Compass: All Systems Go for BPO - David McCullough

David McCullough of Compass BPO tells CEO about how the growing market for business process outsourcing has presented an opportunity for service providers in India to challenge the big, established players.

The market for business process outsourcing (BPO) is still relatively young, but is showing vigorous growth. As buyers of outsourced services increasingly look to transform business processes as well as cut costs they are driving vendors to offer more integrated services, and some of those making the biggest effort to round out their service portfolios are to be found in India.

The BPO sector in India already employs over 1.4 million people and that number looks set to rise. This growth is in part because Indian service providers have been willing to expand into emerging sectors such as the outsourcing of increasingly sophisticated finance and accounting (F&A) processes.

‘The shift started with data-based services, then moved into transactional services, then voice and data-based services, but the real beginnings of the BPO industry was claims processing and low-cost billing for the travel industry,’ says David McCullough, CEO of Compass BPO. ‘That needed only knowledge of the process, but then the processes moved and became more vertically intensive, particularly with banking transactions in the late 1990s.

‘That meant being close to the industry,’ he adds. ‘F&A is horizontally intensive, so service providers need to know about finance and procurement. Customers have realised they can move up the value chain of services from elsewhere, and the F&A space has grown quickly.’

Compass BPO has been a pioneer company in third party F&A outsourcing from India. So far it has successfully migrated over 230 processes in a wide array of industries and geographies, and services customers in the UK, US, the Middle East and Asia Pacific from its delivery centres in Bangalore and Mumbai.

According to a recent Gartner survey, the company is one of the top ten emerging BPO service providers in the world. In carving out a space in the F&A and knowledge services markets, Compass BPO has developed its offering beyond process outsourcing to include hosting of F&A systems, which gives clients a single window for the end-to-end delivery of IT, consulting and BPO services.

For McCullough, such an integrated service offering will be crucial in the coming years. ‘India services the whole world, and it has come a long way from just call-centre business. What started as “your mess for less” – built solely on labour cost arbitrage – is now about process improvement, and the bundling of IT outsourcing with BPO,’ McCullough says.

‘Three years ago, if you wanted process improvement it was seen as a very different issue to cost reduction. Now, it is run of the mill. The new concept is end-to-end solutions, which go beyond labour cost arbitrage, productivity and standardisation. Customers want us to be their virtual back office. We are no longer having discussions just about F&A, but about new dimensions such as knowledge services and IT solutions.’

Shuffling the pack

The significance of India’s service providers in the global BPO market is clear if we look at F&A outsourcing, where they have quickly made a big impression. ‘The pecking order for F&A outsourcing is changing. The number of people doing F&A at companies such as Infosys and Genpact has shot up, and they are getting nearer to the leaders like Accenture and IBM. Accenture is still number one, but the rankings are changing,’ notes McCullough.

This success has encouraged vendors such as Compass BPO to evolve more sophisticated offerings to compete for the biggest clients and highest-value deals. The major trend at the moment is to combine IT outsourcing with BPO, which for McCullough means platform standardisation. The vendor is then in a position to take over what is effectively a single, consolidated back office function.

Of course, not all buyers will want to take on such a big shift in the structure of their organisations. Some companies will still focus primarily on the advantages of labour cost arbitrage, but others increasingly have an appetite for major change.

‘Customers have a menu of choices – mild, spicy or really hot – and only those with a real appetite for change are choosing the really hot option,' McCullough says. 'They must be ready to address the complexity of their legacy systems and achieve real business transformation.'

For those companies that like it hot, McCullough points out that taking on the task of consolidating the entire back office on a single platform from an external service provider not only helps them to realise operational efficiencies, but also offers additional benefits for strategic decisions in the future. For instance, it could help with mergers and acquisitions.

‘In M&A, many companies end up with legacy systems that don’t talk to each other, but outsourcing can be a platform for M&A as it becomes easy to add new acquisitions to one common platform,’ he notes. It is this clear view of the long-term benefits of BPO, especially when offered alongside ITO, that has led Compass BPO to develop an end-to-end solution that comprises IT hosting, platform consolidation, business transformation and BPO.

In the F&A space it has put this approach to good use to help the company punch above its weight. ‘We can change the look of the back office completely. We probe verticals that no one else does, and although we are smaller, we are nimble, agile and responsive,’ McCullough explains.

Full speed ahead

The BPO industry – like any other – has to assess the potential impact of global economic trends as the US economy slows down and financial markets remain starved of liquidity. In many industries there is a sense of an impending storm, but McCullough believes that the impact of economic trends in the US and in Europe could hold some positives for BPO service providers and their customers.

As economic pressures increase, BPO could become a real priority for businesses seeking efficiency. ‘The mid-market will open up. Medium-sized companies will start to look at outsourcing, following the example of larger enterprises,’ says McCullough. Furthermore, companies considering BPO for the first time need not necessarily fear being tied to a multi-year arrangement that might later constrict them.

Compass BPO, for instance, offers an alternative to the usual outsourcing deal that lasts five or seven years. It offers new clients a trial period in which they have no commitment to enter a binding agreement. Also, all its customers are given the option to end a contract with only six months notice. For McCullough, this is merely common sense. ‘You can’t predict what the market will be like in seven years,’ he says.

'The outsourcing value proposition began with a drive to variabalise customers’ cost structures, but then you get offered a long-term contract. There is a degree of hypocrisy there, as contracts don’t have any flexibility. But ours do.’

As BPO becomes increasingly accessible to a broader range of companies a variety of strategies will no doubt emerge. More companies will look for the end-to-end, bundled services at the top end of the market, but McCullough admits that many will still be seeking mainly labour cost arbitrage – even if it is only as a way of getting a first taste of BPO.

‘BPO doesn’t have to be too heavy. We always survey a client’s business to evaluate how ready they are to transform, and then we can decide if they need brain surgery or just a little plastic surgery. Compass BPO is one of the oldest players in the F&A space, so we have a lot of experience,’ he says. ‘People usually outsource because of an industry or functional pain point. We can help companies pull money from the back office and put it into the front office.’

For vendors such as Compass BPO, the emphasis is now on short-term flexibility, maintaining a comprehensive portfolio of services, and proving the long-term value to clients of greater engagement with BPO vendors. As more capable and experienced service providers emerge, especially from India, competition at the top of the market means that now could be the time to consider BPO.