There is an increased interest in platform BPOs with the clients demanding more from the vendors. Clients are looking for more value additions from outsourcing contracts. Platform BPOs help since they offer economies of scale and process standardization. Apart from this, the vendor runs, maintains and takes care of up gradations freeing the client's resources.Since the model requires a blend of IT, BPO, analytics and domain knowledge, companies such as TCS, Wipro and Infosys will have an advantage owing to the in-house development capability and expertise in service delivery. This is not to discount the fact that other prominent BPO companies like Mphasis and Perot Systems have made acquisitions to capture this market.

Platform BPOs are also becoming important in the context of integration. The BPO subsidiaries of most large IT companies that were separate entities until a few years ago are now being integrated with the parent company to leverage the opportunity presented in the integrated IT+BPO space'. For instance, Satyam integrated its BPO subsidiary Nipuna with itself last year and renamed it as Satyam BPO. Infosys also integrated its BPO, Progeon, now Infosys BPO, in 2006.

This is to cash in the increasing trend of integrated deals. The clients are moving from the standard deals towards transferring ownership of processes. They prefer to purchase services from one service provider instead of going to different vendors for different services. For instance, TCS signed a ten-year $1.2 bn deal with Nielson Company last year. According to the agreement, TCS will deliver outsourced finance, accounting and HR services on proprietary platforms built by the company. Infosys is also believed to have won few integrated deals last year.

The current business cycle and liquidity crunch is forcing companies to bring a razor-sharp focus on costs, with capital reduction high on the CFO's agenda Anantha Radhakrishnan, VP and head, business platforms, Infosys BPO

“A key ingredient of the `integrated' offering will be the creation of platforms, especially for back office and transaction processing services. Platform-based BPO will allow vendors to de-linearize growth through large-scale productivity payoffs and pay-per-use revenue models, besides building their own IP,” says a research report of ValueNotes.

“While new platform development is already among strategic plans of most major software companies, acquisitions of companies with proprietary platforms are also picking up. Though acquisitions cannot eliminate minimum investments in capabilities for customization and backward integration, it can be an option for companies that do not want to build their own platforms from scratch,” the report further adds.

Platforms allow the companies to address a much bigger market. Mostly, platform BPOs works well for smaller and medium-sized companies who might not have resources for having their own platforms.

“The main advantage is that platform BPO appeals to the mid-sized and small companies and this market is much bigger that Fortune 100. Quatrro was one of the pioneers in this segment and today we have customers on platform. There is no other way for the industry but to accept platforms,” says chairman and managing director of Quatrro, Raman Roy.

...And the Bad
However, the model is not without its flaws. Earlier the model was not very popular mainly because of the security concerns since the same platform is used to service different clients. The platform-based model calls for customers to look at the BPO provider as a trusted partner who will manage critical functions and handle confidential and sensitive information for them. It is in effect, an important phase in the evolution of the BPO industry from being just the back-office to being a trusted partner in the scheme of things of the outsourcing industry.

As platform BPO requires significant expertise in the provision of BPO services in tier II locations are slightly behind the curve in delivering platform BPO,” says principal analyst-IT services of Orum, Juns Butler. Platform BPO is not a 'one-size-fits-all' solution. This solution works well for customers who are willing and able to move to a standard process globally, and usually involve a significant change management effort. Service providers and customers together need to also address the challenge of sunk cost in existing technology investment owned by customers. This model also calls for customers to look at the BPO provider as a trusted partner who will manage critical functions and handle confidential and sensitive information for them.

“Platform BPO requires high upfront investment in fixed costs and relatively low variable costs. This is the reverse of the traditional Indian BPO model. This represents a totally different risk: reward equation for the industry. It is important to remember that this is not a marginal, incremental activity as many Indian firms seem to suggest,” says Akshaya Bhargava, chief executive officer of Butterfield Fulcrum Group.

“Since this is a new service delivery model, concerns exist that this is not yet a proven model and customers do not want to be the first ones to try this out. Additionally, this calls for a cross-functional decision process cutting across business functions and IT within the customer organization and needs a holistic mindset from customers, says Radhakrishnan.

Basically, platform BPO shifts focus from transactional BPO to transformational BPO and the BPO industry is at an inflection point where we will increasingly see adoption of this innovative service delivery model over the coming years.

Platform BPO is the exact reverse of the traditional outsourcing model. It requires high upfront investment in fixed costs with low variable costs. Basically, this means that until the business gets to scale, margins remain negative. This is one of the prime reason that only the big companies who have appetite to make this kind of investment will be able to cash on this trend and smaller companies will be left out.

“In my view, there is no major Indian BPO that qualifies for the term. There are some domestic players who have built fantastic businesses that are true platform BPOs. I am deeply skeptical if major Indian BPOs have the bandwidth, focus and the management model to build this capability. Hence in the next two-to-three years, I see genuine platform BPO remaining the preserve of small/medium, specialized companies,” says Akshaya Bhargava, of Butterfield Fulcrum Group. The company is amongst the top independent alternative asset funds administration companies in the world.

Another limiting factor is that a full-solution capability is a pre-condition to platform BPO. The technology has to be packaged with operations to deliver a complete solution-so much so that the underlying technology becomes irrelevant. Again, very few BPOs in the country have this kind of ability.

“More and more customers are going in for platform BPO though they do need some push initially. Most of them start with some process initially and then transfer other processes as well,” says CTO of Genpact, SV Ramana.

The platform-based BPO will not appeal to the big companies, who can and do have their own platforms for various processes. This is not the case for smaller and mid-sized companies who would like to reduce the operational cost by as much as possible.

Going forward, more and more BPO firms are likely to adopt platform BPOs to offer integrated and value-added services to the clients and at the same time shifting them from capex to opex model.

Gagandeep Kaur
gagandeepk@cybermedia.co.in