DIRECTIONS 2005Making IT Matter: Defining Value, Finding Opportunities

BangaloreIT.com, Nov 2004

BPO Leaders: The Road Ahead

Dr. Pradeep MukherjeeMD

neoIT

Agenda

!Evolving Nature of Globalization!Defining today’s focus: There are many BPO

competitive landscapes!Key BPO competitive developments !Separating the leaders from the contenders

in 2004 and beyond!Positioning for Leadership:Key Directions

About neoIT75+ offshore sourcing (captive & third-party) transactions; median savings for clients exceeded 37%Client Engagements

04 Offshoring Lifecycle Methodology; A5 Portfolio Assessment Methodology; neoQA Supplier Due Diligence Process; M5 Program Governance Framework

Proprietary Frameworks and Methodology

Globally experienced advisors located in US, India and PhilippinesGlobal Advisory Coverage

Maximize savings, lower risk & enhance performance by providing advisory & management services across the entire offshore lifecycle, covering Strategy, Sourcing & Governance

Globalization (Offshore) Lifecycle ManagementSM

68 trusted advisors and support professionalsExperienced Team

Deep knowledge of markets & capabilities, expertise & reputation of Tier 1 and Tier 2 MNC and offshore suppliers in over 50 countries that is continuously updated

Unmatched Market & Supplier Knowledge

Global 5000 & Fast Growth Mid-Market; 16 Global 20 clients in Financial Services, Healthcare, Logistics, Consumer Goods, Hi-Tech Manufacturing, Utilities, Oil & Gas

Prestigious Clients

Over $1.5 billion in 2003; Revenue Growth of 194%Engagement Value

Evolving Nature of Globalization Globalization MaturesGlobal sourcing has transcended offshore outsourcing and is an imperative in most Global 2000 companies’ sourcing strategy

New Markets, New SuppliersNew supplier markets emerging as contenders to India and the Philippines. China and Eastern Europe gaining momentum as other markets emerge.

Risks ContinuePolitical instability keeps concerns high, creating ongoing need to address and overcome offshoring risks

Failures PublicizedOffshore failures, as a result of poor transition management, are surfacing

ControversyControversy, and the resulting media attention, surrounds offshoring sparked by election year posturing, more government-related jobs are being required to be US-based

Global Competition

CHINAIT Services Exports (2003): $700MBPO Exports (2003): $210M

INDIAIT Services Exports (2003): $9.5BBPO Exports (2003): $3.1B

POLANDIT Services Exports (2003): $22 MBPO Services Exports (2003): $10M

CANADAIT Services Exports (2003): $ 8BBPO Exports (2003): $7B

MEXICOIT Services Exports (2003): $150MBPO Exports (2003): $80M

RUSSIAIT Services Exports (2003): $475M

PHILIPPINESIT Services Exports (2003): $300MBPO Exports (2003): $600M

HUNGARYIT Services Exports (2003): $22MBPO Exports (2003): $10M

CZECH REPUBLICIT Services Exports (2003): $26 MBPO Services Exports (2003): $15M

Factors Driving Global Sourcing

Need to reduce costs11

Focus on core operations12

Flexibility & capacity through global centers of excellence

13

Maintain and increase quality14

Future-ize15

– Increasing pressure on organizations across industries to cut costs

– Increasing trend towards leaner organization and focus on core activities driven by

• M&A (e.g., Banking)• Global Competition

– Handle demand variation and quickly gain access to a wide variety of current and emerging skills from global centers of excellence

– Achieve quality levels needed to support the business and drive improvements over time

– Develop service delivery models that will continue to bring unique value to the business in future

What Clients Are Looking For?

FINANCIAL

PEOPLE

SCALE & SCOPE

TECHNOLOGY & PROCESS

COMPLIANCE

– Total Realized Savings– Transition and Productivity

– People Availability and Retention– People Domain and Process Expertise

– Economics of Scale – Economics of Scope

– Automation– Innovation

– Regulatory Compliance– Data Privacy & Security

BPO: A Hybrid Service Model

! Multiple processes or entire function

! Web-enabled automation! Enterprise-wide integration

Processing Services! Operationally driven ! Ongoing contracts! Highly repeatable

Consulting Services! Strategically driven ! Project-based contracts! Customized unique valueBPO

! Collaborative management! Aligned with business performanceStrategy + Execution = BPO

Source: IDC 2004

Defining Today’s Focus: There Are Many BPO Competitive Landscapes

CrossCross--Functional Functional or Industry Integrated or Industry Integrated H

RHR

Cus

tom

er C

are

Cus

tom

er C

are

Proc

urem

ent

Proc

urem

ent

F&A

F&A

Cla

ims

Proc

essi

ngC

laim

s Pr

oces

sing

Mor

tgag

e Pr

oces

sing

Mor

tgag

e Pr

oces

sing

Clin

ical

Tria

l Man

agem

ent

Clin

ical

Tria

l Man

agem

ent

FunctionSpecific

IndustrySpecific

Source: IDC, neoIT 2004

The New Face of CompetitionConsultants

Process SpecialistsPure Play Offshore

Offshore IT

BPOBPOIT Outsourcers

AND NOW ... CAPTIVE CENTERS

Source: neoIT

Maximizing the BPO Opportunity

0.5%Training

405 $ billionTotal

0.3%Procurement

1.9%Engg/R&D2.2%HR3.4%F&A6.8%FOM

10.0%Customer Care

33.7%Sales & Marketing

41.1%Logistics2003Function

! Emerging opportunities would:

– involve a strategic redesign of underlying solution processes and technology

– solution areas that can benefit from established business automation applications

6.0%Sales & Marketing

6.9%FOM10.4%F&A11.6%Logistics

12.0%Customer Care

20.0%HR20.1%Procurement34.2%Training37.4%Engg/R&D

11%Overall CAGR

CAGR (03-08)Function

Source: IDC, neoIT 2004

A BPO Strategy a “Competitive Must”

!Established!BPO Segments

– Customer care – Logistics– Facilities

management

! Emerging! BPO Segments

– HR – Procurement– Training

Growth in both established and emerging segments driven by:! Cost efficiencies ! Focus on core competencies! Risk mitigation! Stronger alignment between technology and business outcomes! New entrants emerged and alliances formed:

!Keane acquires WorldZen!Wipro acquires Spectramind

Growth in both established and emerging segments driven by:! Cost efficiencies ! Focus on core competencies! Risk mitigation! Stronger alignment between technology and business outcomes! New entrants emerged and alliances formed:

!Keane acquires WorldZen!Wipro acquires Spectramind

Source: neoIT

Market Forecast – Offshore BPO

0.8 1.83.1 3.1

8.7

19.8

4.9

77%

38%

44%40%

29%

13%

45%

0

5

10

15

20

25

Mexico China Philippines Central &EasternEurope

Others Canada India

$ B

0%

15%

30%

45%

60%

75%

90%

% (CAGR)

2002 2005 2008 CAGRSource: neoIT

42.2200819.820058.12002

Total Market Size ($ B)

Indian BPO market by Service

1614

520

31 11

1330

0

200

400

600

800

1000

1200

1400

1600

1800

Customer Care Back OfficeProcessing

Digital ContentDevelopment

Transcription Others0%

10%

20%

30%

40%

50%

60%

70%

2003 CAGRSource: IDC 2004

Evolving Offshore BPO Landscape

Traditional BPO segments Evolving BPO Segments

Credit & RiskCredit & RiskFinance and AccountingFinance and Accounting

SCM OperationsSCM Operations

Treasury OperationsTreasury Operations

UnderwritingUnderwriting

AnalyticsAnalytics

LogisticsLogistics

Back Office AdministrationBack Office Administration

Payment ProcessingPayment Processing

CRMCRM

HRHR

Tech SupportTech Support

Future Trends

! Growing Client Maturity– Offshoring is an enterprise wide strategy rather than

piecemeal. – Exploring different Offshore models.

! New Opportunities– Renegotiation of Outsourcing deals and inclusion of

offshore component.– Increasing adoption of offshoring in Europe

! Increasing Supplier Sophistication– Newer service lines - moving up the value chain, deep

domain knowledge– More transformational

Future Trends

! India to continue dominance– BPO Shakeout imminent– Reaching out to newer destinations

! Pricing pressure to increase– Offshore resource costs rising– Presence of MNCs , Critical mass of competitors

! Increasing impact of regulatory compliance– Countries with easier regulatory climate will benefit– Increased concern over Security and Data Protection

Addressing the Broadening Requirements of BPO

IndustryExpertise

CostSavings

BusinessConsulting

ProcessExpertise

ProcessExecution

Technology

! Perot acquired Vision Healthsource (8/03)! Accenture partners w/Financial Service Solutions (12/03) ! IBM acquired PwCC (10/02); Daksh (04/04)! TCS acquired Phoenix (05/04)! Hewitt and Exult Merger(05/04)

Source: IDC 2004

Offshore Challenge to Management

Organizational• Staffing• Management style• Formal and informal information

Systems• Relationship Management• Regulatory and legal issues

Process• Dynamic allocation of workflow• Managing human and process interaction• Level of control• Measuring offshore processes• Program and process management

Financial

• Manage cross-border cash flows• Assure and preserve cost advantages

over time• Project and investment risk

Source: neoIT

Assessing Objectives and Complexities

Objectives

Proc

ess

Com

plex

ity

Operational Efficiency Transformation

Low

Hig

hRedesign,

integrate, or extend

Improve or offload existing

process

Lowest cost

New way of doing business

Source: IDC, neoIT

Fixing Complexity

Objectives

Proc

ess

Com

plex

ity

Operational Efficiency Transformation

Low

Hig

hFix the

complexityProcess integration

expertise and consultative skills

Do it betterOperational

excellence - cost + performance improvement

Do it cheaperSourcing strategy

and cost-advantaged resources

Do it differentlyProcess and relationship innovation

Objectives

Proc

ess

Com

plex

ity

Operational Efficiency Transformation

Low

Hig

hFix the

complexityProcess integration

expertise and consultative skills

Do it betterOperational

excellence - cost + performance improvement

Do it cheaperSourcing strategy

and cost-advantaged resources

Do it differentlyProcess and relationship innovation

Source: IDC, neoIT

Aligning with Market Opportunity

How well does the service provider align with what clients are looking for?Key criteria evaluated:

– Delivery of cost savings• Key Elements: Shared Service centers,offshore sourcing,

automation/technology,risk/reward pricing– Delivery of business process redesign/management

• Key Elements: In-house business process expertise,strong project and partner management skills,proven execution capabilities,ability to identify and measure performance gains

– Completeness of BPO vision• Key Elements:Industry specific expertise,enterprise BPO

Roadmap,clear vision on how to link related processes and functions,ability to broadly address the BPO value chain

Source: IDC 2004

The Ability to Gain Market Share

How well is the service provider equipped to win deals and grow its business?Key criteria evaluated:

– Pursuit capabilities• Key Elements: Sophistication of the vendor's bid

teams,ability to engage ‘C’ level and line of business executives,ability to assess and align with client’s perceived needs, the ability to “create” deals

– Creative and flexible client partnering/venturing• Key Elements: Access to financing and overall financial

health,willingness to share risk , examples of innovative clientrelationships,mechanisms and strategy for funding change

– Global service delivery capabilities• Key Elements: Ability to provide globally integrated solutions

,diversity and breadth of global sourcing optionsSource: IDC 2004

Reviewing Where We’ve Been: 2003

Opportunity Alignment

?Ability to

Gain Share

Source: IDC 2004

BPO Leadership Among IT Services Providers in 2004

Ability to Gain Share

Opportunity AlignmentSource: IDC 2004

Key Directions

! Identify the BPO adoption curve on a client-by-client basis– Cost savings to transformation

! Help clients move from cost-savings to gaining business value– Business value-based relationships enjoy longevity– Customers would look for mutual gain sharing with their

service providers ! Address cross-functional and core industry-specific

market needs– Key differentiator over the specialized BPO providers

! Demonstrate leadership in measuring and evaluating performance gains– Key emerging market need over the next 2 years

The Decade Ahead …

!Year 2008

– Captive and BOT model will dominate

– Compliance and lack of delivery

capability will be the drivers for

captive and roadblock to BPO

– Second tier Indian cities and

cities in other countries giving

competition to tier I Indian cities

– Mixture of voice and non-voice

!Year 2014

– Third party sourcing models will dominate

– MNCs will dominate the BPO landscape

– Core processes will still be in captives

– Non-voice transaction processing will be dominant

– Centre of Excellence in different countries

– Optimal Global Services Sourcing

Contact Info

Please email me at:

pmukherjee@neoit.com