ITES/BPOCONFIDENTIAL

– Opportunity to move
up the value chain?

Presentation at iTECH 2004

January 13, 2004
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 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

CONTEXT: BUSINESS PROCESS OFFSHORING HAS EXPLODED

UnitTHE
IN of measure
LAST FEW YEARS…

Demand side forces

BPO total revenues- India example*
• Encouraging track
record of early movers $ billion
• Demanding U.S market 2.0
environment
• Successful track record 1.8
of I/T offshoring 1.6
1.4
Supply-side enablers 1.2
• Telecom costs down by 1.0
90% in the last 3 years; 0.8
world-class reliability 0.6
• Over 2.5 million low-cost
0.4
talented workers in
countries such as India 0.2
and Philippines 0.0
• Emergence of a credible
92

E
96

99
93

95

98

01
4

97

00

20 2
19

03
9

0
vendor community
19

19
19

19

19

20
19

19

20

20
* Footnote
Source: Source Dataquest; Aberdeen group; McKinsey analysis
Gartner; 2
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

…BUT HAS ALSO CREATED GREAT ANXIETY IN PRIMARY

Unit of measure
MARKETS

“Tech jobs leave U.S. for India,

“3.3 million U.S. service jobs
Russia. Who’s to blame?”
to go offshore by 2015”
– July 2003
– November 2002

“American legislators are

“America’s pain, India’s gain” accusing India of stealing jobs”
– January 2003 – June 2003

U.S. House
Sub-business
Committee
“Is your job next?”
“Can America Lose These – February 2003
Jobs and Still Prosper?”
* Footnote – July 2003
Source: Source 3
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

IN THIS CONTEXT, SEVERAL DOUBTS HAVE ARISEN ABOUT THE

Unit of measure
FUNDAMENTAL LONGEVITY AND EVOLUTION OF BPO AS AN
INDUSTRY

• Will the BPO

phenomenon plateau out
in the next few years?

• Even if it survives,
moving up the value
chain will be difficult and
will take several years?

• Value chain moves will be

the domain of captives
because the trust
required is too high?
* Footnote
Source: Source 4
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

IN THIS CONTEXT, SEVERAL DOUBTS HAVE ARISEN ABOUT THE

Unit of measure
FUNDAMENTAL LONGEVITY AND EVOLUTION OF BPO AS AN
INDUSTRY

• Will the BPO

phenomenon plateau out
in the next few years?

• Even if it survives,
moving up the value
chain will be difficult and
will take several years?

• Value chain moves will be

the domain of captives
because the trust
required is too high?
* Footnote
Source: Source 5
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

1. OFFSHORING ACTUALLY GENERATES GREATER VALUE FOR

Unit of GLOBAL
THE measure ECONOMY
1.45-1.47
0.45-0.47
$1.00

0.67
0.33

$1 previously . . . delivers . . . brings . . . creates . . . and

spent in U.S., value to returns new value makes
now offshored India . . . to U.S. . . . from re- the
to India . . . employing global
U.S. labor* pie that
• Taxes ($0.04) • Cost much
• Revenues savings ... bigger
($0.20) ($0.58)
• Local suppliers • Goods sold
($0.09) ($0.05)
• Profits
from Indian
ventures
* Footnote based on historical U.S. reemployment trends ($0.04)
Estimate
Source: Source:
Source McKinsey Global Institute 6
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

INDIA CAPTURES 33 CENTS FROM EACH DOLLAR

Unit of
OF measureOFFSHORED BY THE U.S.
SPEND
Value accrued from $1 of U.S. spend offshored1
Dollars; 2002
0.33
0.01
0.03
0.09

0.10
0.10

Labor Profits Suppliers2 Central State Total value

retained govern- govern- accrued to
in India ment3 ment4 India

Offshoring sector
1 Estimated using the India offshored services industry case
2 Includes revenue accrued to the supplier industries less sales taxes, income taxes to employees and corporate
taxes
3 Includes income tax from labor employed in the offshored services sector and the supplier industries and
corporate tax on the supplier industries
4* Footnotesales tax on the supplier industries and revenue from the sale of power to offshored service providers
Includes
Source: Source:
Source McKinsey Global Institute 7
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

JOBS OFFSHORED WILL BE A SMALL FRACTION OF THE

Unit of measure IN ELIGIBLE WORKERS
SHORTAGE

Number of workers
Millions, 2000-2015

Jobs Decline in
projected to working
go offshore population
due to aging

* Footnote
Source: Source:
Source U.S. Census; McKinsey Global Institute 8
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

JOBS OFFSHORED ARE A FRACTION OF ALL MASS LAYOFFS

Unit of measure
Average annual mass layoffs1
Millions

All mass Trade- Offshoring

layoffs2 related projection4
layoffs3

1 Bureau of labor statistics defines mass layoffs as job loss actions leading to the displacement of 50 or more
workers by a given establishment during a 5-week period
2 Average 1996-99
3 Average 1989-2000
*
4 Footnote 2003-13
Average
Source: Source:
Source NBER; BLS; Kletzer; McKinsey Global Institute 9
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

THEREFORE, BUSINESS LOGIC WOULD INDICATE THAT BPO

Unit of measure
HERE TO STAY … BUT WILL REQUIRE HANDLING CUSTOMER
CONCERNS WITH COMPASSION

Economic value of off-shoring real Negative emotional impact at the

customer equally real
• Off-shoring creates 40-50%
greater value for the global • Real people and communities are
economy effected
• India captures 33% of every off- • Re-training takes time
shored dollar while the US retains • Manufacturing hang-over still felt
67% and the incremental 40-50%
value creation
• Off-shored jobs small fraction of
expected retirements/lay-offs

* Footnote
Source: Source 10
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

IN THIS CONTEXT, SEVERAL DOUBTS HAVE ARISEN ABOUT THE

Unit of measure
FUNDAMENTAL LONGEVITY AND EVOLUTION OF BPO AS AN
INDUSTRY

• Will the BPO

phenomenon plateau out
in the next few years?

• Even if it survives,
moving up the value
chain will be difficult and
will take several years?

• Value chain moves will be

the domain of captives
because the trust
required is too high?
* Footnote
Source: Source 11
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

FOUR POSSIBLE VALUE CHAIN MOVES POSSIBLE

Unit of measure
C: “Externalize”
A: “Accelerate, B: “Re-engineer”
Base extend breadth and
depth”
Completed the • Take robust platforms
first round of external and create
• Drive towards value out of the shared
off-shoring operational
successfully services utility
• Increase breadth improvement – Specialized service
– Task level and bureau
and depth of
• Built process level – Generic third party
services
substantial reengineering BPO provider
• Strengthen and
scale in – Consolidation and
stabilize
operations in aggregation of
architecture
India functions
– Insource-
• Penetrated 1- • Leverage low cost
outsource,
2 businesses position to start es
onshore- t r i
in depth offering new services us
offshore d
• Started to customers and ) in
architecture ge
capturing
– Global hub improve competitive
t lar
labour cost position in home u
architecture (b
savings markets ugh
– Strategic to
* Footnote outsourcing c kle
a
Source: Source :T 12
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

A. MOVES UP THE VALUE CHAIN ALREADY

Unit of measure IN TERMS OF BREADTH AND DEPTH
HAPPENING Extensive
judgment and analytical
OF PROCESSES OFF-SHORED Advanced skill required
technical skill and
some judgment
Simple, standardized required
activities
American Express
• Live brokerage advice from
HSBC qualified agents through a
• Inbound customer service vendor in the Philippines
Examples of AXA center for mortgage (eTelecare)
sector-specific • Insurance claims processing Citibank • Extensive offshoring of credit
(“vertical”) Citibank • Credit card processing, card services (including risk
processes • Check processing, account collection calls, inbound and modeling and credit
application processing, loan outbound service centers evaluation)
processing by a subsidiary Capital One
• Extensive financial analyses
(e-Serve) • Inbound customer service GE Capital Business Solutions
GE center, outbound telemarketing • Risk modeling, actuarial
• UK auto applications data entry (MSourcE) services, underwriting
HSBC
• Account opening and GE Capital McKinsey & Company
closing, retail loan • Insurance claims processing • Research and knowledge
processing, mortgage • Outbound telemarketing, management for world-wide
processing
MBNA inbound customer service offices in Gurgaon
• Processing of online
applications (TransWorks)

Examples of GE Capital Citibank GE Capital

corporate center • Payroll accounting • Finance and accounting • Risk analysis, strategic planning
(“horizontal”) • Invoice and payment processing and forecasting
processes* Footnote • Financial statement analysis
Source: Source 13
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

IN FIs, VENDORS AT POINT OF SERVICING THE WHOLE RANGE

Unit of
OF measure
CORE BANKING AND SUPPORT PROCESSES
Sample processes Illustrative vendors

Consumer • Retail banking (account

banking maintenance, opening, check
processing)
Core
business Wholesale • Fund administration
banking • Reference data management

Insurance
• Claims processing
Back
office
• Benefits administration
HR/ Admin
Business • Payroll processing
process
off-shoring
Support
Finance & • A/R and A/P management
services Acctg. • Reconciliation
• Database integration &
Research analytical services
• Secondary research

Outbound
• Telemarketing
• Collections (bucket one)
Voice • Telesales
Inbound
• Customer service
Customer • Technical support help desk
facing
• E-mail support
Non-voice • Fax responses
* Footnote • Live interaction (chat
room customer service)
Source: Source:
Source Vendor interviews, literature searches, vendor websites, McKinsey analysis 14
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

B. REENGINEERING AND PROCESS IMPROVEMENT CAN PROVIDE

ADDITIONAL
Unit of measure GAINS OF 30-40%
Factor cost benefits Additional benefits
(45-55% savings) (30-40% savings)

100 60-65 Does not

include gains from revenue
enhancement

10-15 45-55 8-13

5-7 3-5 15
30-35

Original Factor Additi- Off-shore Consoli- Task Econo- Process New cost
cost cost onal location dation, reengi- mies of reengine- base
base savings telecom cost standar- neering scale ering
& manag- dization &
ement superior
costs skills

Task aggregation and

Task level process level
Task migration improvement
* Footnote improvement
Source: Source 15
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

IN FACT, OVER TIME COMPANIES HAVE CAPTURED ADDITIONAL

Unit of measure
PRODUCTIVITY GAINS
Productivity and process re-engineering
Economies of
Efficiency Efficiency scale
• Increased first time • Reduced average call • Aggregated cheque
resolution rates from US centre talk time from order processing tasks
benchmark of 59% to 74% 180 to 100 seconds and bought-in cross-
resulting in reduction in through use of more trained agents, which
repeat support calls and on- qualified agents has significantly
site dispatch calls leading to increased staff
savings of ~$2 million per utilisation
annum

Better talent and Technology Re-engineering

training application (end-to-end)

• Improved total • Reduced 40 FTEs by • Decreased time

customer satisfaction digitising the ‘back taken for month-
score from 85% to 92% lining’ process in the end closing from 5
after offshoring call contact centre to 2 days by
centre services to India modifying and
eliminating tasks

* Source:
Footnote Expert interviews; literature searches

Source: Source 16

C. F-1000 INSTITUTIONS HAVE INCREASINGLY BEGUN TO
REALISE OPPORTUNITIES FOR REVENUE ENHANCEMENT
Unit of measure
Revenue opportunities created through offshoring
• Customised research for global
customers – potential to create
platform to service other banks
• Ability to price insurance policies at
significantly below competition leading
to 5-7% market share improvement
in home markets
• Live brokerage advice for mass affluent
customers from Series 7 qualified
agents through vendor in the
Philippines (eTelecare)
• £50 million/year gained through
revenue audits – interline, agent, and
used tickets
• Knowledge on call services for core
clients – customized research and
analytics
* Footnote
Source: Source
20030520DL-ZXE332(ITES, Board Pres.)(JS)-7
Potential ideas for F-1000
institutions
• Research platform to service
customers for a fee – offer
customized research for
strategic customers
• Develop modeling platform to
provide fee-based analytical
capabilities to SME financial
services customers– offer
customized services to large
financial institutions
• Offer trade finance services to
SME customers that are
otherwise uneconomical to
serve
• Offshore R&D (pharma,
chemicals) using collaborations
17
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

SIGNIFICANT VALUE CAN BE CAPTURED BY TRANSFORMING

INTERNAL
Unit of measureCAPABILITIES INTO THIRD-PARTY BUSINESSES

Parent Midland
Bank

New
business

Transition • AmEx transitions internal
processing unit into third-
party company (FDR) and
sells off majority ownership
stake (1992)
• FDR merges with largest
competitor and grows to
become global leader in
transaction processing
• Columbia Bank & Trust
(later Synovus) transitions
internal credit-card
processing business into
third-party company (1982)
• CB&T sells 19% of
company
in IPO (1983)
• TSYS grows to become the
second largest processor in
• Management buyout of
Midland Bank processing
unit following merger with
First Bank System (1984)
• IPO in 1986
• Grown to become leading
provider of technology and
processing services for
financial institutions

the world

Value • $8 billion in market cap*, • $5 billion in market cap*, • $17 billion in market
creation growing at 31% CAGR in the growing at 5% CAGR in cap*, growing at 26%
U.S. last 5 years the last 5 years CAGR in the last 5 years
$ billion

** March
Footnote
1, 2002
Source: Sources:
Source
Hoovers; analyst reports; McKinsey analysis 18
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

D. NEW INDUSTRIES THAT HAVE PLAYED “WAIT AND WATCH”

Unit of measure
GAME TRADITIONALLY NOW ACTIVELY EXPLORING AND
COMMENCING OFFSHORING – PHARMACEUTICAL EXAMPLE
Attitude towards
Area outsourcing/offshoring Key factors driving increasing momentum
• “Wait and watch” towards offshoring • Mainstreaming of IT offshoring and
IT
until late 2001 emergence of credible success stories on
offshoring
• Significantly higher acceptance in 2002 cost and quality improvements
• “Triggers pulled” in 2003 by several • Solid vendor base (e.g., Infosys, Satyam,
players including BMS, Novartis, Abbott TCS) with proven track record
• Observed actions of competing players!

Support • “Wait and watch” towards outsourcing
functions of business process through 2002 and
early 2003
• Numerous ongoing discussions in
2003 with vendors on finance &
accounting and HR offshoring
• Increasing focus on rationalizing support
function costs
• Emergence of credible success stories and
vendors for F&A and HR
• Observed actions of competing players
• Many companies articulating “overall
aspiration” cutting across numerous
opportunities such as IT, BPO, R&D

R&D • Concerns around IP and quality of • Positive experience of first movers in

medical infrastructure addressing concerns and benefiting
significantly e.g., AZ and BMS in R&D;
Pfizer & Eli Lily in clinical development;
Novartis & Pfizer in data management
* Footnote • Improved medical infrastructure and
Source: Source favorable regulatory environment 19
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

OPPORTUNITIES FOR OFFSHORING EXIST Focus of

document
ACROSS
Unit THE PHARMACEUTICAL VALUE CHAIN
of measure Offshore
potential

Industrial
R&D Commercial Operations Support Functions
Operations

• Target • New production • Strategic and commercial busi- • Finance & Accounting
identification & development ness planning (pre-launch) • Information Technology
validation • Procurement • Product development and life • Human resources
• Lead generation • Planning and cycle management
• Legal
& optimization manufacturing • Pricing and health economics – Legal counseling
– Plant • Market a product (new and legacy) advocacy and litigation
• Preclinical/ maintenance • Customer relationship – Intellectual property
Toxicology – Quality management counseling
• Clinical management • Customer and consumer services • Sales force support
Development & – Process • Sales management
Trials control
• Logistics & distribution
• Supply chain
• After sales services
• Data management
Management • Performance
monitoring and
control

* Footnote
Source: Interviews; McKinsey analysis
Source: Source 20
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

RECENT ACTIVITY POINTS TO GROWING INTEREST OF

PHARMACOS
Unit of measure IN OFFSHORING – DATA MANAGEMENT EXAMPLE
NOVARTIS EXAMPLE

Global statistical operations

business system Operations in India

• Started operations in 2001 • Savings of around 40-

Statistical study • Approximately 30 statisticians
design out of global team of 250
located in India
Statistical
• Focus on standard safety
programming
reporting for Phase II and III
trials
Document
management • Reports focused on US FDA
and EMEA
• Over 40 global trials supported
Database locking in first year of operation
• Supporting 2 mega trials of
Report writing and filing to over 10,000 patient records
medical authorities each
• Conduct several short turn-
around analyses for clinical
pharmacology studies
60% vis-à-vis global
CROs within first year
• Targeting 80-100 global
trials in 2003
• Plans to start related
areas of filing and
report writing, efficacy
reporting and statistical
design for Phase IV
studies
• Entering into Phase I
reporting for complex
oncology trials and
traditionally outsourced,
Phase IV trials

* Footnote
Source: Source:
Source Interviews 21

OFFSHORING CAN RAPIDLY MOVE UP THE PHARMA
Unit
VALUEof measure
CHAIN
Phase 2: Minimal risk move
Phase 1: “Early wins”
Opportunity Support functions
1• Finance and accounting
2• Information technology
3• Human resources
R&D
4• Clinical development
5• Data management,
including bio-stats
• Significant experience
Rationale
across other industries
• Strong vendor base
* Footnote
• Pharmas already doing
it
Source: Source
Phase 3: High-end activities
Contract manufacturing
• Drug manufacturing (TBD)
• Formulations development
• Custom chemical
synthesis
R&D
• Bio-informatics
• Analog generation
Support functions
• Sales force support
• Significant bottom line
impact potential visible
• Emerging vendor base
20030520DL-ZXE332(ITES, Board Pres.)(JS)-7
Contract manufacturing
• New product
development
R&D
• Lead generation and
optimisation
• IPR issues need to be
clarified
• Comfort around Asia
needs to be established
22
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

IN THIS CONTEXT, SEVERAL DOUBTS HAVE ARISEN ABOUT THE

Unit of measure
FUNDAMENTAL LONGEVITY AND EVOLUTION OF BPO AS AN
INDUSTRY

• Will the BPO

phenomenon plateau out
in the next few years?

• Even if it survives,
moving up the value
chain will be difficult and
will take several years?

• Value chain moves will be

the domain of captives
because the trust
required is too high?
* Footnote
Source: Source 23
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

IN THE END STATE, LARGE INSTITUTIONS WILL USE A

Unit of measure
COMBINATION OF CAPTIVE AND VENDOR FACILITIES

From primarily captive… …to hybrid model

Indian Outsource Indian

Outsource
best-of- to Global best-of-
to Global
breed brand breed
brand
Feasibility vendor vendor
JV/ JV/
of
outsourc- Alliance Alliance
ing the
process

Delay Captive Delay Captive

Cross-border operation sophistication

Examples • Started off handling all • Started offshoring

processes in-house operations by
outsourcing
• Now outsources call
centre services to multiple • In addition to
third party vendors outsourcing, now also
runs a captive centre
* Footnote
Source: Source 24
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

IN FACT, MATURE OFFSHORERS HAVE DEVELOPED AN

INTEGRATED
Unit of measure ARCHITECTURE OVER TIME
• Started with 150 person completely captive unit in 1994 primarily for back end processing
• Entry into knowledge intensive activities in 2000-01
• Significant expansion of head count and service line in 2001
• Geographical diversification into Philippines in 2001

Model
• Captive operations
– Leverages brand,
– Important for regulatory
issues
– Preserves proprietary
process knowledge
% of total off
shored services Scale, scope and management model
30% • Over 1600 FTEs
• Involved in high-end and low-medium-end,
proprietary/non proprietary services (e.g., A/C
reconciliation,A/C opening and closing, Ledger
activities for credit cards, A/C planning and
forecasting, Fraud and risk modeling)

• Third party – India 50% • Over 2000 FTEs across vendors such as
– Exclusive support to AMEX Spectramind, Daksh, EFunds
– Creates scale with minimal • Voice based customer support for credit card
investment operations
– Diversifies risk
– Competes with captive and
provides BCP

• Third party – Philippines 20% • 700 FTEs

– Reduces country risk • Voice based customer support for credit card
– Provides
* BCP
Footnote operations
Source: Source 25
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

Unit of measure

DELETED PAGES

* Footnote
Source: Source 26
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

F-1000 PLAYERS HAVE ADOPTED THREE APPROACHES TO

SELECT
Unit PROCESSES FOR OFFSHORING
of measure
Rigorous analytic approach Outside-in approach Sponsor-led approach

Detailed analysis to identify high

• Identify processes for
potential processes, percent
Identify processes/
activities offshored
by existing players
offshoring based on simple
criteria
– Sponsorship from process
owner (e.g., inside Group
Ops. in LTSB)
– Least organizational
resistance (e.g., overflow
work)
– Low reputation/service
quality risk

Filter activities by offshorability

• Use external benchmarks • 'Build and they will come' – allow

(activities and phasing) to identify other parts of the organization to
and prio-ritize the corresponding decide on offshoring at their own
candidate process in your pace
organization
• Use benchmark information on
off-shore-onshore split and
internal FTE mapping (for
identified candidate processes)
to size the opportunity
* Footnote
Source: Source 27
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

THIS HAS PRIMARILY BEEN DRIVEN BY THE SIGNIFICANT 35-50%

COST SAVINGS OPPORTUNITY
Unit of measure
Financial services sectors with Per cent of cost Potential institution-
high potential for offshoring* base offshorable wide savings**
Per cent of total NIE***
Retail • Retail banking
banking – Deposit products 15-20 7-11
– Consumer loans 20-25 10-15
• Credit cards
– Card issuance & servicing 25-30 8-15
– Merchant acquiring 20-25 7-12
• Mortgages
35-50%
– Origination 10-15 5-10
savings
– Servicing 30-40 in off- 10-20
shored
Wholesale • Investment banking
activities
banking – Research 10-15 5-10

• Life and health

Insurance
– Personal 20-30 5-12
– Group and health 20-25 5-12
• Property and 25-30 8-15
casualty
* Asset management module including retail brokerage to be completed
** Does not include potential cost savings from offshoring IT and corporate center processes
*
*** Non-interest Footnote
expense - operating cost only, excluding interest expense, advertising, and corporate G&A where separable; assumes
Source:
institution isSource
a “pure-player” 28
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

VENDOR LANDSCAPE IS CONSOLIDATING AND MATURING

Unit of measure
Leading players Employees Service line focus

• Call center, technical help desks and

email based help desks
BPO start-ups
• Call center, Insurance claims processing,
airline revenue accounting
• Call center, Techmail help desk

• Call centers, technical help desks and email

BPO arms of
based help desks – dedicated centers for
Indian IT
BankofAmerica, Amex
services players
• Inbound call center and financial services
• Mortgage processing (Greenpoint) and
financial services

BPO arms of • Call center and financial services

large financial (payments, card processing)
institutions • Call center, technical help desk, loan
processing

• Customer care, financial and accounting,

Global BPO payments
companies
• Customer care (largely inbound)
* Footnote
Source: Source 29
 20030520DL-ZXE332(ITES, Board Pres.)(JS)-7

SELL OUTS HAVE BEEN WITNESSED IN THE RECENT PAST EXAMPLES

Unit of measure
3rd party provider 3rd party provider
1996 2002 2001 2002
BA set up captive BA sold captive to Conseco acquired Conseco sold
Warbug Pincus EXL Services as EXLServices to
captive center Oakhill Partners

Key events • Set up captive center • In April 2002, Warburg
in 1996 as wholly Pincus, leading private
owned subsidiary to equity investor acquired
reduce the airline's 70% majority stake
operating cost • Strategy requires
• Processed about 80% investment to fully exploit
of BA’s backend growing third party client
operations base
• Largely focused on • Allotted $3 million to set
airline clients up third business process
outsourcing (BPO) centre
by 2003
• Conseco acquired EXL • Conseco fully exited by
in 2001 for about $ 52.6 selling out stake to
million Oakhill Partners by Nov
2002; however it has
continued outsourcing its
transaction processing
• EXL Services named
largest 3rd party IT-
enabled service company
in India in revenue terms

Rationale • BA sold out captive center to improve diversity of • Conseco was in financial distress due to
for sell- talent diminishing core business and sold out captive
out center to raise funds

Offshored • Customer complaints • Customer Care / CRM • Internet and voice • Critical Back Office
activities • Passenger/agent claims • Loyalty program support customer services Operations
• Tracking cargo • Revenue Accounting • Transaction processing
• Marketing program • Collections
development and
Revenue • 8.9 (FY1999) • management
16.0 (FY2001) • 25 • ~60
(USD mil.) (FY2001)
Employees
* •Footnote
Unavailable • 1,700 • 300 (FY2000) • 3,500
(FY2001) (FY2002)
Source:
Source: McKinsey,
Source Nasscom, press articles 30