ICFAI Business School (IBS) Student Community

[adityakarnik (adityakarnik)]

Link:
http://news.moneycontrol.com/mccode/news/article/news_article

It is a management innovation that has transformed the way the world does business. And it all started in India through the initiative of a few far-sighted Indians working for an American firm.

The little known story of the birth of India's BPO (business process outsourcing) business strangely begins in 1985. That was the year Citibank became the first foreign bank to sign a computerization agreement with its trade union members. This was a turning point for the Indian subsidiary of the American bank, then headed by Victor Menezes, with Nanoo Pamnani serving as Senior Country Operations Officer.

As it turned out the timing was perfect. The bank was expanding its consumer operations world wide and was just beginning to focus on India, though it had had a toehold in the country since the early 1900s. At the same time, the agreement gave rise to the establishment of a software company. The idea came from Menezes but it was left to Pamnani and Venky Krishnakumar (who became the chairman of the new company) to implement. Citibank Overseas Software Ltd (better known as COSL) would later incubate i-flex for developing banking software (which it did through its highly successful flexcube product). i-flex in turn incubated e-Serve, an ITES or business process outsourcing firm. e-Serve became probably the first BPO to be established in India, and it transformed the delivery model for various business lines in India and overseas.

From idea to implementation

Traditionally Citibank has been known for using new technology in innovative ways to improve operational efficiency. As early as 1988 it had set up one of the world's earliest call centers - in Taiwan with eight operators who manned the telephone lines 24x7. At this time, management's focus was on serving local customers better. Even when plans were afoot to launch e-Serve, probably the first BPO to come up in India, the objective was to improve service levels for local customers. The captive unit only later began conducting back office operations for the parent company. Curiously two brilliant Citibankers, Vikram Sud and Akshay Bharghava, claim parenthood for the BPO idea. Both helped launch e-Serve, with Sud as its first CEO.

e-Serve certainly has a convoluted history. It started as a small cell in i-flex, which itself underwent numerous name changes and mergers, before being spun off as an independent company as late as 2001 and was later sold to Larry Ellison's Oracle Corporation. However e-Serve's value proposition as a business was evident right from the beginning in 1991.

The BPO business, now called Citigroup Global Services Ltd. or CGSL, saw a big jump sometime in FY99, when Citigroup decided to start providing transaction processing services to the financial sector and CSIL (Citicorp Securities and Investments) was chosen as the corporate vehicle. (see box: milestones) Thereafter progress was rapid. Beginning with the purchase of the Processing Services Division of Citicorp Information Technology (CITIL, now called i-flex), they proceeded to wind down their earlier finance business. In FY00 they consolidated their various operations in Mumbai at a new 50,000 sq ft facility at Malad and commissioned a new 30,000 sq ft facility at Chennai.

More interesting for investors was the clear evidence of improving financial performance. That year sales tripled to Rs 420mn, and the bottomline almost quadrupled, despite a 175% increase in depreciation. Further Citibank announced the merger of a subsidiary, Citicorp Credit Services India with CSIL. The subsidiary was engaged in call center activities and served many of the same clients. The merger helped streamline processes and systems, apart from providing greater transparency.

In 2000 only around 18% of revenues accrued from exports. CSIL had begun servicing several Citibank branches operating in India as well as other Citigroup entities in Africa, Central Europe, Middle East and Central Asia; its client base covered fifteen countries. Now it was hungry for business from the more lucrative and larger markets of the US and Europe.

By 2007, CGSL had established a reputation for domain expertise in financial services and a highly evolved quality and control environment. Its 9,000 strong workforce handle over 500 different processes, through 600mn transactions and 60mn customer contacts annually. Operating out of world class state-of-the-art facilities in Mumbai, Chennai, Delhi and Bangalore and a soon to be commissioned site in Gurgaon, CGSL remains mainly a captive unit and offers BPO solutions and services to Citigroup's consumer, corporate and global wealth management entities in over 45 countries.

A sustainable business model

The best thing about the BPO business is that unlike software which requires mainly engineers, IT enabled services don't require such high levels of education. And India has excellent availability of educated English speaking people who cost much less than their counter-parts in the developed world. With the advent of cheap telecommunications and the internet, the geographical barrier to market access are continuously reducing, making it possible to better service overseas customers from within India.

But it's no easy task. India has a reputation as a place where nothing works: the power cuts out and the telephone lines crackle and die. The services provided by the teleworkers are as exotic to most Indians as lychees are to most Americans: few Indians have check books, let alone the 12,000 variations of checks available to just one customer. Credit cards are even rarer among employees.

Then there is confidentiality, a particularly big issue after the fraud detected at one of CGSL's vendors, Mphasis, in 2005. It is hard enough to keep up privacy standards at home; to trust strangers thousands of miles away seems foolhardy to many. The issue is not merely theoretical. Add to this the mystery of India accents and steep training costs, and the even steeper cost of attrition. On the other hand, Citigroup's BPO business has grown from 200 employees to 9,000 in less than a decade. In step with this growth, CGSL has developed an extensive suite of products, refined its competencies and spent on resources such as technology and infrastructure.

[chiya (-=hidden=-)]

Hey Aditya...

nice article...but i request you to post articles under the "articles thread"

[abhishek1711 (shah)]

yeah adtiya and please try and post a summary of the article with a link for further reading

such copy paste of articles will lead to very bad pageranking for ibsrocks.....