Tag: Genpact

How Will the IT/BPO Industry Leaderboard Change? | Sherpas in Blue Shirts

This past weekend, many people were glued to their televisions watching the 2011 Masters Golf Tournament at Augusta National. As the days rolled by, the leaderboard changed in some surprising ways – the young McIlroy slid a long way from Number 1 on Day 1; Tiger Woods finally showed his old spark and stayed steadily within the top 5 throughout the game; and Charl Schwartzel jumped into the front-runner spot to take the Green Jacket.

While we now know the Masters winner, there is significant speculation on the changes in the IT services leaderboard, both today and going forward. The market is rife with questions on where Wipro and Cognizant will end up this season. The discussion on C-level changes at Infosys made a leading Indian newspaper speculate on issues it may be facing, with TCS speeding on and Cognizant being on steroids and catching up quickly. The next day, analysts said TCS would continue to outpace the other TWITCH majors as the quarterly results season starts.

We will know the answers to these questions in the next few weeks, after all companies report their numbers. But the more important long-term question is, what else will change in that leaderboard? Will we see more M&As, new entrants, or exits? And fundamentally, what will the future structure of the IT services industry be, and who will the winners be?

In a recent meeting, a CEO of an IT services company made an interesting point about there being steps at the US$500 million, $1 billion, $5 billion, and $10 billion marks, and that it is progressively challenging to get to the next level. It was clear he was thinking that some, including those in the $2+ billion scale, will struggle to reach the next level, and some will stabilize in their current or adjacent level.

The TWITCH discussion is interesting, but then there are the mid-tier IT players. We are just past the first quarter of 2011, and already three (iGate, Patni, and Headstrong) no longer exist, at least not in their original form. From all we hear or understand, several more may go before the end of 2011.

Then there are continuous speculations about pure play BPO players being shopped about. The rumor that Cognizant will take out Genpact has been around for ages. EXL is up for some action, and the market is abuzz with other speculations. As one of my colleagues recently blogged – will the Indian pure play BPO companies survive in the same shape and form past 2011 or 2012?

Net, net, here is the big picture. Some large Tier 1 players are struggling, mid-sized IT is not necessarily the best place to be, and pure play BPO companies are a vanishing tribe.

All this raises more questions: What is the future structure of the global services industry? Will Accenture, IBM, Dell, the Japanese majors, TCS and probably a few others become the super majors by 2015 or 2020, and will the rest need to find their own places under the sun? What other categories and groups of service providers will exist, and what will their characteristics be, for example, regional specialists, vertical specialists, etc.?

Irrespective of how the industry evolves, consolidation will continue, and the M&A juggernaut will roll. This business generates cash, and doesn’t require a lot to sustain it…so companies will invest in buying capabilities, assets, businesses, and people in attempts to win top spots on the leaderboard.

We certainly are headed for some interesting months ahead. Is anyone betting on who the winners will be at the end of 2011?

Genpact Acquires Headstrong – End of Pure-Play BPOs? | Sherpas in Blue Shirts

Earlier today, Genpact (a global BPO-centric service provider) announced a definitive agreement to acquire Headstrong (an IT services player with a focus on capital markets) for US$550 million. Genpact has scaled ITO capabilities, but more than 85% of its US$1.2 billion+ revenues is still driven by BPO. Moreover, Genpact’s ITO revenues have been flat over the last few years. So I think it is only fair to call them a pure-play BPO – that was until today! With the acquisition of Headstrong, the split between BPO and ITO for Genpact will be closer to 70:30.

Genpact’s topline growth has fallen from 25-35% in 2007-2008 to 7.5-12.5% in 2009-2010. Not bad considering a growing denominator; stable to increasing margins; and a bad economy. But growth is slowing, and I believe this acquisition will be important for Genpact to ensure scalability in the medium to long term. Here is why:

  • BPO-only services have a strong value proposition for the first 3-5 years of an engagement driven by arbitrage and operational efficiencies and effectiveness – and Genpact has been successful in riding this wave. However, it is often difficult to drive the next wave of value from pure BPO and often this requires integrated IT-BPO capabilities. With a majority of Genpact’s BPO client base entering this end-of-term phase, Headstrong’s capabilities will allow Genpact to present an integrated value proposition. Genpact’s proprietary add-on tools for BPO (remember the acquisitions of Creditek, Avolent and Symphony) and process capabilities (from Six Sigma and Lean expertise to SEP) with Headstrong’s IT capabilities will be a strong combination.
  • This acquisition will also help Genpact ride the potentially disruptive trends in the areas of cloud, SaaS and BPaaS. Their partnership with NetSuite last year was another step in this direction.
  • Headstrong’s acquisition is also interesting from an industry expertise perspective. BPO is fast morphing from being a horizontal service to a more industry-specific offering. Even in traditional BPO services like F&A, more and more industry-flavors are being included – be it around revenue cycle management for healthcare providers or meter-to-cash for utilities. Within financial services (one of the largest recipients of global services), our research shows that capital markets BPO is the fastest-growing segment. This is where most of Headstrong’s capabilities reside. Healthcare (another strong area for Headstrong) is another industry poised for strong global services growth in the near term.

There are potential challenges (as with all acquisitions) essentially around the integration of the two organizations. Genpact has been running successful sales and marketing engine focused around BPO. With a significant IT component – will it get distracted from its focus? Its differentiation in the market is around process excellence, and it remains to be seen how successful the go-to-market for an integrated ITO+BPO offering will be. Headstrong’s existing clients will also have questions on Genpact’s vision and strategy for them.

Look around the BPO industry and you’ll not find any major pure-play BPOs left. Consider the leaders on Everest’s PEAK matrix for FAO – Accenture, IBM, Capgemini, Genpact, HP, and Infosys. No pure-play BPO except Genpact (until this morning). What will happen to others in the same bucket (WNS, EXL and the likes)? For the moment WNS will probably take the tag of becoming the largest pure-play BPO – but for how long? Will it acquire or get acquired?

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