Sluggish demand hitting BPM firms’ bottom line

Bengaluru BPM (Business Process Management) services providers are likely to see increased pricing pressures like their IT services peers over the next one year as demand dives down owing to recessionary environment.

According to global research firms, clients are not willing to provide a price hike to BPO firms for outsourced contracts amid inflationary pressures.

“Similar to IT services, pricing for BPO services in the previous 12-months period has risen across locations largely due to higher enterprise demand, talent shortages, and inflationary market situations. We expect this trend to reverse across a few delivery locations in the next 12-month period due to recessionary pressures, easing wage inflation, and an increase in supplier consolidation mandates,” Global IT consulting firm, Everest Group wrote in a note.

The report said geographies like the US, India and Philippines are likely see pricing pressures coming from clients.

BPM (business process management) service providers like the IT companies have seen a healthy growth in contract pricing in the post-Covid period. Rising demand and high wage cost prompted BPM firms to demand higher prices for executing projects.

However, inflationary environment in the western economies led to stabilisation in demand scenario. Enterprises are also holding back discretionary spend on the various technology domains until an economic recovery. Moreover, talent cost has reduced as high attrition rate seen earlier has been replaced

“Price increases have stabilized in the last six months due to the economic uncertainty and easing talent situation. We expect this trend to continue, with pricing declining in the near future for commoditized skills in some locations. Key triggers for this potential decline are mandates for procurement to reduce spend and providers’ intent to retain clients,” Everest Group said.

In order to overcome the pricing pressure, many BPM firms are adopting generative AI-powered solution along with outcome-based pricing to improve margin.

“We are rapidly deploying Generative AI within our own walls in areas such as HR, training, knowledge management and internal software coding. This will help improve our margins and create use cases for our clients,” NV Tyagarajan, CEO & Director of leading BPM firm Genpact, said in the recent analyst call.

Similarly, BPM firms like WNS are focussing on higher non-linear pricing models for better pricing.

“Outcome-based arrangements are examples of non-linear pricing models where revenues from platforms and solutions and the services we provide are linked to usage or savings by clients rather than the efforts deployed to provide these services. We intend to focus on increasing our service offerings that are based on non-linear pricing models that allow us to price our services based on the value we deliver to our clients rather than the head count deployed to deliver the services to them,” WNS said in a SEC (US Securities & Exchange Commission) filing recently.

We believe that non-linear pricing models help us grow our revenue without increasing our headcount. Accordingly, we expect increased use of non-linear pricing models to result in higher revenue per employee and improved margins, it added.