Publication: Outsourcing Pipeline
Richard Mills, Chairman
months ago, IBM announced it was purchasing a 9,000-person call center named
Daksh with operations in India and Philippines. The acquisition is
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
exorbitant. 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 their long-term business strategy.
Earlier in the year, Accenture,
another large IT company, hired a senior call center executive from contact
center company, ICT Group. I spoke to the individual about his new job and
he said he was hired to be "responsible for the world's single largest
call center offshore initiative" involving 6,000 call center seats.
Apparently, Accenture is moving into the call center business in a big way
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. They have done such good IT support work that
they have moved into full-blown IT consulting for many clients. In the
Philippines, Sykes is hiring software developers by the hundreds to do
software programming work for their blue-chip clients.
Convergys has hired ICT
heavyweights to oversee the company's Information Management Group (IMG).
Their 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
Business Process Outsourcing is
another area of budding similarity for CRM and IT. BPO is considered the
great frontier and the mother lode of outsourcing because it encompasses
everything that can be imagined as possibly being outsourced. It is a
very big field.
A quick look at the Accenture
Web site and this direction is clear. There are now 18 categories of
services they provide. Some of the new BPO subsidiaries that have been
incorporated just over the past few years include: Accenture Finance
Solutions, Accenture HR Services, Accenture Learning, Accenture Procurement
Solutions, Accenture Business Services for Utilities, Accenture eDemocracy
Services, Navitaire - a bewildering array of extensions to their core
IBM's approach is to keep all
BPO work under the same company name but their BPO focus in the booming Asia
Pacific region is obvious by their hiring practices. As one example, recent
full-page employment advertisements in the Philippines are used to hire
large numbers of people required for their IBM outsourcing operations. The
advertisements emphasize, "Previous experience in the areas of customer
care, human resources, employee and payroll services…" Their
requirements for IT skills were stated further down on the advertisement and
gave the appearance of being almost an after-thought.
On the call center side,
Convergys is promoting services like Billing and Employee Care (payroll,
benefits and other HR services). Sykes says it delivers "total
solutions" to "complement" its CRM services. StarTek is
probably the most bold. They go right out and call themselves a
"Business Process Outsourcing" company.
So what is going on? Why do
these companies want to be in each other's businesses? There seems to be two
main reasons the CRM and IT 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 is
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
This trend has been happening in
the IT sector for some time now. According to Gartner Group and other major
analysts, large outsourcing deals have been the main engine of growth and
will continue to be so for this sector.
Escaping commoditization is
another reason companies are expanding out to new frontiers. The most
successful CRM and IT companies have become so large and their project
management procedures so reliable that, to a large sophisticated client,
their service offerings can be difficult to distinguish from those of
competitors. In other words, they have become commodity providers. This
situation has been apparent in the call center industry for the pat few
years. The IT companies, on the other hand, are not 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 or IBM, other than price?
In order to escape the dead-end
of cost competition, everyone wants to move aggressively into new
businesses. What is so great about BPO is that it is so new and industry
standards for service levels and pricing are still being developed. Clients
less experienced and processes not as well defined. As a result, the sales
process is more consultative in nature (rather 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
Where will it all lead? It is
very evident that both the large contact center companies and the IT
Services organizations are expanding their product lines into BPO and each
other's businesses. However, it is the IT companies that sign the largest
deals. Announcements for billion dollar outsourcing contracts are becoming
almost a bi-weekly occurrence.
Also, 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 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 be calling themselves geeks
over the next few years.
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