CHALLENGES FOR THE INDIAN BPO

Article by -  Niharika ,
Faculty Member ,
ICMR Case Studies and Management Resources

Abstract

Experts point out that continued high growth in an industry can be an issue because it strains systems and governance processes that need time to mature and to be institutionalized. Indian BPO industry is currently facing the challenges arising out of its stupendous growth. Can it successfully tackle these problems and emerge a winner?

The IT enabled services (ITES)[1] and Business Process Outsourcing (BPO)[2] constitute the fastest growing industry in India. BPO industry is considered to be a part of the ITES industry. The Indian ITES sector is expected to generate nearly 2 mn jobs in the country in the next few years. The revenues from this industry, which stood at $1.4 bn in 2002 are expected to rise sharply to $24 bn by 2008 according to a Nasscom-McKinsey report.

This is also being taken care of by government initiatives like the corporate tax exemption to all ITES companies till 2010. Apart from these, the fact that India has 53 of the 83 SEI CMM Level 5 companies[3] and that companies outsourcing to India have experienced cost savings in the range of 30% in the first year itself, have added to the attractiveness of India as 'the' destination for outsourcing. Given the strengths of India, it is no wonder that it is the first choice of nearly 82 % companies in the US for outsourcing.

The scenario however, is not as rosy as it looks, for this sector with enormous potential. Like any other industry during its growth phase, this industry is also going through its share of turbulence. The fact that the growth has been very sharp has added to its problems. However, all these ups and downs would help the industry in stabilizing and maturing. At least that's what experts and past experiences say.

The challenges of growth....

The major challenges being faced by the ITES or BPO industry in India can be classified into internal and external challenges. The internal challenges include shortage of competent managers for the middle and senior management and the high attrition rates. The external challenge is in the form of opposition from the US politicians and the UK labor unions against shifting of the BPO operations by local companies to India. The threat of real competition from other players like Philippines also exists, but doesn't seem to need our immediate attention. Let us look at some of these issues.

A speaker at the ITES-BPO Track at Nasscom 2003 commented that it is not ITES, but HRES. That succinctly explains the importance and value attached to the 'people' aspect in this service industry. The fact that this industry is still in its nascent stage in India has led to the dearth of experienced middle management level team leaders and senior managers. Nasscom President Kiran Karnik agrees that shortage of middle and senior level managers is in fact a critical issue. Entry-level recruitment and employment has not been a problem with so many fresh graduates with good language skills, available readily in the job market.

The problem is more intense for the third-party outsourcing companies which have just ventured into this business. They cannot even invest in training, given their financial and other constraints. Captive BPOs like GE and American Express, which are established players in the business, have no such problems. They in fact invest substantially in training their managers. However, they have been facing a problem of a different kind. Their middle and senior level managers are being poached by the new entrants to the industry. Reports say that large and established players face an attrition rate of 45% against the industry average of 35%. Everyone agrees that hiring from competition is a cyclical process and will not help the industry grow, but with very few options available, they resort to the easiest solution - poaching.

That brings us to the next issue - high attrition rates. Attrition means not only loss of talent, but also includes the cost of training the new recruits. The attrition rate in the industry has been hovering around 35%, which is quite high for any industry. An average Indian call center employee works with a company for 11 months, where as an average UK call center employee stays in a company for 3 years. It is expected that the attrition rates would come down once the growth stabilizes. Steep growth is one of the reasons for the high attrition rates, according to many in the industry.

According to a survey by People-One Consulting, an employee's leaving the organization happens typically in the first couple of weeks of joining. The reasons are many -- high stress levels, monotonous nature of the job, demand-supply disparity and lack of career growth potential on the professional front; loss of identity, mismatch with normal cycle, complete change of life style and lack of comfort on the personal front. Add to this, the 'poaching' strategy being adopted by the players in the industry. What else can we expect, but an attrition rate of 35%?

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[1]The ITES sector includes call (contact) centers, legal database (transaction) processing, technical helpdesks and telesales.

[2]The BPO sector includes HR administration, accounting services and other back-office tasks and is a constituent of the ITES sector.

[3] SEI CMM is the Capability Maturity Model of Software Engineering Institute, USA. It is a standard of excellence to measure and certify different practices of engineering, technology and management. The Levels of excellence range from Level 1 to Level 5, with Level 5 being the highest level.