Here’s one CEO who believes in management by walking around. “I devote a lot of time to speak to clients because that’s the way to understand the strategic direction clients are taking and how we need to innovate in order to solve their problems,” says N V ‘Tiger’ Tyagarajan, president and CEO, Genpact. On a recent visit to India, Tyagarajan spoke to Rajarshi Bhattacharjee on the issues facing the business process outsourcing industry in India as it shifts to knowledge-intensive and value-added services
With new geographies around the world are taking over a lot of the outsourcing and off shoring businesses, do you think India will continue to enjoy its edge with skilled and low-cost labour? I think the industry has progressed well beyond just cheap labour. When we work, it’s not about cheap labour at all. It’s about the fact that we have become the expert in the world on processes — looking at a process and asking what is the best way to run this process so that it produces the best outcomes, so that it generates the best financial benefit for our clients, so that it increases revenue for our clients and so on. A lot of our efforts go into such outcome matrix and improving those outcomes. One part of that is actually saying, ‘I run this process for you’, which is outsourcing. Another part of that is saying, ‘I run it for you from a global delivery location’ and it could be off-shoring. But sometime it not outsourcing when I say, ‘I will help you fix your problem, I will re-design the problem’.
Sometimes it is outsourcing, but not off-shoring because I am saying ‘I will run it from Pennsylvania for Illinois’ or ‘I will run it from South Africa for South Africa’ or ‘from China for China’. In fact, clients today expect much more and we actually deliver much more. So we have stopped talking about outsourcing and off-shoring. There is nothing that we can do in one country. We always deliver from multiple countries — 16 countries so far, and by the next three or four years I am sure we will add another three or four countries.
We know how to improve and change end-to-end processes. Some parts of it we will run. Some parts of it we will have the client run. Some parts of it someone else will run. But we will be experts on how it should be run. As such, not everything is something that we will have to take over in advance because not everything can be taken over in advance. But we think of our work not just in part that we run, but complete end-to-end.
Can you explain this with an example? Let’s look at a process that starts with one of our clients sending bills to customers for products and services that they have delivered, and from there it goes on to finally the money coming in from their customer to the client and the bill is retired. The reality is, that’s not an end-to-end process. The end-to-end process starts with the sales team talking to their potential customers and taking an order, and designing a product (or service) saying this is the exact product (or service) we will deliver you. When it actually gets delivered, then the bill gets raised and then we take over. But I want to change the way the sales team works at the client’s location, I want to change the way orders get taken. Because that part of the end-to-end process should be looked at.
But we will not run sales for the clients; we will not run the order booking. But if I force myself and work with the client to change that process, there is a big benefit because you can actually add huge value to the client. If we can improve the operational cost, we can change the working capital and DSOs (day’s sales outstanding) of the client dramatically. With that we save for clients billions of dollars on working capital. This has little connection to actually the cost of doing the process — the cost of doing the process is small.
Over the last decade, the outsourcing industry in India has witnessed lateral growth and profit has been significantly related to manpower acquisition. How does one usher in exponential growth in the segment? First of all, I don’t think the industry necessarily has been adding headcount exactly equal to revenue. If you look at our history, our revenue per headcount has grown every year, for the last seven years since we become an independent company. In fact, in 2011 it grew the fastest. When revenue per headcount grows, it means we have added less headcount and got more revenue. This is partly exponential growth. And it is achieved in several ways. When we look at end-to-end processes and drive better outcomes — what I talked about — we only manage a part of the process, so the headcount we need is only to manage that part of the process. But we are getting paid to drive the end-to-end business process and end-to-end business outcome. So, automatically the revenue per headcount goes up.
A part of the payment received is based on how much better the outcome delivered is, so that is gains share. Say the working capital reduces by 100 million dollars and we get paid a million dollars. So it is performance and outcome based pricing. When we look at higher value-added services, for example, our fastest growing service line in the last two years have been our smart decision services — which is, companies run things and we find ways to run them better and produce better outcomes.
Today we are in a world dealing with lot of data. Every day companies take decisions, around pricing, sales, marketing, risks, around supply chain, suppliers, customers etc. So, can we help our clients build knowledge and insight from that data? Here, we work with clients to build a better underwriting model to lend to a consumer. We build underwriting models where our clients can decide whether they should lend to a small business and how much they should lend to a small business. We build models that tell clients what they are spending their money on, which suppliers they should be spending their money on and why, and how they can drive lower spend. We do the same thing around working capital. If you have receivables, who pays the client faster and how to make sure they call people who are not paying the client, when to call etc.
So a lot of analytical insights are built from data. Our ability to build those insights is phenomenal because we actually run these processes. We know and understand the data. We have experience of 15 years in managing receivables. When we look at data and receivables, we know what it means. A mathematician can do model building, but the real insight is how that model is connected to the real life.
So where does all this lead to? Building insight for clients means higher value-added work, and that automatically means more revenue per headcount. All of these are directions that I think will constantly reduce the dependence of headcount to revenue.
While you say the outsourcing industry has matured in India, attrition continues to be a reality. Why? How are you addressing this issue? Attrition has nothing to do with the industry. It has to do with the economy. Across all emerging economies of the world, the banking, healthcare, insurance, retail, pharma, investment banking and all other industries are growing. When every industry is growing, it requires talent. For our industry and companies like us particularly, because of our focus on training and teaching, some of our people are the best you can get in any industry. So when we train people, we also lose a lot of people to the industry, because they are the best when it comes to thinking about process, value improvement, and efficiency and so on. That’s the biggest driver of attrition.
Like the economy has its ups and downs, attrition also has its ups and downs.
Our attrition is half the industry because we focus so much on employee and career building. But it is still high in the context of global scale and size. But that attrition is coming down given the present condition of the economy.
The global economic stagnation as well as the slowdown in domestic demand in key emerging economies. How and where are you going to expand your basket? We started with GE. For the first seven years of our evolution the client we worked with were GE’s. We worked with GE across the world. During that period, working with GE, we set up at Budapest for non-English Europe. We set up at Mexico to serve Latin America, we also set up at Dalian to serve China, Taiwan, Korea and Japan. Through our evolution, in the early days itself, we recognised that it is important to serve the world. And we also recognised that the world cannot be served from India. We need a global footprint to serve the world.
We have been in China for 12 years. We are the oldest in China from the business process and the analytical process perspective. We are the first in Budapest and Mexico. So when we became an independent company in January 2005, we continued in the same way. We were the first in Bucharest in Romania, Johannesburg in South Africa; we are almost the first in Guatemala. As we grew on global delivery footprint, we always focused on where is the best place to do a particular piece of work from and that’s where we take the work. We never had an only-English-speaking focus. All global corporations today have a global footprint; as such we have to solve their problem across the world. We cannot say ‘I will do this part, and will not do the other part’.
Post the recession the two changes that happened are, one, a lot more companies started wanting even more growth from emerging markets. Therefore they are even more focused on India, China, Africa, Brazil and Eastern Europe and so on. Since companies are growing faster there, our solutions are getting traction even more in these markets.
Two, these markets themselves are becoming great markets. Although the economy is slowing down, India is a great market. Therefore serving local India multinationals and large India conglomerates as well as the global companies is a great opportunity because when companies in India think about a partner, they want a partner to bring them global best-in-class immediately. The fascinating thing about India, China etc is they may be backward in a particular process or backward in a particular technology, but when they decide to go for a change, they don’t want to go through the steps of change — they goes straight to best-in-class.
Moving on from finance and accounting solutions, Genpact has been offering a range of services in the Indian market. Which are the segments you are exploring or planning to venture other than the BFSI (banking, financial services and insurance) segment? One half of our business is banking, financial services and insurance. The other half is consumer products, retail, pharmaceuticals, healthcare companies, manufacturing, energy, oil and gas, aviation, aerospace etc. A lot of this is because of our GE heritage. Second, more than 50 to 60 per cent of the services we offer are deep industry processes — processes that are very unique to a particular industry. For example, in the pharma industry, we are doing processes that are very unique to the life sciences industry, optimising the sales force of a pharmaceutical company, or doing drug discovery or research for a pharma company.
For this you need a heritage of thinking about processes. The advantage we have is that we think about processes a lot. Now look at it this way, if one wants to get trained or get a degree on process, can you get that in any college or university of the world? No. But process is a science, you can teach it, learn, deploy and use it. Yet, it is not taught anywhere. So, we have over the last four years actually built a whole science around process. We call it Smart Enterprise Process (SEP). It looks at 26 enterprise level processes; about half of them are broad processes that cut across all industries. Hire to retire HR processes, order to cash or source to pay finance process etc.
The other half is industry-specific processes. For example, end-to-end claims management in insurance, end-to-end pharma company vigilance for the pharma industry etc. We teach it to our people, to we teach it to our clients and use that process methodology and framework and science to figure out how good or bad our clients’ processes are. Then we build a road map for the client to get the best-in-class. That’s what we are known for.
The other thing that we are getting known for is helping the clients face market recession with the SEP and smart decision policy. We think that the world of today is very uncertain. It requires a company to be very flexible and agile. So we think that the enterprises of the future and today will be the ones which are most intelligent. The intelligent enterprise is one that is able to deal with the hyper volatile uncertain world by being highly innovative, highly connected, by being globally effective and by being highly adaptive. The combination of SEP and smart decision services helps our client enterprise to become more intelligent, powered by profit.
Where does innovation fit in in all this? Are Indian companies as innovative as they are made out to be? Some of the best innovations are happening in the domestic market. This is because of the fact that companies are very open to leapfrog from what they have today to best-in-class. Also because companies in the Indian and the Chinese market are growing at 25 to 30 and even 40 per cent, they don’t worry about the past or legacy, which a lot of global companies have to worry about. We have implemented an oracle HR platform for two of our clients in India where we provide business process as a service; now we are taking it to the global market. The point I am trying to make here is, the markets in India and China are more innovative in some areas than other markets because they are forcing innovation.
You have been very active last year when it comes to acquisitions? Which are the key areas you are eyeing at the moment? We have done five acquisitions last year. The largest was a company called Headstrong that was focused on capital markets technology. All acquisitions including Headstrong were acquisitions of specific capabilities that we thought were very important for our clients. If I look at the future, I see more acquisitions on the card. I have an M&A leader in my team, who has a team of people across the world who look at acquisition opportunities, who look at targets, have conversations etc. It all comes from what are the capabilities we want to have — in geographies, in verticals and in horizontal domain areas. After you identify those, you target companies in those capability areas and figure out who is a great match — strategically, financially, operationally and culturally. Those are the four things we look at.