Genpact’s Q4 Performance: A Cautionary Tale for All Service Providers | Sherpas in Blue Shirts

Posted On March 17, 2014

The past year was not kind to Genpact. Q4 results show it underperformed the S&P by 25 percent over the last six months and by 7 percent year to date. This is surprising given that Genpact is a great organization with a record of superb delivery and a history of great performance. Unfortunately Genpact is a victim of the changing market and its sweet spot has lost its sweetness. We expect other providers will become victims as this story plays out again and again across the services industry. It’s a cautionary tale about growth engines.

Genpact does many things well, but its finance and accounting BPO practice has been the heart of its growth engine. Its F&A sweet spot was the $50-$100 million transaction size, and historically it expanded those contracts to even greater value. The sad fact is the number of new F&A deals of that size coming into the marketplace dropped precipitously as the market matured.

Today’s F&A transactions are different. Organizations often bundle F&A into larger transformation deals — where Genpact has a disadvantage against players like Accenture and IBM. They are better positioned to win broad transformation contracts, and they’re also the masters of the sole-sourced deals that now hit the F&A space.

The maturing market left Genpact with a string-of-pearls strategy, requiring stringing together a lot of small transactions to make up the difference. But there aren’t enough of them to make up for the volume of growth Genpact enjoyed in its sweet spot for the past five years.

To Genpact’s credit, it seems to be doing everything right to offset the shifting market: headquarters shifted to the United States, a world-class sales and marketing executive took over as CEO. Genpact saw the market shift coming and worked very hard to set up new lines of business. But its core F&A market matured faster than Genpact could put the new growth engines in place.

Even the best firms struggle to keep their growth engine up. We believe this story will be repeated again and again across the services industry as the labor arbitrage market matures and growth engines slow.

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