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Prioritisation: CIOs will clearly have to identify the most critical projects that are aligned to
the organisation’s business goals; those will need to stay on track and others might have to be
deferred or de-prioritised.
 
2. Cost rationalisation: IT managers will reassess costs: power utilization,  real-estate impacts,
bandwidth, software/hardware license costs, staffing, exploration of lease versus buy options,
optimization of outside services spend and identification of what works best in terms of return-
on-investment and total cost of ownership
 
3. Emphasis on efficiency will compel CIOs to realign and streamline IT resources, people and
processes.  Re-alignment of computing resources almost becomes a way of life.
 
4. More for less: Business leaders will expect IT leaders and managers to be more creative and
innovative with the IT investments as budgets reduce.
 
5. Data centre consolidation: This will be high on every leader’s agenda to ensure optimal
utilisation of existing resources and assets. Virtualisation will play a big role in the near future
as IT organisations morph into more and more of a services management framework.
 
6. Regulatory compliance will continue to be key especially as organisations continue to
globalise; operating in different geographies and eco-systems will place a lot of emphasis on
doing the right thing and on meeting localisation needs.
 
7. Quality assurance: Business will expect high standards of quality as usual; and despite strains
on IT resources, quality cannot be compromised.  Operational excellence is even more vital in
tough economic environments such as what we have now.
 
8. Green IT: Going green marries corporate social responsibility with cost management. CIOs
will need to closely assess the cost benefits associated with green practices so they are
justified and stay on course.

9. Infrastructure resilience and security: These are priorities for any CIO but managing and
planning for this in tough times will be a challenge. Physical security is also a priority apart
from data security.
 
10. Legacy systems management: Integrating legacy applications and making them work with new
systems has always been and will continue to be a challenge. In environments such as what as
what we are facing now, retiring unwanted and under-utilized-legacy applications is a big  cost
saving for organisations.

·  Business productivity and cost reduction


·  IT and business alignment
·  Business agility and speed to market
·  Business process re-engineering
·  IT cost reduction
·  IT reliability and efficiency
·  IT strategic planning
·  Revenue generating IT innovations
·  Security and privacy
·  CIO leadership role
Attracting and retaining new customer
Expanding current customer relationships
Creating new products or services: innovation
Reducing enterprise cost
Improving business processes
Expanding into new markets or geographies
Increasing the use of information and analytics
Consolidating business operations
Targeting markets and customers more effectively
Managing change initiatives
Improving enterprise workforce effectiveness

The Indian ITeS-BPO industry has been on a strong growth trajectory for the last decade. The industry has
achieved several milestones in the past and is well placed to bank on emerging opportunities. However at
the same time the industry needs to tackle various issues related to operation, regulation etc. Further,
there are several external challenges like the growing debate in the western world against outsourcing,
appreciating Rupee against US Dollar. This chapter touches upon several key issues and challenges.

 Rising Attrition Rate: High attrition rates in the ITeS-BPO segment is one of the major concerns
for the companies. With attrition rates ranging between 25-40 per cent in the ITes-BPO industry, it
is posing a big challenge. It is observed that an average Indian call centre employee works with a
company for 11 months, where as an average UK call center employee stays in a company for 3
years. Apart from the loss of skill sets, the cost of recruitment and training represent additional
expenditure for the ITeS-BPO firms. It is expected that the Indian ITeS-BPO industry would employ
around 1.1 million people by 2008, which is resulting in shortage of quality human resources, and
with the high attrition rates, companies are increasingly poaching from their competitors,
compounding the problem further.

 Appreciation of the Rupee: As of mid Oct 07, the Rupee-US Dollar exchange rate was 12.3 per
cent higher yo- y, denting the earnings of the ITeS-BPO industry in India. This might provide an
opportunity for other emerging countries like China and Philippines to gain shares in the global
market. The continuous rupee appreciation would impact ITeS-BPO industry earnings. It is
estimated that every one per cent rupee appreciation against the US Dollar hits the ITeS-BPO
companies’ operating margins by 20-30 basis points (bps).
Note: Oct 07 exchange has been taken on 18th Oct 07
Source: RBI

 End of Tax benefits at STPI: Uncertainty about continuation of the tax holidays in 2009 may slow
down the industry growth. With dissimilarity in tax regime, the existing STPI units would opt to re-
invent themselves as SEZ units. It should also be kept in mind that low cost competitors like China
are emerging rapidly.

 Emergence of China: China has been emerging as one of the favourable outsourcing destinations
in the global outsourcing landscape. China has advantages in terms of cost and available
infrastructure facilities. Further, China is aggressively taking steps to overcome the shortcomings
in terms of required language skills. According to NASSCOM, the software services revenue in
China is expected to reach US$ 20 billion by 2010 from around US$ 12.3 billion in 2006. Therefore,
unless India takes precautionary measures, China may catch up with India’s position in the global
outsourcing market in the long run. According to A T Kearney’s Global Service Location Index
2007, China secured second position with a total score of 6.56, just behind India.

1.Attracting and retaining new customer and expanding current customer relationships
2. Creating new products or services: innovation
3. Reducing enterprise cost
4. Improving business processes

5. Expanding into new markets or geographies

6. Security and privacy

7. Rising Attrition Rate

8. Appreciation of the Rupee: 

9.Goverment Issues (End of Tax benefits at STPI: )

10.CIO leadership role


11. Managing change initiatives
12. Emergence of China: 

13. Improving enterprise workforce effectiveness


14. Consolidating business operations

15.Increase usage of analytics


Cost Reduction Revenue Operational Effectiveness External Effectiveness
Generation

1.Reducing enterprise 1.Attracting and retaining 1. Improving enterprise workforce 1. Government Issues (End of Tax
cost new customer and effectiveness benefits at STPI: )
expanding current customer
2.Improving business relationships 2. Managing change initiatives 2.Emergence of China and other
processes Economies
2. Expanding into new 3. Increase usage of analytics
markets or geographies 3. Consolidating business
4. CIO leadership role operations
3. Creating new products or
services: innovation 5. Security and privacy

4. Appreciation of the 6.Rising Attrition Rate


Rupee

Trends in Indian ITES-BPO market


• Continued market consolidation: The last eighteen months have been a period of significant
market activity for the ITES-BPO sector in India. Coupled with the growing stock of firms
expanding their offshore initiatives in India, the wave of consolidation as several large M&A
deals were scripted in the industry
• High levels of absorption: The rapid growth of Indian ITES-BPO in the last eighteen months
has contributed to a continued mismatch between the demand and supply of experienced
resources in the industry. Consequently employment generation and attrition levels remain high.
Indian ITES-BPO added approx. 74,000 jobs in FY 2003-04 – with the number expected to
double in the current fiscal. Even so, demand for experienced professionals outpaced their supply
and attrition levels in the industry remain between 25-40% .

• Vendor maturity – managing people risk: In spite of the relatively high people risk – attributed
to the high turnover and attrition – Indian companies displayed increasing maturity as companies
deployed innovative employee retention strategies. These included – employee recognition
schemes, career planning services, educational guidance and assistance and a greater emphasis
on improving the quality of work-life
Maturity pricing and engagement models: The maturity of the third-party
model has brought with it a variety of pricing and engagement models. The most
commonly adopted pricing models include: 1) Per-unit time / variable costing
(per seat, per hour, etc.); 2) Per seat or full time employee (FTE) per month;
3) Activity based billing; 4) Gain-share models; 5) Hybrid-pricing models

Onshore expansion to strengthen global delivery capabilities: According to


Gartner, Indian ITES-BPO companies are acquiring companies in the U.S. and
other locations with several objectives. These include access to a new market
beyond just a toe-hold, with ready resources, clients and revenues, access to a
new set of skills or domain and process expertise in the target market, access to
a new technology or intellectual property and also greater credibility with target
clients, by having a strong local presence beyond just a sales office. This growing
trend further highlights the transformation of offshore outsourcing to global

Strengths
Weaknesses
Highly skilled human resource
Low wage structure Absence of practical knowledge
Quality of work Less Research and Development
Initiatives taken by the Government Contribution of IT sector to India 's
(setting up Hi-Tech Parks and
implementation of e-governance projects)
GDP is still rather small.
Many global players have set-up Employee salaries in IT sector are
operations in India like Microsoft, Oracle, increasing tremendously. Low wages
Adobe, etc. benefit will soon come to an end.
Following Quality Standards such as ISO
9000, SEI CMM etc.
English-speaking professionals
Cost competitiveness
Quality telecommunications infrastructure
Indian time zone (24 x 7 services to the
global customers). Time difference
between India and America is
approximately 12 hours, which is beneficial
Opportunities
for outsourcing of work. Threats
High quality IT education market Lack of data security systems
Increasing number of working age Countries like China and Philippines
people with qualified workforce making efforts
India 's well developed soft to overcome the English language
infrastructure barrier
Upcoming International Players in IT development concentrated in a few
the market cities only

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