The supply chain function is an area crying out for a digital platform or utility. In fact, I believe it’s ripe for digital disruption. Digital technologies such as automation, advanced analytics, AI, cloud and the IoT can make a huge contribution to rationalizing and managing the supply chain for companies in the North American market and globally, so it’s a prime candidate for transformation. Companies such as Amazon and Walmart are building logistics and supply chain digital platforms for themselves, but they seek to shape the space and disadvantage other companies. So, several vendors are pushing to provide supply chain platforms. It’s clear that especially Accenture and Genpact, also believe in the coming disruption, as they are making very big plays to compete against Amazon in the supply chain space.
Hexaware Technologies, Mphasis and L&T Infotech are among the potential suitors evaluating a bid to acquire IT services and consulting business Headstrong, put on the block by the NYSE-listed Genpact, people directly aware of the matter said.
US-based Everest Group’s CEO Peter Bendor-Samuel said the Headstrong acquisition has been problematic from the start as it did not have enough scale to succeed inside Genpact. It struggled with being a small IT fish in a large BPO pond. “It also had cultural differences and was focused in capital markets, which is not an area of strength for Genpact.”
Challenging macroeconomic conditions, demanding digitally-savvy consumers, and rising fraud are pushing P&C insurance carriers to be more demanding than ever of their service providers. Carriers not only expect optimization of cost of insurance operations, but also assistance in gaining and retaining market and customer mind share. This is forcing service providers’ hand to move from an arbitrage-first to a digital-first model.
Meanwhile, insurance BPO service providers’ origins in the arbitrage-first world and their strategic choices in large P&C product categories, such as personal lines, worked well for a while. But with the U.S. and U.K. markets maturing, service providers are being forced to reconsider their strategy. They now not only need to focus on the customer experience, their digital footprint, and lowering TCO, but also on developing deeper domain expertise to drive growth and remain differentiated in the market.
Develop capabilities in judgment-intensive processes (i.e., trod the path taken by Third-Party Administrators, or TPAs)
Take the plunge to develop capabilities for handling more “exotic” P&C product categories (such as insurance of dump trucks!)
Explore under-penetrated (emerging) markets
Genpact (a Leader on Everest Group’s P&C insurance BPO PEAK Matrix-2017) clearly decided to pull the trigger on this conundrum, announcing on 3 May that it had acquired BrightClaim. BrightClaim’s suite of services includes property claims management (including catastrophe claims), claims adjusting, TPA services, and contents pricing services.
With this acquisition, Genpact has gained deeper domain expertise in U.S. P&C insurance claims market, and has strengthened its portfolio of digital technologies and fraud detection capabilities.
The acquisition also includes National Vendor, a BrightClaim associated company, which has a nationwide network of contractors and offers carriers a direct repair program along with content fulfillment. Genpact can leverage this to provide cost-effective and faster claims settlement services, which is expected not only to reduce claims payouts for insurers, but also to improve the customer experience.
Genpact’s top competitors in the U.S. P&C market are Cognizant and EXL. With both of them continuing to augment their capabilities and developing deep domain expertise, it was imperative for Genpact to make a move. As a favorable by-product of this acquisition, Genpact has further strengthened its onshore delivery capability with centers in Atlanta, GA and Austin, TX.
Prima facie, the deal looks accretive and has the potential to enable Genpact to challenge other Leaders in P&C insurance BPO space.
How will other providers in this segment respond? Game on! We’d say….
In the heat of battle in the services industry’s rotation from labor arbitrage to digital, Genpact made a significant move today that signals to everyone it’s playing to win. Genpact announced it signed an agreement to acquire Rage Frameworks, a leader in enterprise Artificial Intelligence (AI) and automation technologies and services. Genpact moved the cheese.
Three aspects of Genpact’s acquisition of Rage are especially significant.
Serious Commitment: It’s apparent that Genpact recognizes the future of services will be digital. The global services industry is witnessing unprecedented deceleration. At Everest Group, we closely track the top 20 service providers. As illustrated in the chart below, the labor arbitrage-based businesses collectively stopped growing last year and 21 percent of the industry growth is now in businesses with a digital focus.Among the top 20 providers, growth for arbitrage-first providers actually shrank last year. As we look forward two more years, we think it will further decelerate and go to just under two percent.Accenture has rotated into digital faster than other providers, and already has the highest percentage of work in digital. It’s the biggest and is blowing other providers away. Of note, it’s the only provider that has succeeded in growing its margin while moving into digital. As I’ve recently blogged about the dilemmas at Infosys and Cognizant, for example, the rotation into digital stresses providers’ margins. The faster they grow in digital, the lower their margins are, which is very inconvenient.“Change is inevitable, but growth is optional,” wrote John C. Maxwell, leadership expert and best-selling author. With its Rage acquisition, Genpact bypasses the dilemma other providers are facing and demonstrates its seriousness and its commitment to growth in the digital space.
Accelerating clients’ digital transformation: Everest Group’s research group conducted a study of 132 “best reference” clients of top service providers. Our study found 48 percent of clients are unhappy and 25 percent are very unhappy. A top reason for their dissatisfaction is providers’ capability of helping them with a digital restructure.Rage Frameworks presents an exciting set of technologies that are immediately applicable to Genpact’s existing client base. Leveraging Rage’s no-code development AI platform in cognitive computing, enterprises can gain real-time insights for mission-critical functions, simplify automation, manage risks better and gain competitive advantages. For the last 18 months, Genpact and Rage successfully partnered on strategic client digital engagements including a large global insurer, a global consumer packaged goods leader and several large financial institutions. Their combined capabilities will help clients drive digital transformation at scale and accelerate clients’ digital journey.
Rebranding: The Rage acquisition also enables Genpact to rebrand itself as a digital company in the broader marketplace, not just an arbitrage service provider. Moreover, the AI capability is quickly becoming mainstream for leading enterprises as it enables organizations to change the way work is done and enhance their value proposition and competitive advantage.
Requirement for Digital Rotation Success
When an arbitrage company such as Genpact thinks about its rotation into digital, it must focus on managing three constituencies: shareholders, internal constituencies and customers.
The Rage Frameworks acquisition helps Genpact manage across all three constituencies, as follows:
It signals to the shareholders that Genpact is serious about rotating into digital, and it’s joining companies like Accenture, which is the leader of rotation into digital.
It equips Genpact’s internal organization with the tools and intellectual property to drive the provider’s transformation into a digital services leader.
It helps reposition Genpact with its customer base in Artificial Intelligence and cognitive computing – a very important and quickly growing emphasis in digital capability.
Genpact’s bold move is important to watch. How many other arbitrage providers will follow this path of serious investment to accelerate their journey to become digital-first service providers?
Code Halos: How the Digital Lives of People, Things, and Organizations are Changing the Rules of Business, by Cognizant’s Malcolm Frank, Paul Roehrig and Ben Pring, discusses the impact of the already huge and ever-increasing amounts of data surrounding individuals and our environment. The authors point out today many pieces of equipment or devices have the potential to generate data about themselves and we can collect, analyze and act on that information and transform the world around us. The implications for service providers are exciting.
The authors of Code Halos explain that equipment, processes and people will have so much information coming off of them that it will create a halo that surrounds them, containing an ongoing flow of information.
An example is a GE jet engine into which GE has put sensors that provide GE and its customers with ongoing diagnostics of an engine’s performance, location and conditions on which it’s operating. This information is collected and synthesized, allowing GE to move from a one-to-many maintenance schedule to an individualized path that treats all of its jet engines the same with customized maintenance. This allows GE to predict when an engine is going to fail so the company can act ahead of failure. Creating customized maintenance also dramatically improves the performance and cost to maintain the engines.
The same potential exists for most, if not all, pieces of equipment. Let’s take the common light bulb. Today we can put a sensor on the light bulb and treat that bulb as an independent entity. We can monitor its working conditions, its useful life, replace it when necessary and adjust the electricity coming to it for greater or lesser amount of light at certain times and conditions. So we can take the most mundane household appliance and create a code halo around it and transform its use, its cost to serve and its usefulness.
As the authors rightfully point out in the book, if we apply this to business processes, it opens up an unending series of opportunities to apply digital technologies and transform the world around us.
One of the meta effects of this phenomenon is that service providers can create completely new lines of service to transform their impact on their customers. Think of GE, which utilizes Genpact to gather and analyze the data to transform its maintenance of its jet engines.
In a services world where we have maturing markets for traditional outsourced application development services, the potential of these code halos is almost limitless. And the need for partnership with companies such as Genpact and Cognizant is significant.
This could create a whole new set of services and market growth opportunities in a maturing market space and become a significant bright spot for the services industry.
On April 23, Genpact announced it had signed an agreement to acquire Pharmalink Consulting, a global provider of regulatory services to the life sciences industry. The move brings Genpact valuable expertise in supporting life sciences research and development functions including regulatory strategy, filing submissions, complex compliance services, and post-licensing activities management. And it well complements Genpact’s traditional stronghold in FAO BPO for major pharma clients.
This strategic play is in line with a wider move by generalist IT-BPO service providers to compete with life sciences technology and process majors such as Accenture and Cognizant. These generalists are ramping up their capabilities in domain-specific areas including drug safety, regulatory services, pharmacovigilance, and clinical data management, to enable more broad-based engagement with pharma customers.
Life Sciences Regulatory Imperatives
The already complex life sciences regulatory landscape is further compounded by stringent quality measures, new drug approval regulations, restricted sales force access to physicians, increasing scrutiny of manufacturing processes, improving collaboration among regulatory agencies, and enhanced pharmacovigilance legislation. We estimate that compliance-related IT spending amounts to nearly 15 percent of the total IT budget of life sciences firms, with three to five percent annual increment.
Recent European data protection regulations call for greater control of personal data. Newer provisions include use of health data for only “absolutely necessary” purposes, as well as an additional onus on data controllers to formulate methodologies to adhere to “data minimization” practices. Pharmacovigilance, drug safety, and clinical data management have become key imperatives in this scenario. New technologies and systems can enable organizations to tackle the regulatory puzzle.
The Inorganic Route to Enabling Domain Expertise
In a significant change and recognition of new market realities, nearly all IT majors have separate business verticals specifically targeting clinical data management and pharmacovigilance. In 2011, Accenture even tied up with the Institute of Clinical Research in India (ICRI) to jointly develop a pharmacovigilance and clinical research program for the Indian market.
And in the last couple of years, there has been an increasing impetus on behalf of service providers to look at M&As to acquire these specific areas of expertise in the life sciences domain. For example, the Accenture/Octagon deal in 2012 signalled an important shift in focus as Accenture attempted to combine its life sciences offerings by adding elements of regulatory management and SI/consulting to have a more integrated portfolio with a cross-functional view. This is based on the belief that the marriage of functional expertise in conventional process-oriented outsourcing services with industry expertise across regulatory, drug safety and clinical trials, make for a very compelling business case. Additionally, regulatory work has been largely project-based, and typically short-term. The enhanced value players bring to the table can translate into longer and more meaningful IT-BPO engagements.
The moves by Accenture and Genpact herald the transformation of life sciences customers’ expectations for greater consolidation and efficiency in the aspects of regulatory activities management, bringing together different tenets such as clinical data management and pharmacovigilance. Service providers that seek to explore, leverage, and consolidate adjacencies in current scope of work, and assume a consolidated and integrated approach to IT-BPO services, will end up with a greater share of the life sciences pie.
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.
Have you the noticed the growing ripples of marketing messages from Genpact? The firm is already a leader in the global services market, but Bain Capital is aggressively pushing Genpact to grow faster and become more dominant in the market.
Bain — which is known for taking well-run, aggressive firms and super-charging them — provides capital to Genpact, has a seat on the provider’s board, and is becoming far more active in its management meetings. Acquisitions, organic growth, and looking outside the Indian heritage for Western talent are all on the strategic agenda along with refreshing marketing activities.
They moved from purely F&A services and solutions and now have compelling offerings in enterprise application services and IT infrastructure services. In today’s environment, there is plenty of room to grow their share of the pie. Genpact already had one of the higher win rates in the global services industry and now, with increased focus on marketing, should capture more wins.
If you’re a global services buyer, these observations portend to Genpact coming to visit you soon.
If you’re a service provider, you likely have reasons to be frightened by the moves Genpact is making to step up to a higher level in the market.
On November 16, 2011, Genpact signed a five-year strategic partnership agreement with the government of Qingdao to help foster the globalization of Chinese corporations. According to the agreement, Genpact will set up a global process innovation center, and the local government will facilitate establishment of partnerships between Genpact and domestic multinational enterprises. Genpact will provide high-end services and business models to these companies from the center by leveraging its global expertise and implementing industry best practices
Qingdao is a relatively new face in China’s global services arena, and has not really experienced notable market activity from ITO-BPO services providers and buyers (captives). Before we talk about the implications of Genpact’s foray into Qingdao, let’s take a quick look at this city located in the Eastern part of China.
Qingdao is a major seaport, naval base, and industrial center in the Shandong province in China. Key industries in the city include household electrical appliances and electronics, petrochemicals, and automotive components.
As an important trading port in the province, Qingdao has witnessed significant foreign investment and international trade. In particular, South Korea and Japan have made extensive investment in the city. According to estimates, Qingdao has the second largest population of Koreans in China – approximately 100,000 – bested only by Beijing.
Coming back to this strategic partnership, it helps Genpact make further inroads into China by expanding its existing six-city presence as part of a journey that started in 2000, including its proactive establishment of delivery centers in the Tier-2 cities of Changchun, Foshan and Kunshan. In addition to the benefits of lower operating costs, access to additional talent pools, and a toe hold in the domestic outsourcing sector, governments in Tier-2 cities are often more flexible in offering incentives. These considerations are likely to have played a pivotal role in Genpact’s investment decision, and has helped place Qingdao on China’s global services map.
For the local Qingdao government, having one of the large global BPO players open a center in their city is a welcome move. It will not only bring process expertise to domestic companies, but also lead to notable job creation in the region. Moreover, it will help build Qingdao’s credentials as a delivery base for global services, enabling the city to find a place on the radar of other global services investors on the lookout for new locations.
This agreement is also evidence to the fact that there is a strong push from government at all levels in China to develop the global services sector. In fact, as part of Everest Group’s Market Vista Q3 2011, we talked about the role the Chinese government is playing through its “1,000-100-10” project to provide thrust to its global services industry and attract investments in the sector.
The Genpact-Qingdao government partnership also underlines important characteristics of China’s global services sector, and presents lessons for broader global services stakeholders:
Tier-2 cities in China are becoming important evaluation candidates for service providers and captives. Indeed, Chinese Tier-2 cities already have a significant share among the service provider and captive set-ups, and a higher share than Tier-2 cities in other countries such as India and the Philippines. This has been enabled to a large extent by the wider reach of the government’s incentive programs, and the cities’ robust infrastructure growth.
The domestic global services sector opportunity in China is huge. Everest Group estimated the domestic opportunity for global services to be US$20 billion in 2010 (for more details read Everest Group’s Global Locations Compass – China). This is driven both by Chinese enterprises’ need to remain globally competitive and the government’s impetus on outsourcing.
Service providers often adopt a partnership model while framing their China go-to-market strategy. This construct involving collaboration with a local partner helps get the plans off the ground quickly, aids in learning the rules of the (local) game, and mitigates risk. In this case, Genpact’s partnership with local government will help it collaborate with domestic multinationals like Haier, Tsingtao Beer, and Hisense in Qingdao. This agreement is potentially a win-win strategy for Genpact, the Qingdao government, and domestic companies alike.
In summary, the Genpact-Qingdao partnership epitomizes the key nuances of China’s global services sector, and reiterates the fact that China can be leveraged not only as an offshoring destination but also a location in which third-party providers can serve the domestic market. It also demonstrates that Tier-2 cities in China are a must to keep an eye on!