Tag: ITO

Wipro Takes on New Challenges in Driving Transformation | Sherpas in Blue Shirts

Wipro just hired Abid Ali Neemuchwala as COO and group president. Clearly the provider is setting up a succession plan for him to take over Wipro from current CEO, TK Kurien, who has been driving the firm’s transformation. This is an intriguing move as Wipro appears to be succeeding in the turnaround. So it makes sense that the industry is questioning the move. If the turnaround is, indeed, happening at Wipro, why bring in an outsider?

Abid comes to Wipro from TCS with a pedigree of having run the TCS BPO business. This is a big step up for him, from running a $2 billion business to a $9 billion business. The good news is Wipro is giving him at least a year to learn the ropes.

It’s interesting to reflect on why Wipro did this. I don’t believe the firm is stepping away from the transformation that TK Kurien has been driving. Nor do I think Wipro looks to capture some of the TCS magic and execution capability. I believe the firm is reinforcing its need to continue changing and is bringing in an outside perspective to drive change. This move follows in the footsteps of Infosys, which similarly brought in outside leadership.

Wipro gave TK formidable power, and five years, to drive significant change and transformation. Like any transformational plan, it has been painful and has taken time. But as I blogged before, the transformation is starting to show promise with Wipro wins picking up in the marketplace just as TK’s five years comes to a close.

So why bring in an outsider? I believe the answer is that the journey has just begun. The services industry is at an inflection point. It is clear that with changing technologies, client expectations and business models, leadership in the existing space does not guarantee leadership in the future. I think Wipro understands this and is looks to challenge its organization with fresh perspectives.

Running faster with the old model will not allow for leadership in the future. Fresh perspectives and augmenting existing talent is necessary to give Wipro the best chance at being a leader as the market evolves.

The challenges Abid will need to take on will shape and continue to drive Wipro to change how it delivers services, takes advantage of new technologies such as the digital and analytics space, and how it deals with changing client expectations demanding value beyond labor arbitrage. And Abid will bring new perspectives on how to successfully guide Wipro through the transition into the new business models of SaaS, BPaaS, platforms and consumption-based IT and business processes.

I think it’s a good move.

Photo credit: Wipro

Obama Goes to India | Sherpas in Blue Shirts

What could be the implications for global services from President Obama going to India?

It’s clear what the United States wants. We want to sell technology and nuclear equipment to India. And the U.S. wants to move India out of the China camp geopolitically into the U.S. camp. The U.S. wants trade and joint efforts in the areas of climate change and energy.

What does India want? They’re also focusing on trade. One of the key flagship industries for India has been outsourcing and global services. Of particular interest is protecting the spectacular growth of the Indian heritage firms such as Infosys, TCS and Wipro and allowing the next generation to flourish. In that important area, what could they ask of Obama?

It’s clear that with two years left in Obama’s term without a Democratic congress, there is a limit to what President Obama can agree to. But there is something big he could agree to that’s within his administrative powers. He could agree to direct the U.S. immigration service to be more flexible in how they interpret the visa laws, specifically around H-1B and L-1 visas.

Obama goes to India

As written, the immigration laws include a great deal of ambiguity, giving much discretion to the immigration services on whether to grant visas and the degree of freedom that companies or individuals have in what work they can do under those visas.

This is an area that is clearly within Obama’s ability to affect, and it would be a substantial win for India. So, Mr. Modi, I don’t know if you have asked for this – but you should.

And in no way would such a move hurt the U.S. It would not only help India but also help the U.S. economy with competitiveness. There simply isn’t enough U.S. tech talent and we have to rely on Indian talent if we’re going to be competitive in driving cloud and other new service models. The agreement could even be constructed to fit in with Obama’s ongoing pressure on Republicans to reform immigration laws.

So it’s a win for both countries.

Atos Bets on Xerox’s ITO Business to Achieve Global Aspirations | Sherpas in Blue Shirts

The Facts

On 18th December 2014, Atos, a leading European IT service provider, announced the acquisition of the IT outsourcing (ITO) business of Xerox. The ITO business was part of Xerox’s services unit that also delivers Document Outsourcing (DO) and Business Process Outsourcing (BPO). The acquisition does not impact Xerox’s DO or BPO businesses, and signals an intent from Xerox services to focus entirely on those businesses.

Atos is paying US$1.05 billion in cash with an additional consideration of US$50 million subject to fulfillment of certain conditions, and will add ~US$1.5 billion of ITO revenue to Atos’ topline. Post completion of the acquisition, revenues from the United States will almost triple for Atos, making it the single largest operating geography. This acquisition will also add 9,800 professionals to Atos’ existing 85,000+ employees. Further, Atos will become the primary IT services provider to Xerox (~US$240 million annual revenue) and also have the right to first refusal on collaborative opportunities with Xerox. The acquisition is expected to close by Q2 2015.

The Good

Atos has faced perennial organic growth challenges with 2-4% annual revenue decline that it countered by large acquisitions such as Siemens Information Systems in 2010 (for US$1.1 billion) and Bull in 2014 (for US$830 million). Both of these were focused primarily on the European region. Xerox ITO derives ~93% of its business from North America with an estimated 250+ clients in this region. Xerox’s ITO business (acquired with ACS in 2010), has witnessed growth of above 5% CAGR over the last 5 years. This should help Atos partially address its own growth challenges.

Atos’s 2016 ambition is to become a Tier-1 “global” (read non-European) service provider with significant presence in the North American region for traditional and next-generation services such as big data, cloud, and digital. The acquisition provides a strong foothold in the North American market that is growing faster than Atos’ European stronghold. Moreover, Atos’ plans of achieving ~US$1.2 billion from North America by 2016 are easily surpassed by this acquisition. Xerox ITO will more than triple the contribution of the U.S. market and increase the region’s share to 17% from the current 7%.

Atos performed an extensive due diligence on assets and analyzed over 85% of existing Xerox’s ITO contracts to ensure alignment with strategy. Given that Xerox’s ITO business is exclusively focused on infrastructure managed services, Atos can possibly cross-sell system integration, consulting, big data, cloud and BPO services to these clients. Despite limited presence in North America, Atos is a recognized brand and now with Xerox’s capabilities, it can meaningfully penetrate this market. Conversely, for Xerox, it can leverage Atos’ European presence to expand its BPO business beyond its U.S. stronghold.

This acquisition is an important milestone in achieving Atos’ 2016 ambition of growing IT services by ~5% in 2014-2016 largely through “external initiatives”. Further, Atos has aggressive “offshore-leverage” plans for its global delivery organization with over 60% of incremental hiring planned in these regions. Xerox brings 40-45% of resources in these markets, which are higher than Atos’ overall offshore-leverage of 25-30%. This will also aid Atos’ 2016 ambitions of improving operating margins by 100-200 bps.

The two companies are also highly technology focused and could join forces to come up with new innovative ways of doing business particularly in the world of all things digital.

For Xerox, the divestiture of the ITO business signals a strong commitment to the DO and BPO segments within services, and will allow Xerox the capital to continue making investments in advancing service delivery capabilities in the BPO market which is facing significant disruption due to technology and service delivery automation.

 The Uncertain

History indicates that acquisitions fail due to a variety of reasons, the biggest being culture misfit. However, we believe it’s impossible to predict the outcome of an acquisition based on cultural conflicts and therefore, this is best left for the future.

Yet, there are some risks and challenges Atos will needs to address. For example, despite Xerox adding to “low-cost” headcount, Atos still significantly lags major Tier-1 providers such as IBM, Accenture, TCS, and Capgemini. These incremental low-cost resources do not meaningfully enhance Atos’ commercial flexibility to offer attractive pricing to its clients. Xerox ITO has a long-tail of clients where ~80% of clients contribute only ~15% of revenue. Atos may need to trim this long tail and carefully evaluate Xerox’s presence in the mid-market segment. Moreover, the aspiration of selling IT services to ~800 of Xerox’s BPO clients will require sustained efforts given a significant number of these will already have strong incumbents.

Atos is making considerable investments in digital and cloud services with its Canopy subsidiary and recent acquisition of Bull. However, it lags peers such as Accenture, Capgemini, and IBM in offering big data and digital services. Despite Xerox’s ITO investments in cloud (eight private cloud set-ups, seven multi-cloud hubs), it is not recognized as a leading cloud provider. We believe that the Xerox ITO addition will not add meaningfully to Atos’ branding for cloud services in the North American market. From a scale stand-point, a US$1.7 billion revenue from North America pales in comparison to IBM’s $20 billion, Accenture’s $10 billion, TCS’ $7 billion and even “European” Capgemini’s US$2 billion from this market.

Moreover, Atos will need to closely manage internal organizational dynamics as the North American operations become increasingly influential. Currently most major decision making is centered in Europe. Atos will need to ensure that the North American leadership is suitably empowered to grow the business and meet the aspirations of becoming a major provider in that region. The go-to-market and sales strategy need to be adjusted with greater decision-making authority given to the front line team in North America.

The two companies’ leadership talk about their BPO offerings as being complementary. In fact, there is some overlap, certainly in healthcare administration with Atos having a strong presence in healthcare assessments in the UK public sector and Xerox in the US healthcare administration. Both companies also offer payment processing. We see some potential for “coopetition” in these lines of business.

The Road Ahead

Both organizations are very committed to making the acquisition a success with a formal strategic governance board including the respective CEOs to ensure smooth collaboration. Moreover, they will combine go-to-market strategy for select products and services across the client base. We expect Atos to transform the pure “managed service” focus of Xerox ITO by introducing its broader next-generation services to North American clients. We believe Atos has the capabilities and the investment DNA to carry out this transformation. The combination creates a powerful alternative infrastructure services provider for the North American market. Xerox ITO provides a good platform for Atos to strive towards its aspiration of becoming a major North American and Tier-1 global IT service provider. Whether this provider can offer next-generation cloud and digital services, and whether the North American clients will embrace it, only time will tell.

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