The document discusses the challenges faced by BPO firms in delivering efficiency gains to clients as contract tenures extend, emphasizing the need for new engagement models to retain margins amidst stagnant growth. It highlights the necessity for BPOs to understand business dynamics and leverage data analytics, particularly in non-voice environments, while also addressing client reluctance to pay for additional forecasting services. The resolution requires a multi-pronged approach focused on cost avoidance, skill optimization, and revenue creation through leveraging insights for new products and services.

1. Outsourcing | dilemma
34 | March-April 2013
BPOandBusiness
Forecasting
By aditya bhalla
FormostofthebigBPO(BusinessProcess
Outsourcing) firms the tenure of many
client relationships is in excess of five
years. This level of comfort has provided
the serviceproviderswithuniqueinsights
into the challenges faced by their clients.
It is therefore natural for clients to
expect the benefits of these insights to be
passed on to them. Most client contracts
quantify the specific benefits in the form
of staff reduction or cost reduction or any
other related efficiency gains with each
passing year.
In the initial years BPO firms have been
abletopassontheefficiencygainsthrough
automationandrigorousimplementation
of process improvement methodologies
such as lean six sigma. Now that the
low hanging fruit have been taken, the
pressure to deliver additional benefits is
telling on the gross margins. The double
whammy on the financial numbers has
been the pressures caused by stagnant
or reducing topline growth of BPO firms.
ThetimeisripeforBPOfirmstoexplore
otherengagementmodelsthatcanprovide
the clients with the efficiency gains and
the BPO firms with additional opportuni-
ties to retain their gross margins levels.
As a bonus effect such models may also
help recover the projected reduction in
revenues.
Some of these engagement models
such as project based pricing,transaction
based pricing, pay per use models have
beeninexistenceforalongtime.However,
they have gained traction in the recent
past.
Making these models work requires
a good grasp of the end-to-end busi-
ness dynamics that trigger the workload
demand generated by end-customers.
Supply side thinking will require a deeper
understanding of the application of tools
and techniques to leverage past data and
predict future values of workload, un-
planned shrinkages,unit processing time
and service levels that can be committed
to end customers.
While many BPOs have been very com-
fortableapplyingsomeofthesetechniques
in a voice based environment, the bigger
challenge seems to have come from non-
voice environment where many of the
higher order analytical jobs reside.
Many of these jobs were outsourced
with an inadequate understanding of
the sources of variation such as types
of workload and drivers of workload.
Additionally the BPOs may be managing
scattered parts of the end-to-end process
limitingtheirvisibilityontheinefficiencies
that exist.
Clients seem to be more than happy to
collaborate with their service providers
to develop the robust models related to
managing demand and supply. Some of
theBPOshavestartedinvestingindevelop-
ing the internal competencies related to
business forecasting and applying those
skills to take over the client operations in
this area. Still many challenges remain.

2. March-April 2013 | 35
CLIENTS MAY NOT PAY
The new conflict facing BPOs at this stage
is that clients may be willing to allow
their service provider to take over the
business forecasting function but they
may not be willing to pay additional
charges for that.
The resolution for the BPOs lies in a
multi-prong approach:
• Cost avoidance by cutting down the
penalties on missed targets
• Cost reduction by optimal utilisation
of skilled staff across multiple client
engagements
• Revenuecreationbyleveraginginsights
on business drivers to offer newer
products and services to clients. For
ADITYA BHALLA is Innovation Practice Head
at QAI Global Services and consults clients on
product and process design and improvement.
Hecanbecontactedatadityabhalla@yahoo.com
Does not sound good … The new
conflict facing BPOs at this stage is
that clients may be willing to allow
their provider to take over the business
forecasting function but they may not
be willing to pay additional charges for
that.
example, additional services of value
to healthcare clients that would help
their end-users get their jobs done
more effectively through self-service
options.
CLIENTS MAY NOT ALLOW
DYNAMIC STAFFING
The new business model will require
win-win thinking to resolve the con-
tradictions with respect to staffing and
scheduling.
Current non-compete clauses in con-
tracts may have provisions that limit the
dynamic movement of staff with similar
competencies to other clients in the same
industry.
Additionally, client processes on cer-
tifying staff or creating the license for
any staff may be very laborious and time
consuming reducing the flexibility of
moving staff out and bringing them back
based on seasonality.
There are no easy answers to the above
challengesandBPOfirmswillhavetowork
closely with their clients to find solutions
that allow for multi-city, multi-client,
multi-skill engagements.