Rising in the East

By Jeremy Smerd

Aug. 17, 2007

BANGALORE—In a second-floor office off a dusty street here, computer engineers are building electronic health records for the American market. It’s just after 6:30 p.m. in late May and the evening snack—dahi vada, a local dish of fried dough drenched in a sweet yogurt sauce and topped with ground chili—has been served, as it is every day, to give employees an energy boost as they head into that time of day when the instant-messenger icons on their computers spring to life.

    More than 8,000 miles away, it’s morning in the United States. Computer engineers at Allscripts Healthcare Solutions, a software company with nearly 1,000 employees, begin to shuffle into the company’s nine U.S. locations. They prepare to discuss with their Indian counterparts how much progress was made on the project while the U.S. team was asleep.

    The American and Indian engineering teams are not part of the same company, but in order to take advantage of their 24-hour development cycle, they must act as one.

    The Indian team is HealthAsyst, a small software firm whose executives happily describe themselves as part and parcel of their American client’s workforce. This is exactly how Allscripts’ chief executive, Glen Tullman, envisioned outsourcing his development to India.

    “This isn’t about going somewhere and simply getting the lowest cost,” Tullman says via telephone from his company’s Chicago headquarters. “This is about getting the right talent at the right time.”

    Though still far cheaper than labor in the U.S., India is not the bargain it once was, for all the familiar reasons. The economic boom of the world’s second-fastest-growing economy (9.4 percent growth predicted for 2007) is straining the infrastructure of major cities, driving up the cost of real estate, creating salary inflation and setting off talent wars so fierce that a job candidate who accepts a position on Friday may decide to go with a different company come Monday. No one is more aware of this than Indian executives and their employees.

    Their solution, however, is not to race other outsourcing countries to the bottom of the economic ladder, but rather to the top. Instead of being the least expensive place to outsource, they want to offer the greatest value. And this strategy has changed the value proposition India offers potential customers: Rather than doing for cheap what they currently do—be it operating call centers, developing software products or managing a company’s IT infrastructure—Indian companies want to do more. They want to charge their partners for it and, better yet, share in the revenue they help create.

    There’s one catch: The company that is outsourcing must be prepared, in many cases, to work more closely with Indian workforces or, at the very least, see them not as a low-cost, low-skill labor set that operates in a vacuum, but as an extension of its own workforce. The question for executives of outsourcing companies, then, is this: Are you ready to commit to India?

    “Any company that wishes to outsource must have total clarity as to why it’s outsourcing,” says Rajan Bhandari, a senior manager and retired Indian navy commander who runs the New Delhi call center of iGate Global Solutions, an IT outsourcing company that is a subsidiary of Pittsburgh-based iGate Corp. Bhandari speaks in a tone that is both measured and forceful, and his voice booms over the hum of the air conditioner inside the company’s New Delhi office.

    “Is it outsourcing merely because its bottom line is hurting and it needs to keep the wolf from the door? That’s fine. It’s OK for the short-term solution. But these short-term solutions don’t hold for beyond a year because the wolf will come back to the door with an ever larger appetite.”

Business evolution
    To develop this clarity, one must first understand that the history of outsourcing is the story of Indian companies—and their employees—moving up the value chain.

    “When people think of what’s happening in India, they tend to think it’s low-end coding work and basic-level stuff,” says Subash Rao, head of HR in India for Cisco Systems. “That’s no longer true.”

    Or at least it is no longer the only truth. Thanks to India’s history as a British colony, a rich cultural legacy that has long valued education, especially in the sciences, and the country’s location in a time zone nearly 12 hours away from the U.S., India was uniquely positioned to be the first to take advantage of outsourcing opportunities.

    The seeds for India’s economic boom were planted in 1991 when the Indian government reversed a closed-door economic policy that had driven away foreign investment since the late 1970s. This economic liberalization infused the country with much-needed capital from companies like IBM and General Electric, which were among the first to take advantage of India’s low-cost talent pool.

    The rest of the world awoke to outsourcing in the late 1990s when Indian companies successfully proved they could manage high-volume, low-skill work. By fixing a computer’s date with a simple change of code, Indian engineers helped the world avert the impending doom of Y2K. Such high-volume, low-skill “process work” moved into other areas. Computer engineers took on projects maintaining and upgrading old software. Those with a college degree found opportunities, more recently, in business process outsourcing, doing data-entry processing of auto-insurance and dental claims.

    It can be mind-numbing work, says Ravi Vadapalli, global director of training and development for Virtusa, an IT consulting firm based in Westborough, Massachusetts. In his office in Hyderabad, an outsourcing center in southern India where Microsoft has its Indian headquarters, Vadapalli describes how it can look to the worker in India: “A thousand dental claims come in. There’s a software here, I look at something and click. Look at something, click. Look at something, click. That’s the lowest end. It gets meaningless. I have to work only for the money. So that’s a huge workplace stress.”

    Demand for workers and the nature of the work have led to high employee attrition rates in India, which today average around 40 percent in business process outsourcing and 15 percent in the higher-skilled IT services.

    Meanwhile, the sector is voracious in its need for workers. In 2007, 1.6 million professionals worked in India’s IT/BPO industry, according to Nasscom, the industry group representing Indian software companies.

    And though nearly 3 million young Indians graduate college every year, it has become harder and more expensive to recruit for low-end business processing and information technology work. Nasscom predicts that at current growth rates, the sector will need 2.3 million workers by 2010 but will have a supply of only 1.8 million, a shortfall of 500,000 knowledge workers.

    Some Indian companies, confident in their ability to train employees, have begun to hire younger, cheaper workers. ’’

    “What they’re saying now is, ‘Guys, you’ve done high school. That’s enough,’ ” Vadapalli says. ” ‘You don’t need to go to college; come to my workplace and I’ll get you a degree.’ “

    Many Indian executives worry that India cannot remain competitive as a country that goes only for the lowest-end, lowest-cost outsourcing contracts. Salaries alone are cheaper in Vietnam, according to a June 2006 report on global outsourcing salaries by consulting firm NeoIT in San Ramon, California. In 2006, salaries increased nearly twice as fast in India (14 percent) than in China and the Philippines (both 8.1 percent) and Thailand (6.5 percent), Hew¬itt Associates reported in its annual compensation survey.

“When people think of what’s happening in India, they tend to think it’s low-end coding work and
basic-level stuff. That’s no longer true.” –Subash Rao, head of HR in India, Cisco

    India’s IT sector is predicted to generate $47.8 billion in revenue in 2007, more than doubling from $21.6 billion in 2004. The great majority of that revenue—an estimated $39.4 billion in 2007—comes from outsourcing contracts, so Indian companies hope that such results will prompt their overseas clients to stay with them even as their services grow in cost and complexity. So far, if revenue growth is any measure, this transition to higher-end work has already begun.

    “The world is slowly waking up to Indian talent,” says Ameet Nivsarkar, vice president of Nasscom. “Over a matter of time, managers have realized the value the Indian workforce can bring to their team, and there is a significant amount of high-end work that is being shared.”

    Business process outsourcer 24/7 Customer is based in Los Gatos, California, but the bulk of its 5,000 employees are offshore. To that company, creating value means using analytical modeling to make predictions about a customer’s buying habits and shaping its own workforce in accord with those findings.

    Vasudevan Bharathwaj, chief marketing officer at 24/7 Customer, describes what a medium-sized online retailer could learn from his company. (Bharathwaj would not name his clients, but think of janitorial supply company or New York-based electronics company J&R Electronics.)

    For example, a middle-age man calling Bangalore from Los Angeles around 6 p.m. PST has a higher likelihood of buying the latest computer gadgetry if he’s talking to an Indian cyber-salesman who hails from a small city and whose father was a low-level government bureaucrat. Bharathwaj says 24/7’s statistical analysis shows that young salesmen from smaller cities whose parents did not make a lot of money make better salesmen, especially when the customer is male. He thinks some Americans, who may know nothing about the Indian sales force, may connect in an unspoken way with such a salesman and therefore be motivated to buy from him.

    The goal of using this kind of analysis is to create intellectual property—predicting consumer behavior, for example—that clients can use to generate revenue to be shared with 24/7.

    The drive to create greater value is especially true in product development. HCL Technologies, a New Delhi-based technology company with 43,000 employees worldwide and $1.27 billion in revenue last year, calls its approach “co-sourcing.”

    HCL, which offers pro¬duct engineering, IT services and business pro¬cess outsourcing, tends to keep a low profile. Most of the world doesn’t know that the company’s engineers helped develop Microsoft’s Vista operating system and the computer technology on Boeing’s new 787 Dreamliner. In a typical arrangement, about 1,200 HCL employees work on a networking project for Cisco Systems’ office in Bangalore. In every way except their paycheck, they are Cisco employees.

    Whether the client is in Denver or Delhi, interaction between the two workforces has increased fifty-fold, from quarterly communication to daily interactions, says Vineet Nayar, president of HCL Technologies.

    “The question of the two workforces interacting has become by far the most important element in the success of a project,” Nayar says.

Building soft skills
    Integrating the two workforces, if only by instant messenger, still requires a large measure of communication, analysis and discretionary decision making. As a result, a focus on softer skills has permeated most Indian companies.

    At Wipro Technologies’ 120-acre Bangalore headquarters, a leather-bound copy of Stephen Covey’s The 7 Habits of Highly Effective People stands out against the stack of computer software manuals like a Bible on a newsstand. But the self-help book is there for a reason.

    “Five years ago, our focus was on technical skills, writing code,” says Selvan Dora¬i¬raj, Wipro’s senior vice president for training. “Today, 50 percent of our effort is there, on coding. The rest is on consultant training, management skills, customer-facing skills.”

    Wipro invests 1 percent of its revenue in training. In 2006, the company spent $18 million—or 1 percent of its $1.8 billion in revenue from its global IT services and products division—on training materials and personnel, including seminars that go along with Covey’s book, and 75 courses on technical and management skills. The company has more than 140 teachers, 30 of whom are certified professional behavior analysts. Their job, in part, is to teach employees how to better interact with clients so as to avoid the cultural miscues that can easily metastasize from annoyances into crises.

    “The purpose of this training is to combat the ‘Indian wiggle,’ ” says Gurudutt Rao, a trainer for Wipro. The term refers to the way Indians nod their head side to side to say yes. It’s a gesture that could be construed in the U.S. as shaking one’s head to say no. It is also a larger metaphor for the importance of bridging cultures to communicate effectively.

Desire to make a difference
    The march of Indian companies up the value chain is, in many ways, an ineluctable product of ambition and necessity.

    “There is a lot of fire-in-the-belly syndrome in India today,” says Prabir Jha, global chief of human resources for Indian pharmaceutical company Dr. Reddy’s Laboratories. “Indian companies really want to take on the world.”

    Nowhere is this more evident than in the changing expectations young Indian workers have for their careers.

    “The current workforce is highly ambitious in terms of their career,” Wipro’s Dorairaj says. “If they are not satisfied, they will continue to move on.”

    Money is but one part of that decision. After working nearly four years for a small software company in Calcutta, Saptarshi Roy thought he’d gotten his big break. In 2006, he landed a job with the title of senior software engineer with Wipro Technologies’ Bangalore campus.

    Roy, 29, quickly discovered that his lofty job title didn’t accurately reflect the work he was doing, which was the simple, almost rote computer work of checking for bugs in software that runs the printers, scanners and other hardware of Wipro’s Japanese client Toshiba. It was precisely the kind of process-driven quality-assurance job that has fueled India’s outsourcing boom. But it was boring.

    “The job was very low-end,” he says.

    Six months later, he quit. Roy ended up at Health¬Asyst. This summer he spent a month working at Allscripts’ office in Libertyville, Illinois, near Chicago. During that brief stay, he visited New York City, which, he wrote in an e-mail, “rockz.”

    Allscripts’ decision to outsource was driven by the need to bring products to market faster. From the start, the company saw that the best way to develop products faster was to treat its Indian vendor as a partner.

    “We want to treat them as if they’re part of the company, because if we are paying them to do something they are critical to the company,” says Tullman, who in addition to being CEO of Allscripts is an Oxford University-trained social anthropologist and has traveled to India nine times. “You are never going to get the same level of success as when you treat them as a partner.”

    Clearly, not all companies are looking to India to help develop new products. If all companies want is a less expensive way to manage payroll and other back-office functions, or if they perceive India’s ambition to move up the value chain as a threat to them and their onshore employees, they won’t have the commitment needed to make India work, Indian executives say. Executives who want to successfully outsource to India must be committed to seeing the work mature, and they must prepare their own workforce to move up the value chain alongside their vendors, iGate’s Bhandari says.

    “A successful offshoring effort is when employees grow and the seats they’ve left are filled by their offshoring partner,” he says.

    The conference room has grown quiet. At nearly 10 p.m., the sun has long since set on this muggy May night. The incessant honking of cars and the 100-degree heat outside have finally begun to dissipate. Then Ritu Arora, a divisional head of learning and development at iGate, sitting next to Bhandari, explains that point further. With a smile on her face, she aims to convert the skeptical: American executives who commit to India, who see the Indian workforce as an extension of one’s own, would reap the greatest rewards for their risk.

    “Then the team here feels a critical part of the work,” she says. “We feel that we matter, that we are recognized, and that the work we do makes a difference.”

Workforce Management, August 20, 2007, p. 1, 22-32Subscribe Now!

Jeremy Smerd writes for Crain’s New York Business, a sister publication of Workforce Management.

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