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1 IBM Daksh Business Process Services © Copyright IBM Corporation 2005 IBM Confidential “ Knowledge Workforce: A Roadmap ” HR CHALLENGES HR RoundtableGlobalising People Skills”Friday, 2 September 2005

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Page 1: IBM Daksh Business Process Services © Copyright IBM Corporation 2005 IBM Confidential 1 Knowledge Workforce: A Roadmap HR CHALLENGES HR RoundtableGlobalising.

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“ Knowledge Workforce: A Roadmap ”

HR CHALLENGES

HR Roundtable“Globalising People Skills”Friday, 2

September 2005

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Index

India Inc.

Indian BPO Industry Update

HR Challenges

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deeper

India’s outsourcing changing the world

India: land of global sourcing

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India Inc is shining…

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… is at an inflection point…

3rd …Has third largest investor base in the world

1 Mn …Is adding one million mobile connections every month

2nd …Second largest reservoir of knowledge resource

300 …300 million are middle class consumers

6th …Sixth largest foreign exchange holder in the world

Highest …There are 70,000 bank branches in India

5th …Fifth largest telephone network (including mobile) in the world

2nd …largest among emerging economies, only after China

100 …Over 100 MNCs who have set up R&D centers in India

10X …FII investment increased by almost ten times in 2003 to $7.59 bn

#1 …and India remains as the leading global hub for BPO

India is now

the 10th largest

economy in the

world (from #12

in 2003)….

...India’s GDP

is $ 692 Billion

and growth

rate of 6%

annually

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China

US

India

JapanGermany

India

BrazilChinaRussia

…is an emerging economic superpower…

India would

become the

third largest

economy after

USA and China

by 2050.

India's GDP will reach

• $ 1 trillion by 2011

• $ 2 trillion by 2020

• $ 3 trillion by 2025

• $ 6 trillion by 2032

• $ 10 trillion by 2038, and

• $ 27 trillion by 2050

In terms of GDP, India will overtake

• Italy by the year 2016

• France by 2019

• UK by 2022

• Germany by 2023, and

• Japan by 2032

Among the BRIC group India alone has the potential to show the highest growth (over 5 percent) over the next 50 years.

China Overtakes the G3; India is Close Behind

India Shows Most Rapid Growth Potential of the BRICS

The Largest Economies in 2050

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…and the leading offshore destination

Excludes US, UK and Australia Near-shore Generated BPO RevenuesSource: “Offshore BPO Delivery,” Nelson Hall, Q1 2004

Proportion of Total Offshore-Generated BPO Revenues (2003)

5% Mexico1% China

1% So. Africa2% Other

16%Philippines75%

India

India is a

leading BPO

offshore locale

with strengths

setting it apart

from

comparable

locations.

India

Canada

Singapore

IrelandAustralia

Spain New Zealand

Czech Republic

Israel Portugal

HungaryPoland Chile

So. Africa

Malaysia

BrazilChina

Costa RicaMéxico

Turkey

Argentina

RussiaThailand

Vietnam

Bu

sin

ess

En

viro

nm

en

t a

nd

P

eo

ple

Ski

lls &

Ava

ilab

ility

Financial Score

Philippines

Low High

HighOffshore Location Attractiveness :Rating the Top 25

Source: “Offshore Location Attractiveness Index 2004,” A.T. Kearney Management Consultants, 2004

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…Young & Vibrant

India BPO Industry

deeper

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Source : Nasscom

India’s offshore value proposition remains the strongest

India still ranks

as the preferred

destination for

outsourcing…

…and

estimated to be

44% of the

worldwide total

outsourcing

India BPO - RevenuesUSD Bn

64.0

21.0

0.930.6 1.6 3.6 5.8 7.3

2000 2001 2002 2003 2004 2005E 2009E 2012E

CAGR 42%

Employment Generated'000 3,095

1,200

348 254

106 180

2001 2002 2003 2004 2009E 2012 E

BPO Contribution to India's GDP %

2.5%

0.7%

5.8%

0.2%0.3%

2001 2002 2004 2009E 2012E

India’s offshore value proposition

• Superior offshore process management and service delivery capabilities

• Talent pool: size does matter –esp. when you need to scale-up

Pricing trends in BPO likely to be susceptible to downward pressure

• Increasing the emphasis on operational excellence to sustain margins

Indirect employment attributed to IT-BPO – 2.5 million in FY05

Growing at 7X the domestic GDP – highest growth in Industry in the country

Growing at 7X the domestic GDP – highest growth in Industry in the country

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Changing demographics driving growth

India has a youthful population structure

Source: Population Reference Bureau

Data for 2000

In India, 36% of its population is

below the age of 15 years, and only

4% above 65

Literacy %

75%

18%

44%

28%

34%

52%

65%

1951

1961

1971

1981

1991

2001

2005

• Only 5.5% of the Indian populace over 60 years

• Scientific and technical workforce increased from 4.8 Mn in 1991 to 7.7 Mn in 2000 (up 59% in 9 years)

Expanding Labor pool = Growth in workforce X Growth in education

…and a thriving & rapidly growing labor pool

Enlarged Labor pool will extend

the tenure of Labor arbitrage

• Working population (19 – 60 years of age) will increase from 485 mn to 615 mn by 2010

• Educational base of 21 mn professionals and 90 mn graduates/post graduates by 2010

44 % of

population less

than 19 years

(54% of

population below

25 years of age)

…estimated

literacy rate for

this segment is

over 75%.

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2003-04 Revenues - US $ 3.6 Bn

23%

33%

12%

15%

15%

2%

$ 1.2 Bn

$ .07 Bn

$ .82 Bn $ .54

Bn

$ .43 Bn

$ .52 Bn

Industry remains customer support centric today

Source: NASSCOM

Industry in early

phases of

Industry

diversification…

…new LOBs

developing; HR

& Finance

services

gaining

momentum.

2008 Revenues - US $ 21 - 24 Bn

12%

17%

12%

7%

14%

38%

Customer Support

Content development

Payment Services

Administration

Finance Services

HR

$ 8-8.5

$3.5-4

$2.5-3 $1.5-2

$3-3.5

$ 2.5-3

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Highlights of Indian ITES-BPO sector

Source : Nasscom

Emerging opportunity areas for the ITES-BPO sector:

• LY witnessed a significant pickup in global interest for HR ITES-BPO: Global potential for HR outsourcing in 2004 estimated at $10.8 billion -- offshore-able potential over $5 billion. Value of HR BPO offshored to India in FY 2004-05 was $165 million, up 120 per cent from $75 million in the previous year.

• F&A (Finance and Accounting) outsourcing emerging as one of the fastest growing BPO segments. From deals focused on transaction processing to now customers wanting to outsource entire business process.

• Procurement outsourcing is an emerging area as more and more firms are seriously investigating this option.

• ITES-BPO employee grow at CAGR 52.6%: 42,000 in 01-02 to 348,000 in 04-05.

• 410 ITES-BPO players in India in Mar05 - up from 285 in FY 2003-04.

• Captive units continue to dominate – account for 65+% of work off-shored to India.

• Domestic ITES market also witnessed a significant demand: from $300 million in FY 2003-04 to $600 million in FY 2004-05.

• High degree of competition in the domestic telecom and BFSI verticals with companies laying increased emphasis on customer fulfillment and other CRM activities.

• Integration of IT-BPO contracts is becoming more common.

• Indian vendors are developing multi-location delivery capabilities: firms also setting up facilities in China, Eastern Europe, Ireland, and Philippines. Within the country- expanding to tier-II cities - Mysore, Nasik, Vizag, Jaipur, Chandigarh and Trivandrum.

• Wave of consolidation as several large M&A deals were scripted in the industry like GECIS-Oak Hill/General Atlantic Partners, Daksh-IBM, e-serve-Citigroup, etc.

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Pure-play local, BPO companies

Global BPO specialists Indian IT players Integrated Service

Providers

“Global+Local” Integrated Service Providers

Basic Theme Capture Labor Arbitrage Customer Retention Diversify Revenue

streamBusiness

Transformation Business Transformation

Advantage (s)

Core competency focused

BPO focus & expertise

Existing Client base

Global Service Delivery

US-India corridor

Existing Client base

Branding & retention

Business transformation capability

Global Brand

Strong Balance Sheet

Transformation= Operations + Consulting + Technology

‘Global+Local’ operations (Global platform – Local expertise)

Challenge (s) Weak Balance sheet

Brand in tight Labor market

Only Processing Capability

Organizational pedigree

Limited knowledge of local market

Only Processing Capability

Center of gravity out of India

BPO business dynamics vs IT

Low share of BPO Revenue as a % of IT Revenue

Career prospects viz Global Brands

Limited knowledge of local market

Weak operations capability

Too broad an offering

Perceived as a Technology player

Key to Success

Ally with larger, global player or operate in niche

Build local expertise and migrate existing clients

Acquire local players / sharpen focus on BPO Operations

Move from labor arbitrage to strategic transformation

Independent Locally managed subsidiary working under Global “Framework”

Indian BPO/ BTO landscapeCategory

Details

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Industry Insights

BPO

• Performance to process improvements

• One-stop shop

• Data Integrity and security requirements

Customer

• High attrition levels due to night working

• BPO Industry Maturing – Evolving Mid-management

• 9% increase in Satisfaction level of BPO staff

• Third-party Training engine underdeveloped

People

• Infinite demand

• Weakening Dollar

• SOX Compliance

• M&A…Captive Converting

• Vendor Polarization

External Environment

• Scale with Quality

• Real-time SLAs

• Logistics Complexity

• Ethical business practices

• Building a Profitable & Enduring business

• Different Cultural Context

• Geographic Dispersion

BPO Business Needs

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HR Challenges Shortage of manpower and a spiraling wage rate

- Manpower requirement at a whopping 1.03 million for FY 2005 leading to shortage of approx 0.26 million.

- Spiraling wage rate due to manpower shortage, resulting in unprecedented growth in the average salaries.

- Lack of availability of voice trained resources- Huge investment by organization on training the resources as third-party training engine underdeveloped.

- Seasonality of availability - Availability of fresh pool (graduates) during April – June months. Then a dip till September, October.

High Attrition Rates - Wider opportunities - due to increasing competition & growing opportunities in other industry as

well. - Higher Studies- Expectation of higher compensation.- Odd Working Hours combined with long Commuting hours

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HR Challenges Health & Stress Issues

- A survey indicates 25% of the people in the industry face high stress, 32% face medium stress and 42% experience some stress.

- Four broad areas effecting mental and physical health are Behavioral stress, interpersonal stress physical and organizational stress .

- Reasons Cited:-- Pace of effort required ,Odd work hours,Repetition & Monotony of work,handling complaints and

problems all day,Daily physical confinement (tied to their desk,Feeling of Over-regimentation or of being spied on

Managing Employee Perception & Expectations- Industry awareness is limited with the focus only on earning a “fast buck”- “Glamour” to be replaced with “Performance metrics”- Reduce the comparison parameters by active engagement. - Difficulty in developing customer focus in young age group

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HR Challenges Changing Value System

- To build the organizational values by active engagement- Constant need for training and focus on the positive communication- To inculcate Ethics and code of conduct

Career Development- Expectations for fast growth avenues within the system - 6mths in considered as long time - shortage of people with adequate domain knowledge, leads to movement of people to the next

level irrespective of level expertise / capabilities.- Leads to the low level of people management skills at the team leader/ operations manager

level.- Span of Tenure:-Highest attrition faced during initial three months -short time span available to

develop awareness of growth opportunity

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HR Challenges

Misconducts- Violation of customer norms- Non-adherence to schedules- frequent / lengthy breaks, high absenteeism, - People issues- Insubordination and incompatibility in dyad (boss-subordinate)

relationships

Integrity & confidentiality- Concealing relevant information (previous employment , education, salary etc.) - Intentional deviation from prescribed standards of service levels to meet targets/

gain - Data falsification leading to financial implications.

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Actions

NASSCOM’s Assessment of Competence program(NAC) For ITES –BPO sector launched In August*- An assessment and certification course to meet the industry standards, thereby ensure

transformation of a trainable to an employable workforce and reduce the sourcing costs by 50% and also save on recruitment process time and reduced training hours.

- Educational Institutions and Universities to align their curriculum to the changing industry trends based on NAC

- NASSCOM is encouraging state Governments to commit to NAC so as to improve employment generation, attract serious investors for ITES-BPO sector and build a link between education and employability.

Movement to smaller cities and towns Vizag, Jaipur, Chandigarh, Mangalore , Pune etc- Abundance of talent- Fewer players- Less infrastructure cost and comparatively lower compensation.- Less attrition

* Source NASSCOM BPO newsline (August 2005 )

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Actions

A robust performance management system - Aligning the level of pay with the level of performance. - Enables in identifying performers and thereby create differentiation in pay.

Focus on Career Development - Extend beyond the areas of V&A and Process Knowledge training. - Rotation into different processes within a predefined timeframe- Tie up with institutions for higher education and professional development opportunities while at

work.- Develop and communicate career path and growth opportunity.

A strong “succession planning framework” will help organizations in creating adequate back up for those critical to business positions and to man them as and when required.

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Actions

Employee Care

- Actively engage in stress relieving activities.- Ensure health-support system- Actively engage with families. - Better reward and recognition schemes, - Team bonding programs - Creating adequate support systems - employee counseling .- “Fun at work” by celebrating fun events and cultural activities- Ensure a keen understanding of (and involvement in) values of the organization

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Suggestions Media Support

- Change the Society perception of the Industry ,from just being a non serious fun filled place to a build career

Platform for Inter-Company HR Norms - Develop platform - to define inter-company recruitment guidelines, and monitor compliance in a fair and

transparent manner.

Centralized Background Verification agency with common database- Build a central database of detailed verification on educational and professional background of the potential

aspirants to this industry ,with comprehensive feedback on relationship with prior employers, AOD status etc.

Absconding and Negative Database- Creation of an industry-wide database of employees for companies to cross-check during recruitment process at

nominal cost

Employees absconding without any information, Committed actions which require them to be put on a negative list.

Tie up with Schools and Universities to include relevant training in their curriculum

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Thank You!