October 27, 2003

Manish Sabharwal's interview to Knowledge@Wharton


In a fascinating interview to Knowledge@Wharton, Manish Sabharwal, Founder & Managing Director of pioneering HR BPO firm India Life Hewitt, provides both solid and witty insights into a whole range of industry issues: how he started out, why he sold out, why he focused on India as a market, etc., etc.

Some extracts:

Business schools as venture incubators
I think VCs who started incubators got it wrong; business schools like Wharton are the best incubators in the world. I milked the school's ecosystem. India Life was my final project in six classes. Many professors helped me think things through, and I had a group of first-year students do a field application project. I used the summer between the two years to travel to India and refine the plan, and then moved back to India straight after school.

I guess it would make a better story if I said all my professors gave me bad grades for my business plan. But they didnÂ’t; they thought it would do well. In retrospect, entrepreneurship is like hypothesis testing. You can never prove anything right, but you have to prove it wrong. Wharton helped me eliminate many potential false starts...It was a movie I hadn't seen before, and having a vision for how it would end gave me unique leverage.

India as a market
Everybody looks at India as a production base, we looked at India as a market -- and in doing that, we inhabited a different thought-world. Because we built our business in India, we were able to leapfrog rapidly into Asia -- into countries like Singapore. For me, the question as a start-up – I had raised a teeny $2 million in venture capital from the View Group -– was whether to move back to the U.S. and compete with the big boys or to do it here in India. I decided that it would be good for us to learn in India and expand outside later.....

...We were leveraging across India and Asia, and didnÂ’t have the outdated concept of "export quality". Clients found the single window attractive, which is why 75% of our client base is multinational...

..Most global players are hesitant about setting up operations in Asia because of its complexity. But coming from India, we didn’t have a problem because that is the most complex location of all. So Asia didn't intimidate us...

India's strengths
We compared the Philippines and China, and India’s price performance equation for our business is not going away anytime soon. The Indian mind is quite agile and there is an ecosystem and hinterland that is hard to replicate. I now live in efficient Singapore and believe that one of the upsides of India’s messiness and problems is creativity, questioning and a hunger for jobs.

Beyond low costs
The major challenge is getting the client to agree to what their fully loaded in-house costs are... Using India or the costs of any offshore destination to sell is very dangerous. If pricing is your only differentiator, it quickly becomes a race to the bottom. Even if you win the rat race, you are still a rat...

...We know that for now our cost structure is a competitive advantage but selling on price is a slippery slope. People come to India Life for our domain knowledge, proven track record of execution, re-engineering capabilities and so much else. Obviously price is a ticket to entry that you have to get right but there is much more to the decision.

My sense is that commoditization occurs in every business, and you’ve got to rip up the road behind you. That is why we moved from payroll to HR management, recruitment administration, performance management, training administration and other types of activities.

The need for focus
That’s the only way we can avoid commoditization. Some potential clients say that they will only give us HR if we also take travel and other operations. But that is unacceptable. It would corrupt our DNA. That is why the opportunist or generalist BPO company is dead.

Why India Life sold out to Hewitt
(The biggest challenge for India Life was) we were a start-up and our brand was hardly known. One of the biggest neutralizers of that objection was the gift-wrapping that came with our becoming part of Hewitt. We now have $1.8 billion in revenues, we handle 16 million employees globally, and have an annual IT spend of $350 million. When our customers or prospects hear that, they realize there is much more at stake than their contract....

.....You need deep pockets in this business. God has switched sides in BPO. She is no longer on the side of the best shots; she is with the biggest armies.

On dealing with a large parent
Gift-wrapping doesnÂ’t come without strings, right? ...

You’re riding a horse, and suddenly someone puts a cart behind you...

...I keep telling Hewitt that the removal of resource constraints, which was one of my biggest attractions, does not compensate for the cholesterol that comes with becoming part of a big organization. ...

...Even at this stage of Hewittization, I think it’s a net gain. A water pistol won’t get you very far if you want to meet customer expectations. In HR, the technology treadmill is becoming so hard for companies to stay on. For us it would have been impossible without Hewitt.

The inevitability of offshoring
Many of us in emerging markets like India, who vigorously fought to deregulate and break down our own walls, feel badly let down by the attempt to now build walls against us. Good economics is not always good politics -- but I have faith that this too shall pass. The economics of offshoring are irresistible. The offshoring wave may be delayed, but it is unstoppable.

Click Here to read the full interview.