Publication: India Daily
Big IT Is
Making The Call
Richard Mills, Chairman
From his overseas perch in the Philippines, Richard Mills of executive
search firm Chalre Associates examines the trend of IT service providers
buying up call center capacity.
year IBM announced that it was purchasing the large India-based call center
named Daksh. The acquisition was interesting for two reasons. First, IBM
previously had no significant call center capacity and with this one
purchase has become a major player in the booming offshore industry. Second,
the price IBM paid was considered by most people to be irrationally
exuberant. According to investment banking firm Avendus, the price was
roughly 15 times last year's earnings (or three times annual revenues).
Clearly, IBM felt that owning (rather than just leasing) call center
capacity was an absolute necessity for its long-term business strategy.
Telus International is another global IT solutions provider with a desire to
own call center capacity. Last month, the company acquired controlling
interest of the 3000-person operation of Ambergris Solutions in Philippines.
The overall deal was worth $43.5M and, to date, it was the second largest in
Philippine outsourcing. Jim Evans, who played the key local role in
coordinating the deal, says his company desired a “strategic investment”
in the outsourcing industry in Asia.
Traveling in the opposite direction, the large call centers are moving into
the IT services business, although in a somewhat less grandiose manner.
Sykes is a worldwide contact center organization with many service lines
including managing tech support for clients like Microsoft and Intel. It has
done such good IT support work that it has moved into full-blown IT
outsourcing. In the Philippines, Sykes is hiring software developers to do
software programming work for its blue-chip clients.
Convergys, another large contact center organization, has hired ICT
heavyweights to oversee the company's Information Management Group. Its
objective is to focus on developing the company's "higher-value service
offerings" in the IT and business process outsourcing (BPO) spheres.
Meeting in the Middle
Another area of budding togetherness for IT and contact center services, BPO
is considered the mother mlode of outsourcing because it encompasses
everything that can be imagined as being outsourced. It is a very big field.
A quick look at the Accenture Web site makes that company’s direction
clear. It now provides 18 categories of services. Some of the new BPO
subsidiaries that have been incorporated over just the
past few years are Accenture Finance Solutions, Accenture HR Services,
Accenture Learning, Accenture Procurement Solutions, Accenture Business
Services for Utilities, Accenture eDemocracy Services and Navitaire -- a
bewildering number of extensions to
the core Accenture brand.
IBM's approach is to keep all BPO work under a single company umbrella, but
its BPO focus in the booming Asia-Pacific region is obvious by its hiring
practices. As one example, full-page employment advertisements in the
Philippines are being used to hire boatloads of people required for IBM’s
outsourcing operations. The advertisements emphasize the need for
"previous experience in the areas of customer care, human resources,
employee and payroll services."
for IT skills are stated farther down on the page, giving the appearance of
being an afterthought.
On the call center side, Convergys is promoting services like billing and
employee care (payroll, benefits and other human resource services). Sykes
says it delivers "total solutions" to "complement" its
CRM services. The large call center StarTek is probably the most bold. It
comes right out and calls itself a BPO company.
So what is going on? Why does everyone want to be in each other's
There seem to be two main reasons these companies are broadening their
product lines into areas that are clearly outside their core expertise. The
first has to do with customer requirements. Large blue-chip clients no
longer want to buy bits and pieces of service offerings from a jumble of
separate suppliers. It’s just too complicated and expensive to manage it
all. They want to buy a broad range of outsourcing services from a few
suppliers (or even just one).
This trend has been happening in the IT sector for some time now. According
to Gartner Inc. and most of the major analysts, large outsourcing deals have
been the "main engine of growth" over the past couple of years,
and this trend is expected to continue. Escaping commodization is another
reason companies are expanding to new frontiers.
most successful IT companies have become so large and their project
management procedures so reliable that, to a large and sophisticated client,
their service offerings can be difficult to distinguish from those of
competitors. In other words, they have become commodity providers - - not
that much different from farmers selling pork bellies. This situation has
been apparent in the call center industry for some time. The IT companies,
on the other hand, aren’t used to thinking of themselves in such a manner
and probably don''t like it very much. But what unique selling feature could
there possibly be among high-quality companies like Accenture, EDS, HP, CSC
or IBM, other than price?
In order to escape this dead end, everyone wants to move aggressively into
new businesses. BPO seems exciting because it’s new to everybody and
industry standards for service levels and pricing are not yet well
developed. As a result, the sales process is more consultative in nature
(rather than just a discussion of price) and there is much more value to
add. In such an environment, the opportunities for higher margins are
greatly enhanced -- as any salesman would appreciate.
Where Will It All Lead?
is very evident that both the large contact center companies and the IT
services organizations will continue to expand their product lines into BPO
and each other's businesses. However, it’s the IT companies and not the
call centers that sign the big
outsourcing deals -- anyone who reads the business journals knows this.
Announcements for multi million dollar outsourcing contracts are becoming
biweekly occurrence for the IT professional services companies.
As well, my information indicates that throughout the fast-growing
Asia-Pacific region, it is almost always the IT companies that are looking
to acquire call center capacity (i.e., buy call center companies) and seldom
the other way around. If the past is an indicator of the future, then a lot
of people from the call center industry might soon be calling themselves
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