Rishabh

Sood Section C

ExlService: Business Process Outsourcing in India

Strategy: Hambricks Diamond Model
Arenas Where will we be active? $10 million of our revenue will come from commodity-based products through the call center facility to Dell. The remaining capacity and future capacity expansions will be through customized up-market products to companies in US and UK. The operations will be maintained offshore with only the sales force present on onshore locations

Vehicles how will we get there? Focus will be on internal development by spending more on development and training of our sales force and periodic capacity increases backed by funding from Oak Hill. Differentiators How will we win? High quality customized product offerings backed by a force of highly skilled employees Low priced products even after charging high margins by capitalizing on labor arbitrage and quality internal processes

Staging what will be our speed and sequence of moves? Sequence of steps Build revenues by providing commodity-based products for Dell. Expand into the complex products and gain a foothold in the market before other competitors enter. Build sales force to match with the operational capacity. Expand operational capacity as revenues increase over the years.

Economic Logic how will we obtain our returns? Working on a low cost model by taking advantage of labor arbitrage and efficiency in processes Keeping a high margin by charging a premium for providing complex services where there are not many competitors

The following table shows the required decisions, rationale, associated tradeoffs, support and resistances and the impact for the above-mentioned strategy.

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DECISIONS Accept Dells offer of setting up an offshore call facility generating $10 million steady state revenues. Rationale: Will keep the employees engaged and control the turnover. At the same time it will bring stability in the short term as all of Consecos business, providing 95% of our revenue i.e. $19.55 million will disappear in 3 months. This if not replaced immediately will cause heavy losses.

Do not provide SarbOx Section 404 auditing services for US companies. Rationale: 80% of SarbOx processing work will have to be done by on site employees, which is incompatible with the current model of using 100% offshore employees. More on shore work will negatively impact our low cost advantage. Also, there is uncertainty about whether the laws will remain stable for long.

Do not take up commodity-based services other than Dell (i.e. limit such revenues to $10 million) and focus on increasing more up market services providing complex services. Rationale: The reason for maintaining $10 million down market revenues is to have stability and provide idle employees with work to keep them occupied. The focus on complex services is because of the skill set of the workforce and low competition allowing us to charge premium.

TRADE OFFS Volumes: By limiting commodity based work we are sacrificing the easy volumes that can be achieved which would help in complete capacity utilization. Sales effort: By not providing SarbOx 404 processing services we would be stretching our sales force, as theyll have difficulty in getting US clients. Margin: Increasing the selling expenditure will reduce our margins. However, getting more clients can offset decrease in profit due to lesser margins. Knowledge and Experience: By replacing executives with junior managers we will be reducing the overall experience of our workforce in favor of lower costs.

Increase the sales force to match operational capacity and provide necessary training. This will be achieved by increasing expenditure on selling up to 5% of revenues from current value of approx 2.5%. (Effect shown in Exhibit 1) Rationale: Idle operational capacity can be utilized only by bringing more clients.

Replace 25% of the executives by junior managers. (Exhibit 2) Rationale: Junior managers will be able to handle smaller accounts at much lower cost (Compensation of executives are 10 times those of the associates). By the time we start handling more large accounts the Junior managers would have gained the experience and skill required for that purpose.

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SUPPORT AND RESISTANCE Support Associates: Accepting Dells offer will be met by support from the associates, as it will provide them some project to work on rather than staying idle. Junior Managers: Smaller accounts will provide them an opportunity to take a greater level of responsibility. They will view this as a growth opportunity. Clients: Greater investment in customized instead of commodity-based products will be positively met by the future customers who are looking for such products but are faced with a market of not many providers. Resistances Oak Hill: Oak Hill aim of investment of $10 million was with the objective of developing up market services. They may view taking up Dells project as a negative step. Sales persons: Not providing SarbOx services will make the job of sales persons more difficult in getting clients and will require them to invest more effort. IMPACT Revenues will be less at first because of taking up limited amount of commodity- based products. But as the customers from up-market services increase, both the revenues and profits will increase in future. The financial outlook for the next five years is shown in exhibit 1 through projected income statements. Employee turnover may be high initially (over 60%) due to the perceived instability but will fall below industry average to a value of 30-40% as we take up more challenging and skill based projects. Over the five years the issues related to having lower number of executives will be fixed as junior managers progress to that level.

KEY EVALUATION CRITERIA

Does your strategy fit with whats going on in the environment? The increasing competition in the commodity-based services will pull down prices and reduce the margins whereas the complex services market is still in development and hence the margins are high. Hence, we have decided for limited involvement in commodity-based segment for the purpose of short- term stability whereas greater focus is on the high market services segment. Does your strategy exploit your key resources? Our key resources are the skills and knowledge that the employees have in complex processes and hence we are exploiting this strength by focusing on the complex services market. This will allow us to pursue this focus more economically than our competitors.

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Will your envisioned differentiators be sustainable? The skills and the competencies of the employees in providing high quality services will be maintained by reducing employee turnover and further enhanced by providing them with greater exposure and responsibility at a junior manager and associate level. The labor arbitrage advantage is being maintained by taking a conscious decision to keep the work force offshore and avoiding areas where large on shore presence is required.

Are the elements of your strategy internally consistent? Expanding into the complex services market is supported by the decision of expanding and developing the sales force in order to get more targets. Thus the choice of Arenas is supported by the choice of Vehicle. The Differentiators being used of providing quality, customized services at a low price is backed by the choice of Arena i.e. serving largely the complex product segment from offshore locations. The staging focuses on stabilization and building the sales force before expanding operational capacity. This supports the goal of achieving capacity utilization by getting more clients. The Economic Logic of low cost and price premium is backed by the choice of Arena maintaining offshore location and targeting a developing market and also matches with our Differentiators.

Do you have enough resources to pursue this strategy? In terms of human capital and capacity there are enough resources as a result of Conseco going down. Financially, there is a strong backing by Oak Hill with a funding of $10 million already provided. Is your strategy implementable? The strategy is implementable as since the requirements of finance, employee skills, a large untapped market and inherent competitive advantage of labor arbitrage are in place and ready to be capitalized on.

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EXHIBITS
Exhibit 1
Projected Results for period 2004-2008 Figures in million dollars

2004 Revenue (Dell) Revenue (High market segment) Cost Gross Profit G&A Selling EBITDA

2005

2006

2007

2008

10 6 8 8 9 0.8 -1.8

10 12 11 11 9 1.1 0.9

10 18 14 14 9 1.4 3.6

10 24 17 17 9 1.7 6.3

10 30 20 20 9 2 9

Assumptions: 1) Capturing $6 m of High market segment each year 2) Cost is roughly 50% of total revenue (from past data) 3) G&A is in accordance with last year (the $1 m reduction is due to reduction in number of executives assuming executives salary is 40% of G&A) 4) Selling expenses have been increased to 5% of revenue as per strategy Exhibit 2 Projection of distribution of account types
Distribution of Revenues Commodity based (Dell) Complex (Large) Complex (Small) Weight 50% (approx for first 2.5 years) 25% 25% Type Executives Executives Junior Managers