Gen1 (click to see Gen1) as bringing everything under one umbrella, i.e., starting an SSO; Gen2 as adding in metrics and better processes, developing centers of expertise and generally developing multi-sourcing relationships, but still internally focused; and Gen3 as recognizing shared services as a catalyst to help get better results for the business; for example, getting improved products from vendors through improved processes, getting better payment cycles and discounts—generally leveraging multiple partners to achieve transformation. An important point is that Gen3 is basically a very structured, collaborative and long-term initiative which achieves significant cost reductions and value enhancements.

SSON: Good concept. How does it work in practice?

Pawan Sharma: We are still in the early phases with this, and are working with half a dozen customers who have bought into, and understood, the opportunities this offers. But it has taken us a year to get to this stage, so there is definitely a lengthy learning process involved. It boils down to three stages, a) leveraging the best practices we’ve built up with our customers and pushing these out to their ecosystem; b) leveraging IT/BPO and controls; and c) developing a new business model for these relationships based.
On the first point, once we have streamlined and made a process as efficient as we feel we can, we are trying to build value by leveraging the best practices that we have developed jointly with our established customers, particularly in F&A processes, and pushing these out to their ecosystem (their suppliers, employees and customers). The benefits to our customers are twofold: first, as their suppliers adopt the best practice processes we have already established, there is a corresponding drop in the aging/receivables period; and second, there is an improvement in the relationships between our customers and their ecosystem, which is good for business.
The second point really addresses control issues. The major inhibitor of any organization to outsource/offshore is controls. As an organization, we invested in building a team of SoX professionals and in building a repository of various controls. We now term these "business and IT controls" and assist clients in building in controls while de-coupling the processes. As a proactive measure, we assess and review the ERP/bespoke applications to ensure there are no potential weakness in a process when working in different zones and while being handled by different people. We also help customers design and build an application that’s best suited for global operations, and help automate various tasks that ensure there is zero margin for errors and the "turn-around time" is optimum. This automation and implementation of IT also ensures that regulatory controls are complied with.

SSON: But how are you transferring this to the customers’ ecosystems? Are their suppliers willing to take on the additional change management and cost involved in becoming your clients?

Pawan Sharma: Good point. And the answer is that much of this depends on the maturity and willingness of our main customer, let’s call them "A," to push their suppliers. Again: what we are trying to do is help our customers’ suppliers by streamlining the entire process and getting rid of extra peripheral systems they have built to transfer and manage data. Don’t forget: "A" stands to gain if their ecosystem comes on board. And it’s a ripple effect, meaning: as "A’s" supplier, let’s call them "B," comes on board—and don’t forget, "B" has a great incentive in that "B" pays only a fraction of the cost and spends a fraction of the time that "A" had to invest as we are effectively "lifting and shifting" proven processes—"A" gains in time and cost, and may share some of that gain with "B" in the form of lower margins. Now as "B’s" supplier, let’s call them "C," comes on board, this effect is repeated, but this time "B" gains, and "A" may feel an impact. So there is a domino effect, and the ecosystem is always being expanded. This is why committing to a long-term partnership becomes fairly crucial.

SSON: OK, that part is clear, so what about redefining the business model?

Pawan Sharma: This is really the most important issue, and it boils down to two things: changing conventional pricing approaches, and sharing risk. Typically, the industry charges on a time and materials basis. Our models vary from Risk & Reward to Outcome based. In an outcome based model, we agree on what would be a desired outcome and then price according to whether this outcome is achieved. An outcome could be a higher customer satisfaction rating, or better turnaround times, or analytics to help identify leakage. In a risk and reward model, there is a minimum rate agreed with rewards if we achieve the results and a penalty if we don’t. And the penalty sure hurts, as it could amount to a loss in delivering the business. Basically, it’s about having skin in the game.
Transition and Knowledge management are usually seen as potential risks by most customers. We usually work with the client to invest in people, processes and technologies that help us mitigate the risk. In short, we share the risk.

SSON: What’s driving this transformation?

Pawan Sharma:  The downturn and the slowdown in the economy has forced organizations to do things better, at a minimal risk and at much lower costs. All organizations are now keen to leverage on what’s available in the ecosystem and stop re-inventing the wheel. The smaller player in the ecosystem is keen to draw upon the learnings from the larger player. Whether it’s on outsourcing models, destinations, processes or even people. In turn, the larger player wants to share learnings and implementations but is keen to see if they can get something in return—it could be better payment cycles, better cash flow, better products, better customer satisfaction, or better prices so that they can pass the benefits to their direct customers. As you see, there is a direct and tangible benefit that the larger player gets. Needless to say, the ecosystem needs to pay for these services.

SSON: You mentioned earlier that running Centers of Expertise and multi-sourcing are precursors to this end. Is outsourcing a necessary part of the solution? Could SSOs not push through this strategy on their own?

Pawan Sharma:  The ecosystem will need to accrue benefits that are transactional (reduction of cost, consistent delivery of the process), strategic (enhanced relationship, focused productivity improvement and year-on-year cost savings) and transformational (innovation, new business models, joint initiatives that create value). For an SSO on its own to deliver the strategy would be difficult. E.g., addressing transactional benefit: an outsourcing vendor can help ramp–up and build skills across the globe much faster and at a lower cost whereas the SSO may not be able to hire due to headcount freeze and other operational issues. Partnering with an outsourcing vendor can bring in best of breed services that help create value and at the best costs.

About Pawan Sharma
A computer engineer by profession, Pawan comes with over 18 years of work experience having worked with companies including HP, IBM and HCL, across Europe, Americas and Asia. He has headed operations of IBM Software Group for Asia Pacific and was instrumental in building global operations and the business of HCL BPO. Pawan is an active industry participant with board membership of the PMI USA Board of Special Initiative Group on Strategic Outsourcing. He is also the CEO and President of PMI North India Chapter, a TiE Charter Member, and has been on the Standards Board of JD Powers & Software Support Professional Association – USA. He is an active philanthropist with board participation at several educational institutes in India.

First published in Shared Services News: Volume 12 Issue 5 July 2009