Moneycontrol
Sep 24, 2012 03:48 PM IST | Source: CNBC-TV18

Huge growth potential in domestic market: Genpact

In conversation with CNBC-TV18, NV Tiger Tyagarajan, President and CEO, Genpact formally GE Capital International Services explains how the company has undergone a transformation.


One of the GE's fastest growing divisions, the Business Process Outsourcing wing was spun off as a separate company a couple of years ago. Today, it likes to call itself a business process management company. In conversation with CNBC-TV18, NV Tiger Tyagarajan, President and CEO, Genpact formally GE Capital International Services explains how the company has undergone a transformation.


“The first couple of years were all about outsourcing work. By the time we were in 2008-2009, things had already changed. We were doing things that were not just outsourcing. We were fixing things for our clients and we would parachute people in to redesign processes,” he said.


Explaining the kind of work the BPM does, Tyagarajan said, “we do a lot of very complex work. The second is, unfortunately, the layman thinks about business process management as a call center – 15 per cent of our business is a call center, 85 percent of our business is other things.


The third is the fact that it is not just about taking work and running it for our clients, it is actually helping clients run their processes better and take better decisions. We think companies do two things. They run themselves and they take decision and our job is to participate in both.”


Tyagarajan believes there is huge potential in the domestic market. “We actually set up our business about 4-4.5 years back and we were sure this will be a big market in the future.


A lot of our global clients were actually growing their businesses in this part of the world, obviously, to help them grow their businesses here. But there is another benefit that we realized very quickly. This is a market that is more innovative. It’s a market where you can actually leapfrog to new technology. We have engagements over the last four years where some of the most cutting edge technology, some of the most cutting edge way of driving consolidation, standardization and change which companies in India and China tend to do in some cases. We learn from here and we have now started taking it to developed markets.”


Here is an edited transcript of his interview.


Q: Process outsourcing to process management - is that just a normal created chain because of the backlash against outsourcing that you see in the western world or is it a reflection of change in the way you are doing your work?


A: I will answer your question but before I answer that we didn’t make the change now. We have been talking about the fact that we are a business process management company and a technology services company for about five plus years now. We have been trying to educate everybody in the eco-system. The eco-system has stuck to the word ‘business process outsourcing’ so we are very thrilled. That eco-system, including Nasscom, has suddenly overnight flipped a switch and is now saying it is business process management.


Q: Have you transformed from BPO firm to a BPM firm or has the whole industry changed to BPM or do you still have a BPO and you have BPM?


A: I think it is a fine line dividing, it kind of merges together; we have been on a transformation journey from the time we became an independent company in 2005. I would say if you start the first couple of years, it is all about outsourcing work. By the time we were in 2008-2009, things had already changed. We were doing things that were not just outsourcing. We were fixing things for our clients and we would parachute people in to redesign processes. Now it is a big piece of the business.


Q: So it is not just the scale that differentiates you from a person sitting in Mumbai, I call up and he tele-checks me – is it something else?


A: It is dramatically three or four things. One is the fact that we do a lot of very complex work. The second is, unfortunately, the layman thinks about business process management as a call center – 15 per cent of our business is a call center, 85 percent of our business is other things.


The third is the fact that it is not just about taking work and running it for our clients, it is actually helping clients run their processes better and take better decisions. We think companies do two things. They run themselves and they take decision and our job is to participate in both.


Q: How are you different from Wipro and Infosys or an IBM or do you see yourself falling in the same category?


A: Broadly, we all tend to fall in the category of technology services and business process management, and then you can layer on top of that people who say that they end up doing strategy consulting. I would argue that is not strategy consulting and then it is a question of what is your heritage, what is your core DNA, what are you really good at and what do you spend all your intellectual capital on? That varies depending on who you are.


Q: Are you different?


A: We are absolutely different. Go back to our history. We grew up with an intention of a large corporation- no one else has the same history. We are big believers and I am a big believer that who you, as an individual, as an institution and as a country, depends a lot on where you come from.


_PAGEBREAK_


Q: To clarify that point, people like you, Raman Roy, Pramod who succeeded at Genpact are considered among the founding fathers of the BPO industry. The people at TCS and Infosys are considered as the founding fathers of ITES industry. They started off differently, they merged into one and then are going off separately?


A: At one level, you can think about everything as helping, cooperation etc but there are things that are core competencies of two different groups you talked about. More importantly, there are things that people have spent 20 years in building capability, expertise and competency and knowledge around. I would say we spent a lot of time building a science around process, it just does not exist. I would argue no one else has that because that is how we grew, it is not just that we were clever, we grew up with process. We did not grow up with technology as our starting point.


Q: After you took over a couple of years ago, you did two things which were interesting. One you relocated to the US, you relocated the CEOs office to the US. You never got a COO, you are CEO because you said there are division heads who run their division very clearly. Was it radical thinking that you brought it or was it that you felt that the company has evolved into a stage where this was needed?


A: I would say it is evolution. Clearly, there has been an evolution in the company before I moved and started talking about shifting the center of gravity to the leadership team of the company. It was a conversation Pramod drove himself. We had started the journey of thinking around that. I would say that the big decision point that we came to in the transition from Pramod to me was, it was a great time for me to stand up and say, we are doing it now and guess what, I am the person who is going to do it first.


It makes it easier for 50 per cent of the people in my team to stand up and say we are also going to be in the markets. So today, 50% per cent of our leadership team is in markets. We are big believers that actually you need to be close to clients. The CEO decision was not a big decision. This company didn’t have a CEO for the first 13 years of its existence. It was only 1-1.5 years that I was the COO.


Q: It was really a grooming ground for you?


A: I am not ready to groom anyone right now.


Q: I believe you are in your mid-50s. You look like in your 40s. Pramod also look like he was in his 40. Was it about Genpact?


A: I am in my early 50s. I think it’s all about passion and this is true for everyone. You have to love what you do and you should only do what you love.


Q: Let me get back to the fact when you decided not to become isolated in one geography. How much of that was driven by backlash against outsourcing?


A: Not at all. When the simpler things are done, you need to really work with your client at a strategic level to figure out what they are thinking about in order to start doing the more complex stuff. Second is, the world has become more volatile and uncertain and we came to the conclusion that that’s the way the world will be for a long time to come. That’s the way it seems to be ever since we thought about it, and in an uncertain world, the only way you really know what clients are up to and what strategies they are adapting and then be able to adapt ourselves with that strategy is to be close to them.


Q: Would you consider yourself an Indian company today?


A: Simple answer, no. Our clients are global, have always been global, so it’s not just about today. I think it’s the way it’s been. But I think more questions of this nature are probably coming up, so we can articulate it better. Our clients as well as our investors are completely global. Our best practices are all global. We take things that we do in the US and move it to Europe and we take things at Europe, move it to China.


Our growth rates actually outside of India are, in many cases, faster than our growth rates in India from a delivery perspective because their size is smaller. 35% of our workforce is outside India and I saw some reports about some companies who are in the 7-10% non-Indian base for Indian companies, we have 35% non-Indian nationals.


Q: As work that your clients require got more complex and you moved up the chain, you needed to be closer to your clients. What does it mean for the 65% that are in India today because ultimately, you will want to be closer to your clients and your clients are outside the country. Will this shrink further or will you find more work within India?


A: I talked about leaders. So let’s take my leadership team of 20 people. All I said was earlier maybe it was 75% in delivery centres and 25% in the market with clients. That’s similar to saying most people sit in factories in Unilever or Toyota, they don’t. It’s similar thinking. All we have done now is it’s a 50-50 split, so there are some big leaders who actually sit at the delivery centres, who ensure all the things that we do so well in our delivery centres.


Q: Will your factories continue to be in India for sometime?


A: Not just India. We have 72 factories in 20 countries.


Q: Is India losing its competitive edge in what was known as the BPO world today?


A: Not at all. If anything it’s actually going through a natural progression of the value chain. We saw this actually happening not now but 12-13 years back, when we started doing analytical services and high-end technology services for GE at that time and it has continued on. There are some things that are natural for some cultures, economies, again because of the history and background to do better. There is no question that if you will be talking to a US consumer, there is no question that Philippines is better and will be better forever for a lot of reasons. There is no reason to even try and change that.


However, when it comes to mathematics and science and economics graduates, post-graduates and PhDs, you want a lot of them to help clients drive revenue and risk and pricing and actuarial models and so on, there is no better place than India.


_PAGEBREAK_


Q: Let me talk about why people seem to say it could fall off the map? One, they say it’s getting expensive, both in talent cost and real estate rental, and if you were to move to smaller cities, you don’t find the talent there.


A: All true, and therefore, not for a moment am I saying that it’s easy. I am not saying that actually things have to improve and that there is a lot of infrastructure inefficiency that actually adds a lot of cost. Each of our centres has three power backups. There is a cost to that. Someone is bearing that cost. A lot of those have to be fixed. But I would just argue that it is still a population that produces a lot of educated workforce and potential workforce that is driven, that is ambitious and that has a huge appetite to learn. Unfortunately, a lot of the teaching is now done by companies like us and lot of other companies like us versus the ecosystem should do that.


Q: You took over from Pramod. There were a couple of good quarters. You just completed the Headstrong acquisition, so the company was doing well. Everything looked hunky-dory and we got right back into a crisis worldwide. How do you feel then and how different are we today?


A: The good news was that even through that transition period, and prior to that when we were actually doing well, we were very clear that the world had become uncertain over the previous two years. It is probably going to be that way for many years to come. Our clients were telling us that there was volatility. One day, our clients would say we are doing really well this quarter, three months later, they would say the new quarter is not going well. We were very clear that we better run the business ourselves as well as think about our clients in a volatile uncertain world. In the last four quarters after, that has played out exactly the same way. So, we were prepared for volatility and uncertainty.


Q: How are the various geographies looking to you at the moment? How bad or good is Europe? Surprisingly, the IT companies did pretty well in Europe in the last couple quarters?


A: We have actually been doing well in Europe for the last seven quarters.


Q: How do you explain that? IT companies were doing better. You were doing better.


A: Part of the explanation is about us and part of the explanation is the environment. About us, we actually made our investments in sales and marketing and client facing teams about 3.5 years back and it takes time for that to mature and start doing deals and work with clients etc.


So part of that is we were very, very small in Europe. Now I think we are a little better in terms of our presence in Europe versus some of the people we compete with, the global majors. But I think it’s also about Europe itself. At a time when the world and Europe has undergone so much of turbulence, European companies are basically saying that they must do something different. They are willing to drive change more than ever before. Europe has always a tough place to drive change. I also think the ecosystem that they deal with whether it’s the Works Council in different countries, whether it’s taking some hard decisions, the acceptance of hard decisions is better now, because I think there is a realization that if you don’t do it then things will get worse.


Q: Does that mean taking hard decisions, cut around somewhere and give the work to someone?


A: One is to shrink, cut off products, consolidate. There is no need to do things in 20 different places, but do it only in two places. A lot of our European clients are actually creating consolidated work in some places. We have many European centres that actually help clients do that.


In some cases, we set up those centres for our clients that they run. We do that as well. But those are hard decisions, because that requires change and that requires some businesses within a company to shrink and other businesses to grow, which most companies don’t like.


Q: How about the domestic market? Companies like yours, the IT outsourcing companies have been talking in the last couple of years of addressing the domestic market. Is it easy? What is keeping it from growing? Are there only government projects to do like the UID? Is there potential here?


A: There is huge potential. We actually set up our business about 4-4.5 years back and our objective was twofold saying this will be a big market in the future. Clearly, the world economy will be weighted more in the direction of the east and the south, so we better have a presence here that actually addresses the market here.


Second, a lot of our global clients were actually growing their businesses in this part of the world, obviously, to help them grow their businesses here. But there is a third benefit that we realized very quickly. This is a market that is more innovative. It’s a market where you can actually leapfrog to new technology. We have engagements over the last four years where some of the most cutting edge technology, some of the most cutting edge way of driving consolidation, standardization and change which companies in India and China tend to do in some cases. This is very non-intuitive faster, better and more innovative than others. So we do that. We learn from here and we have now started taking it to developed markets.


Q: Take us through the Bain investment. Why did you choose a PE and not a strategy partner?


A: We were part of the process of finding the right shareholder who would take the investments that the private equity investor who came in 2005 and were with us for 7.5 years, which is a very long investment for a private equity investment. As they exited, it was important for us to make sure that the right people were coming in and we could work with them etc. But we were just part of the process.


Obviously, shareholders were also a big part of the process and our board was a huge part of the process. For us, the choice is very simple. It is about how to find the most leverage in terms of value from whomever comes in. Clearly, Bain has a big network, they have a huge heritage, they have a heritage of strategy and consulting and things that would be interesting given that this is not our heritage.


When we bring these two heritages together, there is a real opportunity with working with them to drive the next level of strategic thinking and evolution. It is not so much about getting into consulting, it is actually helping us think a little differently about our business in the longer term, next five years. So, it was an interesting combination. I think the culture match, which is important in such things was very important. Through the process, everyone came to the conclusion that this would be a good thing to do. Having said that, I think there were many others who were equally good. It is not that there was only one.


Q: Did you buy Headstrong because you wanted to get Genpact work in the capital market space or did you it because you wanted an IT presence in the capital market?


A: The former completely. If you think about our heritage, we never had the advantage of dealing with capital markets as we grew up with GE capital and GE – they don’t have a big capital markets business. Then when we became an independent company, we started doing work for a lot of financial services companies and banks, insurance companies but we never could penetrate capital markets.


In capital markets, it is very important to understand technology, understand products in that market. Hence, we came to the conclusion that the only way to really penetrate that market is to either build capabilities in that space or buy partner with someone who has those capabilities and Headstrong was a great acquisition from the capability that they got in the capital market space and that is how we set up the capital markets vertical.


Q: It is not the beginning of a slew of IT company acquisitions?


A: No. That would fly in the face of our thinking around process leads technology.


Q: I read somewhere that you are passionate about cricket and you said that you even maybe bunk a day to watch?


A: No. what I said was it is the only thing for which I might actually tell my board to move a board meeting date, if there was an India-Australia finals of a World Cup.


Q: Any format for T20 as well?


A: All formats, including the five day format.


Q: If somebody asks for a consultation on the Indian cricket team, where are we today? We were world champions just a couple of years ago.


A: I had written a blog about it, not now. I wrote about it when Dhoni and the team started winning and if you see there was a switch that got flipped. When he started winning, he just started winning, the team was the same. I think it was all about three things. It was about people in the team really enjoying our people’s success.


Q: Has it changed now?


A: I think it has changed probably in the last year or so for various reasons.


Q: What is the flip?

A: I am hoping it is probably coming back. I am hoping that Sri Lanka would make a huge difference.

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