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The BPO sector is growing faster than ever with the growing number of BPO companies mushrooming all over India. In a recent Nasscom’s annual BPO summit in Bangalore in August 2007 there was “standing room only” due to the large number of attendees.

Outsourcing industry was created to a large extent by the early moves of GE under the leadership of Jack Welch. GENPACT, EXL and WNS globally listed firms are now clocking few billion dollars in value and leading a pack of medium to large firms whose employment will surpass the much older information technology service industry in near future.

The next mile stone is the dynamic segment of the Indian Knowledge Industry. The BPO success has led to considerable optimization of higher value additions. From single process outsourcing solutions to multi functions, the comprehensive end to end services has moved to the very apex of the Gartner hype cycle.

There are quite a few challenges emerging with this transition. The abrupt strengthening of the rupee against the dollar and pound have left many young BPO firms gasping for breath and the inherently lower profitability of this segment compared to the major IT industry services puts most players at risk with the dollar likely to weaken further against the rupee in the next 18 months or so.

Business transformation consulting, seem to be the next logical wave as more and more Knowledge Process Outsourcing wannabe firms has dipped into the trough of disillusionment that follows the peak of inflated expectations in the Gartner hype cycle. In order to continue maintaining a profitability of 20 percent and above, Mckinsey suggests that critical parameters of operational excellence like productivity, support costs, shift utilization, span of control, attrition rates needs to be put under the microscope.

An interesting nugget from Mckinsey was, that industry leaders, who are setting best practices in human resource management and retention, actually pay less compared to the laggards and are leveraging from effective people management practices rather than higher remuneration to keep their teams intact. Finally it has been reaffirmed what most industry watches were predicting, that captive BPO units average a cost level which is 37 per cent more than third party processors.

There is an old Chinese curse "May you live in interesting times" and these are definitely that. The paradox is that a segment of the industry which benefited in its initial days through its umbilical cord connection with the IT sector is now concerned that the withdrawal of tax benefits may result in making the Indian BPO sector less competitive than China and Eastern Europe, which are nipping at our heels. We have to wait and see if these industries will continue to flourish despite the several challenges ahead.