Cognizant Technologies: BPO to BPaaS | In Practise

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Cognizant Technologies: BPO to BPaaS

Former VP, North America at Cognizant Technology Solutions

Why is this interview interesting?

  • How the BPO service industry was born from ERP implementation
  • Challenges and opportunities for BPO providers in a cloud world
  • How the larger Indian BPO companies disrupted Western players
  • Why reputation matters more than price
  • How Accenture and Cognizant are the best positioned
  • Economics of BPaaS vs traditional BPO
  • Outlook on visa and regulatory risks for BPO providers

Executive Bio

Eric Storey

Former VP, North America at Cognizant Technology Solutions

Eric has over 23 years of experience in the BPO industry and is the Former VP of North America at Cognizant where he ran 12 delivery centres globally to generate over $700m revenue for the group. In 1998, he started his career at Accenture implementing large ERP systems for Fortune 100 companies. He had a short spell at Deloitte and Booz Allen Hamilton where he was consulting clients choosing large BPO providers before being hired to run Affiliated Computer Services, the $6bn BPO acquisition by Xerox, which is now called Conduent. Eric was also previously the Former Chief Revenue Officer at Solix, a specialised healthcare BPO provider in the US. Read more

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Interview Transcript

Could you introduce your background and role within the BPO industry?

I started in BPO in 1998 with Accenture, when they were still Andersen Consulting. It was not called BPO back then. At the time, big system integrators such as Deloitte, Ernst and Young, KPMG and Accenture were all doing big ERP implementations and wanted to replace that revenue stream. They got into application development and maintenance of those ERPs and other tangential systems they put in. They thought, while we are doing this, why not take over the running of that system and processes on it? I was at Accenture for six years, in financial services primarily – then chemical energy and natural resources – doing BPO for them.

I moved to Deloitte and did a short stint at Booz Allen Hamilton where I was strategy and ops consulting on the sourcing of BPO and some ITO. I was on top of what was going on in the industry. After Deloitte, I joined Xerox which had acquired Affiliated Computer Services, ACS, a large BPO provider with $6 billion in business in 2010. Today they are called Conduent, which is strictly a BPO provider. I was at Xerox for six years, leading BPO in the financial services industry, healthcare and some HR. Following that, I was recruited by Cognizant to run all of the delivery operations for BPO in North America at first.

My furthest Northern delivery center was Toronto and I had six more inside the US. They expanded my portfolio to all of the Americas, where I ran all delivery operations from Toronto to Buenos Aires, totaling 12 delivery centers including Brazil, Costa Rica, Guatemala, El Salvador and North America. I have seen the gamut of everything from selling BPO to how to drive better deals. At Deloitte and Booz Allen, we were at the table bringing the two parties together for the best deals that would benefit both sides.

Can we take a step back and look at the evolution, over the years, of services within BPO, from the original ERP system implementations, and how services beyond that were spun out of maintaining or developing applications?

We had big ERP implementations and, at that time, there were still companies doing ITO, IT outsourcing. The IT space needs many different skills by any company, from different applications and development tool sets to running your network, mainframe and mid-range servers and today the cloud, where many services are required. Any company which runs IT and applications that run business processes, needs a diverse mix of skill sets and few of those individuals with a single skill set work 20 hours a week, let alone 40.

This is how the genesis of BPO occurred. At the time there were separate supply chain and HR systems, but now they are wrapped into single ERPs. As the systems integrator put the ERP in, after receiving $100 million contracts for implementation, how would they replace that revenue stream once it was fully implemented? The answer was to take on the application development and maintenance for additional tool sets. That alone would not reach $100 million. At the time, most of these were implemented on the client's mainframe or in their mid-range server set somewhere. They took on the processes and trained people to do insurance claims and general ledger reconciliation, all across the board.

That is where it was born in the early 2000s. Today, it has moved from mainframe and mid-range servers to everything being in the cloud. I no longer need to own any infrastructure and, as a company buying services, I do not need to own applications. Instead of spending millions of dollars implementing something on my servers, I can now buy anything I need as a service. We say, buy the drink or buy it by the drink. For a transaction, I pay for the person to do it, the application to run it, and all the computing resources and have a single charge; a few pennies to a few dollars, depending what the transaction is. There is evolution across the board. For example, in healthcare, the full set of services for both the insurance payer and provider, in financial services and insurance, in particular. An insurance policy requires high maintenance with beneficiary changes, paying and reviewing claims and managing agent applications.

How has that fundamentally changed the relationship between the BPO provider and client in the cloud world of today?

I think it is huge; the companies that are buying these services rely heavily on providers who are delivering their infrastructure, digital services and running their BPO. Most consumer companies want to reduce the number of vendors in their space so they can manage it better, with tighter security over a few vendors, rather than everybody having access to their systems.

It has changed the relationship for those providers who deliver quality end-to-end services, from running network infrastructure, to managing applications and delivering BPO services, including both people and agents. The digital aspects of delivering those services are becoming more prevalent. Reducing the number of people doing basic tasks and replacing them with chat bots, automated robots, artificial intelligence and machine learning, thereby saving people for more complicated higher-level tasks and involved processes.

Has the BPO provider become more important in the cloud world? It might be shorter contract duration or even cheaper, but are they more technically crucial to the integration?

That is correct. Formerly, when we implemented on a company's servers, we would do the big integration then hand it over to their people who would learn, train and get accustomed to it. Now you have to be tightly knitted with your service provider, which again is, hopefully, one or only a few, rather than someone for each area of ERP, HR, infrastructure, consulting or wrapping new digital services and website maintenance. If you can restrict it to half a dozen providers, you can get best in class across everything.

In the early 2000s, there was a 30% savings if you outsourced things because a service provider knew how to do it better, more effectively and efficiently. In 2006, we saw the advent of true offshoring which is different from outsourcing. Offshoring, layered on top of outsourcing, brought a 30% reduction to the cost base of running IT and applications. People were still hungry wondering how they could get more out of this.

While I was Deloitte, we figured out the best way to get a further 30% out of your contract was appropriate management, meaning a tighter relationship with that BPO provider. Do not outsource everything including full management; keep enough people inside the organization who know the services that BPO and ITO provider are delivering so they can manage SLAs and know what is going on. You are not wholly reliant on that provider but have a tight relationship.

What impact did the large Indian offshore players have on the market?

I was at Deloitte and Booz Allen Hamilton doing the sourcing of ITO and BPO when the big transition came. As an ITO or BPO sourcing adviser, you are taking that client's requirements and producing the shortlist of most capable service providers to bring to the table. That is an important part of the adviser; who are the best ones to bring and how we can reduce your struggle? Indian providers changed the face of outsourcing as they got larger and more capable and made inroads into the US and Europe, because they were more flexible and willing to do things the way a company requested.

The way large companies figured out how to save money on ERP implementations was to follow a by-the-book implementation process. Rather than trying to cram 1,000 different SKUs into an ERP, they worked ahead of time with the consultant to reduce that to 250. By simplifying the implementation process, they saved millions of dollars. All the US companies who had implemented ERP wanted to live with what they had built, and were very demanding, rigid and structured about what they had. The Indian providers did this more than Accenture, IBM, Dell and Computer Services Corporation, which has now merged to DXC.

These companies wanted the company as a service provider; they wanted their customer company to change their way of doing things to match the way the big providers did it. The Indian players brought much more flexibility, but most people point out the lower cost. As much as you could take offshore, you could get a lower cost base. CSC, IBM and Accenture at a 2006 data point, had a typical hourly rate of $75 for outsourcing. That was a blended rate for outsourcing, much lower than the consulting blended rate which was $300. The Indian providers, if you could offshore 60% to 80% of what you needed, offered an hourly rate of less than $20.

$20 compared to $75 is what the Indian providers brought. The resources they brought onshore were staffing at half that rate; $35 to $50 an hour for outsourced services.

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Cognizant Technologies: BPO to BPaaS

September 9, 2020

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