Trend | Healthcare | 02.06.2015
Newer Segments are cropping up which will require service support as growth in these sectors become unmanageable internally
The emergence of large sectors such as healthcare and education in India provides an opportunity for service providers. These sectors will drive significant demand and will need scale and reach to fulfil this demand. As companies try to address the specific challenges in the core functions, shared services will play an instrumental role in the delivery of services.
Healthcare, for example, faces challenges on the supply side. According to the World Health Organization, the number of hospital beds (includes inpatient and maternity beds) per 10,000 people in India is as low as nine, versus a world average of 30.16 Moreover, the quality of healthcare remains an issue. While this presents a challenge for healthcare companies, it also indicates significant opportunity for players that can create innovative business models to serve healthcare providers. Figure 10 is an example of a shared services provider that caters to the need for faster rollout of medical facilities.
The Indian service provider landscape has evolved significantly over the last three decades, delivering against the changing needs of global clients. This has created a mature and credible supplier base that has increased in size and number. These service providers are now increasingly competing with each other and looking to continuously evolve their business models to pursue new avenues for growth.
Over the past few years as the growth from global offshoring slowed, the domestic market in India provided new opportunity for growth. Cultural affinity, geographical proximity, and commonality of the business environment made the domestic opportunity attractive for the service providers. However, the domestic opportunity required overcoming a number of challenges, mainly to develop a compelling value proposition for the cost-conscious Indian client.
Service providers have stepped up to address the challenge—by creating new business models (for example, converting capex to opex), developing India focused processes (standardization with Indian context), demonstrating value beyond cost (business outcome-based contracts), and deploying innovative technology solutions.
The market presents a significant opportunity for higher scope of services and new models; organizations will need to choose the most suitable path based on their risk appetite. These choices represent an evolutionary path for some companies, but many others may choose to adopt a more aggressive shared services model.
Enterprises that have not yet achieved critical mass for broad adoption of shared services would be wise to wait and watch, continuing with the piecemeal approach to out-tasking with a focus on establishing mature processes through continual review of activities and practices. Companies will need to invest in enterprise IT systems such as ERP to drive standardized processes and measurable productivity metrics and service levels.
For companies that have already implemented shared services, the next stage is leveraging the shared services concept for business diversification and geographic expansion. This provides significant benefits through higher scale of operations and integrated functions. For example, with the same finance and accounting (F&A) team managing processes across businesses and geographies, companies can benefit through higher standardization and cross-pollination of best practices. For new businesses, using existing shared services provides easy scaling-up of support services.
With enhanced scope and complexity, businesses can mitigate operational integration and change management risks. The diversity of operating models or cross-border businesses can further increase these risks. Managing these risks will require collaborating across businesses and with service providers.
The most aggressive and potentially rewarding option is to comprehensively adopt shared services across the enterprise. In this scenario, shared services encompass a broad range of activities, including those closer to the core. In India, few organizations have taken this approach, except for new-generation companies in verticals such as telecom and infrastructure that have been open to outsource traditionally core processes. This model may not be feasible for many organizations for legacy reasons. Those that opt for this level of adoption will need to establish strategic relationships with service providers and develop robust integration capabilities to manage processes across internal and external service providers.
Service providers also face a variety of choices as they look to drive higher market growth. Each choice demands more customisation in the go-to-market approach.
Service providers would need to effectively manage the cost of service for the Indian market, which is characterized by lower price points than western markets (sometimes up to one fifth lower). This would require clean-slate thinking on the models required for the Indian market. Service providers can drive this by using technology such as cloud computing and unified communication to create a low-cost distributed service delivery network. At the same time, more aggressive use of rural BPOs can help reduce delivery costs and provide local language capabilities.
Because Indian customers have limited experience with shared services, providers will need to invest in developing this market. A consulting-led approach may be essential to help first-time customers understand the value proposition beyond cost reduction.
In addition, many enterprise customers with limited experience of shared services would like to maintain control over their processes. Service providers will need to engage flexible models such as build-operate-transfer (BOT) to make their customers more comfortable before the shared services concept is fully understood and adopted.
A more aggressive go-to-market approach can be built around offering customers outcome-based models. While these models create more risk for service providers, they also provide the opportunity to open up new customer accounts and increase the potential upside for providers. Service providers would need a strong understanding of their customers' businesses to be truly successful.
The government continues to be one of the largest spenders in the country for its routine work and for specific projects that require a large amount of manpower. A shared services model can provide flexibility in scaling up resources while improving costs and service levels.
The government is using shared services in many large-scale public projects, but there is significant potential for more participation in many ongoing activities where the government faces manpower constraints. This will require identifying new segments where shared services can be leveraged based on either the experience of leading state governments or other countries.
India's available talent is limited, which can hinder the growth of shared services. The National Association of Software and Service Companies (NASSCOM) lists low employability of graduates in India as a cause for concern for the shared services industry. The 2011 Manpower Survey places India second worldwide in talent shortage, citing lack of experience as the main problem mentioned by employers. This lack of talent is a challenge for India-focused service providers because of the low price points of domestic business. To cater to these requirements, the government will need to play a larger role in creating a wider talent base across tier 2 and tier 3 towns and in rural India.
The government needs to explore easing regulations that may hinder the penetration of shared services in some verticals while maintaining the required checks and balances. Regulations constrict the extent of services that service providers can offer and the mechanism for service delivery. For example, insurance norms for outsourcing were tightened in 2011. Functions such as product design, claims, and policy servicing cannot be outsourced. Only non-core functions such as website management, internal audit, payroll management, HR services, and data entry can be outsourced. This has had an impact on the scope of insurance outsourcing and is limiting the benefits of cost efficiency and process excellence through outsourced shared services.