Business Process Outsourcing - Essay Example

Report On Business Process Outsourcing WIPRO India’s largest BPO provider This report investigates, analyses and proposes ways of addressing resource issues in WIPRO. The three main issues dealt with are human resources, finances and Information Technology while stress has been laid on human resource. Issues relating to the BPO sector in general have been dealt with special emphasis on WIPRO. Table of Contents I. Introduction 4 II. Human Resources 6 Industry Overview Problems of the BPO staff Wipro Overview How does Wipro handle the HR issue? Suggestions III. IT Resources 11 Industry Overview Technology used by Wipro Data Protection and Security at Wipro Training and Development IV. Financial Resources 15 Industry Overview Wipro’s finances V. Discussion on general issues and solutions for the BPO industry 17 VI. Conclusion 19 ABSTRACT This report seeks to investigate, analyze and suggest solutions to the BPO industry in general. It highlights the problems and ways of handling issues at Wipro in particular. The development of the people in the BPO is important but the attrition rate is very high. Business Process Outsourcing (BPO) is the delegation of IT related services to an external service provide. It is totally dependent on human interface. At the same time it is capital intensive. Thirdly, it involves the data of the client who is usually from a different country hence, privacy and security too become obligatory. The report covers diverse incidents and opinions from the industry experts. India has provided enough evidence of its capability to handle big and small projects. It receives 80% of its work from US and now other countries are looking at this option. India now needs to improve upon its data protection and HR issues. Report on Business Process Outsourcing – WIPRO – India’s largest BPO provider Introduction Business Process Outsourcing (BPO) is globally now a mainstream business activity. A rapid growth in outsourcing in India has resulted in service providers mushrooming all over. Most lack in the resources, specially trained work force and finances. Except for a few large houses the rest do not have the necessary infrastructure. Brian Glick (2003)1 reports some critics see offshore outsourcing as little more than UK jobs being lost to India and some other developing countries. Nevertheless, it remains the fastest growing sector in the services market. More and more companies in the US and UK are moving their back-end offices to India for business processing to reduce operating costs. The concept of the offshore software development centre was born in India in 1990s when IBM and General Electric returned to India. Today India is a powerhouse of Information technology. The three main reasons according to Ramesh Emani2 why R & D has moved to India are – firstly, the product life cycles are shrinking and the companies are under pressure to launch products faster. The second is cost and the third is availability of talent with competence. IT and language skills in India bring business to India. The growth rate in the Indian BPO industry is 40% against 30% in the software industry. India has set for itself a target of $50 billion by 2008 against $17 billion in 2004-05. The growth rate is good, the industry overall is doing quite well as per the survey and global benchmarking by Nasscom (Surajit Roy)3. The Indian BPOs are maturing and going up the value chain. The Nasscom study defines three areas in the process of maturing – with potential, relying on cost advantage, relying on performance in service delivery, and finally operational excellence in terms of established benchmarks. The outsourcing industry has already advanced from basic data entry and voice services to more hybrid and knowledge services. Amit Badami (2005)4 expects outsourcing to include risk modelling, data mining, actuarial services and audit apart from technologically sophisticated tasks such as the provision of radiology interpretation services to American hospitals from Indian doctors, outsourcing of financial and equity research by investment banks, and R&D services being outsourced by multinational engineering firms. UK Government is supportive of the outsourcing trend because as baby-boomers retire there is going to be massive shortage of such skills in UK. With such high potential in this sector how capable are the companies or the industry as a whole in addressing the resources issue? The three main resources, which form the backbone of success, are human, financial and IT resources. This report examines how the BPO industry as a whole and Wipro in particular are handling the three major issues. Human Resources Industry Overview BPO is people-driven business as it is dependent on human interface, says Aditya Menon (Cited by J M Thankappan & Bijesh Kamath).5 One of the greatest challenges in any organization is planning the HR needs. A disciplined approach helps identify the HR needs. Manpower is most critical input to be able to standout and have an edge. The main issues that plague the BPO sector in human resource matters are issues such as ensuring and upgrading the quality of the workforce, improving employability, developing soft skills, attracting and retaining talent, generating motivation and increasing efficiency. The numbers of jobs that are being moved offshore from the US are as follows: Sl.No Number of U.S. Jobs Moving Offshore   Job Category 2000 2005 2010 2015 1 Management 0 37,477 117,835 88,281 2 Business 10,787 61,252 161,722 48,028 3 Computer 27,171 108,991 276,954 72,632 4 Architecture 3,498 32,302 83,237 84,347 5 Life Sciences 0 3,677 14,478 36,770 6 Legal 1,793 14,220 34,673 74,642 7 Art, Design 818 5,576 13,846 29,639 8 Sales 4,619 29,064 97,321 26,564 9 Office 53,987 295,034 791,034 1,659,310   Total 102,674 587,592 1,591,101 3,320,213 Source: U.S Department of Labour and Forrester Research, Inc6. A transition in the BPO scenario is taking place in India but there are two key challenges – first is the skilled people and the second is the high rate of attrition. The attrition ranges from 25 to 40% and in case of one company it has reported as 70%. To beat the attrition rate when there is mass exodus from one company to another, to retain or attract skilled employees, companies throw attractive compensation packages. This only lays the foundation for more problems in the future. Where and how to recruit is very important. Entry-level recruits make up for the gross numbers but these indulge in job-hopping. Retaining management talent is the challenge and to be able to coerce the middle management to shift to two-three-tier cities (Surajit Roy). It appears that the attrition amongst the Indian call centre and IT workers is badly portrayed. The problem of staff turnover is no different from that in UK. According to Xansas Srivastava, the difference lies in the qualifications of the employees – in UK less qualified staff handle this sort of work whereas in India it is the graduates and it is the best job they can get in terms of the environment. Progeons Bhargava cites the example of a unit having 16 call centers in UK where the attrition rate is 135%. People in UK who take up these type of jobs are either as stop gap measure, just out of school and mostly temporary workers. Unifi’s Davies still feels that poor recruitment and retention is no excuse to shift jobs offshore.(Andy McCue)7 Companies spend a massive amount on training and it is wasted when employees keep switching jobs. 5 to 10% of their total budget is spent on recruitment. The new BPO companies hire from competitors to save time on start up. Most BPOs tackle lower end basic outsourcing work which requires no technical skills. Such staff too do not have any long-term career goals. Hence, changing jobs for them is not an issue at all. Nevertheless, how to retain people is the greatest challenge that this industry faces today. Different companies employ different techniques while the attrition continues. What are the problems faced by the employees, which compel them to switch jobs? Problems of the BPO staff The call centre employees have to bear the abusive language of the customers who they call up for unpaid bills on behalf of banks or other clients. Such attitude is bound to leave the employees hassled and frustrated specially when they spend the entire night like this. They are constantly under stress and tension and the BPO companies need urgently to look into such matters. ‘Stretch time’ may become one third of the total duty hours without pay. Sick leave is never sanctioned. Payments are not as promised at the time of joining. Jobs can be terminated with little or no warning. Transport is not up to the mark, drivers ill paid. Food is a recurrent problem. Names have to be changed to sound westernized; accents have changed. They are now looking for their cultural identity. The workforce need representation. They need a platform to voice their problems. Employee loyalty and accountability is lacking. High salaries are not the factor but they have to identify themselves with the company and have a sense of bonding with the company. Overview of Wipro Wipro Limited is the first SEI CMM Level 5 certified IT Services Company globally. Wipro provides Research and Development services to Telecom and Electronic product companies and software solutions to global corporate enterprises. Wipro is a New York stock exchange-listed company. In the Indian market, Wipro is a leader in providing IT solutions and services for the corporate segment in India offering system integration, network integration and IT services Wipro’s acquisition of Spectramind (the BPO outfit) was a part of a strategy to offer complete portfolio of IT services. The customer base has expanded to include various fields of operations. It provides comprehensive IT solutions and services, including systems integration, Information Systems outsourcing, package implementation, software application development and maintenance, and research and development services to corporations globally. It has a workforce of 14,000 against the total employment in this industry of 300,000. It also provides remote infrastructure support services to some 280 companies, of which one-third are outside India. According to Glick, the Company trains up to 1300 staff everyday, mostly online, on the latest software development technologies, quality processes, language skills and cultural education. This keeps the staff abreast of the western business values. There were about 300,000 graduates in IT and engineering in India in 2003 and Wipro and its rivals recruit from this pool. Only the best are selected. India is creating a powerhouse and this is the reason why companies like HSBC say that the quality of service provided by the sub-continent is better than in UK. The average age of the call - centre staff is 23; they are all graduates, full of enthusiasm and are committed to their work unlike in UK. How does Wipro handle the HR issue The problem of retention persist in Wipro too, like all other companies. Wipro has devised certain strategies and make tall claims about training the staff. There remains a big gap between the claim and the reality. They encourage employees to sign up for university courses and find this cuts staff loss dramatically (Surajeet Das Gupta)8. It has tied up with Symbiosis and BITS Pilani to offer management and engineering courses on campus. Agents who take the courses can study either before or after their shifts. Only 2% of the agents who enrolled for the programs left their jobs. Succession planning ensures the right people with the right skills in the right place at the right time. To do this regular talent review is conducted. Wipro has quarterly talent engagement and development reviews (TED) according to Bijay Sahoo, vice-president (talent engagement and development) and head of HR, Wipro Technologies.9 Senior positions filled internally indicate the success of the program. This program also helps the employees realize their career aspirations, thereby retain them within the organization. It also develops leadership talent. Wipro also claims to conduct routine QAT (Quality Aptitude Tests)10. Their associates undergo problem solving skills development, black belt training and Kaizen training. They also have a performance management system where the operating principles are broken down into behavioral indicators. These are observed and measured on a regular basis. They are then linked to the personal effectiveness parameters in an individual’s performance review. Hence, growth and compensation benefits are directly proportional to the performance in business goals as well as how they have lived up to the values of the company. These sound good on paper but the staff reveal a different picture. In many cases, they have not been paid even what they had been promised at the time of taking up the job. No allowances are granted for overtime. S. Varadarajan, vice-president, Wipro Spectramind Services, confesses that managing growth is a big challenge for Wipro Cited by Rajiv Dubey)11. Relentless focus on people is the only way to manage growth. To curb job-hopping Wipro signed a non-hire agreement with other BPO companies. To retain staff who are trained and desirous of switching jobs, Wipro started making agreements with new recruits for 15 months. If they jumped the agreement within six months of joining, they had to pay Rs 35,000 to the company; if they wanted to leave within six and twelve months they would have to shell out Rs 70,000. On the other hand, those who chose to stay beyond the agreement period would get an incentive of Rs 15,000 per annum. The work environment has to be congenial and open. Dignity and pride at work has to be laid stress on. Today Wipro has access to the best talent in the country. Their call center management and agents are picked up from diverse industry backgrounds. They follow a rigorous selection procedure, their induction and on the job training programs, and a conducive work environment ensure that they have the lowest attrition rate in the industry. However, when Michael Cooke, a journalist from UK visited the offices of Wipro, a different picture emerged altogether. 80% of the work is outsourced from US and Wipro handles more of voice based services. This requires more of night shifts as US laws permit calling up for bill collection only during specified hours. This industry, unlike the jobs of nurses or police force, does not allow shifts to change every four days. This results in frustration, sleeplessness, low immunization and fatigue, which reflects in the quality of service. They have to attend calls without even a moment’s gap in between, leaving them bewildered. The company does not address such issues sympathetically. One such employee who refused to comply with persistent requests for leave was terminated two months later on grounds of integrity. Despite having such a huge workforce, Wipro does not have any effective union to support the Indian offshore workers, says Dave Fleming, a national officer at Amicus, Britains largest private sector union. Working rights and trade union should also be replicated when the companies go offshore as employees can be terminated on flimsy grounds (Michael Cooke)12. Suggestions For the industry to thrive, the welfare of the staff has to be given prime importance. A number of ways can help improve the working life of call center employees. Traditional unions in India are considered corrupt and unnecessary but to voice the grievances of the employees this platform is required. Cooke suggests that fairness in the work place has to be maintained. They have to feel a part of the company and only then can they give their best. The employees live under constant fear of being terminated. Wipro does claim that the lower rung employees are allowed to interact with the management so that they can voice their grievances against the team leaders but the scenario suggests otherwise. They too are humans and have problems like any one would. Unless a friendly, amiable, and congenial environment is stressed upon, attrition would continue to rise. IT Resources Industry Overview Generally BPO companies provide voice-service but the trend is changing and there is a shift to hybrid services, says Vikram Talwar, CEO of EXL Services (Cited by Subir Roy). The future of the BPO really lies in consulting and analytics. Non-voice services require handling of entire processes and the growth has already started taking place. In the nascent stages technology was used as a selling point but is now used as a differentiator and to improve the Quality of service delivery, says Aditya Menon (cited by Thankappan and Kamath)13. Today most BPOs in India are investing in enterprise-wide applications such as ERP, CRM, workforce management and quality monitoring systems to improve their own internal processes and enhance employee productivity. It has become imperative to use sophisticated technology and enhance the service quality as the customer demands it. As Atul Kunwar (cited by Thankappan and Kamath) puts it, ‘clients dictate technology investments in the BPO business’. He says some BPOs especially call-centers in India are armed with the latest technology. Technology used by Wipro Wipro integrates Kaizen and COPC for their BPO projects to deliver the highest customer satisfaction. Kaizen is used in conjunction with six sigma for small incremental improvements which require little India no investment. COPC is an exclusive standard for the BPO industry developed by a group of professionals from Amex, Dell and Microsoft which uses the Malcolm Baldridge Quality Award as a basis. Wipro BPO is the first Indian company to get certified for the COPC standard using the six sigma framework14. Wipro’s BPO, Spectramind, deals with accessing data from the customer’s setup (Anil Patrick R)15. This translates to minimal data storage, stringent security user level requirements; requirements like user authentication, user accessibility to information/sites, secure data storage, defined escalation procedures/matrices, and incident reporting/handling. Each location has its own infrastructure, which includes components like desktops, LAN, switches, Cat 6 cabling, redundant fiber connectivity, multi-layering, Kerberos, firewalls, and IDSs. Data protection and Security at Wipro The desktops are locked down, updated with the latest anti-virus, curtailed administrator account access, absence of floppy/CD drives, and locked down USB ports. The users have to first log on to the company’s system and then they are re-authenticated into the client’s system. Access is limited to employees using proximity cards. Closed circuit TVs monitor the movement of the employees within the premises. The company boasts of zero-tolerance of non-compliance. Wipro’s performance and attention to security and privacy was appreciated by Chris Larsen, chief executive officer (CEO) of E-Loan Inc., a consumer direct lender in Pleasanton, California, which outsources back-office underwriting functions for its home equity applications to Wipro Spectramind (cited by John Ribeiro)16. At their Bangalore office the employees are frisked, the use of mobile phones prohibited and technology is used to record and monitor data records accessed through employee computers. Larsen also stated that Wipro was chosen because of their expertise and experience in the field. Besides, they had their own people to work on the work and not outsource it to others as many companies do. Cooke had a different experience on his visit to Wipro’s office. He was allowed to listen in to a call which implies that data protection is not an issue. Norwich Union, a Norwich, U.K.-based insurance group that outsources call center and back-office processes to about five companies in India, is cautious and does not transfer data to its Indian contractors. The information is available on the computers only as long as the data is being processed. Despite growth Wipro BPO is not broad-based and has a long way to go. It still gets 83% of its revenue from voice-based services like telemarketing and customer services. WNS, another big BPO in India registered $165 million in 2004-05 with just 7500 employees, which is 10% more revenue with just half the number of people. Infosys, TCS all have controlled growth but Wipro does not have a scaleable model of growth, in the words of Kurien. The fast growth in Wipro has a reason. It started off as an independent VC backed company when there were hardly anyone in this sector. To attract investors so that VC-s could exit, they had to grow at a fast pace. The mindset and the culture at Wipro is – growth is everything. This is what Kurien has taken as a challenge to change. The balance 17% revenue for Wipro comes from transaction based services. It has now added finance and accounting space such as accounts receivable, general ledger, management reporting to its services. This sort of processing requires understanding the client’s needs. One has to focus on specific verticals. Wipro has significant expertise in telecom and technology that together Wipro more than half of its revenue. The company is advised to go deep into this. Transaction based business requires domain expertise. Wipro has grown in size but not in quality services. Its aim remains to ‘grow at any cost’. They should move to higher value services although The Hindu group of Publications (2005)17, Wipro is transitioning from voice based to transaction-based services. As a result, it has reduced its head count by 2000 to 13,630 people. This transition has impacted revenues and profits. The strategic direction is expected to give them the growth in the right direction. Training and education As baby-boomers retire, there would be a shortfall in the labor market. Quality IT and software professionals would be difficult to come by. Skill requirement keep changing and needs upgradation from time to time. The English language skills, barring a few cities in India need to be stressed upon. There has to be a blend of the functional and business skills. Online courses and bridge courses should be conducted to keep the employees abreast of the advanced technology. Amit Badami of EMRG18 reports that there will be a dearth of functional experts to manage IT projects in the future, particularly in areas such as ERP/EAS implementation including areas such as CRM, SCM and front office automation. The UK and India should collaborate in these training initiatives. According to Badami, offshore outsourcing is undergoing transformation. This means that a greater knowledge of the customer’s needs and their business is required. Vendors would require sophisticated consulting skills. Cost reduction would not be the primary factor in determining the vendor but quality professional service would be stressed upon. Sophisticated training and people management has to be enhanced so that attrition in the industry could be controlled. Financial Resources Industry Overview The BPO industry is highly capital intensive. Start up investments are high while profitability in the initial stages is poor due to high breakeven point. Most software companies hold about 30-50% of their asses in cash culture equivalent to be able to meet their capital needs. This also eases out the working capital requirements. With increased competition margins have become low and BPO companies have become cost conscious. Controlling costs and stabilizing billing rates is a matter of concern as the ITES industry continues it growth. Arjun Saxena of Inductis, a US-based management consultancy Vipin V Nair)19, reports that large BPO firms today are in a position to pass on expenses incurred on account of training, technology set up and transition management. Even if the salaries and other wages go up, it can be offset by decline in other expenses as in the case of BPO whose transport and fleet cost reduced by 15%. Wipro’s financial position Wipro is cash rich and unlike Infosys it did not sit on the cash. Wipro spent close to $150 million to buy firms in the BPO and consulting space between June 2002 and June 2003. It acquired Spectramind for $108 million to get into the BPO space, followed by a $24-million buyout of AMSs global energy business in November 2002, and $17 million for NerveWire in May 2003 to gain expertise in consulting in the financial space (Shelley Singh & Snigdha Sengupta)20. In the year ended 2004-05 Wipro BPO recorded a revenue of $150 million up from $95 million in the previous year (Shyamanuja Das)21. According to Das, few companies in the world have grown at the rate at which Wipro has and it can boast of world class management. Vivek Paul, the ex-Vice Chairman Wipro, spent a lot of money in attracting new business and sales staff was increased in US with the expectation that after 9/11 more business would be forthcoming to India. This unfortunately hit back and it took sometime to recover these expenses. The growth rate declined from 63% in 2000 to 24% in 2002 but it did finally pay off. In March 2005, Wipro touched a turnover of $1.87 billion, having breached the $1-billion figure a year earlier. The share-holders market is volatile and sensitive. The day Vivek Paul, WIPRO put in his resignation from the United States, the share value had a ‘knee-jerk’ reaction. It came plummeting down by 2.7% but recovered within a week. Wipro could absorb such shocks and transition because of its liquidity. Problems and solutions of the BPO industry as a whole The challenges faced by Wipro are typical of the industry. India will face a major challenge in the next five years as far as human resources is concerned. Multinational vendors are offering high compensation for quality staff further enhancing the attrition rates. Talented labor is required in the industry and all have an ambition to grow but growth prospects are dim. To hedge these risks India will outsource to emerging markets like China, Philippines, and South Africa. While incidents regarding the staff cited at Wipro office may not be representative of all the BPO companies, what cannot be overlooked is the fact that the employees are stressed and work under tension. The ‘human factor’ is ignored because each line manager has to take care of his job. Lack of motivation and career opportunities, no family life, unhealthy relationships with managers, are some of the reasons of high level of attrition. Merely providing opportunities for higher studies and degrees would not solve the problem. They have to feel a bond with the company. Just like the nursing and the police force, not more than seven nights/month are allotted to each individual. In some hospitals, even this is broken up into 3 and 4 nights at a time so that the nurses do not have a hangover. This keeps them healthy and the quality of service does not decline over a period of time. Flexi timing could attract quality people. A Chennai based PO company has started small 65 seated franchisee run outfits across the city so that employees do not waste time in travelling as most have to work in night culture early morning shifts. This helps is reducing stress as they are within their locality. This has brought down the attrition rate too. Initial training is important and an orientation in different fields would be another way to tackle the monotony of the job. Large companies that handle various types of BPO services can shift staff from one sector to another alternate month, which would also help. A platform to voice their grievances is essential. It has been found that while companies like Wipro claim that their managers interact directly with the agents in the absence of the line managers, it has also been seen that the agents are coached what to reply when the customers visit their office. They are even forced to put on a smile. Constant fear of losing their jobs adds to the physical strain. Transport facilities have to improve and security provided (A recent case of rape and murder of a female staff in N. Delhi warrants urgent attention). Apart from this the data protection and security is another concern which needs looking into. Data security issue anguishes the whole industry. It is the single biggest issue for the Indian BPO industry. NASSCOM has to formulate and implement laws for this. Ensuring data security, data protection and confidentiality is of prime importance. This lacks in India to a great extent. India has no Data Protection Act but the major suppliers place a special emphasis on quality. The smaller vendors damage the country’s reputation. Today any BPO would have fancy access control systems for physical security, segregated LANs and firewalls. Most BPO companies have certifications such as BS 7799 and SAS 70. They also undergo third party audits from time to time but lapses have been observed. Security is an ongoing process. People have to make confidentiality a part of the organizational culture. They have to remain conscious and alert all the time. The data protection and privacy laws in India are inadequate even as per Mohit Jain (Cited by Thankappan and Kamath). Conclusion This report has covered the HR and IT issues in depth while financial resource has been refereed to. My concerns are related to the human factor in particular. Development of the employees is a major concern. India is already having wage inflation and is set for further increase especially in the middle management position. Pricing in the future will be based on what is delivered, which would improve the quality of service to the customers. With advancement in technology, human interaction would reduce, as processes would be automated. The market is competitive and innovation should be the key in such a competitive market. "Indian companies have focused on building delivery capabilities and under-invested in the front-end," says John C McCarthy, group director, Forrester Research22. Wipro needs to sit up in the face of stiff competition. People have been around for 20 years and to infuse creativity new talent has to be brought in. Otherwise stagnation will occur. Read More