Impact Sourcing in India: A New Opportunity for Growth in a Crowded Market



SSON Editor
02/24/2016

India is a perfect example of how strong growth in shared services and BPO work is creating unsustainable pressure on Tier 1 cities. The current challenges around attrition, quality of staff, and stable service delivery impacting operations across popular locations are not to be underestimated.

That is why the emerging trend towards impact sourcing may provide just the solution the domestic market needs.

Impact sourcing is effectively about locating service centres in areas that most benefit from the jobs thereby created. That's not to say, however, that these are charitable endeavours. On the contrary, explains SR Pejavar, CEO of sourcing firm Simply Grameen Business Solutions (SGBS)."Without profit there's no business. But this profit margin is negotiable, given the positive impact on the community and its extraordinary domino effect."

India is a perfect example of how strong growth in shared services and BPO work is creating unsustainable pressure on Tier 1 cities.

Pejavar set up SGBS four years ago, after a career spanning more than 30 years in high-profile operational jobs. Today, he employs more than 400 people across three centres in the southern state of Karnataka, India, and is planning to set up 20 more centres across India in next 4 years. Impact sourcing is the solution he believes in for many reasons. But as he explains, philanthropy is only one of them. In truth, markets like India and Malaysia simply cannot carry on as they have, he says. With appetite for shared services growing, potential customers want to be certain that their chosen location offers cost-effective as well as scalable, reliable, and consistent services. The conventional focus on Tier 1 cannot meet these requirements. And while a shift to Tier 2 and 3 cities has been afoot for a while, the real power will come from offering work to people where they are – within reason.

"Moving work to the people instead of the people to work is the only sustainable strategy for countries that want to grow their shared services and BPO market," says Pejavar.

Local government foresight...

In order for impact sourcing to be effective, however, it requires a government that not just understands the potential impact and benefit of these initiatives but also commits to supporting them whole-heartedly. In Karnataka, for example, the local government – with great foresight and prescience – has been highly committed to subsidizing new business development. It’s been vital to the success of ventures like SGBS to have this kind of government backing, both financially and politically, at the very highest level. In addition, state or province-level resources need to be prioritized to support infrastructure development – and encourage businesses to commit likewise. In combination, these two forces provide a fertile ground for entrepreneurs like Pejavar to build up solid businesses like SGBS.

"Without the commitment and support of Karnataka province and continued support from NASSCOM Foundation our initiative would never have gotten off the ground in the first place," he says.

Fighting brain drain...

Countries like Malaysia and India have suffered from a "brain drain" as the workforce has moved from rural areas into already overpopulated and overcrowded cities, cities that may not even be able to sustain the infrastructure needed in terms of housing, water, and facilities to support these numbers. At the same time rural communities are losing out on every front. Given their dependence on agriculture, they are susceptible to seasonal vagaries and disasters; and as the younger generation departs, only the older generation stays behind. What were once thriving villages are increasingly in decline, with those remaining struggling to survive or drifting along disillusioned, with few opportunities in sight.

Disillusioned customers threaten sustained SSO/BPO industry...

At present, multinationals are being exposed to high concentration risk as they have set up a large base of professionals in one city, or multiple locations in one city. This model suggests that distributed operational centres, ranging from 250 to 500 employees, can support business continuity planning. Given today's technology connectivity and tools, the management of these centres is no longer a challenge. On the contrary, the model provides sustainable operations for the long-term. Location selection is key in terms of accessibility via Road, rail, or air. Setting up centres within a 200 km radius of urban cities also ensures good infrastructure and operational support.

An additional consideration is that while the initial wave of shared services in key cities were driven predominantly by foreign based multinationals, some of these are now showing signs of disenchantment and disappointment in overall delivery – in some cases recognizing that with today's technology some services could potentially be brought back in-house, or at least onshore. At the same time, in-country customers are recognizing that they, too, can benefit from outsourcing to process experts. Whatever the driver, no emerging economy is going to overlook the enormous potential that is shared services or BPO. Supporting rural outsourcing, therefore, is fast becoming a sustained survival as well as success strategy.

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Tips on how to take advantage of impact sourcing...

Pejavar leveraged many of his industry contacts and his combined know-how in launching the SGBS brand. He offers some tips to those looking to take advantage of this trend:

  • Start small and establish consistent practices.
  • Leverage your personal relationships to gain support as well as customers.
  • Work with local or regional governments for subsidies.
  • Promote the positive impact through a far-reaching communication strategy.
  • Target high-quality general managers with customer experiences in IT/BPO; recruit people from Tier 1 or 2 cities who are originally from the location you're investing in; they will have family ties that pull them back and keep them there.
  • Remember that the operations leader you recruit must be from the same industry so that he or she truly understands the customer experience. There is no point in hiring a textile executive to lead a BPO.
  • The local government body must commit to providing good support for the infrastructure. Internet connectivity and power, for example, are crucial [SGBS’s biggest challenges is that it still has to rely on generators for power, which are "literally leaking away" money.].
  • Look for a reliable talent source. Even more important, don't just look at the numbers, look at the segment within the numbers that would be appropriate for your work. Not every student will be attracted by the work you offer. Choose a location with at least 10 colleges or higher education schools within a 15-20 km range. "We didn't want people to be commuting too far for work as that could easily turn into a disincentive and cause them to leave," he says. "In addition, we looked for low-level degrees – just ensuring that there was at least some level of social science and maths training."
  • Plan for scale. There's not much point in launching a centre under 150 employees because the overhead costs will outweigh the possible margins, and leveraging management costs won't make the business case. Sustainability is around 200 and above.
  • Attrition will be greatest in the first four to six months. In fact, most attrition happens in the first month, with successive months seeing a steady decrease in its rate. "If someone stays for six months, they are probably going to stay for good," says Pejavar. In the early months, the culture shock of office work, the temptation of friends employed in other sectors, or a preference for physical labour will make itself felt. At SGBS, attrition has settled down to around 18% across the board. "For anyone who's keen to work in this industry there will not be many alternatives", says Pejavar, "and the knock-on effects on their family and the local economy provide the right incentive to keep them in the job".
  • Invest in thorough screening up front to avoid losing time and money. Also invest heavily in mentoring and monitoring in the first three months to foster belonging and comfort.
  • Invest in training but keep it simple. SGBS has applied a simple three-stage training that has been very successful to date. The first step involves understanding the social environment of the workplace and how new employees fit in, so the first two weeks are spent in "life skills" training. Then they move on to "work skills" i.e. computer and quality control, and only after that does the focus shift to "process/ product skills" i.e. application/client training. Every stage requires a certification before moving onto the next stage. Only once all three stages are passed does the employee move on to client specific product training. While fairly intensive, the on-the-job training is a crucial part of on boarding. At the same time, employees do start producing a return after the first 3 to 4 weeks. Pejavar explains: "We tend to see 30 to 40% output from an employee after the first 6 weeks of training. With the next stage of training this shifts up to 40 to 70% and at the end of six months we are generally at 90% output or even exceed urban outputs." Strong consistent mentoring/feedback will pay the greatest dividends in the long run.
  • Teach your customers to be patient! While quality is non-negotiable, working with an impact sourcing driven operation as opposed to a large multinational requires understanding on the part of the customers in the early months, as kinks are worked out. However, thereafter, they will be paid back in spades, mainly through low attrition, low costs, better productivity and as a result of the passion with which employees come to the job. "While the town sleeps, my centre is lit up all night with an incredible buzz and energy from the workplace," explained Pejavar. "You have to see it to understand the excitement that this kind of work generates and the incredible positive impact it creates for the community."
  • Expect and plan for a financial commitment upfront. Each centre SGBS sets up requires about $ 100,000-120,000 investment, depending on client requirements. You have to start with top quality, explains Pejavar, so while you don’t need a red carpet and even air-conditioning may not always be a priority, you do need non negotiable secured facilities to be able to compete with any BPO around the world.
  • "If you build it they will come". SGBS now counts the national stock exchange (NSE) as one of its key clients. While personal relationships and constant communication are instrumental in getting this kind of an operation off the ground, it's quality that keeps the relationship alive and growing, explains Pejavar.
  • Expect to run into significant (and unexpected) challenges. Punctuality has been a major headache at SGBS, as Pejavar explains. For many of these employees it’s the first time they have had an office job. Once you gain their hearts you've got them forever but in the early days expect to spend time helping them adjust to best practices.
  • Another challenge is that initially nobody wanted to work the night shift. The organization made a push to communicate the benefits (stable job, better time with the family, some time for personal work), however, and today some of the most productive work occurs during night shifts.
  • It requires enormous capital expenditure to create a centre in a village, so it’s important to guard it carefully. "We allow no mobile phones and no social networking inside our centre, which is verified through state-of-the-art security policies" explains Pejavar. Surprise audits on behalf of customers take place twice a year. Even just one issue of noncompliance would be reason enough for cancelling a contract so Pejavar’s team takes no chances. "It’s not charity work, and we earn it," he reminds us. "We are competing against the world."

Finally...

To expand you'll need to build up your capability, and that requires funding. Foster industry and government relationships that can support you. Make sure you communicate what can be done and incorporate the significant measure of improving life in distant locations into your business plan.