Tag: WNS

Gear up to See Increased Market Activity in the Strategic Sourcing Space | Sherpas in Blue Shirts

Last month, WNS acquired Denali Sourcing Services, a procurement outsourcing company, to further strengthen its broader finance and accounting offering with a specific focus on the sourcing and category management domain. This was a strategic move on WNS’ part to drive enhanced value for its clients. The acquisition will allow WNS to provide an end-to-end Source-to-Pay (S2P) offering without any external dependency. The transition is expected to be mostly smooth, as WNS and Denali have been long-time partners and already have a healthy working relationship.

For the broader market, this acquisition reiterates the importance of people skills, experience, and domain knowledge in procurement services. While technology is important in any business process function, procurement outsourcing relies heavily on individual talent. Several providers have tried to develop these capabilities in-house with limited success. A major obstacle has been the short supply of sourcing talent pool, compounded by the fact that it is very challenging to provide strategic sourcing services from an offshore location.

In today’s procurement world, automation is becoming table stakes, speedily wiping out the transactional part of the work. Intense competition is further driving down pricing, leaving everyone to operate on wafer thin margins. As P2P becomes commoditized, providers are increasingly identifying the need to build sourcing capabilities. They have realized that, in addition to higher revenue and profit margins, sourcing capabilities are necessary for long-term success in this space.

One of the fastest ways to build sourcing capabilities is an acquisition. Service providers have been on a constant lookout for players with strong sourcing capabilities, and have not hesitated in making such acquisitions. For example, Accenture, one of the top players in this space, acquired Ariba’s sourcing and BPO services way back in 2010. In 2013, it further expanded its services by acquiring Procurian, another leading procurement services provider.

Service providers have also made small targeted acquisitions to develop niche capabilities. Before its acquisition by Accenture, Procurian had acquired Media IQ, a media auditing, measurement, and benchmarking company, and Utilities Analyses, Inc. (UAI), an energy management firm. In 2011, Infosys acquired an Australian-based strategic sourcing and category management services provider, Portland Group Pty Ltd. And in early 2016, Genpact, another strong player in the space, acquired Strategic Sourcing Excellence (SSE), a sourcing and procurement consulting firm.

The big question that follows is why other players have not made acquisitions in this space to strengthen their hold on the market. The answer is simple. There are not a lot of strategic sourcing and category management players with considerable scale. Denali falling out of the race means that the list further shortens. Each acquisition puts extra pressure on the remaining players to prioritize procurement and make a quick decision. So WNS’ acquisition of Denali could potentially be a starting point for some hectic market activity.

Goldilocks-Sized Service Providers | Sherpas in Blue Shirts

Businesses today actively seek — and happily find — a different kind of service provider. Like the fairy tale Goldilocks sizing choices among the three bears, they find some providers are too large, some are too small, but others are just right. The just right players are growing spectacularly. But I believe it’s mainly due to shared characteristics beyond their size. It’s important to understand their value proposition, as they are a competitive threat to other service providers — even large ones that are currently doing quite well against the market.

So let’s start with the size of these high-growth just-right companies. They are tier-two, mid-sized firms ranging from $500 million to $2 billion. Often their growth is in the high 20s.

We’re seeing this segment outperform large providers across both IT and BPO. For example, EXL and WNS are growing faster than the big boys in BPO — Accenture and Genpact, Likewise in IT, Syntel and Virtusa are growing faster than the industry leaders, Cognizant and TCS.

I don’t want to take anything away from the “just right” firms’ hard-won performance in terms of aggressiveness in sales. But there is an important aspect to their growth. When we see a segment like this growing better than the large, mature firms that were driving growth and profitability, there is something about the segment that is beneficial, something beyond just well-run companies that have hit a niche or an air pocket where they’re going up.

That “something” driving their high growth is the change in the buying community. For the past five or six years, buyers rationalized their portfolios. They reduced the number of service providers they used. Now we’re in a climate in which they are looking for challengers.

It’s not that buyers are backing away from large service providers, but they seek more intimacy and less churn in their service delivery. The large firms have really pushed their factory model or offshore pyramid model hard to keep their margins up. They want providers that are smaller, more committed to addressing their needs and that will give personal (even CEO) attention. They are also looking for price challenges and rare skills. And they believe they can find all of these characteristics more easily in the companies among the providers in the $500 million to $2 billion range.

At $500 million, these providers are large enough to be highly credible, have deep benches, and have vertical industry expertise. And below $2 billion they still provide that personal touch to their customers. Their size is just right.

Another growth factor for the just-right size of providers is that they are growing off a small base. This is a dramatic contrast to a large provider such as TCS trying to grow off a base of over $10 billion a year. It’s much harder to grow a large base quickly than to grow a small base quickly.

Unlike the story of Goldilocks, there are more than three “bears” — midsized providers — in the market. And that’s a good thing, as they’re challenging the market with the attributes the buyers want at the moment (more commitment, less perceived churn, and more personal attention). And big profitable buyers with large spend are looking for these challengers.

Photo credit: Daniel Rocal

The ABCs of WNS | Sherpas in Blue Shirts

The jury’s in — the back-to-basics strategy is working at WNS. The results of this strategy pop out in its FQ3-14 earnings report. Net revenue increased 5 percent to $120 million. Gross profit increased 16 percent year over year to $45 million. SG&A expense went down four percent. Adjusted earnings per share rose to $0.38, above the consensus of $0.36. During Q3 WNS also signed its fourth-largest deal to date.

When Keshav Murugsh took over the CEO reins at WNS, he instituted a new management team, simplified the value proposition, focused on the arbitrage market and drove a more aggressive sales strategy. It’s a classic back-to-basics strategy, and the market is rewarding WNS in revenue growth, an eye-popping shareholder value and 107 percent year-to-date returns through December 2013.

Many of the Indian service providers are going back to the basics after investing in the products space in lieu of the services space. WNS was one of the first to return to this basics strategy, and Infosys followed closely on its heels with a similar strategy. Like the ABCs are basics for the benefits of reading and writing, the Indian services firms are finding fertile ground in getting back to the basics with increased execution, and the results that follow show customers and shareholders are enriched.

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