Outsourcing and BPO; the past and the future!

Outsourcing exists because economic inequality has been a persistent reality of our world, and as far as we can tell it is not going anywhere. Both futurists and economists believe that whilst growth infused inequality improves the lives of those on the weaker side of the economy too, in balance, but at the same time, they also admit that it does little to reduce the gap between the two extremes – crazy wealthy and desperately poor. Growth, the world must have, as, without it, anywhere between 1 and 2 billion people across the globe will die of starvation. You might wonder why I say inequality makes the case in favour of outsourcing? “Shift and Lift” & “Same mess for less” were common terms that the western world used when they had to make an unofficial argument to export jobs east.

Yes, it is the snobbery of the developed world, but of a kind that gives hundreds of millions of people in the underdeveloped world a chance at life. Imagine if India did not export the fruits of its cheap human labour to the west, what % of India would have been penniless looking into an abyss of hopelessness? The thought alone will intimidate you, to put things in perspective, it will be close to 150 million people, without any source of income.

All outsourcing however is not created equal.

The society operates hierarchically, and business calls its regime-  ‘band’.

Human history gives enough evidence for us to know that as society progresses and becomes technologically advanced it renders the least complex and the most repetitive of its tasks to machines, leaving smart humans with time and energy to concentrate on solving intricate mysteries of the facets of the ever-evolving world. “Cognitive capital invested on relatively simpler tasks does not give satisfactory returns”, as a principle has been known for ages. Let’s use this frame to understand outsourcing.

Outsourcing exists in every industry that operates on planet earth. Let me give you a few examples. 

• Apple manufactures in Asia. 

• An overwhelming majority of software developers in cities like Bangalore, Hyderabad, Chennai, Gurgaon, Pune etc are developing and maintaining software owned by the west. 

• Third world countries (the third world is not an economic classification but a political one, countries that remained unaligned in the cold war era were given this label. Singapore is also a third world country), do financial accounting, transcription, translation and even train machine learning models with real-world data.

• Phone sales, customer service, credit card operations, travel logistics and loan processing – need I say more?

The way to classify the ‘band’, that I spoke about earlier is to judge a task by this simple standard.

• Have the people involved in outsourcing been academically trained in the same field? 

• Specialist outsourcing: If the answer to this question is a yes. Then you know that you are talking about high-value outsourcing. Like software (development and support), hi-end manufacturing etc.

• Generalist Outsourcing: If the answer to this question is negative, you know that what is being spoken about is low-value outsourcing: call centres (anything to do with phones), transcription, etc. 

At this point, you may be wondering why am I only insinuating about stronger currency hiring weaker denominations in the context of outsourcing? And you’re absolutely right, same currency outsourcing is a reality too. In fact, in the absolute share of manpower, it is roughly 60% that of all people working in outsourcing, but in revenue terms, it is just about 30%. You might wonder why 60% of people generate just 30% of the value? It is owing to the facts, listed below. 

• A vast majority of this outsourcing is generalist in nature. So unit pricing is abysmally low.

• The capital that enables politicians to try their electoral fortune comes from corporations, which want the minimum wages to remain as low as possible so that industries can remain competitive in the world market. As a result of which cheap labour is found in abundance, here.

• 98.99% of the tasks that these generalists perform can be automated, therefore, to remain relevant they are forced to operate at a cost that does not give the outsourcer compelling reasons to go all out to automate the workflow entirely.

Thus far we have covered the economic basis of outsourcing. Let us now look at the brief history of outsourcing in India. I shall focus on the BPO side of things, if you know me you’d know why and if you do not, read other articles on this subject that I have written and you’ll know.

Business historians classify outsourcing in these three different eras. 

The beginning of traditional BPOs from the 1900s to Mid 2000s.

• This was a straightforward period when consumerism was beginning to take gargantuan shape. The west needed a cheap solution to sell and service their customers, they started looking for countries that spoke their language reasonably well and offloaded the work to them. As they engaged with the east in this context they understood that they have tapped into an infinite pool of motivated, hard-working, sincere, hungry for growth cheap labour with plenty of skills to pull off generalist jobs well.

• Tasks after tasks kept pouring and India benefited by having an avenue of employment large enough to engulf its vast semi-skilled workforce.

• Wealth creation led to an increse in demand and indigenous manufacturing and distribution and real estate gained from it. 

• A high density of phone connectivity in the west enabled it.

The Medieval BPO Era: Omni Channel BPO 2000s to Late 2010s.

• West felt the need to cap their costs after nearly a decade long free for all outsourcing party. From this directional change, Indian players started offering goodies like process re-engineering, downstream innovation, process transformation and commitment to productivity enhancements, to keep the contracts alive.

• The phone was no longer the king of the reigns, the internet had made its entry into the homes (broadband) and in the hands (smartphone) of people. Asynchronous support channels gained ground, chat and email became popular too. 

• Other forms of work like simple MIS, basic data analytics and accounting processes also boomed in this era.

• In this period, the proliferation of phones picked up in India too and with it, large corporations began outsourcing their tele support, chat and email work to BPO service providers. Domestic BPO became a viable business. 

Contemporary Era (A): Insight-Driven BPO late 2010 and pre-pandemic.

• Corporations that had just come out of the slowdown in the west needed to tighten their belts. With great force, ‘lean and six sigma’ and similar standards became a part of the everyday routine for the Indian BPO industry. Providers burnt the midnight oil to achieve more with less. ‘Cutting waste’ became the mission of over a million people. As a result, a slew of process and product innovation made its way into the still flourishing industry.

• ‘Analytics with process transformation’ occupied the focal point of the industry.

        + Data-led process transformation.

                + Informed Insights-enabled digitisation.

    + Automation

+ Simple fetch and tell BOT.

+ Desktop automation.

+ RPAs.

Contemporary Era (B): Automation driven support late 2010 to Pandemic.

• There is a significant overlap between these two phases of outsourcing that is on account of the evolution of the outsourcers. Not every company woke up to the magic of automation at the same time. In Era A we have spoken about how the laggards of the industry reacted. In this section Era B, we are going to talk about the leaders and technology-first organizations. 

• The business landscape for the evolved part of the economy changed to proportions imagined by no one. The start-up revolution completely changed the way the world looked at business operations. Companies decided to trust algorithms for all rule-based tasks. Organisations like Ola and Uber were born, which was completely devoid of transactional support, the ‘application-only-operation’ became a thing. I know some of you are thinking about the brief period when both Ola and Uber used to take bookings on the phone. I must remind you that it was a period in which the organizations were educating the customers about this new technology, app-based operation. As it gained critical mass on the application, phones were switched off.

• Cheap data and economical smartphones came within the reach of the common man and what the west had experienced half a decade ago became the story of the economies of the eastern countries, too. 

• The organisation started working to reduce repeat with maniacal focus. Self-help was made cool.

• These technological advancements made their grand entrance into the scene, as well.

• Conversational AI.

• Advanced context-aware chatbots.

• OCR.

• Speech to Text and back to Speech – the whole cognitive stack. 

• Data modelling and advanced analytics. 

• ML gave machines an edge over humans involved in generalist tasks. 

• The little that was left of the traditional market was overwhelmed by the pandemic, which forced people to not only get acquainted but also comfortable with using support platforms and the internet for fulfilling their needs.

These advancements took away the winds under the wings of traditional BPOs.

• The technological solutions in the medium to long term became economical than a human doing a generalist task. 

• The efficiency gains of machine-made humans look unattractive. 

• Transparency, accuracy and ability to generate rich structured data from automated operations made generalists appear like chimpanzees in comparison to machines.

In the last two years of the pandemic alone the size of BPO has contracted to the extent of 24%, the 2/3rd that is still left is being slated to go down to half, in the matter of the next 12 to 18 months.

Why could the BPO industry as a whole not evolve with the changing market? Is a fascinating question, whilst answering that is an entire article in and of itself, I would say that ‘hyper inward focus’ is to be blamed for the ruins of the industry. The fact that this sector has not been attracting fresh capital for over 5 years now is somehow not catching their fancy. The aged leadership teams (50 Yrs +) has personal stake in keeping the charade on, as this late in the career changing stream would be impossible for them, so they shrewdly keep knitting stories of potential and show the 20% floating clients (who keep moving from one BPO to another) as territory for expansion to the promoters to keep their jobs going.

Much like Kodak, BlackBerry and Nokia were too busy with the make-believe world that they had created for themselves BPOs too are living the illusion of sustenance. The real world however has moved on, taking lesson from colossal failures of these one time giants.

Future of the BPO industry

• BPOs that metamorphose into tech products and platform organisations will survive and come out stronger on the other side of the churning. 

• Organisations like Concentrix, Wipro, WNS, Teleperformance, Infosys and Tech Mahindra are on the right track.

• The BPOs will have to find a way to put the great understanding of customer behaviour, their needs and wants that they have acquired over the last 2 decades, into developing tech products that solve the most pressing support questions of the day.

• They will have to move away from transaction handling and become consultative organisations that handle end to end customer journeys and not just what happens on the phone/chat/emails.

• Designing service philosophy and related processes.

• Budgeting service operations.

• Developing and deploying the platforms for support.

• Owning to the business outcome and billing for output rather than time spent on the job.

BPO that successfully catapults into an organisation that has skin in the entire vertical stack of service will not only survive but thrive.

Remember, what I opened this article with, outsourcing is here to stay – old devices of outsourcing (voice) will have to be given up in favour of new tools (cognitive tech).

With that, I would like to end this.

See you on the other side!

Till then stay safe and take very good care of yourselves. 

Remember vaccinations save lives.