It is no secret that business process outsourcing firms are grappling with a need to identify service differentiators. While increasing footprints and client proximity was considered to be a differentiator when the industry witnessed rapid growth, verticalization became a buzz word when the number of BPO players increased and awareness about the potential of outsourcing amongst clients improved. With a mature and promising market (read US), most of the BPO leaders were focused on generating ‘competitive’ differentiators so as to increase the company’s top line. Verticalization emerged as one such differentiator. However, with the steady flow of business comes the risk of ‘reverse salient,’ to which many leaders seemed to have turned a blind eye. In his seminal book, ‘Networks of power: Electrification in western society,’ Thomas P. Hughes introduces the concept in the analysis of technological systems, whereby the ‘reverse salient’ refers to a component of the system that, due to its insufficient development, prevents the technological system in its entirety in achieving its targeted development. BPO leaders who managed their companies out of the recent and one of the worst economic crisis clearly understand that the determinants for generating differentiators have radically changed. These leaders know that today’s inexorable shift in macroeconomics; disruptive technologies, business practices etc are potential ‘reverse salient’ and could transform their business prospects. Today, these factors form an integral part of a leader’s strategy in determining differentiators.
Importance of domain/vertical knowledge for service provider
Mike Lazaridis might not have imagined that the device he co-founded would one day achieve a cult status. His company’s smart phone – Blackberry – was primarily used by business executives on the go. It was a common sight to see dapper executives at airports, hotels and offices in praying positions - picking out e-mails. For many, the Blackberry remained an aspiration brand. However, the surge in smart phone market witnessed a burgeoning number of Blackberry users beyond the business executives. The phone maker was quick to add social media capabilities and other functionalities to extend its share while other brands saw their share eroding. The company was able to successfully address the mass market in India by first choosing a niche and dominating it. Blackberry isn’t the only company to adopt this strategy. Business history says Apple’s Macintosh computer found its initial success this way. The company used to target in-house graphics departments to do desktop publishing, then to marketing executives for business presentations. Later, the product's capability was extended to take on the professional pre-press and publishing market. Apple also leveraged its traditional strength in the education market to gain a strong franchise in the consumer market. Geoffrey Moore, author of several technology marketing books calls this the ‘bowling alley,’ strategy. According to him, “each vertical market is a pin to be knocked down. Companies should stick with this serial vertical market strategy while they gain momentum and their technology matures enough to tackle the horizontal market.”
What is the lesson for BPOs?
As many BPOs have already seen, verticalization ensures favourable business outcomes. An increasing number of BPOs are focusing on niche areas like health insurance, mortgage processing etc – demonstrating deep domain knowledge and thereby enabling clients to not only contain costs but focus on their core business. The question is - are these companies doing enough to successfully roll through these niches or ‘bowling alleys’ and enter a period of hyper growth?
Vertical centers of excellence as Innovation hubs
With competition in the BPO industry getting intense, it has become imperative for the companies to ensure unique experience around the services offered. Working with several customers from the same vertical, it is but natural for most BPOs to assimilate best practices and offer the same as insights to clients in need. Does deep domain knowledge mean everything?
A global IT company, which established an innovation center in India recruited domain specialists to assimilate best practices of the company across the globe and spanning its vertical focus. The objective was to extend its clients ‘solution accelerators,’ which would enable its clients to launch services faster and bring down costs substantially. Imagine a small utility company in one of the emerging countries with limited IT budget benefiting from the solution accelerator? Or, for that matter a start up healthcare company benefiting through the implementation of industry best practices? Better still, what if clients could participate in customizing their proposed solution? The client can leverage the domain specialists, test the readymade solution or suggest tweaking it up to its requirement - all at the IT Company’s innovation center.
BPOs in India might not be able to replicate the same. What they can however do is to build an ecosystem consisting of industry specialists from industry bodies, academic institutes, partners etc. The objective here is two pronged. While the ecosystem will enable the BPO to create a ‘global standard’ for processes outsourced from a specific vertical, it also helps the company build industry recognized specialists who can complement client’s resources. At a time when globalization is forcing organizations to increase their footprint, specialists who can ensure standardization at warp speed will be in demand as they would substantially bring down process implementation and speed up time to market.
Horizontal services should be a natural outcome
Blackberry knew what would entice people to their device – a collaboration tool called e-mail. When the market expanded, the company extended the collaboration tools to include social media. Take the example of Apple. The company could focus on bringing innovative devices like iPhones and iPads to the market because of the thousands of application makers that supported the company. What is a standalone device worth?
A BPO is like a device. A BPO focused on verticals is like a device with push mail capability. The future is where a BPO evolves to extend services like the devices from Apple. Future is where BPOs are able to extend ‘standardized’ services that help organizations in rapidly integrating new acquisitions, mobilizing new contracts, and transforming business processes.
