'Onshore presence is important'

After a brief lull due to elections, outsourcing contracts from the UK government are set to pick up again. Capita is UK's top business process outsourcing firm with amajority market share in the country. The firm has been described by analysts as one of the most acquisitive firms. It has made 12 acquisitions each in 2008 and 2009 spending £147.4 million and £177.5 million on them. Its acquisition of Prudential's captive arm and the assets of Axa Sun Life helped it boost its India staff strength. Today at about 3,800 employees, India accounts for about 10% of its workforce. The BPO firm currently has contracts worth £3.7 billion in the pipeline. Capita COO Simon Pilling attributes one of the reasons for its success to its ability to offer both onshore and offshore services.

“We are a UK-footprinted company that now has a strong footprint in India. This suits a lot of customers who like to see some services provided from the UK and some from India. We are four times larger than our nearest competitor, which happens to be an Indian company.” So, why have Indian players not made much headway in the UK outsourcing market?
That is because a lot of Indian offshore players still want to do most of their delivery from India, says Mr Pilling.
“The vital thing that is missing for the Indian offshore players — and am not for a moment suggesting it is beyond them — is that they need a much bigger UK footprint so they can offer customers the choice of, say, running voice processes from UK and some of the lower level processes from India.”
A lot of customers want the ability to flex UK and India footprints, notes Mr Pilling. And, because customers want that flexibility, many BPO providers that have traditionally delivered services from India need to move onshore.
That apart, given the sensitivity around offshoring jobs today, having an onshore presence becomes more important. The primary motivation for Capita to create delivery capabilities in India was the demand from customers for low-cost models.
After moving into India, the Capita management was pleasantly surprised to find that the quality of services delivered was very good. “Some of the slightly more complex service processes are now being moved to our India service offering.”
    
In many long-term contracts, customers are more open to moving work offshore after 2-3 years. So what is it that customers are seeking?
They are not just looking for costsavings, but certainty in the cost savings over a long term as well as quality. In other words, service providers who can grow and change to suit the customer's future needs and demands. “It is about how you can help the customer become more successful.”
For instance, when it comes to TV licence payments, it is not about how much cost is saved but about how more revenues can be achieved.
Similarly, for Capita's customers in the life and pensions business, the company helps them with new products that can be launched.
“We actually now have a set of people who can work in a well-structured way with the customer, and think what more can be done to make the customer more successful. That is the real proposition of where outsourcing goes now — giving customers confidence to give more to you to help them grow their business.”
    
How has elections in the UK affected finalisation of government contracts?
Expectedly, business has been slow since the country got into the election mood.
“The build-up to the elections has slowed down decision-making. But with the issues that are in play now, in terms of budget deficits, we see quite a huge opportunity for us to engage.”
Five to ten years ago, business from the central government accounted for 20% of Capita's revenues, today, it is around 10%. So Mr Pilling believes it can only go up from here.
“I see 2011 as a particularly exciting time. While there will be a time lag — the procurement process can take 12-18 months — there are very, very exciting opportunities for us.”
Fortunately, decision-making in other sectors are not affected by the elections. “We see opportunities in life and pensions where we are the clear leader — 35% of the market in life and pensions has been outsourced and we are 22% of that. There are other opportunities coming up in this segment that plays in particularly well with our India offshoring model.”

Simon Pilling