Impact of adoption of Value Based Decision Making on Small and Medium

Enterprises in BPO Sector

*Geetika Jain, gjain@amity.edu

*Geetika Jain - Faculty member, Amity School of Business, Amity University, I-3 block, Sector
-125, Noida, U.P., Email- gjain@amity.edu, Ph.: 09999272684.

Abstract:
Value based decision making is the most critical for an organization in recession. An organization, which
is able to take calculated, focused, and timely decisions, is probably far better than an organization which
is ill-defined, and slow in decision making. Due to increased competition, an organization becomes
distinctive in value proposition and result oriented. Value based decision making turns out as a source of
competitive advantage or disadvantage for the companies depending upon how well or how poorly
decisions are taken.
In India, the outsourcing industry – both IT outsourcing and business process outsourcing (BPO) - has
grown rapidly over the period. The outsourcing industry had difficult years and the decline was more
pronounced. The main cause of this decline has been a “aperture on decision making” among IT and BPO
businesses. The current economic environment is very tough for IT-BPO companies, who have to re-
evaluate their value proposition for clients. The margin in the US is no longer as high as they used to be
for global enterprises. So, the global firms opened their own setup in India and take advantage of the cost.
As the global giants coming in India, Indian BPO firms (third party enterprises) have to find the way to
stay in the race. There is already a big shake-out among the small-and medium-sized BPO firms in India.
Indian BPO SME’s have already started establishing new vertical like Technology, Telecom and Travel &
Transportation and exploiting opportunity in different geographic markets like UK, Continental Europe,
and Asia Pacific. Looking ahead, companies demonstrating cost leadership will come out as true leaders
in an economy that will be price sensitive. Regulation & Compliance and retaining key talent in downturn
are the key challenges in BPO sector.

Introduction

India is the rapidly growing Business Process Outsourcing (BPO) market. It is well established as a
“destination of choice” for Business Process Outsourcing (BPO) services. Indian BPO industry is
managing highly specialized assignments and E2E solution to knowledge based services. The Indian BPO
scenario has changed from data entry to expert knowledge processes where experts allow decision making
and trouble shooting based upon the Service Level Agreement (SLA) which is set by client and vendor.
Companies have to take critical and value based decisions to expand their horizontal (KMBL, 2010) and
vertical (KMBL, 2010) services. Incase of outsourcing, a company shifts its essential operations to a third
party in order to gain various benefits including low cost, better services, and on-time delivery.

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Value Based Decision Making
According to a research done by Diaane et al. (2009), the value based decision making model provides
new decision-making paradigm by suggesting the multiple perspective. According to a report prepared by
Matt H Evans et al. (2010), Value based decision recognizes that each stakeholder has its own unique set
of values that create and improve value for an organization. In order to accomplish the value based
decision, organizations often launch various initiatives, such as customer relation’s management, business
intelligence, knowledge management, balanced scorecard etc.

BPO Industry in 2008 Economics Downturn

According to a study conducted by McKinsey & Company (2006), India has captured 46% of the global
outsourcing market and has become a leading offshore destination. Due to economic downturn, the Indian
outsourcing industry has become the deciding factor for the BPO services. According to a study
conducted by McKinsey & Company (2006), the BPO market is decreasing the billing rates for the
service provider, while the demand of best talent is increasing the labor cost of India’s BPO sector by up
to 15% annually. In the starting years of outsourcing, client tends to focus on cost benefits and the
provider’s ability to maintain quality levels comparable to those at onshore sites. But with in two to three
years, as client become habituated to the cost savings, they begin to look for productivity benefits,
reengineering and process innovations. According to a research done by Wipro Council for Industry
Research (2009), the economy downturn in US will make BPO companies to reduce their dependency to
US and start looking for other markets like APAC, Latin America, and Europe. The Indian companies
have started layoffs and recruitment freeze. Some companies have explored various ways and taken up the
idea of M&A to prevent their ships from drowning.
Earlier companies had the approach of providing various functions in limited sectors and now they
provide specialize functions across various sectors. Over the last two years, various MNCs like IBM
Global Services, Accenture have been started their offshore BPO presence in India.

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Various organizations are working on their vertical and horizontal services and trying to tap
opportunities in banking sector mainly specialization in transaction processing, account services
and credit card fraud management. According to a report prepared by NASSCOM-Everest et al.
(2008), Indian BPO market consists of vertical-specific processes more than 25% and that
processes are specific of delivery functions. The largest opportunity is in the insurance sector
including policy servicing, customer service, finance and accounting, new business acquisition
and claim processing. According to NASSCOM-Everest et al. (2008), several sourcing models
like build-operate-transfer and virtual captives are being used. To increase geographic reach,
build scale and acquire new capabilities, the market is witnessing increased merger and
acquisition (M&A). According to a study done by Ernst & Young (2009), the financial crisis has
led to sudden and dramatic ‘rescue mergers’. But alliances and partnership remain critical to the
various businesses such as telecoms, life sciences, utilities and media. According to a report by
Businessworld et al. (2008), Indian BPO firms have made 14 acquisitions in the last three years.
In last two years, so many merger and acquisition had happened like Ephinay, one of the earliest
niche BPO in India, acquired Phoenix. TCS has already acquired all the outstanding shares of
Citigroup e-serve India operation. Small and mid size BPO companies could be the possible
target for the large companies which want to start their own setup of BPO operation. There is
already a big shake-out among the small-and medium-sized BPO firms in India. IBM global
service has acquired Daksh eServices and it shows that BPO industry has changed forever.
Various global BPO companies have already started their operation in India. The third party
Indian BPO firms have to figure out the way and relatively the small size company is a serious
handicap. The competition is increasing and due to that most of the M&A deals have been
bagged by Indian BPO firms. According to a report by Businessworld et al. (2008), the third
party, small and medium Indian BPO companies are working on their process value chain, so
that they can increase their margins. According to a report by ValueNotes et al. (2009), Small
and Medium Enterprises (SMEs) haven’t completely discovered the offshore option and have
been underserved for a variety of reasons, including lack of knowledge of off shoring,
unattractive deal size for premium service providers etc. larger service providers are looking
towards Fortune companies and trying to build solutions and services for mid-market, While
SMEs are not comfortable working with mid-market.

Different Strokes, Different Folks

Several SMEs are working on business process restructuring and adding the knowledge
(analytics/legal services/consulting) components in to the process in attempt to deliver great
value to the client. The knowledge process outsourcing will add value to the service provider
partners, and directly impact the buyer’s business objectives. According to a report by Zinnov
Consulting (2008) et al., there is a shift in the corporate strategies already. According to a study
by NASSCOM (2010), In United States, SME private sector enterprises represent over 99% of
US firms. So SMEs are focusing on SME vendors also. According to a report by Milestone
(2010), SMEs should provide integrated solutions and always focus on business value e.g.

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improved productivity, enhanced CRM, enhanced revenue etc. SMEs are concentrating on TCO
(Total Cost of Ownership), not only on price. According to Bizxchange (2010), SMEs are
providing customer-centric business model to the US-based clients and preparing to adopt such
type of models. Incase of small companies, the main drawback is poor infrastructure for big
projects.

Figure 1: Source: MileStone

According to BNP Paribas Private Banking (2008) et al., Indian companies will have to adopt a
multi-branched strategy, which includes diversification of the existing markets, improving
internal efficiencies to maintain cost competitiveness according to the market situation and
increasing the product portfolio in the value chain.

Conclusion
Indian BPO industry has developed to such an extent that whatever the scenario will come,
outsourcing will always be in demand. The small and medium enterprises should focus on
providing the best out of the market in terms of innovation, efficiency, pricing, and best skills to
the customers. Companies should work on an ideal model for customers, which will include the
BPO efficiency and KPO effectiveness. Tier-2 and Tier-3 BPO companies should look at the
domestic market opportunity. BPOs have to look at transactional business, understand the gap,
and find the value which is being offered to customers. Companies should develop service based
models that will provide domain-specific services to the customers. Post the downturn, SMEs
have started looking at segments like healthcare and e-governance and new technologies. Like

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most people use mobiles and laptops these days, so BPOs should look at the support services to
provide new application based services. From a business perspective, there is a shift in pricing in
BPO industry. Earlier companies used to charge FTE (Full Time Employee) basis, now there is
shift in terms of project basis charge. PSUs, domestic private players, UID, rural, healthcare, and
various telecommunication companies are the new segments which will drive the BPO market in
future. Technology must go hand-in-hand with innovation, and companies have to rediscover the
role of technology in business. India Companies have to work backward to add more value to
clients and should emphasis more on business matrix as compare to operation matrix. India has a
comparative advantage in knowledge and services. India is expected to be a world leader in BPO
industry.

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