Sanjeev Aggarwal, CEO, Daksh eServices: Lean and mean wins the race

First, let's get this out of the way. sanjeev Aggarwal loves publicity, gets tonnes of it, and will need tonnes more of it as he prepares to take his company public within the next 24 months. But are all those column-centimetres of press undeserved? No, not a bit. His 1,700-seat BPO (business process outsourcing) company may not be the largest (it ranks #2 in terms of revenues, according to a Nasscom survey), but you have to grant one thing: it is one of the most tightly-run ships around, and the 42-year-old Aggarwal is its vigilant skipper.

Since it was founded in 1999, the company has upped revenues from Rs 11 crore ($2.3 million) to Rs 86 crore ($17.9 million) last year, and by the end of this fiscal that figure could touch Rs 145-170 crore ($30-35 million). What's more remarkable is the fact that Daksh-it's a Sanskrit word that means being prepared and up to any challenge at all times-has managed to keep its profits growing at an impressive 25 per cent of its revenues. That's something not too many BPO companies in India can boast of. So what makes Daksh go?

To answer that question, one has to understand the nature of the BPO industry. Currently it's a $20 billion (Rs 96,000 crore) global outsourcing industry that's rapidly growing-estimates range between 70 and 100 per cent a year. India accounts for just $1.5 billion (Rs 7,200 crore), most of which is thanks to captive service providers like American Express and ge Capital. But the fact is global customers are increasingly amenable to outsourcing. The issue for companies like Daksh is to get them to offshore it as well. Some concerns that crop up in the process range from the feasibility of work transfer (or process migration, in industry lingo) to telecommunications availability to quality of service to costs.

How well a company handles those concerns determines its topline. But, more critically, how well it handles the tricky equation between growth and investment, determines its short-term profitability and long-term competitiveness in a fragmented industry with more than 300 players at last count. And that's where Daksh, which has some of the biggest names in business as customers, including Amazon.com, Yahoo!, Sprint pcs and, more recently, Hewlett-Packard, differentiates itself. Says Subbu Subramaniam, Investment Partner, Baring Private Equity Partners (India), who is familiar with Daksh and its business model: "Daksh has been able to differentiate itself without cutting prices like some of its competitors have."

Email By Email
To be fair to Daksh's competitors, Aggarwal started with an advantage. When he quit Motorola India in 1999 to "create something ground up", he already had had experience relocating Motorola's Asia-wide financial systems to India. What also helped was the fact that he didn't have to sweat to find an angel investor. Ashish Gupta of Junglee.com was a family friend and a willing investor who had a string of investments in start ups. Fortunately for Aggarwal, too, Junglee had been acquired by Amazon.com in 1998, and Gupta could help Daksh snag its first big customer (for the record, Big Step, a small business portal, was Daksh's first customer).

But the question was how far could $ 2 million (Rs 9.6 crore) in start up capital go? Not too far.

Therefore, to start with, Daksh focussed only on email-based customer service and had 30 seats at its Gurgaon facility. The second and third facilities-and the major push into voice came only after customers had been acquired. Given that the investment per seat ranges from Rs 3,84,000 to Rs 4,80,000, and breaking even takes 18 to 24 months, timing investment with phases of growth is critical. For example, wages account for less than 30 per cent of costs, and the rest are made up of fixed costs like the investment in real estate, it equipment, connectivity, and support costs (ups, generators, transport etc.). Says Harsh Nanda, cfo, Daksh: "We've been very careful in creating the infrastructure."

Typically, there are two components to relocating a client's work to India. One is the customer information management system, usually provided by the client, and two, customer care system that resides on top of the former. A seamless integration of the two is needed for the process to work, but what's more important is bandwidth on tap. This is a tricky bit. Invest too much in bandwidth, and you risk creating idle capacity. Invest too little, your network may get choked and customers mad. Daksh came up with a cost-effective solution to this problem. Thanks to some innovative architecture, it could go to customers with pre-set bandwidth. All that the customer had to do was to hook up with Daksh's point of entry (called point of presence, or pop) in the US. Says Amitabh Ojha, Chief Technology Officer, Daksh: "That helps us reduce the lead time in implementing a project."

Such care is exercised in day-to-day operations too. Instead of investing in expensive imported screen recording system, Daksh has developed one at one-tenth the cost. An employee self-service system (an intranet for leave scheduling and tracking individual performance score) developed in house is now used by the client too. And until recently, the company made do with ms excel for scheduling, rather than invest in an expensive customised software. Forget software, nobody, Aggarwal included, flies business or first class even on long-haul flights. The top executives, while always carefully chosen, are rarely paid top-dollar salaries; instead they are compensated with stock options. And although the attrition rate in the industry is at a crippling 40 per cent (it means 4 in 10 agents leave within one year), Daksh rarely poaches from competitors. Part of the reason is, of course, that it doesn't want to get into a bidding war. But the other bigger reason, as Aggarwal puts it, is to "grow the industry pool".

Having to work with a relatively inexperienced workforce has a severe downside, which Daksh tackles through an intensive hiring and training processes, and monitoring of quality on the "floor". The performance of each customer care specialist (ccs), or agent, is measured on a balanced scorecard, which scores them on 5 to 10 parameters. The score card works two ways. One, it measures the individual and two, the line of business. Daksh currently has 25 to 30 lines of business (lobs) and there is a framework that decides whether they are in the red, yellow, or green zone. Then, there are "clubs" (Platinum, Diamond, Gold, Silver and Bronze) where each ccs is slotted depending on her average score.

In July this year, Daksh became the first Indian BPO company to be certified by the Benchmark Portal, which has a database on 25,000 call centres mostly in North America. The certification process includes various aspects of performance like revenue per agent, error rate in system per 1,000 calls, and customer satisfaction surveys. Daksh, Singh says, rated well on the survey against 31 north American companies, both in terms of effectiveness and efficiency. Where it fell short was in measuring customer satisfaction-something Singh fixed soon after. Says Charanjiv Singh, Chief Quality Officer: "These are all start-up issues-of when to bring in what."

Just like in a manufacturing environment, quality determines the bottomline. Consider this, for example: For an email client, Daksh was running at the targeted eight email an hour, but a time and motion study helped it to up productivity to 10 per hour. All it entailed was getting the agents to use the hot buttons, sequencing email, and training them on mail reading. Cost saved per annum? Almost a million dollars.

Scaling Up
A strong management team, a booming market, and an impressive client list has investors falling over each other to fund Daksh. Its third round of funding, closed in October this year, fetched $21 million (Rs 101 crore) from Citibank (already a second-round investor) and General Atlantic Partners. Part of the money is being used to set up a fourth, 1,000-seat centre in Mumbai and a matching one in Gurgaon. All part of its strategy to scale up and go public within the next 18 to 24 months. But as Daksh expands, it will encounter a set of new challenges stemming from the need to diversify locations, to reduce risk for customers and to tap manpower.

Operational quality focus was driven in the start-up phase. During this phase, the focus was on understanding and enhancing quality in customer contacts	1. COPC: Sysytem tool for increasing CSP's operational & financial performance 2. Benchmark against world-class practices	Six Sigma: Wil be brought in to focus on continous improvement through structured problem-solving	TQM: The mother of all quality tools, TQM will help daksh focus on people and processes by customer-centric leadership

For example, moving into newer locations would mean duplication of infrastructure-investments in telecom, it systems, power back up, and real estate, among others. Sure, the outsourcing market will continue to grow, but Daksh's own ability to win new customers and maintain profits may be affected. Especially now that Spectramind's acquisition by Wipro gives the former not just financial muscle, but access to Wipro's existing clients.

But Daksh's investors are not too worried. Says a spokesperson for gap in the US: "Daksh has positioned itself as a leader in this industry segment in India with important international clients. We believe that Daksh has significant growth prospects due to its strong management team, high quality service offerings, and blue chip client base."

Whether ordinary investors share the sentiment will be known when Daksh launches its ipo within the next two years. But there's a benchmark available. e-Serve International, a Citigroup venture quotes at a price-earning multiple of about 40-by that logic, Daksh-given its 25 per cent profit margin and projected fiscal-ending revenues of Rs 144 crore ($30 million)-should be worth Rs 1,440 crore ($300 million). But such a straightforward calculation is unlikely to hold. e-Serve is the only stock of its kind in the market, so the premium may be more for the novelty than its earnings potential. Assuming a multiple of 25-something industry experts believe it could fetch-Daksh should still be worth Rs 898 core ($187 million). Says Aggarwal, "We are committed to creating value over the long term." In other words, here's a story that has only just begun.