New wave outsourcing blends tech with BPO

Outsourcing is a broad word we use to describe work given by companies usually in the West to other companies, usually in offshore locations like India, writes N Madhavan.

Outsourcing is a broad word we use to describe work given by companies usually in the West to other companies, usually in offshore locations like India. The popular view is that it is because this is cheaper — which is true. But there is much more to the business than low-wage Indians competing against high-wage Americans.

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In 2001, when I landed in Bangalore, I found myself in the middle of a meltdown triggered by the Internet bubble that led to both Web and telecom companies cutting down outsourcing work to India. This led to Infosys Chairman Narayana Murthy’s famous “fog in the windshield” statement in April that predicted uncertainties ahead — which worsened after the 9/11 attacks in New York.

However, a year later, information technology outsourcing was backed up by business process outsourcing (BPO) — in call centres, accounting and other routine processes. Companies like Infosys and Wipro which thought they were specialising only in IT, went into BPO work, and used a common sales team to drive technology plus BPO deals. But then, this was again a case of cheaper labour — but for non-tech work.

Now, after the global financial meltdown this year, the biggest IT-BPO clients in the financial industry are going bust, and will spend less — or, as a result of mergers or acquisitions, two clients will become a single one, reducing demand for Indian IT.

What next, then?

Last week, I got a call from California from Phaneesh Murthy, chief executive of iGate Global, which gave me a plausible outlook. This “other Murthy” was the man who headed Infosys’s global sales and started up Progeon, which eventually became Infosys BPO, and is at the core of the business. He emphasised on something which I knew has been happening in companies like iGate, Genpact and 24/7customer.com.

Sometime ago, S Nagarajan, the chief people officer at 24/7customer had told me about how his humble call centre company had made technology innovations to help work turn more efficient. Murthy spoke of how service companies can combine IT with BPO at the back-end to come up with innovations and restructuring that can help ailing companies turn a new leaf. He calls this “transformational outsourcing” involving strong analytical thinking.

I do believe that both these guys know what they are talking about. The next wave of outsourcing could see technology hiding behind BPO, and adding some management consulting to make it all work. That’s smart work, not just hard work — with potentially strong demand and profit margins.