SSON speaks to Susir Kumar (MD & CEO, Intelenet) and Suresh Ramani (President – North America Sales & Operations, Intelenet) about outsourcing trends for the next year, acquisition of captive centers by BPO and how changes in the U.S. healthcare represent opportunities for Intelenet.
SSON: Let’s start with a look at BPO generally. We’re just seeing the back end of a global recession – how has this affected Intelenet over the past few months?
Susir Kumar: OK. A BPO is basically the back end of a company’s operations, so we handle their customers’ transactions. Through the recession period we have seen, for example, banks issuing a lesser number of credit cards; banks giving fewer mortgages; the new accounts that are being opened up have reduced. We are the back-end supporter of these clients of ours: the volumes coming in from these clients of ours have actually gone down, so if we were issuing 60,000 cards a month for a particular client it perhaps went down to as little as about 5,000. We became extremely concerned about issuing any further loans [while] people were just not willing to spend money or buy things, and all of that had a significant impact on the number of transactions and the number of calls coming in.
What we first saw in this initial phase of this whole recession was volume reduction, and a whole lot of companies being extremely concerned about whether they would survive through this phase of recession or not. So everyone started strategizing around how to survive. We had a set of companies which thought by taking certain actions they would survive, Imedical Healthcare Solutions and then we had a set of companies which were pretty concerned about their survival. So in some companies we actually saw some drastic measures being taken, and now people were not expecting the traditional outsourcing deals. They were asking us “Tell us how you can accelerate the cost savings process? I know you can give us 50% reduction of costs after 18 months: is there a way that you can give us 30% right now?” So it was a completely new expectation that came in, and I think after the first six months of recession we saw a lot of companies coming out with the question, [so] we had to change our value proposition or our offers to clients and prospects… Then we started observing, over the next six months to about nine months, that these companies were making faster decisions: in the past it would take anything between six to 18 months to take a decision on outsourcing or offshoring, but during this phase we were seeing companies taking decisions as quick as maybe two or three months.
We noticed that clients who had outsourced just about 15% or 20%, were all talking to us about how they could increase the outsourcing/offshoring percentage, and get their costs down; so we also went after every company that had outsourced just a small component, and we told them that “yes, in this case you are saving $5 million a year, or $10 million a year; here is another opportunity where you can accelerate and increase the scope of offshoring and outsourcing, and you could save potentially double or triple the amount that you are currently saving.” The third thing that we saw was, [before the recession] people would not make an offshoring or outsourcing decision if the saving was, say, less than 40%. In the new environment we saw that even if we gave a value proposition of savings of 15%, people would make a decision. Three years back we would never go to a company if the value proposition was just a 15% saving.
I think right now we are in this phase – where from the bottom our clients have actually been growing about 5 to 10%, so we have already seen more cards being issued, more mortgages being given, more people traveling; in the travel segment that we handle, we are seeing a lot of demand coming up. And in the last six months most of the companies that have downsized their own labor force, are all believing that there is going to be some growth in the next six to 12 months. Albeit, these companies are not convinced that this growth is going to be sustainable; people are generally believe that 2012, is where they will see a growth equal to what they saw in 2007-2008. So the value proposition that we are offering to our clients is: ‘you guys have come out with a plan for next year that talks about 10% growth versus the bottom; rather than you building your own capacity and people why don’t you look at working with us, because you can turn on the tap or turn off the tap with us, whereas it’s more difficult for you guys to do it in your environment where it’s expensive and more regulated.’
SSON: Looking forward then, Susir, what now do you see as the biggest challenges facing outsourcing providers? And how are you positioning Intelenet to overcome these?
SK: Just to give you a summary: over the last, say, 18 months to 20 months, we’ve actually seen a reduction or a contraction of our existing business of around 10% to 15%. But there is new demand which is offsetting this shrinkage, and net-net we are still seeing a 10% growth. The good news is that people are making faster decisions and looking at outsourcing more. Because of these multiple reasons and the fact that we are giving them capacity as a value rather than just cost, there has been a growth in our existing-to-new business, to the extent of almost 25%, which after offsetting the 10%-15% shrinkage still accounts for 10% net growth. So that’s the bottom line of the whole thing.
People are also negotiating more. And people have actually tested the market in the last 18 to 24 months and trying to squeeze a little more out of service providers like us. When they came in through this phase of recession and asked us for a 5% or 10% discount, we gave it to them because these are long-term relationships, and we have to reciprocate in some form in their time of difficulty. Now this is becoming a new norm for pricing.
We have also learned in the last 18 months or 24 months to run the operations more efficiently. So what we have been telling the clients in the last 18 months is, “ok, you guys want a 10% discount, we’ll give you a 10% discount. But don’t dictate to me in terms of where the operations should be run from, what should be the span of control, what should be the kind of technology – you tell me what is the end result you want, in terms of efficiencies, in terms of turnaround times, in terms of accuracy, and let me decide how and from where to run the operations, and I’ll give you the 10% discount.” So what has happened in the last 18-24 months is we have been given the freedom to decide how to run and from where to run the operation.
Net-net, though we have reduced the price, we have been able to get the same margin as what we were getting in the past..
Another big challenge is that people are asking for more and more financially structured deals, rather than the regular outsourcing which is a per-FT price or a per-transaction price; it’s becoming a little more complex. They are asking us to fund the redundancy, they are asking us to fund the set-up costs; there are a few clients that are asking us to take an outcome-based pricing, and we’re taking more and more of that. I think from a risk perspective, we are now required to factor in if at all we have funded the redundancy – and if the contract is say over a period of 5 years, if it actually gets terminated before that, then we will not have to cover the entire funding of redundancy that we have done.
Companies are also coming and telling us, “guys, just take our operation lock stock and barrel, and you guys decide the onshore/offshore mix, etc: this is what we want as outcomes.” And what that means to us is investment; taking over the risk of pensions of these employees and costs associated with just aligning that new business that we buy out with our business, and so on and so forth. In the last six months we have done about five acquisitions of just the back-end operations of a company. And that always has the challenge of integration – and the risks.