I normally don’t write about BPOs, but there is something really interesting happening in that sector. Today’s Economic Times has a story about how BPOs in India are shedding their plain vanilla pricing in favor of performance/transaction pricing. In fact this is not it. From what I know there is lots more cooking on that front.
Look at e4e’s iLAM (Integrated Loan Acquisition and Management). Essentially they are telling the mortgage lender to just give them the application data and they will process it using their software, their facility, their business processes, their people and will deliver the output as per a pre-agreed SLA. As a mark of confidence in their ability to do this well and cost effectively, they will offer transaction based pricing.
e4e is not alone in offering something like this. Kale offers a similar service, REVERA, for airline passenger revenue accounting. Their pitch is that airlines can focus on flying its planes and finding the passengers and leave all revenue accounting to Kale.
These kind of platform based BPO offerings are mushrooming. Some are going further. WNS has a platform based airline revenue recovery service, VERIFARE that, I am told, is sold on the basis of a percentage of the amounts recovered for its clients. Apparently there is a 3-5% revenue leakage due to faulty administration of fare rules that this service catches and recovers.
Rising Maturity
The real story, at least for me, is not just that these offerings are in place. What impresses me is the pace at which the Indian BPO industry has moved from a cost-arbitrage pitch to process productivity pitch to now a cost-avoidance positioning. Now it’s only a small step to get to revenue enhancement services. I can imagine some BPO firm soon offering a pricing analytics service based on, even off-the-shelf, predictive software that is paid for by the resulting margin improvements.
The speed of rising maturity is truly astounding when one compares this to how slowly things have changed in the outsourced product development (OPD) sector. While there is much growth predicted to happen ($2.2b today to about $8b in 2010) this looks to be mostly more-of-the-same.
Why is it that the BPO sector is maturing a lot quicker than the OPD sector? I think there are three factors at work. Firstly, KPO serves as a north star for BPOs and both types of firms are racing ahead to fill the white-space in the middle. Secondly, the whole battle of captives versus non-captives has already played itself out in the BPO space leaving the executives to focus on going deeper into its customers. In OPD space the captive versus non-captive battle is consuming a lot of energy right now. Finally, and more controversially, the geeky background of the OPD firm executives is a liability. They are good at product development but not at business strategy. I am cringing because I can already hear some brickbats from my OPD friends coming my way. But really, let me know what you think.
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