Global Economics

IBM's Insider in Outsourcing


Randy Walker is IBM's head of outsourcing for the Asia Pacific region. His job is to bring together all of IBM's outsourcing facilities in Asia and synchronize them, but he also contributes to the company's expertise in outsourcing services worldwide.

Walker thinks the most important trend in outsourcing isn't how much money such arrangements save, but what kind of value they add. For instance, anyone now approaching investment in India purely on a cost basis is missing the real payoff, he believes. Walker spoke to BusinessWeek's Bombay bureau chief Manjeet Kripalani about the changing contours of the outsourcing industry.

How does IBM operate its offshore model?

We operate a global delivery model according to the needs of our clients. We do it everywhere. Some delivery from the U.S. such as customer resource management is done from Delhi, financial services from Bangalore, human resources in the Philippines.

How has the industry changed?

It used to be only about cost, but now clients want not just cost, but business performance and processes innovation. That's primary. It's now across the board.

What kind of services does IBM provide?

We do customer contact work [call centers]. But it's no longer about doing the same call cheaper, but doing away with the call or automating it. People can handle their complaints themselves. For instance, if I have a technical request, I can either call in or go online to get the information. The operator then is the last resort if you can't do it yourself.

Your role technically is "Business Transformation Outsourcing." What is that, and how different is it from BPO or business process outsourcing?

BTO is about totally changing processes, unlike BPO, which is about taking and improving processes over time.

Where does the most growth come from?

The most growth over time is in business process services like accounts payable.

So what exactly are you changing?

So we are shifting to non-voice and BPO. Then it will be automation. We'll find a common platform among the processes created and find multiple uses for the product you create—that becomes value work. It's not just about labor arbitrage, but has more innovation in it. For example, in finance and accounting, we have an acquisition, Equitant. It's a set of tools which helps our client with processes that help improve the client's cash flow. And this is where the India team and delivery center come in.

Then it's no longer about labor arbitrage?

For us, first it was labor arbitrage. It was, what's cheaper than the U.S.? But now it's all about skills anywhere in the world, be it Russia, Dalian [China], India, Philippines. Voice is not problematic as such, but customers are demanding the change. They are demanding more value beyond labor arbitrage. It's a different level of skills and talent. Everyone expects cost savings, but they don't want 'cheap', they want 'value.'

Would you regard IBM's acquisition of Daksh a success?

It's our best success. We went from 6,000 people when we first bought Daksh in 2004, to 20,000 now. Both sides have benefited. IBM Daksh became 20,000 people, and we are able to do things we were strong in like data security, strong management of systems, and growth. We brought in that discipline to Daksh, as well as our research capabilities, and we were able to offer a value proposition to our employees.

They weren't just coming into a call center and BPO operation. They were coming to IBM where the growth ahead is large. We take key IBM Daksh leaders and give them a broader opportunity. I've taken the finance head from Daksh who now runs the banking and finance group for all of Asia. We've taken the Daksh's chief quality officer who is now chief quality officer across Asia Pacific. We are leveraging what he did at Daksh across Asia.

A lot of Daksh best practices have been extended to Asia. I've taken a team from IBM Daksh to the Japan center in Okinawa so they can replicate the Daksh system there. We've taken IBM leaders to Daksh and vice versa.

What are the challenges and hurdles?

The challenge is keeping the entrepreneurial period of growth and magic. We did okay, because the team in India is very empowered, customer service-oriented, and entrepreneurial. The challenge for us is keeping that. When you blend a 6,000-employee organization into a 340,000-employee IBM, sometimes you kill the magic. But we're trying to keep that spirit and make it work. You really have to keep a watch on that: how to keep the magic.

How have your customers reacted?

We hear our customers are happy with what they get from Daksh, but now they want more. They want innovation and creative tools. Anyone can do costs, but we need help on innovation, say our customers from airlines to financial institutions. We've had good partner relationships, with [cellular operator] Bharti for instance.

We work together. If you have a relationship where you do not have a partnership, or just want costs to be cheaper, if you do things with the lowest level of employee, you do not want to pay for it. Then if you pay lowest cost, you get lowest value.

You will end up wasting India and its talent. You get world class talent in India; it's very innovative. Global customers should be leveraging that. They're losing 80% of the value they can get. Sometimes they shift to other players who can do it cheaper. These are short term relationships that don't always work.

IBM's India advantage?

You have to shift the work around your centers across the globe. If you or your customers are not happy with India, they can go to Brazil. But we do it in India because they're so good there, they delight our customers. They get value, not just cost.

What's IBM's advantage in this business generally?

IBM does not only have an India outsourcing model, but rather a global delivery model that no one else can match. Yes, I think everyone gets the global delivery. Even homegrown companies in India are heading in that direction, making overseas acquisitions. But we can still do better. We are expanding, getting new capabilities. We now provide constant quality to a multi-tiered model.


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