Lift and shift outsourcing model is now over

Updated: Jan 28 2008, 06:28am hrs
India is clearly key to IBMs managed business process portfolio. As its general manager, Erich Clementi takes clients beyond the traditional lift and shift outsourcing model, Daksh operations acquired in 2004 are crucial to its vast global network. Employing 20,000 people at last count, Daksh today boasts of a network of 17 delivery centres spread across seven cities in India and Philippines. Armed with its global delivery network of 36 BTO centres across the world, Clementi calls the Indian offshoring giants formidable, but is confident they cant match up IBMs global delivery network. General manager of IBM systems Z division till 2003, he has more recently started leading small and midmarket accounts of the business systems segment. In an interview with Pragati Verma, he describes the changing landscape of the business transformation services and the future of India as an offshoring location. Excerpts:

Changing business environment seems to be morphing the way BPO and BTO (business transformation) services are delivered. How is it impacting your business

The approach today is very different as we are not just taking over their process but transforming their business. Companies are burdened with inefficiently high pain points, increasing costs and pressure to deliver differentiated business value. As the pressures increase, traditional business process outsourcing that relies on labour arbitrage is not enough. Businesses are looking to derive a new kind of value from their service providers. Organisations are seeking a partner who can help them rethink their business models and business operations, optimise those operations and drive new innovative kinds of business processes. They want continuous strategic change to transform existing processes. Clearly, the traditional BPO approach of lift and shift is over. Our value proposition is much more than labour arbitrage. We run our clients process to transform their operations. We bring in our experience of doing it for multiple clients. Our strategy of providing higher value services is resonating with clients as they seek a partner to help them solve these complex business requirements.

This strategic focus in our services practice is paying off. In the third quarter for instance, IBMs total global services revenue grew 14%, the highest in four years. And we had a strong performance in all geographies and business sectors. IBMs managed business process services (MBPS) efforts are unique in that they are designed to bring together all our capabilities for our clientsconsulting, business processes and technology and deliver them as a service.

How well does Daksh fit into this model

Daksh is a key initiative in IBMs managed business process services business. IBM acquired Daksh in 2004 to serve as a global hub to manage business processes, and deliver improved operational and business results.

In just three years, Daksh has grown to 20,000 employees, up 234% from 5,000 employees at the time of acquisition. With its network of 17 delivery centres, it offers expertise in customer relationship management, human resource management, finance and administration and industry specific processes.

A key factor fuelling client demand for Daksh services is the ability to integrate the complete spectrum of IBM capabilities across research, development and consulting, distilled into high-value solutions and replicable tools.

For example, IBM Daksh has successfully leveraged IBMs research capabilities to develop a text-analytics tool called ProACT that automates the analytics of customer satisfaction surveys to improve the real-time effectiveness of an email based customer help desk operations. The tool, currently being piloted by several companies in the telecom industry, has been deployed at IBM Daksh to automate 30-50% of the workload of 120 subject matter experts. Daksh is focused on helping clients go beyond the basic lift and shift outsourcing model.

Today, it is well integrated with our global delivery network. In fact, Daksh does twice the work under the IBM name than under Daksh.

Can India continue to be an attractive offshoring location as the rupee continues to move up against the dollar Could IBM consider relocating jobs from India

Given the direction of dollar, India will not be the only place impacted. Currency is an important factor but not the only one. Besides cost savings, we look at time zone, risk arbitration and talent available so that we can create scale. India will have to find a way to deal with currency.

One needs to be innovative and use technology that allows you to scale. Work at IBM goes to wherever it can be done best. India scores very high on customer relationship management and finance and accounting skills, while Philippines, Costa Rica and Hungary are very good with HR.

You are relying on your global delivery network in a big way. Does your competitive landscape change when an Infosys buys Philips operations in...

We dont need to buy Philips operations in Poland. Global delivery network is not the same as having people in all those geographies. We can offer a matrix of skills in any part of the world. Our processes are standard and we offer our clients the option of moving work anywhere.

The market that MBPS services is a huge opportunity and is growing. It can be bigger than traditional enterprise IT, which today stands at $46.9 trillion and is growing at a CAGR (2006-2009) of 4 to 6%.

Business process services are worth $1.7 trillion and are growing at a CAGR of 8 to 10%. MBPS addresses about 17% of the BPS market and that stands at $248 billion. Our four core solution areascustomer relationship management, procurement, HR, finance and accounting together account for $ 198 billion and industry specific solution opportunity is $ 50 billion.