EZI082 Winning BPO Leadership Final

Winning the BPO Leadership Challenge

Economic uncertainty, increased competition, and the erosion of labor arbitrage are dramatically changing the game for Business Process Outsourcing providers. To continue to grow profitably, providers must find ways to deliver higher-value services to their clients, to move up the client’s value chain, and join the client in focusing on the end customer. Executing these ambitious strategies will require talented leaders with some highly specific — and hard-to-find — leadership competencies.

Amitabh Sharma Egon Zehnder International, New Delhi [email protected]

+91 124 46 38 000

Michel Deschapelles Egon Zehnder International, Miami [email protected]

+1 305 569 1000

By almost any measure, the Business Process Outsourcing (BPO) industry remains robust. What began in the IT, telecom and financial sectors has moved into sectors like pharma, government, utilities, manufacturing and more. BPO has also spread beyond the geographies of only a few high-cost markets to become a global phenomenon with large companies in Latin America, Africa and Asia now seeking its benefits. Since 2004 the global sourcing business has grown three-fold and is expected to continue growing.

Figure 1 Projected BPO Industry Growth

While the outlook for the industry is very robust, with continued investment and an increasing amount of work being transitioned to centers of excellence, the pressures of increased efficiency and cost reduction are increasing. A number of global majors have created large centers in low-cost countries, and the commoditized low-end BPO business is facing competition from ultra-discounted cost centers like Vietnam, Philippines and Chile, among others. This has put revenues, and therefore margins, under pressure.

The challenge for the BPO industry is to determine how to continue to grow profitably. Given that the labor arbitrage model of yesterday is no longer enough to build sustainable competitive advantage, BPO providers need to find new ways to grow by delivering higher-value services to their clients.

As the model for success continues to evolve, so does the requirement for truly effective leadership. The current stage of evolution is an exciting one, as the right kind of leadership continues to have significant impact on the direction the industry can take. In this paper, we discuss some of the ways the industry is re-gearing itself and what that means for leadership requirements.


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“…the labor arbitrage model of yesterday is no longer enough to build sustainable competitive advantage….”

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Source: BPO Watch News Desk



Emerging challenges

Excelling at Being a Low Cost ProviderAs with any industry, the BPO sector has begun to mature. With the proliferation of several large and small players it has become far more cost-competitive than in the early days of the industry. Further, more transparency in cost models has resulted in additional price pressure from clients. And that pressure has been increased by the growing phenomenon of erstwhile “captive” BPOs being sold and joining the ranks of 3rd-party providers.

As competition grows, it is becoming increasingly important to work smart and squeeze costs out of standardized processes. Therefore companies must strategically focus on establishing strong operational capabilities with continuously improving processes and systems.

This leads to the continued requirement for strong operational leaders who bring significant leadership in process excellence to the table. Industry leaders such as Genpact leverage their GE manufacturing processes heritage in this regard and other market-leading BPOs — both 3rd party and captive — have built strong practices and approaches in this context as well, whether inherited or developed as a competitive advantage.

“We are transferring and adapting the same manufacturing best-in-class principles, like Lean, Six Sigma, and Continuous Improvement to the Services sector to enhance our own operating excellence.” — Hartmut Liebel, President Jabil Global Services



Increasing Need for Domain ExpertiseTypically, for low-end process outsourcing (data entry, for example), the BPO provider does not need to deeply understand the business domain in which the client operates. However, in order to provide greater value-add, companies increasingly need sector-specific insights and understanding. This is especially true in contexts where judgment-based decisions must be made, as opposed to rule-based decisions.

As a result, providers need a deeper understanding of the customer’s core business, or at the very least, an in-depth understanding of the customer’s industry. As the level of accountability of BPOs towards their clients is increasing, the seniority of people expected to have that domain intimacy is also increasing. It is no longer enough to have someone on the team that can speak to process comfort. Instead, it is important that the client’s counterpart within the BPO be able to speak the customer’s language and engage on business issues.

Within the IT services world, this trend began a few years ago, with leading services providers recruiting senior leaders from the industries they wished to serve. A similar trend is emerging in the BPO sector today. From a process perspective, in fact, some BPOs are beginning to use their support of (and insight into) multiple clients in a given industry to develop best-in-class processes in the domain, a competence that is increasingly becoming a strong competitive differentiator.

The need to have domain expertise has also had a critical impact in the way BPO companies are organized internally. New verticals have been created within BPO companies that allow them to develop and retain critical domain expertise, which in turn allows for far more meaningful discussions and business engagements with clients.

“In the Analytics domain, for example, we are getting our people to work within the global organization, gaining insights into operational and customer requirements and uncovering opportunities for significant process improvements.” — Sandeep Dhar, CEO Tesco Hindustan Service Centre



Up the Value Chain — Becoming an Integral Part of the Client’s Business The initial focus of BPOs on the reduction of costs due to labor/process cost arbitrage typically yielded a majority of cost savings in one large step. Beyond that, incremental improvements in efficiency have led to incremental cost gains. While continuous improvement is important, BPO providers are extending their focus from being a “cost-saving solution” to becoming “problem-solving business partners” for their clients.

This shift in focus from cost-of-process to business outcome is changing the value propositions (and therefore the revenue prospects) of BPO providers. For example, enlightened companies are asking their BPO service providers to move away from “managing the cost of the accounts receivable process” to “lowering the cost of capital” — thereby directly impacting future revenue. This also necessitates a move from being an order-taker to becoming an integral part of the value chain.

Interestingly, this challenges the notion of having a customer — whether internal or external. At the end of the day, given the integral part of the operations that the BPO team provides, the BPO and the client are working together to address the needs of the same person — the end customer. This difficult change of mindset requires both the BPO provider and the client to change their approach to what has traditionally been a ‘client /supplier’ relationship. BPO companies must therefore develop the right measures to ensure greater accountability towards business outcome within their teams, and clients need to increasingly give authority and ownership to their offshore counterparts.

“One needs to think about a global delivery model that leverages Time & Knowledge across the entire value chain to increase capacity of the whole system. If done right, any changes are self funded and will improve EBITDA.” — Rohail Khan, Executive Managing Director, ACS, A Xerox Company

“Domain expertise is critical in scoping a BPO arrangement and delivering results beyond outsourced function cost savings. In addition, without domain expertise, a BPO provider risks adversely impacting their client’s business as well as their own.” — Chris Draper, Former Accenture BPO Partner



As Figure 2 shows, BPO leadership therefore needs to both evolve and elevate:

Evolve from being task masters to masters of the process or the domain. BPOs need to think of themselves not as being cost optimizers but as being business optimizers for their clients. This will help in thinking through both the kind of skills that are needed on the team as well as the kinds of knowledge that are needed to make a difference to the client.

Elevate from being a contractor to being a partner and a trusted advisor. BPOs should aim to set benchmarks in the domains in which they operate and to get the best talent in the horizontals they service so that they can engage with clients on critical business issues. This makes them a part of the competitive strength of the client — which is the only way for both parties to get value out of the relationship.

Critical Inflection Points

Basic contact/call center

— Email management— Inbound calls— HelpdeskData entryBack office processes

Finance & AccountingOutbound callsDocument management

Complex transaction processing

HR/Benefits outsourcing

Logistics outsourcingSoftware development

Investment researchEquity researchBiotech/Pharma research

Business researchCustomer analytical research

Risk modelingData miningTelecom servicesNetwork outsourcingLegal services

Reengineering servicesEnterprise application services

Program managementBusiness continuity managementBasic transactions/

services

Simple, standardized activities, basic skills required

Specialized services

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Advanced technical skill and some judgement required

Complex analytical & knowledge based services

Extensive judgement and analytical skill required

End-to-end business processes across value chain

Comprehensive set of multi-dimensional skills required

Figure 2 Moving Up the Client’s Value Chain



Leadership imperatives

The continuously evolving business model in what is still a nascent industry is both exciting and challenging for practitioners. Far-sighted leaders are recognizing the changes that their senior management teams now need to adopt and champion throughout their organizations. Some of these changes, like domain specialization, process excellence, and a deeper understanding of the end-customer’s mindset, can be taught. Others are more dependent on managers’ intrinsic capabilities like the commercial savvy to leverage organizational assets to address client problems, the ability to see opportunities where others see business problems, and the ability to take risks.

As these changes compel BPOs to develop empowered and strong business managers, leadership selection, development and retention become increasingly important. This evolution in the critical competencies required, and therefore the implications for the people strategy for the business, is becoming top-of-mind for business leaders in the industry.

“Our best performers are those that not only look out for challenges that clients recognize, but also for those that they may not yet see coming at them. The not-so-great performers are the risk-averse managers who focus on Business As Usual – while they should be focusing on Judgment, Risk Taking and Decisiveness, to deal with emerging competitive and economic challenges.” — Piyush Mehta , Global Head of HR at Genpact

Critical leadership competencies

What, then, should the enlightened leader of tomorrow’s BPO look like? In the past five years we have conducted more than 25,000 appraisals of VP, SVP, and C-level talent and their external benchmarks. These appraisals provide a wealth of insight into the critical leadership competencies required to succeed with transformative strategies. These competencies include:

Commercial Orientation BPO companies will need to bolster their traditional low-cost mindset with marketing sophistication and true customer insight. Without this perspective, even a strategically-minded leader can fall into the trap of thinking that the “process” confers competitive advantage. Genuine customer insight includes the ability to anticipate customer needs, to innovate in service and delivery models, and to provide a customer experience that is differentiated from the competition.

Strategic Orientation Customers want service level agreements and transparency. BPOs need the ability to develop multi-business platforms and strategies that move up the value chain to add value to outsourcing complex processes. Instead or remaining entrenched in the operational mindset, the winning providers will be externally-facing, agile, and able to seize strategic opportunities.

Change Leadership BPO leaders need the ability to understand and overcome barriers to adopting change — not just in their own organizations, but also in client organizations. Getting the organization and clients to adopt new ways of working can be difficult. The best players create joint teams that bring current in-house personnel along while integrating fresh perspectives into the modes of engagement between provider and client.

Team Leadership and People Development Talent is the ultimate game-changer. Providers must be able to create a strong and cohesive team, recruit and retain top talent, and develop high potential talent through stretch assignments and strategic succession planning.



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Collaboration and Influence The days of command and control management are over. A customer-facing organization, rich in talent and intent on moving up the learning curve rapidly, requires a culture of collaboration. Facing a whole new breed of competitors and new terms of competition, providers need the innovation that thrives in such cultures and today’s talent, for whom BPOs are vying, expect such a culture.

Results Orientation The focus on low-cost processes honed a “factory management” mindset in operational leaders. However, to up their game, leaders have to shift their focus to metrics that measure and motivate higher value-added services and an end-customer focused business. They should invest the time to understand and communicate what success and its underlying drivers look like and then put in place the processes and measures that will achieve it.

How to Compete and Win on Talent

BPOs can do three things to ensure that they have the right mix of competencies in a rapidly changing, increasingly competitive, insight-driven, and service-centered business:

Assess existing talent Whether the business needs a major overhaul in strategy or just a candid assessment of its ability to compete going forward, it will need a clear set of key competencies to execute successfully. The organization not only needs to under-stand that inventory of competencies but also to understand what level of competency, both in individuals and collectively, will be required. An objective appraisal of the company’s team on both dimensions reveals where the gaps lie, provides a develop-mental roadmap for the organization’s high-potentials, and depoliticizes evaluation and career progression. (See Figure 3)

Create a culture that attracts and retains talent With the competition for top talent more intense than ever, BPO companies must strive to create a culture that enables people to grow and to contribute to the company’s success. It’s not simply a matter of compensation, but of offering the kind of professional opportunities and challenges that talented and ambitious executives seek. That means a culture marked by diverse leadership freely exchanging ideas, a high-velocity learning environment, and an embrace of agile, creative, intuitive thinkers who are intensely customer-oriented.



“Visionary leaders in the industry understand that their mix and level of talent will be the single most important determinant of success.”

Continue to bring in talent from client industry segments As more BPO companies move toward new market segments, traditional players need to expand their talent to include knowledge of those segments such as retail, travel and leisure, and other service industries. They need talent who can develop deeper domain and functional expertise in, for example, supply chain, hospital management, and more. They must find people who can expand geographic strategies beyond low-cost countries to other geographies closer to clients. And they must bring in people who can innovate, as with digital plays that add value to clients’ processes.

No matter where your company falls on the spectrum of players, the new terms of competition in the industry present a stark choice: transformation or slow death. Visionary leaders in the industry under-stand that their mix and level of talent will be the single most important determinant of success. For an industry that grew out of leveraging low-cost talent, the time has come to focus on leadership competencies that will take companies to their full potential as genuine business

partners with their clients.



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Provide needed support and reinforcement

Evaluate progress

Create development plan

Generate insights for development action

Gain focus on development opportunities

Explore and build personal brand

Set up the context for development

Give feedback

Define potential

assess capability

Figure 3 Leadership Development at Egon Zehnder International A Comprehensive Process

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© 2010 Egon Zehnder International

All rights reserved. No part of this publication may be reproduced, stored in retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission of Egon Zehnder International.

Egon Zehnder International is the world’s leading privately owned search firm with over 380 consultants working in 63 offices in 37 countries. The firm specializes in senior level executive search, board consulting and director search, management and team appraisals and leadership development.

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EZI082 Winning BPO Leadership Final