The business-process outsourcing (BPO) sector has grown by spectacular levels, providing employment to more than 200,000 BPO professionals. Projected to grow at an average of 38 percent until 2010, it will contribute more than $12 billion in revenue.

Similar to Indias experience, growth in the Philippine BPO sector has been driven by relatively lower labor costs. This was the salient characteristic of the first phase of global BPO development in the 90s through the early 2000s, where clients and providers placed emphasis on cost, efficiency and productivity. As customers in the US and Europe searched for ways to bring down cost further, they turned to low-cost providers in India, the Philippines and others to perform customer-care, HR and accounting BPO services.

As established BPO providers are besieged by new entrants from China, Latin America and other relatively lower-cost countries, new sources of service differentiation became crucial to getting and maintaining more customers. This was when the second phase of BPO development, characterized by focus on quality, took place starting in the early 2000s.

To survive in the long term, local BPO players have adopted quality standards and practices like Six Sigma, Total Quality Management, ISO 9000 and Capability Maturity Model or a combination of these quality programs.

However, these cost and quality advantages are fast eroding as BPO services become commoditized and as the sector reaches maturity. In fact, the global BPO sector is likely to see only a modest 2-percent growth in 2007 after a hefty annual growth of 14 percent in the last five years, per the Technology Partners International, a sourcing advisory firm.

Consequently, it is now imperative for BPO providers to set the stage for the third phase of BPO development, which focuses on innovation. In a 2005 IDC survey among BPO clients in the US, 35 percent of the respondents indicated their need for BPO providers to drive innovation.

A 2005 McKinsey Study makes a strong case for innovation by suggesting that by 2010 the Indian IT-BPO sector can generate an additional $10-billion to $15-billion revenues over its $60-billion export target with innovation as chief growth catalyst.

In India, the National Association of Software and Service Companies (Nasscom) established the Nasscom Innovation Forum to build on innovation as the key differentiator for the Indian IT and BPO industry. In 2004 it instituted the Nasscom Innovation Awards to recognize Indian IT and BPO companies who have instilled innovation as business-platform new ideas, products, processes or technologies.

BPO innovation may come from three fronts: business model innovation to change the structure and/or financial model of the business; services/markets innovation to create new or significantly differentiated services or go-to markets; and operations innovation to improve the effectiveness and efficiency of business processes.

One Indian BPO that bagged the Innovation award for business model innovation is Kale Consultants, which created a platform-based BPO business model for the travel and transportation industry.

Explaining the difference between a BPO and a platform-based BPO, Mr. Vipul Jain, CEO and managing director of Kale Consultants, said that in the former, the customer has the infrastructure and process manual in place where payment is settled on an hourly basis.

In a platform-based BPO model, we run the customers revenue accounting system on our platform in our premises with the data shared by the customer. We actually transform the customers software to run the process on our platform, said Mr. Jain.

Another Innovation awardee is Evalueserve, the global research and analytics firm recognized for its business intelligence services, customized reports and value-added research for clients in different industry verticals. Evalueserve is a pioneer in services innovation and has created the new business segment called KPO (knowledge-process outsourcing). The company is one of the first KPO providers of research and analytics services from India serving the global market. It has been successful in differentiating itself from the traditional offshoring models.

An Innovation award finalist in the area of operations innovation is Genpact, an Indian global BPO player based in India with 19,000 employees, which developed a model to curb BPO employee attrition. This eventually helped the company reduce its direct cost by 12 percent amounting to about $3.3 million, thereby improving operational efficiency.

The list of innovative Indian BPO companies is a testament to the focus of their BPO sector on innovation as a differentiator. Our local BPO players can, likewise, take the innovation route to differentiate their services and compete against the emerging low-cost countries.

Local BPO players can incorporate innovation initiatives in the strategic planning process providing focus in this area. At the same time, government and industry bodies can emulate the Nasscom Innovation Forum and Innovation Awards to promote and recognize innovation in the BPO sector to sustain future growth. A culture of innovation promoted by management and creative and innovative ideas should be rewarded.

Source: BusinessMirror