Major Outcome based pricing deal by Top Indian Outsourcing Vendors till 2012

TCS started to use outcome based pricing in 2006 during which it signed some deals but the major deal it did was in 2008, when it won a project from Ministry of External Affairs to automate passports and is paid a combination of project fee and an outcome fee based on number of applications it process. In 2007, TCS signed a $1.2 billion deal with Nielsen, provider of consumer and media information services spread over 10 years and as soon as the finance and the HRO processes are centralized onto the new platforms, TCS has an option to review the deal and move to outcome-based pricing. TCS has used outcome-based pricing models in its BPO deal with Pearl Insurance in the UK and in the $250m IT infrastructure management deal with Tata Teleservices in 2005. TCS' British BPO subsidiary, Diligenta, will be taking over the IT and customer services functions of the UK business of Friends Life earlier known as Friends Provident, for 15 years and the deal is worth $2.2 billion. It is outcome-based pricing and TCS will charge per policy to the client.

In December 2008, AstraZeneca has awarded Infosys a five year, multi-million dollar global sourcing deal Infosys is delivering the services through a global shared-services model that offers fixed price for outcome-based deliverables, and flexible, unit pricing for managing changes in the base scope of the engagement. Infosys signed three-year Services agreement to manage Microsoft's Internal IT Services in April 2010 and the deal includes IT Help Desk, Desk Side Services, and IT Infrastructure and Applications Support and the engagement is delivered based on outcome based pricing model, enabling Microsoft to associate and manage IT costs directly to business variables and demand. Infosys highlighted that outcome-based model was at the core of its new strategic vision 'Infosys 3.0' and the main vehicle for the new model was the firm's 'Infosys Edge portfolio of platforms. “Each of the Infosys Edge platforms guarantees a business outcome to our clients - it either contributes to clients' revenues or it contributes to profitability by driving efficiency. This is a strong differentiator for us," the firm said. Infosys' result-oriented model provides clients with "outcome-based", "transaction-based" or "function-based" pricing and CEO Shibulal highlighted the increasing acceptance of customers for Infosys’ new engagement model based on variable pricing. The model is based on the number of transactions, events, maintenance tickets or devices.

Cognizant’s earliest projects based on outcome were with pharmaceutical company AstraZeneca. For 3M too, Cognizant used an outcome-based, managed service engagement model with productivity benefits over the long term. In its partnership with Sanofi Pasteur, there was an increase in effectiveness as measured by time. This reduced process hiccups in bringing the drug maker’s vaccines to the market. One area where PAC (a privately held research & consulting firm for the software and ICT services market) believes Cognizant has a particularly strong story is in moving towards outcome-based pricing models. In the F&A space, Cognizant is looking beyond taking out cost and hitting SLAs, to committing to targets that increase its client’s revenue and working capital, or improve compliance and control. In life sciences, the vendor is talking about moving towards being charged per study for handling clinical trials, while in the area of mortgage administration, it is looking at charging lenders for only processing the loans that are signed rather than the quotes they provide for customers. Recently Cognizant signed a deal with Royal Philips Electronics for services like consulting and application services on a global basis. As per the terms of the multiyear engagement, Cognizant will allow Philips to switch the IT organization to a platform and output-based managed services model across multiple business lines and corporate functions.

Wipro said that it has numerous clients whose billing/payments are intimately linked to the client's business. "Some of our clients, like airports, pay us based on the number of boarding passes or the baggage tags issued," said Suresh Senapaty, Wipro's chief financial officer. In December 2011, as part of the five year strategic relationship, Wipro will be supporting both systems and processes to enhance efficiency of Premier Foods’ supply chain. Wipro’s strong partnership with SAP, global SAP consultant base, end to end implementation coverage, delivery innovation, and outcome based service models and competencies in cloud based services will be leveraged for this engagement. In June 2011 Wipro won an outcome-based deal from Chaucer Syndicates, a specialist insurer at Lloyd’s, to develop an end-to-end regulatory compliance solution that would generate better analytics and improved management reporting for the client In 2009, Wipro has won a new application development and support contract with long-time client, UK insurer Friends Provident. The ‘fixed price, outcome-based’ deal runs for three years with a two-year extension option. Wipro says that if they get the full 5-years, it will be worth £40m over the period. TK Kurien, CEO, Wipro Technologies told FE: “We are seeing a great uptick in outcome-based pricing. There is a clear increase in outcome-based models among customers, who want to have their business outcome linked to the actual work done. Most of them love to go for long-term, but you are not sure of the long-term perspective. Not all of them are going for long term.”

HCL Technologies, India's fourth largest IT outsourcer, claimed that it had actually "pioneered the outcome-based pricing model in the mid-2000s". "We have many active client engagements based on outcome-based pricing models," a spokesperson for the firm said, citing its multi-million dollar contract with aircraft-maker Boeing where it works on a "risk-reward sharing model". In July 2008, HCL BPO acquired UK-based Liberata Financial with revenues of $80 million, which is to life insurance and pensions and US-based Control Point Solutions, a provider of voice, data and wireless telecom expense management services with revenues of $37 million and both the companies helped the company to increase its outcome based pricing revenues. HCL BPO is offering platform-based offering, a combination of software platforms and services such as administering payroll for a client and charging the client based on transaction or outcomes. HCL Tech, which acquired Axon, an SAP consulting company in 2008 which has significant capability in terms of outcome based pricing models. “We have worked with number of companies on business outcomes based on our outsourcing work and this is an area that we will continue to build on,” says Shami Khorana, President, HCL America. However, he added that the company will look at a combination of regular outsourcing and outcomes-based outsourcing, in the future.

Procurement Outsourcing Vendor Profile: Wipro Procurement BPO

Company Profile: Wipro limited is a global IT services and consulting company  and provides outsourced research and development, infrastructure outsourcing, business process outsourcing (BPO) and business consulting services. Wipro PO services offer customized solutions across the source-to-pay cycle. PO contributes around US$100 million to total revenues.  

Managed Spend: Manage around US$ 9 billion spend and has more than More than 70+ experienced professionals who are certified procurement consultants, supply chain professionals and commodity managers from different industry verticals. More than 700+ professionals with P2P expertise. Lean and six sigma based delivery.  

Sourcing & Category Management: The end-to-end solutions include material master data management, spend analytics, category management, contract management, sourcing support and P2P cycle management.   

Locations: Wipro PO delivery locations include Romania, Mexico, India - Chennai, Bangalore, New Delhi, Gurgaon, Shanghai (China), San Diego (U.S.), Troy, Michigan (U.S.) and the U.K.  

Category Expertise: Management of all indirect across industry verticals. Indirect category expertise in IT Hardware & Software, Telecom, Temporary Labor & HR Services, Office supplies, etc. Global delivery model – ability to spread SME resources across onsite, near shore and offshore locations  

Key Clients: Sears, Bell Canada, GM, BP, Boeing,etc.  

Vertical & Geography Mix: Manufacturing is the dominant vertical followed by BFSI, Hi-tech, CPG, Utilities, etc. North America followed by Europe, Asia Pacific are the key geographies.  

PO related Activities:

Partnerships: Technology partnerships with IASTA and Ariba for spend management and sourcing management. SAP, Oracle are other technology partners.  

Wipro has ability to host S2P service as SaaS solution or on demand solution. Procurement Automation tools like Proprietary application Base™, which can extract spend data from multiple enterprise applications.  

Procurement Outsourcing Vendor Profile: Capgemini Procurement BPO

Company Profile: With more than 115,000 people in 40 countries, Capgemini provides consulting, technology and outsourcing services. Capgemini offers a wide range of procurement services and PO revenues contribute more than US$150 million to total revenues.  

Managed Spend: Manage over US$ 14 billion spend and has more than 10 years' expertise in sourcing and procurement. Capgemini has worked on sourcing and procurement programs worth more than US$20 billion in past five years and delivered US$1 billion in savings. More than 1500 S2P specialists.  

Sourcing & Category Management: Sourcing management, Compliance management, Order management, Purchase to Pay management, Reporting, Contract management, IBX Spend Cloud, etc. 

Locations: Capgemini PO delivery locations include U.S.,  Canada, India, Poland, Guatemala, Brazil, Germany, France, U.K., China, Sweden. 

Vertical & Geography Mix: Manufacturing is the dominant vertical followed by BFSI, Hi-tech, CPG, Utilities, etc. North America followed by Europe, Asia Pacific are the key geographies.  

Category Expertise: Management of all indirect & direct categories across industry verticals. Indirect category expertise in IT Hardware & Software, Telecom, Temporary Labor & HR Services, Office supplies, Fleet vehicles, Engineered  Procurement and construction services, etc. 

Direct Categories like raw materials like Rubber, Glass, etc. Equipment like Transformers, Transmission Lines, Composite poles, Operated equipment, Steel for cables for electricity distribution, etc. 

Key Clients: Kraft, Novozymes, Hydro One, Hilti Corporation, Ericsson, Skanska, Deutsche Lufthansa, Deutsche Post DHL, Saab Aerospace, SEB, Prysmian, Vodafone, JCB, EFH, Syngenta, Dairy Farm, Ontario Power and Gas, and Blue Scope Steel.  

PO related Activities:

Partnerships: Alliance with SAP to provide IBX Procurement  Cloud based offerings.

Ariba, Emptoris Oracle are other technology partners. 

Acquisitions: Capgemini acquired IBX in February 2010 and IBX offers cloud based procurement BPO offerings and is a on-demand eProcurement and eAuction technologies. 

Procurement Outsourcing Vendor Profile: Infosys Procurement BPO

Company Profile: Infosys provides business consulting, technology, engineering and outsourcing services to help clients in over 30 countries to build tomorrow's enterprise. Infosys BPO's Sourcing and Procurement solutions provide transformational benefits across the entire Source-to-Procure and Payment value cycle through a Global Operating Model.

Managed Spend: Manage over US$ 17 billion spend, conduct approx 2500 sourcing/e-sourcing events per annum and process 15million PO line items per years for the clients globally. more than 1000 Sourcing and Procurement professionals with over 1500+ man years experience. Procurement BPO contributes around US$100 million in revenues. 

Sourcing & Category Management: Spend Analytics, Evaluate, Negotiate & Buy,  Market/Demand Analysis, Supplier Adoption, Contract Compliance, Accounts Payable, catalog & content management, Supplier performance Management, Contract management, Validations, etc. 

Category Expertise: Management of all indirect & direct categories across industry verticals. Indirect category expertise in IT Hardware & Software, Telecom, Temporary Labour & HR Services, Freight & logistics, Marketing & Travel, Material Office Supplies, Utilities, etc.  

Direct Categories like Manufacturing consumables, repair and operations items, fabrication parts and equipment spares, industrial supplies, etc.

Locations: Infosys PO delivery locations include India (Bangalore, Jaipur, Pune, Gurgaon, Chennai), Brno (Czech Republic), Lodz (Poland), Manila (Philippines), Hangzhou (China), Bangkok (Thailand), Belo Horizontal (Brazil),  Monterrey (Mexico). 

Key Clients: BP, Rio Tinto, Caterpillar, Microsoft, Royal Phillips, etc. Recently Portland Group which has 40 odd clients in Australia.  

Vertical & Geography Mix: Manufacturing is the dominant vertical followed by Pharma, BFSI, Hi-tech, Retail, Utilities, etc. North America followed by Europe, Asia Pacific are the key geographies. 

PO related Activities:

Partnerships: Alliance with SAP to provide Source to Pay Platform based on SAP(SRM). Ariba, Ketera, Oyster, BIQ, Infosys Proprietary tool (CPO Dashboard/SCV platform)  

India’s First Sourcing & Procurement Academy which provides deep domain knowledge in the BPO space and is aligned to International Purchasing & Supply Chain Management Institute. 

Acquisitions: Philips SSC in 2007 that added three delivery centers at Lodz, Poland; Bangkok, Thailand; and Chennai, India. 

In 2011 acquired Portland Group which is a provider of strategic sourcing and category management services in Australia.

Procurement Outsourcing Vendor Profile: Genpact Procurement BPO

Company Profile: Genpact, Indian BPO Vendor and it’s Procurement and Supply Chain practice delivers end-to-end supply chain solutions, enabled by its deep domain experience, best-in-class technology and strategic partnerships. Genpact has over 10 years experience in working with global companies to provide services that include Forecasting and Planning, Sourcing and Procurement, Fulfillment and Logistics and Aftermarket Services. PO contributes close to US$500 million to total revenue. 

Managed Spend: Manage over US$ 25 billion spend and 12,000+ supplier contracts implemented. Managed 2.5MM+ purchasing transactions and 15MM+ invoices annually. 35+ clients, 3000+ procurement professionals and global reach with support in over 11 languages. Process compliance levels of 4.37 Sigma - highest in the industry. Global delivery team - 25% of the delivery team located onshore or near shore.  

Experience in third party technology tools like Ariba, Oracle and SAP and proprietary tools and solutions

Sourcing & Category Management: Spend Analytics, Negotiation, Contracting, Sourcing Evaluation, Make/Buy Decision Support, Requisition to PO issue, Expediting, Ad Hoc Spot buys, PO to Receipt to Reconciliation, Accounts Payable, catalog management, Supplier profiling, Supplier Market Analysis,  etc. 

Locations: Genpact  PO delivery locations include 11 (centers) in 6 countries Bucharest, Cluj, Morocco, Guatemala, U.S., China, India (Hyderabad, Bangalore, Gurgaon, Jaipur, Kolkata ) 

Category Expertise: Management of all indirect & direct categories across all industry verticals. Indirect costs like IT/Telecom, Marketing, Logistics, MRO, Professional Services, Office Services, Utilities, Travel and Capital Equipment.  

Key Clients: GE, AstraZeneca, Symantec, Genworth Financial, GlaxoSmithKline, Delphi, Pfizer, Nissan, Carnation Auto, Serco, Yahoo, Walgreens, WellPoint/WellChoice, etc. 

Vertical & Geography Mix: Manufacturing is the dominant vertical followed by Pharma, BFSI, Hi-tech, Retail, Utilities, etc. North America followed by Europe, Asia Pacific are the key geographies. 

PO related Activities:

Partnerships: ICG Commerce has collaborative partnership with Genpact and offers clients Source to Pay solutions.

Genpact has partnered with IASTA to offer a Business Process as a Service (BPaaS) offering for eSourcing services based on IASTA's SmartSource platform.  

Genpact uses Smart Enterprise Processes methodology that  improves efficiencies and effectiveness that increase process performance between 2-5 times in terms of addressable spend visibility, working capital requirements and cost savings. 

Procurement Outsourcing Vendor Profile: ICG Commerce

Company Profile: ICG Commerce, the leading procurement solution provider has built a specialized infrastructure dedicated to helping companies optimize indirect spend and drive bottom line savings that strengthen their businesses. ICG Commerce is a privately held company and member of ICG’s (Nasdaq: ICGE) network of partner companies. Provide services and support to clients with global operations in over 47 countries and 21 languages.

Managed Spend: Manage more than US$17 billion in annual spend (direct & indirect spend) for clients. More than 250 sourcing and procurement professionals with deep expertise in various sourcing and procurement categories. Over 20 active comprehensive outsourcing clients (managing multiple processes and categories on a multi-year basis 

Sourcing & Category Management: Strategic sourcing including supplier and contract implementation, operations management eSourcing technologies, RFI templates, supplier database, price benchmarks. Compliance Management, Order Assistance, Procurement Help Desk, Accounts Payable Support, Vendor Maintenance, Content Management/supplier catalogs, Supply-Market Monitoring and Reporting , Price Management, continuous cost improvement, etc. 

Locations: ICG Commerce PO delivery locations include King of Prussia, North America, London, U.K., Hyderabad, India, Shenzhen and Qingdao, China 

Category Expertise: Management of all indirect & direct categories across all industry verticals. Indirect costs like IT/Telecom, Marketing, Logistics, MRO, Professional Services, Financial Services, Utilities, Travel and Capital Equipment. Direct costs like packaging materials, metals, chemical and gases, fertilizers, capital equipment, etc. Sourcing expertise in more than 300 categories. 

Key Clients: Symantec, Kimberly-Clark, Whirlpool, Hertz, Goodyear, Greif, Cameron, Pinnacle Foods, Chiquita, TEVA Pharmaceuticals , Elizabeth Arden, Doosan, The Clorox Company etc. 

Vertical & Geography Mix: Manufacturing is the dominant vertical followed by CPG, Hi-tech, Retail, Telecom, Airlines, Pharmaceutical, Utilities, etc. North America followed by Europe, Asia Pacific are the key geographies. 

PO related Activities:

Acquisitions:

2011 ICG Commerce acquired,  Neuwing Energy Ventures, a provider of financially focused and environmentally responsible energy strategies.

Partnerships: ICG Commerce has collaborative partnership with Genpact and offers clients Source to Pay solutions. 

Innovation & India Outsourcing Industry – Case Study of Top Indian Vendors (TCS, Infosys & Wipro)

Indian outsourcing companies realized that clients are more interested in innovation along with cost and process efficiencies.  Clients are interested in paying more for the transformational and innovation projects and product offerings. Initially it was sending technology workers to companies in the west for work onsite, then came the offshoring which is the traditional model of outsourcing based on the client needs and the latest third wave in Indian outsourcing is where companies design the platforms and systems that facilitate innovation and efficiency. But the fact remains that till now there has not been a disruptive offering from the Indian Outsourcing vendors. According to a 2011 Forrester survey, 41 percent of outsourcing clients cited lack of innovation as the biggest challenge with their existing IT services relationships.

Clients interviewed by Jan Erik Aase, (Sourcing & Vendor Management analyst-Forrester Research), identified three types of activities offshore vendors may try to pass off as innovation that failed to meet their expectations: innovation-for-pay (vendors creates a solution for one client and then licenses it back as a product to that client and the larger market), innovation for innovation's sake (emerging tech from vendor R&D labs that don't solve a customer problem), and administrative innovation (IT services buyers don't view process improvements, project management tools, relationship dashboards, and the like as real innovation). Clients want innovation relevant to their specific needs such as solve business problems, transformation in doing business, commercially viable solutions, creates competitive differentiation, improve market share, or have "an ROI with a multiplier of at least two”.

Innovation @ Top Indian Outsourcing Vendors (TCS, Infosys, Wipro)

Indian Vendors realize that Innovation is lifeline of business and is a critical factor for success in outsourcing industry. They know innovation is a complex process and is a vital component in their business strategy and in order to stay ahead, companies should increase the speed of innovation, be focused on the customer experience, understand their behavior, and co-create with customers and partners. Innovation has to be instilled into the organization at all levels and companies have done this successfully. The top three Indian outsourcing vendors have around 500,000 employees working in their organization for clients across the globe. They constantly innovate and improve the process efficiency there by leading to cost and other benefits for the clients. They work 24/7 for the clients and the innovation which most of the employees do on the day to day basis is called derivative or sustainable innovation.

All the three vendors are using their in house intranets, employee engagement and social media platforms for the idea generations. These platforms provide an opportunity to express their innovation ideas to the management. Managers and Leadership are being trained to act upon these ideas by the employees, evaluate them, commercial viability of the ideas and finally implement them and develop product and service offerings. Formal trainings for the employees include innovation and creativity. For the training programs they are employing third party consultants and experts and also tying up with the academics and other research institutions. Rewards and recognitions are provided for the employees who provided successful innovative ideas and Innovation is also part of the employees’ formal annual performance reviews. The vendors have invested on the training of the employees, provided them with necessary platforms and are investing and developing the ideas into final products and services.

Annual Innovation Events are being conducted where the employees are allowed to present their ideas, conduct demos not only to the management and leadership but also to the academic, clients, research, alliance partners and other stakeholders. These events bring together all the stakeholders of the innovation process and provide a platform to discuss and debate on the various innovations. All the vendors have tied up with the academic organizations, consultancies and other specific research organizations and do work with them in developing the innovative offerings. Wipro Technologies and Knowledge@Wharton together started conducting this tournament in 2010 which selects the most innovative managerial "tools" that companies can use to improve their business by increasing revenues, reducing expenditures and improving customer experience

TCS and Infosys have setup exclusive Innovation labs and these labs TCS Innovation Labs and Infosys SETLabs have been in existence for the past 30 and 20 years respectively. These labs has developed several process frameworks, methodologies, service platforms and work with standards bodies on future technologies, share best practices and maintain peer relationships with academic bodies, industry forums, conferences, and journals. Around 600 and 800 associates work in the R&D in the TCS and Infosys labs respectively. Wipro on the other hand provide third party R&D outsourcing services to their clients and they dominate this market. Infosys' SETLabs incubated the Innovation Lab in collaboration with Prof. Venkat Ramaswamy in 2005 as part of its research and innovation capability.

Frameworks are used by these vendors like TCS adopted Professor Clayton Christensen Innovation frame work and Co-innovation network with Clients and other stakeholders, Infosys adopted a Co-Creation framework based on the book published in 2004 “The Future of Competition: Co-Creating Unique Value with Customers" by Prof Venkat Ramaswamy and management guru the late C K Prahalad. Co-creation is the practice of developing systems, products, or services based upon innovative ideas from stakeholder experiences, that enhance strategic capital, increase returns, and expand market opportunities.

Wipro’s Innovation initiatives were developed based on a study of innovation methods in companies like Nike, 3M, and Home Depot that were reputed for their innovative practices and Applied Innovation which is the ability to infuse newer ideas and newer ways of doing things into all parts of the organization, and improve business outcomes, often without major disruptive change. Wipro Technologies, Innovation Evangelism happens through a series of vehicles that include: Wipro’s Innovation Camp, Innovation Bazaar, Story Book on Innovation, Systematic Creativity Workshops, and Inflection Point newsletter, etc

Despite all these efforts and investments India Vendors have innovated products which are more of sustainable kind and platforms that are mid range platform innovation but they are not able to innovate a disruptive offering. They have involved the employees and managers, provided tem with necessary infrastructure, established labs with exclusive focus on innovation and creation of new products, employed PHds and highly qualified people in these labs, provided with necessary infrastructure and other technologies in the labs, collaborated with all the stakeholders like clients, industry groups, research and academic organizations etc. Co-Creation with the stakeholders and forming strategic alliances with product companies and technology startups and investing significant amounts of money and resources are the major strategies adopted by these vendors. But success still eludes them.

Clients too have to make serious investments to profit from the vendor’s innovation strategy. Clients should treat the vendor not just as the cost reducing and process efficiency improvement partner but have to look at the vendors as strategic partners for the business growth. Clients should provide the vendors with the overall organization business strategy and make them understand that their role is not only limited to the IT department but also towards the overall organizational performance improvement. They should foster such relationships with their vendors and look for vendors with good innovation culture and strategies in place. It will be a win- win situation for the vendors and clients if they work collaboratively towards developing the innovative products and services.

All the players in the Indian Outsourcing industry realize the fact that only way to survive in this highly competitive outsourcing industry is to constantly innovate products and services that are relevant to the clients and lead to revenue growth to both of them. Innovation is highly complex and critical process that need significant amount of resources like monetary investments, technologies and highly skilled and trained professionals. The innovation Return on Investment is essential factor for both clients and vendors and they have to work together for this.

Further Reading:

Innovation @ TCS

Innovation @ Infosys

Innovation @ Wipro