The lead headline on www.InnovationInInsurance.com today is that mid-sized offshore IT-outsourcer Majesco Mastek is getting out of the BPO (business process outsourcing) business. (The firm is known as Majesco Mastek in the U.S. but simply as Mastek in its home country of India.)
The firm’s CFO R.S. Desikan explained that while their BPO business was not losing money, it could not achieve the margins nor the revenue growth rates of its core business. Majesco Mastek has about 4,000 employees and growth in revenue per employee is an important metric by which they manage.
What does this say about the state of BPO in insurance? It could be that Majesco Mastek was simply not well-suited to this business. Presumably they added the BPO line in the hope that it would produce margins and revenue growth consistent with the rest of its business. Since it did not achieve the desired result after a reasonable period of time, they decided to abandon further efforts. They did report that most of their BPO employees were absorbed into their core operations so it’s good that they could withdraw somewhat painlessly.
An alternate explanation could be that Majesco Mastek was well-suited, executing flawlessly, and the insurance market simply did not need another provider of BPO services. That is, insurers’ needs were being fully met by other providers in the marketplace with capacity for further growth.
A third possible explanation is that while insurance BPO is a logical solution to the administrative limitations of insurers, these insurers are simply not willing to consider such options because they deem them to be disruptive to their traditional operations. That is, they fear the organizational turmoil of employee separation often associated with such broad functional outsourcing. Moreover, these insurers do not yet feel sufficient competitive pressures to accept such offerings as have their counterparts in other vertical industries.
I suppose there could be other explanations as well. My inclination is to believe the answer lies in the third explanation – that insurers are not pursuing BPO opportunities as aggressively as they could or should.
November 19, 2008 at 1:00 pm |
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November 20, 2008 at 9:56 am |
Mike,
I read both your e’mails on Mastek and the BPO story. Having worked directly with the founders of Mastek, I found strong opinion differences among the managing partners and even the board members about strategic business opportunities. This devisive environmnet challenged many business pursuits at Mastek making it difficult to stay the course. I believe the CFO announcement on the BPO to be a fatal error for Mastek and will have ramifications going forward. The question for any future customer would be, “how long will you keep this opportunistic business alive? The reluctance of insurance companies to outsource (either on-shore or off-shore) remains a mystery to many of us.
Hope all is well with you. Steve
November 20, 2008 at 10:09 am |
Steve, as you suggest, “the reluctance of insurance companies to outsource (either on-shore or off-shore)” will not be lessened by vendor ambivalence or ambiguity.