Blue Ocean BPO? – Achieving BOS Readiness

The IT Enabled Services or BPO industry as it stands is definitely a Red Ocean, almost as red as it can get and probably ranks just short of the soap and detergent market. The reason I bring in the analogy of the soap and detergent is because it is quite comparable in terms of competitive dynamics except that the outputs are very vastly different.

Where we are today in the BPO competitive landscape is very comparable to the current state of the detergent market with a few thousand generic players and almost an equal number of specialist players competing for pieces of a rather limited size pie. The limitation of the pie size is not so much a function of the actual outsourcing ready work as it is a function of the limited boundaries that have been set by the providers themselves. Here are some of the limiting factors that the BPO industry suffers from.

• We are not a technology company – Although some of the larger competitors are children of technology behemoths, the functional perspective of the BPO providers remain one of services and this means that leveraging technology is more the framework than putting technology at the core
• We work on low hanging fruits – This to my mind is the worst of the evils where the focus remains on targeting the ‘low hanging fruits’ that are low risk and low exposure. This attitude continues to drive all the strategies of the BPO providers including the kind of people hired, the compensation framework, financial and risk models, strategy and even sales & marketing
• Offshore cost arbitrage is our core proposition for creating business value – Most of the BPOs tend to design their lives around the core theory that their business is based on the arbitrage gained from low cost geography based operational delivery. This was where BPO as an industry started but we have come away a significant distance from it in so much that India and Philippines do not remain low cost anymore. And no matter what new location like Egypt or Mexico we discover, the cost arbitrage will disappear very soon – to this history has been proof.
• We are in the business of process – The way BPO deals work is by inserting a framework that only focuses on the process perspective viz. process maps, process metrics, process improvement, process transformation and so on. This incessant focus on process takes the larger picture and makes it just the sum of its parts. This tendency is driven from the legacy breakdown of organizations by IT teams into IT and Business. The ‘B’ in BPO is almost forgotten when it does come down to actual solutions and executions.

In our minds when we think of BPO the first associations are ones that lead from either of these four perceptions that we have defined for ourselves and then we have pretty much made sure that that is what our customers think of us. It is very chicken and egg to wonder which got corrupted first but corrupted they are nevertheless.

This very ‘low entry barrier’ definition of BPO is what has resulted in an almost crimson ocean of competition in the industry. And the way that we have therefore built organizations around these perceptions make it very difficult to discover blue oceans and actually execute them at a tactical level with the strategic architecture remaining stagnant in feel and philosophy.

The ability to discover blue oceans and execute strategies around them, within the BPO industry, requires a complete overhaul of business and market positioning starting with scrapping the BPO tag and all the ‘low end’ associations have burden it.

Blue Ocean Strategy Readiness

Blue Ocean is but one nomenclature, that has caught the fancy of many, that describes a much repeated and often overlooked principle of marketing and strategy – ‘meeting needs profitably’. In other words, what customer need can be addressed profitably or for what return or gain is the customer willing to pay a certain dollar value for.

Before we can commence on identifying Blue Oceans for growth and expansion, we need to achieve what I choose to refer to as Blue Ocean Readiness – with a set of questions that must have executed vision before we can commence Blue Ocean strategizing and discovery. These generally are aimed at breaking down the architecture that defines the boundaries of perception around the BPO industry.

1. Are we  willing to independently INVEST in technology and capabilities, proprietary or through alliances as a core element of our value proposition?
2. Are we willing to raise the bar through INVESTment in acquiring or training to create Business, Domain and Technology expertise?
3. Are we willing to INVEST in the risk of doing something new?
4. Can we attribute more than 75% of our value proposition (in dollar terms) to contributors other than cost arbitrage?

I have mentioned INVEST is upper case and this special denomination is to ensure the stress on the need to make due investments with a long term perspective. I will demonstrate the difference between investment and what is commonly done with an example of a failure.

One of the pursuits I was involved in surrounded providing technical support services to a Canadian client – this required providing services to the Canadian French speaking population. There were two proposals that made it to the final rounds before selection.

One, from provider A (for the purpose of this discussion), included a proposal that vaguely indicated an offshore delivery location from Europe for French as one option. As a second option Provider A proposed to create infrastructure and loaded the entire cost of that onto the people cost to the client.

Provider B proposed a concrete plan to sub-contract or acquire a capabilities in Canada, investing in this capability that from a long term view of business was essential to be able to break into the Canadian market for outsourcing. Needless to say Provider B won the proposal on two counts.

1. Their understanding that Canadian French was unique and could not be fulfilled from Europe and that it was important to INVEST in this capability to provide services in Canada
2. They did not load the cost of this investment onto the one deal (whereby the whole point of an investment is defeated)but treated it as an investment in business that could then be leveraged over a long term
3. Provider B invested in the risk of a sub-contract/ acquisition to penetrate the Canadian market

Provider B had opened up a gateway to a blue ocean discovery process in the erstwhile virgin market in Canada.  

Let’s put this example in the perspective of the four questions above, which I believe burns down to the following framework.

ACHIEVING BLUE OCEAN READINESS 

Investment in Risk of Pioneering – Some researches conclude that market pioneers experience a higher survival risk than later entrants. Olleros (1986) cites examples of unsuccessful pioneers of new technologies and observes, “again and again we see industries emerge over the dead bodies of their early pioneers” (p. 8). Lambkin and Day (1989) and Tellis and Golder (1996) predict higher failure rates for market pioneers. Lilien and Yoon (1990) and Golder and Tellis (1993) provide supporting empirical evidence. Golder and Tellis (1993), for example, report a lifetime market pioneer survival rate of only 53%.

There is an argument that the Blue Ocean strategy is about risk minimization and this is specifically true in incremental changes view of a BOS. In reality, this view of a blue ocean is really about discovering a blue ocean and opening the gates between the blue and the red. The ocean over a medium term will be a lesser shade of red but it will be red all the same. If we are to undertake a true pursuit of new offerings or services that have been undiscovered till now, we must definitely be inclined in investing in the risk of it failing by creation of contingency plans and fallout scenarios.

Provider B in the example above took a significant risk of acquisition based on the outlook that there was a potent market in Canada and invested in this risk. Fortunately for Provider B the market did turn out to be fairly lucrative and all went pretty well. In the odd chance that the BPO market in Canada would not flare up Provider B had one of many choices.

• Use the Canadian facility to outsource from other French speaking regions in the world (Canada is comparatively lower cost that most of Europe)
• Leverage the facilities as a near-shore option to the US of A
• Sell the facilities and the acquired entity and then lease it back or sub-contract to this entity

While Provider A mulled over the complex balances of its risk modeling, its competitor moved fast and captured the market and a potentially large client.

Bottom Line – As an organization Provider A lost the opportunity to make headway into a very blue and calm ocean because of its lack of inclination to invest in the risk of the venture.

Investment in Technology & Capabilities – To achieve true readiness for entering the BOS realms, I believe that there should be a framework in place to assess and discover arenas of investment in technology and capabilities as core of the solution proposition – and more importantly the purpose of this framework should be one of enabling the investment and not a framework that creates deliberate impedance towards making the said investment.

Some of the largest companies operating in the BPO space have built frameworks around technology and capability investments that are extremely reactive and only tend to kick in once we get to responding to the RFx. And the end game, more often than not, is defined as a strategy to implement the technology or acquire the capabilities for specific business opportunities without the inclination to undertake the risk of the same ever being leveraged again, and hence, inevitably, the entire cost of the acquisition or technology is loaded on to the specific opportunity making the proposition uncompetitive.

The very nature of technology and service expertise & capabilities is such that the investments must have a generic and long term perspective. Given the present day global reach of business and pervasiveness of technology, most industries within a given sector are pretty much doing the same thing, at a generic level. A very good example is that of low cost application consolidation. Most old companies that are burdened with excessive legacy systems built into their technology infrastructure and the inclination across industries is to be able to simplify this for the end customer. This environment has given rise to the very commonly sold unified desktop. There can be two approaches to the entire strategy around this product, viz. low risk investment and comparatively high risk investment.

• Low Risk Investment: Create a shell and position this as customizable thereby every specific business opportunity involves a full fledged discovery, customization and business case development exercise.
• High Risk Investment: Create a shell and ensure that it is tested and studies within at least 60 – 75% of system environments.

Most service providers serving a specific industry are well aware of what systems and applications are used in that industry and there is merit in the investment to test the shell for compatibility and a business case framework readied to be applied on demand to a compelling proposition. This requires the High Risk Investment route that requires an upfront investment and a plan for generating an RoI over a period of time and a series of clients. 

Investment in Expertise – The third and key investment that is crucial for the success of any Blue Ocean Strategy is that of development or acquisition of expertise in the form of knowledge capital. This can be achieved through two avenues

• Education & Learning: Investment is necessary in building an infrastructure and framework for ongoing education and learning of resources to develop and sustain intellectual capital. Most large companies in this sector invest in very basic ongoing training that is designed for immediate business requirements. Investing in Education and Learning must be above and beyond the immediate scope and expand into borders of the bigger picture.
• Recruitment: Very often in the effort to ensure a low cost, most Indian and other Asian BPOs recruit fresh resources off the road and campuses with the intent of imparting training through a pre-defined curriculum. Although this approach is understandable in the traditional BPO service offerings where the domain knowledge and skills are fairly standardized and based on the nature of transactions rather than the nature of business. In achieving BOS Readiness however, we need to invest in people with industry experience and niche skills that will allow a jump start in defining the service sphere. This is critical since the very nature of the market we are operating in requires a change and influx in thought and ideas to be able to make any meaningful progress into a Blue Ocean even if this comes at a premium to the standard recruit.

BOS – Contribution Beyond Cost Arbitrage

The three steps elaborated above creates a readiness that allows a BPO service provider to begin exploring the realm of Blue Oceans for services. The BPO market and service sphere is positioned as an avenue that chiefly achieves cost arbitrage and the  key contributor to this positioning is the  low entry barriers. The result is the ability to easily replicate services and solutions at a lower price or a lower margin by almost anyone who is willing to take the hit. The low cost is not maintained through ingenious business models but mostly as a strategy to move away from premium to high volume low margin deals.

This marked positioning mixed with a lot of politics and wrong messaging by the Media in the developed countries has made ‘BPO’ an overpowering brand in itself signifying low cost operations from an offshore location. Although there has been some progress in making this positioning change, such advances are mostly the fruit the buyer than the service provider. The search for the Blue Ocean therefore must begin with the quest of contribution beyond labor arbitrage by leveraging the investments  towards Blue Ocean Strategy Readiness.

To Be Continued…