Go Lean Commentary
Pay more than the usual attention to Trade …
… this is the urging of this series of commentaries. Why?
Trade may be the panacea (cure all) for the ills of the Caribbean. Let’s consider one example, BPO.
BPO = Business Process Outsourcing
Individually, these 3 words are very common in our daily life: Business, Process and Outsourcing. Put together and most people … have no clue.
BPO is not just an informal association of these 3 letters. Rather it’s a formal business model; see this encyclopedic reference:
Business process outsourcing (BPO) is a subset of outsourcing that involves the contracting of the operations and responsibilities of a specific business process to a third-party service provider. Originally, this was associated with manufacturing firms, such as Coca-Cola that outsourced large segments of its supply chain.
BPO is typically categorized into back office outsourcing, which includes internal business functions such as human resources or finance and accounting, and front office outsourcing, which includes customer-related services such as contact center (customer care) services.
Often the business processes are information technology-based, and are referred to as ITES-BPO, where ITES stands for Information Technology Enabled Service. Knowledge process outsourcing (KPO) and legal process outsourcing (LPO) are some of the sub-segments of business process outsourcing industry.
The main advantage of any BPO is the way in which it helps increase a company’s flexibility. However, several sources have different ways in which they perceive organizational flexibility. In early 2000s BPO was all about cost efficiency, which allowed a certain level of flexibility at the time. Due to technological advances and changes in the industry (specifically the move to more service-based rather than product-based contracts), companies who choose to outsource their back-office increasingly look for time flexibility and direct quality control. Business process outsourcing enhances the flexibility of an organization in different ways:
- … transforming fixed into variable costs.
- … focus on its core competencies, without being burdened by the demands of bureaucratic restraints.
- … increasing the speed of business processes.
- … allows firms to retain their entrepreneurial speed and agility, which they would otherwise sacrifice in order to become efficient as they expanded.
Source: Retrieved November 23, 2018 from: https://en.wikipedia.org/wiki/Business_process_outsourcing
The most common BPO in the US is payroll-processing. Most companies have specific missions, they are not in the payroll business, but payroll – every week, bi-week, fortnight, or monthly – is a necessary evil for operations. BPO for this HR-Accounting functionality allows the firm to concentrate on its mission and enjoy greater functionality and sometimes better cost savings.
Here’s another: have you gotten a Passport lately? Then chances are you are familiar with the subject. You show up with a completed application and a photo; a clerk receives you and inspects your form for completeness; they package your submissions into a bundled folder and send it off for processing (Black-box). 2 weeks, 3 weeks or 5 weeks later (according to the Service Level Agreement or SLA), a finished passport is ready for pick-up. That Black-box is classic BPO.
Worldwide, the BPO market is estimated at about US$140 billion for 2016 – from the BPO Services Global Industry Almanac 2017. One country has double-down on this strategy that they can provide jobs, entrepreneurial opportunities and economic growth to their citizens by pursuing more and more BPO.
This is India. See the related VIDEO in Appendix B below.
The foregoing encyclopedic reference continues:
India, China and the Philippines are major powerhouses in the industry. In 2017, in India the BPO industry generated US$30 billion in revenue according to the national industry association. The BPO industry is a small segment of the total outsourcing industry in India. The BPO industry and IT services industry in combination are worth a total of US$154 billion in revenue in 2017. The BPO industry in the Philippines generated $22.9 billion in revenues in 2016. In 2015, official statistics put the size of the total outsourcing industry in China, including not only the BPO industry but also IT outsourcing services, at $130.9 billion.
Lessons learned from India is not unfamiliar to this movement behind the book Go Lean…Caribbean. Here we go again!
We can benefit from the consideration of trade with other countries; we previously considered China and now we are looking at India. This commentary is the 3rd of the 5-part series (3 of 5) from the movement behind the book Go Lean…Caribbean in consideration of the subject “In Defense of Trade“. The focus here is that Trade must be prioritized in the Caribbean region if we want a new economic regime. The other commentaries in the series are cataloged as follows:
- In Defense of Trade: China Realities
- In Defense of Trade: Macy’s Thanksgiving Parade Model – ENCORE
- In Defense of Trade: India BPO’s
- In Defense of Trade: Bilateral Tariffs – No one wins
- In Defense of Trade: Currency Assassins – Real Threat
The Go Lean movement asserts that Trade is pivotal for Caribbean growth. It does not only affect the region’s economics, but the security and governing engines as well. In the case of BPO, the trade product is intellectual: human services. India has benefited greatly from Wall Street’s BPO jobs; this Asia region now boasts 10 percent of all the jobs servicing Wall Street banks; see Appendix A below for a full article of how Wall Street firm Goldman Sachs employ professional functions in their Bangalore BPO facility, including Quantitative Analysts. We need to pay more than the usual attention to this model. We can copy some of the BPO functionality and bring jobs here to the Caribbean.
The Go Lean book serves as a roadmap for the introduction and implementation of the technocratic Caribbean Union Trade Federation (CU). The CU seeks to optimize the region’s economic systems to better deliver on the prime directives of the Go Lean roadmap. The prime directives are pronounced as the following statements:
- Optimization of the economic engines in order to grow the regional economy to $800 Billion & create 2.2 million new jobs.
- Establishment of a security apparatus to protect the resultant economic engines and mitigate challenges/threats to ensure public safety for the region’s stakeholders.
- Improvement of Caribbean governance to support these economic/security engines, including a separation-of-powers between member-states and CU federal agencies.
So the CU Trade Federation vision is to provide the stewardship for the region’s economic engines, to optimize trade so as to succeed in the goals of the roadmap.
The Go Lean/CU roadmap details how to drive change for the 30 member-states and their economic, security and governing engines. The Go Lean book – within its 370 pages – describes the new community ethos, strategies, tactics, implementations and advocates that must be executed to manifest this roadmap.
BPO’s are affiliated with Contact Centers …
… this commentary had previously identified the economic benefits that can come to a community that invest in BPO’s:
With modern Internet Communications Technology (ICT) – think Voice-over-IP – a phone call can originate or terminate around the globe, but feel/sound like it is next door. The premise of this business model for the Caribbean is simple: Why not make those calls / answer the phone here in the Caribbean?
Jobs are at stake.
Direct and indirect jobs at physical and virtual call centers: 12,000.
In addition to these industry jobs; there is also the reality of indirect jobs – unrelated service and attendant functions – at a 3.75 multiplier rate would add another 45,000 jobs.
The subject of banking jobs have been thoroughly elaborated upon in these previous Go Lean blog-commentaries:
|http://www.goleancaribbean.com/blog/?p=15923||Industrial Reboot – Payment Cards 101|
|http://www.goleancaribbean.com/blog/?p=15479||‘Lean Is’ as ‘Lean Does’ – Good Bank Project Management|
|http://www.goleancaribbean.com/blog/?p=14242||Leading with Money Matters – Follow the Jobs|
|http://www.goleancaribbean.com/blog/?p=11184||JPMorganChase spent $10 billion on ‘Fintech’ for 1 year|
In summary, while the Caribbean is arguably the best address on the planet, we have a deficiency in job creation. We need more trade. There is the opportunity to double-down on trade … in services – BPO’s await us – this will create more jobs.
India did this – mastering trade and globalization – so can we.
This is the Go Lean roadmap. This plan is conceivable, believable and achievable.
We urge everyone in the Caribbean – bankers et al – to lean-in to this roadmap to make the Caribbean a better place to live, work and play. 🙂
Sign the petition to lean-in for this roadmap for the Caribbean Union Trade Federation.
Appendix A – Title: The new back office: inside Goldman Sachs’ Bangalore hub
Sub-title: Quants are hired in India as economics, politics and tech shape the banking industry
By: Andrew Hill
When Goldman Sachs opened its wholly owned Bangalore operation in 2004, it was a typical back office. Just under 300 full-time staff supported a front line of revenue-generating bankers worldwide. They worked in limited areas such as information technology, finance and accounting.
The group put no cap on Bangalore’s ambitions, says Bunty Bohra, who heads the office, but “we didn’t envisage anything like the scale and complexity” of the current operation — let alone what is now planned for the group.
Goldman now employs about 5,000 staff in Bangalore, 4,000 of them full-time, across almost every division of the bank, including revenue-generating “front office” roles. In 2019, it expects to open a $250m campus on Bangalore’s traffic-clogged outer ring road that will be able to accommodate 9,000 people in two buildings, across 1m sq ft.
The evolution of Goldman’s presence in Bangalore is one example of how economics, technology and politics have shaped the back office over the past 15 years. Companies have started to look at back offices not just as low-cost support centres, but sources of skills for the rest of the organisation. At the same time, they have learnt to flex the mixture and location of their own staff, and of outsourced teams, to meet customer needs.
In the mid-1990s, multinationals strove to cut the cost of support functions such as handling payroll, or dealing with customer queries. Moving them to cheaper countries such as India was the obvious solution. Since then, however, the response to the question of how, where and with whom to carry out back-office functions has become more complex, and more strategic.
Goldman is a case in point. Its Bangalore-based staff now represent 14 activities — from compliance and legal services to investment banking, though the most senior client-handling vice-presidents still operate out of Mumbai. “It really is a talent story, not ‘Where are there people and office space that’s inexpensive?’” says Mr Bohra. Last year, for instance, the bank hired 150 “quants” in Bangalore. These mathematicians and scientists work on the bank’s quantitative investment strategies, but also analyse big data in areas such as risk management or human resources.
The bank’s plans for its new campus would allow it to expand to become the biggest office outside New York. But at the same time, the bank does not have to take up the option to lease the second of two buildings. At the moment, it expects headcount to remain flat. Mr Bohra uses an analogy with a potentially uncontrollable family pet: “We don’t want to have a ‘golden retriever’ problem. We want the intellect, maturity and seasoning to exist at the same time.”
This is only one way in which companies are reviewing their back-office strategy. For instance, growth in the use of “captive” centres, serving the whole company, has accelerated. Ilan Oshri of Loughborough University found that between 1990 and 2009, the world’s largest 250 companies established 367 captive centres worldwide. There are now an estimated 2,000 such hubs.
Outsourcing companies have also become more agile. Susir Kumar, chairman of Intelenet Global Services, says outsourcers have moved from carrying out processes to making more judgments for clients. Intelenet’s agents have long had the responsibility for deciding, say, whether to grant a loan or approve an insurance claim. “The ability to manage change in a fast-changing environment is the key,” he says. Often, contract workers are used in a blend with in-house back-office staff.
Even Goldman’s Bangalore operation, which prides itself on propagating a “Goldman culture”, now outsources certain functions — such as accounting — to multiple contractors.
Prof Oshri says the trend of companies moving their offshored back offices to the next cheapest location as labour costs increase has also changed.
One factor for large companies that have expanded overseas is political pressure to “bring jobs home”. That could be a particular issue for US retail banks. They are potentially in president Donald Trump’s line of fire, although they argue they need to support front offices round the clock, and therefore round the world.
Other sectors have, over the past five years, also started to trim earlier policies to offshore customer service operations. In the UK, Santander, the bank, United Utilities, the water company, and BT all “reshored” call-centre work from India in 2011. Vodafone UK recently announced it would create 2,100 jobs across the UK, essentially by relocating customer service roles currently carried out, via an external agency, in South Africa. Last year’s Brexit vote could accelerate the trend, as outsourcers and insourcers adapt to a more nationalistic popular tone.
In the case of call centres, location is highly dependent on customers’ perception of quality — bluntly, whether they can understand the call-centre staff. But there are other advantages to having support staff closer to headquarters, including control over recruitment, rewards and training. Strategic support functions, like risk management, may be better handled by a “middle office”, based closer to the main revenue-generating activities.
The cost and skills combination needed for back offices still tilts the choices heavily towards emerging markets, though. Vodafone UK’s IT shared services are still in Bangalore and Pune in India, where it uses a blend of captive operations and third parties, often dealing with enterprise customers.
Campbell Harvey of Duke University’s Fuqua School of Business says cost is still companies’ main motivation and technology will be a more important influence than politics on future back-office decisions. “People traditionally doing back-office functions in New York and London were disrupted by offshoring and that’s a sideshow compared with what’s coming,” he says.
That said, while the rise of machine learning sounds like a threat to back-office jobs, when Prof Oshri asked 150 corporate buyers of outsourced services how much they had spent on cognitive computing, the answer averaged out at £350,000 per enterprise over the past five years — barely enough to cover a pilot project.
Leslie Willcocks of London School of Economics says he is “staggered how slow” big organisations are to introduce basic automation, let alone artificial intelligence.
Intelenet’s Mr Kumar is equally sanguine, both about the US political pressure, to which he thinks the industry will adapt, and the rise of the robots. He believes the same number of employees will work with machines to do more sophisticated jobs for clients. But Prof Harvey has a warning for institutions that do not plan ahead. “It’s a race to the bottom and the bottom is not a human, it’s a machine.”
Source: The Financial Times – Posted April 13, 2017; retrieved November 23, 2018 from: https://www.ft.com/content/6c1481ea-185d-11e7-9c35-0dd2cb31823a
Appendix B VIDEO – The Transformation Of India’s BPO Industry – https://youtu.be/44RlATt7S2w
Published on Nov 19, 2017 – India’s BPO industry first caught our imagination over a decade ago with its world-class offices and relatively high starting salaries. But with the downsides of strange shift timings and stranger accents. How has it changed since then? As it lost its novelty value, the BPO world fell out of the headlines. Is the industry still flourishing in India or have protectionism, automation and competition from other countries hurt the famous Indian outsourcing industry?
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