Business Processing Unit (BPO), the poor cousin of the IT industry has come in to save the day for IT majors.

BPOs, which have been looked down by software professionals as being low-tech and data centric, have now become the bread butter of software majors.

In a recent report, London-based market research firm  Datamonitor says that 54.3 per cent of all large BPO  deals were signed by IT services vendors with BPO arms, and not specialist BPO firms.

The biggest deal in the sector so far has been Citigroup's $2.5-billion contract, which was bagged by TCS, following its acquisition of Citi's BPO arm in India, despite questions surrounding Citi's financial stability.

Similarly, Cognizant, known for its strong presence in healthcare and life sciences, has won a $95- million deal for clinical data management from Astra Zeneca, probably the largest publicly announced deal in knowledge process outsourcing (KPO).

Revenue mix
IT firms have now been showing a greater focus on their BPO operations. One of  best examples is Infosys whose IT services revenue grew from $931.5 million to $1,101 million in the 12-month period to September 2008, whereas its BPO revenues grew from $53 million to $72 million. In other words, its IT service revenues have grown by 18 per cent, compared to a 36 per cent revenue growth in BPO operations.

NNSoftware body Nasscom says the BPO sector recorded a revenue growth of 31.6 per cent, amounting to $12.5 billion in 2007-08, of which export revenue accounted for over 87 per cent, while IT companies grew at 28 per cent. Consequently, the BPO sector's share of the country's services sector has increased to 2.2 per cent of India's gross domestic product.

Shifting priorities
The BPO operations of IT companies are gaining momentum over standalone BPO operations due to various reasons. The major ones being:

IT companies also bring in their software expertise to provide a one-stop solution to their clients. Many software majors have been redefining their BPO offerings and introducing innovative business models to provide platform-based solutions.

These solutions involve the creation of a common platform that enables multiple processes and cuts costs for the client. The vendor takes care of the input (software, applications, etc), output (transactions, process) and also adds services.

One of the reasons for the shift from IT to ITES is the growing recession. While a fair amount of the IT software spending is discretionary, spending on support systems like handling consumer complaints which are the domain of BPO are cannot be lowered.

Also many captive BPOs are looking to sell out to IT majors to cut cost and give better business synergies. The biggest such deal has been Citibank selling its BPO arm to TCS. Analyst say that there are many such deals in the days to come.