Outsourcing: Evalueserve Interview (Part 4)

By guest author Tony Scott

Jumping on the KPO Bandwagon and the Coming Shakeout

Tony: Have you seen other competitors doing what you are doing?

Alok: Yes, there are a lot of competitors now. Until 2004, when we created the term KPO, nobody knew this segment. But then what started happening in India in 2005 was that there were massive retention issues – turnover was at the rate of 80% to 100% in the call centers. That started causing problems for the BPO companies, because they just could not hire enough people and make any profit margin, since BPO is a pure commodity business. Since they could not make much profit margin on BPO work, some of those companies started getting into KPO.

Some that just emerged onto the scene from nowhere were given funding from VCs. We actually have very strong views on that. We thought it was all fairly stupid because it’s a services business, and these businesses should be primarily bootstrapped. Not that you don’t need ever need a VC, but you don’t need too much money. Many of these new entrants took a lot of money to start these companies, and that created huge pressures on pricing and margins. In the legal business alone – in legal process services – at one point in during the 2007 heyday, there were 94 companies!

Tony: What a great example of too many dollars chasing too few opportunities – or at least a lack of creative thinking.

Alok: Yes, exactly. In 2007, the total number of companies in research and analytics we were tracking ended up being more than 300.

Tony: That’s unbelievable.

Alok: That number did include people who had a captive entity – as an example, a Bank of America may have its own captive. But there were people who had opened up garage shops and gotten funding from venture capital. We gave up trying to track them – there were just too many. So I think in that way the recession has been quite good. A lot of these companies either already have or are soon going to be going away.

Tony: So there’s been a shakeout.

Alok: Yes. A massive shakeout, and it’s continuing at a furious and ferocious pace right now in India especially. I think that at the end of the day, out of these 300 companies or so, about 30 will be left, out of which 10 or 12 will be third-party players and two-thirds will be captives. The captives will be in situations where a company wants to keep the process to itself because it believes this process is its core competence and that is doing something really nifty which it doesn’t want to give up.

Tony: So what are your plans to stay on top? You’ve had a great run of success.

Alok: Innovate, innovate or die, that’s what we say. I come from the research world, and in academic research particularly, you say, “publish or perish.” I think in our company, or in almost any company, it’s not much different: innovate or die. Because if you don’t innovate, everything eventually becomes cost arbitrage. So our current way is to look at what we were discussing earlier in terms of using technology to provide knowledge services enabled by technology: We often call it knowledge technology services. Fortunately, there is a lot of growth in that area.

This segment is part 4 in the series : Outsourcing: Evalueserve Interview
1 2 3 4 5 6 7 8 9