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IBM Daksh Business Process Services
© Copyright IBM Corporation 2005IBM Confidential
“ Knowledge Workforce: A Roadmap ”
HR CHALLENGES
HR Roundtable“Globalising People Skills”Friday, 2
September 2005
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IBM Daksh Business Process Services
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Index
India Inc.
Indian BPO Industry Update
HR Challenges
IBM Daksh Business Process Services
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deeper
India’s outsourcing changing the world
India: land of global sourcing
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India Inc is shining…
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… is at an inflection point…
3rd …Has third largest investor base in the world
1 Mn …Is adding one million mobile connections every month
2nd …Second largest reservoir of knowledge resource
300 …300 million are middle class consumers
6th …Sixth largest foreign exchange holder in the world
Highest …There are 70,000 bank branches in India
5th …Fifth largest telephone network (including mobile) in the world
2nd …largest among emerging economies, only after China
100 …Over 100 MNCs who have set up R&D centers in India
10X …FII investment increased by almost ten times in 2003 to $7.59 bn
#1 …and India remains as the leading global hub for BPO
India is now
the 10th largest
economy in the
world (from #12
in 2003)….
...India’s GDP
is $ 692 Billion
and growth
rate of 6%
annually
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China
US
India
JapanGermany
India
BrazilChinaRussia
…is an emerging economic superpower…
India would
become the
third largest
economy after
USA and China
by 2050.
India's GDP will reach
• $ 1 trillion by 2011
• $ 2 trillion by 2020
• $ 3 trillion by 2025
• $ 6 trillion by 2032
• $ 10 trillion by 2038, and
• $ 27 trillion by 2050
In terms of GDP, India will overtake
• Italy by the year 2016
• France by 2019
• UK by 2022
• Germany by 2023, and
• Japan by 2032
Among the BRIC group India alone has the potential to show the highest growth (over 5 percent) over the next 50 years.
China Overtakes the G3; India is Close Behind
India Shows Most Rapid Growth Potential of the BRICS
The Largest Economies in 2050
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…and the leading offshore destination
Excludes US, UK and Australia Near-shore Generated BPO RevenuesSource: “Offshore BPO Delivery,” Nelson Hall, Q1 2004
Proportion of Total Offshore-Generated BPO Revenues (2003)
5% Mexico1% China
1% So. Africa2% Other
16%Philippines75%
India
India is a
leading BPO
offshore locale
with strengths
setting it apart
from
comparable
locations.
India
Canada
Singapore
IrelandAustralia
Spain New Zealand
Czech Republic
Israel Portugal
HungaryPoland Chile
So. Africa
Malaysia
BrazilChina
Costa RicaMéxico
Turkey
Argentina
RussiaThailand
Vietnam
Bu
sin
ess
En
viro
nm
en
t a
nd
P
eo
ple
Ski
lls &
Ava
ilab
ility
Financial Score
Philippines
Low High
HighOffshore Location Attractiveness :Rating the Top 25
Source: “Offshore Location Attractiveness Index 2004,” A.T. Kearney Management Consultants, 2004
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…Young & Vibrant
India BPO Industry
deeper
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Source : Nasscom
India’s offshore value proposition remains the strongest
India still ranks
as the preferred
destination for
outsourcing…
…and
estimated to be
44% of the
worldwide total
outsourcing
India BPO - RevenuesUSD Bn
64.0
21.0
0.930.6 1.6 3.6 5.8 7.3
2000 2001 2002 2003 2004 2005E 2009E 2012E
CAGR 42%
Employment Generated'000 3,095
1,200
348 254
106 180
2001 2002 2003 2004 2009E 2012 E
BPO Contribution to India's GDP %
2.5%
0.7%
5.8%
0.2%0.3%
2001 2002 2004 2009E 2012E
India’s offshore value proposition
• Superior offshore process management and service delivery capabilities
• Talent pool: size does matter –esp. when you need to scale-up
Pricing trends in BPO likely to be susceptible to downward pressure
• Increasing the emphasis on operational excellence to sustain margins
Indirect employment attributed to IT-BPO – 2.5 million in FY05
Growing at 7X the domestic GDP – highest growth in Industry in the country
Growing at 7X the domestic GDP – highest growth in Industry in the country
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Changing demographics driving growth
India has a youthful population structure
Source: Population Reference Bureau
Data for 2000
In India, 36% of its population is
below the age of 15 years, and only
4% above 65
Literacy %
75%
18%
44%
28%
34%
52%
65%
1951
1961
1971
1981
1991
2001
2005
• Only 5.5% of the Indian populace over 60 years
• Scientific and technical workforce increased from 4.8 Mn in 1991 to 7.7 Mn in 2000 (up 59% in 9 years)
Expanding Labor pool = Growth in workforce X Growth in education
…and a thriving & rapidly growing labor pool
Enlarged Labor pool will extend
the tenure of Labor arbitrage
• Working population (19 – 60 years of age) will increase from 485 mn to 615 mn by 2010
• Educational base of 21 mn professionals and 90 mn graduates/post graduates by 2010
44 % of
population less
than 19 years
(54% of
population below
25 years of age)
…
…estimated
literacy rate for
this segment is
over 75%.
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2003-04 Revenues - US $ 3.6 Bn
23%
33%
12%
15%
15%
2%
$ 1.2 Bn
$ .07 Bn
$ .82 Bn $ .54
Bn
$ .43 Bn
$ .52 Bn
Industry remains customer support centric today
Source: NASSCOM
Industry in early
phases of
Industry
diversification…
…new LOBs
developing; HR
& Finance
services
gaining
momentum.
2008 Revenues - US $ 21 - 24 Bn
12%
17%
12%
7%
14%
38%
Customer Support
Content development
Payment Services
Administration
Finance Services
HR
$ 8-8.5
$3.5-4
$2.5-3 $1.5-2
$3-3.5
$ 2.5-3
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Highlights of Indian ITES-BPO sector
Source : Nasscom
Emerging opportunity areas for the ITES-BPO sector:
• LY witnessed a significant pickup in global interest for HR ITES-BPO: Global potential for HR outsourcing in 2004 estimated at $10.8 billion -- offshore-able potential over $5 billion. Value of HR BPO offshored to India in FY 2004-05 was $165 million, up 120 per cent from $75 million in the previous year.
• F&A (Finance and Accounting) outsourcing emerging as one of the fastest growing BPO segments. From deals focused on transaction processing to now customers wanting to outsource entire business process.
• Procurement outsourcing is an emerging area as more and more firms are seriously investigating this option.
• ITES-BPO employee grow at CAGR 52.6%: 42,000 in 01-02 to 348,000 in 04-05.
• 410 ITES-BPO players in India in Mar05 - up from 285 in FY 2003-04.
• Captive units continue to dominate – account for 65+% of work off-shored to India.
• Domestic ITES market also witnessed a significant demand: from $300 million in FY 2003-04 to $600 million in FY 2004-05.
• High degree of competition in the domestic telecom and BFSI verticals with companies laying increased emphasis on customer fulfillment and other CRM activities.
• Integration of IT-BPO contracts is becoming more common.
• Indian vendors are developing multi-location delivery capabilities: firms also setting up facilities in China, Eastern Europe, Ireland, and Philippines. Within the country- expanding to tier-II cities - Mysore, Nasik, Vizag, Jaipur, Chandigarh and Trivandrum.
• Wave of consolidation as several large M&A deals were scripted in the industry like GECIS-Oak Hill/General Atlantic Partners, Daksh-IBM, e-serve-Citigroup, etc.
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Pure-play local, BPO companies
Global BPO specialists Indian IT players Integrated Service
Providers
“Global+Local” Integrated Service Providers
Basic Theme Capture Labor Arbitrage Customer Retention Diversify Revenue
streamBusiness
Transformation Business Transformation
Advantage (s)
Core competency focused
BPO focus & expertise
Existing Client base
Global Service Delivery
US-India corridor
Existing Client base
Branding & retention
Business transformation capability
Global Brand
Strong Balance Sheet
Transformation= Operations + Consulting + Technology
‘Global+Local’ operations (Global platform – Local expertise)
Challenge (s) Weak Balance sheet
Brand in tight Labor market
Only Processing Capability
Organizational pedigree
Limited knowledge of local market
Only Processing Capability
Center of gravity out of India
BPO business dynamics vs IT
Low share of BPO Revenue as a % of IT Revenue
Career prospects viz Global Brands
Limited knowledge of local market
Weak operations capability
Too broad an offering
Perceived as a Technology player
Key to Success
Ally with larger, global player or operate in niche
Build local expertise and migrate existing clients
Acquire local players / sharpen focus on BPO Operations
Move from labor arbitrage to strategic transformation
Independent Locally managed subsidiary working under Global “Framework”
Indian BPO/ BTO landscapeCategory
Details
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Industry Insights
BPO
• Performance to process improvements
• One-stop shop
• Data Integrity and security requirements
Customer
• High attrition levels due to night working
• BPO Industry Maturing – Evolving Mid-management
• 9% increase in Satisfaction level of BPO staff
• Third-party Training engine underdeveloped
People
• Infinite demand
• Weakening Dollar
• SOX Compliance
• M&A…Captive Converting
• Vendor Polarization
External Environment
• Scale with Quality
• Real-time SLAs
• Logistics Complexity
• Ethical business practices
• Building a Profitable & Enduring business
• Different Cultural Context
• Geographic Dispersion
BPO Business Needs
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HR Challenges Shortage of manpower and a spiraling wage rate
- Manpower requirement at a whopping 1.03 million for FY 2005 leading to shortage of approx 0.26 million.
- Spiraling wage rate due to manpower shortage, resulting in unprecedented growth in the average salaries.
- Lack of availability of voice trained resources- Huge investment by organization on training the resources as third-party training engine underdeveloped.
- Seasonality of availability - Availability of fresh pool (graduates) during April – June months. Then a dip till September, October.
High Attrition Rates - Wider opportunities - due to increasing competition & growing opportunities in other industry as
well. - Higher Studies- Expectation of higher compensation.- Odd Working Hours combined with long Commuting hours
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HR Challenges Health & Stress Issues
- A survey indicates 25% of the people in the industry face high stress, 32% face medium stress and 42% experience some stress.
- Four broad areas effecting mental and physical health are Behavioral stress, interpersonal stress physical and organizational stress .
- Reasons Cited:-- Pace of effort required ,Odd work hours,Repetition & Monotony of work,handling complaints and
problems all day,Daily physical confinement (tied to their desk,Feeling of Over-regimentation or of being spied on
Managing Employee Perception & Expectations- Industry awareness is limited with the focus only on earning a “fast buck”- “Glamour” to be replaced with “Performance metrics”- Reduce the comparison parameters by active engagement. - Difficulty in developing customer focus in young age group
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HR Challenges Changing Value System
- To build the organizational values by active engagement- Constant need for training and focus on the positive communication- To inculcate Ethics and code of conduct
Career Development- Expectations for fast growth avenues within the system - 6mths in considered as long time - shortage of people with adequate domain knowledge, leads to movement of people to the next
level irrespective of level expertise / capabilities.- Leads to the low level of people management skills at the team leader/ operations manager
level.- Span of Tenure:-Highest attrition faced during initial three months -short time span available to
develop awareness of growth opportunity
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IBM Daksh Business Process Services
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HR Challenges
Misconducts- Violation of customer norms- Non-adherence to schedules- frequent / lengthy breaks, high absenteeism, - People issues- Insubordination and incompatibility in dyad (boss-subordinate)
relationships
Integrity & confidentiality- Concealing relevant information (previous employment , education, salary etc.) - Intentional deviation from prescribed standards of service levels to meet targets/
gain - Data falsification leading to financial implications.
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Actions
NASSCOM’s Assessment of Competence program(NAC) For ITES –BPO sector launched In August*- An assessment and certification course to meet the industry standards, thereby ensure
transformation of a trainable to an employable workforce and reduce the sourcing costs by 50% and also save on recruitment process time and reduced training hours.
- Educational Institutions and Universities to align their curriculum to the changing industry trends based on NAC
- NASSCOM is encouraging state Governments to commit to NAC so as to improve employment generation, attract serious investors for ITES-BPO sector and build a link between education and employability.
Movement to smaller cities and towns Vizag, Jaipur, Chandigarh, Mangalore , Pune etc- Abundance of talent- Fewer players- Less infrastructure cost and comparatively lower compensation.- Less attrition
* Source NASSCOM BPO newsline (August 2005 )
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Actions
A robust performance management system - Aligning the level of pay with the level of performance. - Enables in identifying performers and thereby create differentiation in pay.
Focus on Career Development - Extend beyond the areas of V&A and Process Knowledge training. - Rotation into different processes within a predefined timeframe- Tie up with institutions for higher education and professional development opportunities while at
work.- Develop and communicate career path and growth opportunity.
A strong “succession planning framework” will help organizations in creating adequate back up for those critical to business positions and to man them as and when required.
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Actions
Employee Care
- Actively engage in stress relieving activities.- Ensure health-support system- Actively engage with families. - Better reward and recognition schemes, - Team bonding programs - Creating adequate support systems - employee counseling .- “Fun at work” by celebrating fun events and cultural activities- Ensure a keen understanding of (and involvement in) values of the organization
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Suggestions Media Support
- Change the Society perception of the Industry ,from just being a non serious fun filled place to a build career
Platform for Inter-Company HR Norms - Develop platform - to define inter-company recruitment guidelines, and monitor compliance in a fair and
transparent manner.
Centralized Background Verification agency with common database- Build a central database of detailed verification on educational and professional background of the potential
aspirants to this industry ,with comprehensive feedback on relationship with prior employers, AOD status etc.
Absconding and Negative Database- Creation of an industry-wide database of employees for companies to cross-check during recruitment process at
nominal cost
Employees absconding without any information, Committed actions which require them to be put on a negative list.
Tie up with Schools and Universities to include relevant training in their curriculum
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Thank You!