India Seeks To Upgrade Outsourcing Image

May 27, 2005 12:18PM

"A program is taking away what a person would do," said Ravindra Datar, the principal Indian analyst for the outsourcing industry at Gartner Group, a leading global research firm. "If the program is written well, the quality of work that you'll get out of the program is going to be better. The speed will be higher. The cost will be lower."

Don't be surprised if you achieve your business goals sooner. Introducing PlanView Enterprise. You can now align IT with your business strategies, elevate your company's IT performance and increase enterprise-wide visibility. For details, visit www.planview.com-enterprise

To some, the notion of outsourcing Latest News about Outsourcing work to India conjures up well- publicized stories of American software programmers fired from their jobs, forced to stock shelves at a supermarket to make a living. To others, it evokes legions of fresh-faced Indians willing to undertake intense, highly send work for low pay.

What may not immediately spring to mind are automated software factories: places where the labors once performed by Western programmers are not only transplanted to India but, once there, are performed by computers, not people.

Yet that is precisely the aim of a team of researchers at Tata Consultancy Services, the largest software and information technology services company in India. The company, which helped pioneer outsourcing to India, is pursuing an experiment in automating the activities of many of its employees, from call-center operators to software programmers.

The experiment, and others like it across India, has the potential to upgrade the image of outsourcing companies from being cheap replicators of other firms' techniques to innovators in changing the way people work.

But the effort raises vexing questions for the United States and other developed countries, where it has become an article of faith that manufacturing and low-end service jobs may be vulnerable to outsourcing to low-cost markets, but that the nebulous craft of innovation will remain the preserve of more developed economies.

At a Tata Consultancy research center in the western city of Pune, researchers are developing an artificial intelligence Latest News about artificial intelligence software that, once trained to understand human language, would be able to sift through a company's millions of e-mails, memos and other documents to detect and formalize knowledge that the company may not know it possesses.

Using an application of its artificial intelligence software, Tata Consultancy Services says it can drastically reduce technical- support calls by automatically gleaning from call transcripts which problem keywords correlate with which solutions.

"We can transform the whole call center the way it looks today," said Subramanian Ramadorai, chief executive of Tata Consultancy.

With "automated software engineering tools," he said, "if you're deploying 1,000- people voice-activated call centers, tomorrow you may say you can do the same thing with 10 people."

Researchers recently released a fresh version of a software program, MasterCraft, that automatically spawns computer code when customer needs are written in a simpler computer language, and then automatically rewrites the code when the user's needs change.

"You can generate code in minutes that would take decades to write," said Tony Hoare, a Microsoft Latest News about Microsoft researcher based in Cambridge, England, who has visited Tata's center in Pune and is familiar with its work.

"The design and construction of tools that will do that is a really advanced exercise," said Hoare, who was the first computer scientist to win a British knighthood. "In the fact that they are doing it at all, they are among the leaders globally."

Call centers and software programming lie at different ends of the spectrum of business activities being outsourced to India, where high-technology outsourcing exports have risen to more than $17 billion annually, up from $4 billion five years ago.

The sector now employs more than one million people, according to the National buttociation of Software and Services Companies.

growing evidence that Indian companies are seeking innovative methods to combat the threat of new entrants like the Philippines as outsourcing destinations. One well-known approach has been to offer higher-value services, like business consulting or providing for a company's full range of software needs.

Less well-publicized is a determined attempt to retain low-end operations, even while expanding beyond them. The strategy is to transform operations like call centers from labor-intensive, cost- cutting shops into technology-intensive operations offering speed and quality.

"A program is taking away what a person would do," said Ravindra Datar, the principal Indian analyst for the outsourcing industry at Gartner Group, a leading global research firm. "If the program is written well, the quality of work that you'll get out of the program is going to be better. The speed will be higher. The cost will be lower."

The quest to innovate by Indian companies is prompted by the effects of their own early success: As India has validated the basic business model of outsourcing, destinations like the Philippines and China have begun vying for a portion of the market, while the fast- growing Indian industry sees local wages rising as a result of demand for workers outstripping supply.

"I don't think we will continue to have a compebreastive advantage," said Mathai Joseph, head of Tata's center in Pune.

Such fears have prompted the search for new advantages that will outlast India's labor-cost advantage. The buzz phrase is "climbing up the value chain" moving into service offerings with hourly billing rates of around $100 per person, compared to the $20 commanded by call-center employees.

High-end connotes knowledge-intensive activities like designing cars, crafting operating systems for aircraft navigation, and building software for cardiac monitors that wirelessly alert doctors to irregular heartbeats.

"The old pictures of outsourcing are indeed no longer accurate," said Hoare, the Microsoft researcher.

More sophisticated outsourcing is pushing the industry beyond its roots in two ways.

First, when it began, outsourcing tended to take business processes designed in the West and shift them to India simply to capture a lower price; today, a number of Indian companies are engaged in developing new business processes on their own, often in advance of a request from customers.

Second, outsourcing began as a method to curb clients' costs on existing product or services; increasingly, Indian companies seek to help clients launch new products and services.

Tata Consultancy exemplifies these trends. The company offers both services and software products. It grew up in the Tata Group conglomerate and went public last year in India's largest-ever stock offering. It recently announced revenue of $2.24 billion for the year that ended March 31, up 36.6 percent from the previous year. Net profit was $520 million

Increasingly, the company's leadership talks of building skills that will outlast the labor-cost advantage. Tata Consultancy executives use their "trusted adviser" relationships, in which high- technology buttistance serves as a wedge to sell multinational companies more lucrative advice on business problems, like streamlining a convolutedsupply chain Latest News about Supply Chain or trimming wasted manpower.

Ramadorai, the chief executive, said of Tata Consultancy's corporate clients: "Their question is: If you know my environment so much I have worked with you for 5 years, 10 years, 15 years tell me what innovation which you're working on can be helping me in my business. That's what consulting is all about. That's what high-end is all about."

But the strategy also calls for defending the low end. Even as it moves into sophisticated domains that bring it into compebreastion with global giants such as International Business Machines and Accenture, Tata Consultancy is seeking ways to compete with low-end compebreastors by applying high-end technologies in this arena as well.

But the use of high-end innovation to retain low-end business raises challenging questions for the industry.

One is whether creating advanced tools to replace an ephemeral wage-cost advantage could actually serve to destroy that advantage once such tools also become a commodity. If call centers come to depend more on technology than people, the attractiveness of outsourcing to India might diminish.

Moreover, India's efforts are challenging traditional views of innovation.

Hoare said he and his colleagues accept that innovation is no longer the monopoly of mature economies.

"Microsoft knows this rather well," Hoare said. "We're really a frightened company, because we're aware of how easy it is to lose the edge."