Twenty-twelve has already seen three major outsourcing provider name-dumpings with Xerox phasing out ACS, in addition to procurement outsourcers Buying Team and ICG Commerce re-branding themselves Proxima and Procurian respectively.
However, a more surprising move has recently transpired with iGATE Patni deleting the last fives letters of its name to call itself simply “iGATE”. While you can understand Xerox preferring their more famous and recognized brand to ACS, and the procurement guys simply wanted to sound sexier, it’s curious why iGATE would drop the famous Patni brand barely a year after its merger. You would have thought the lesser-known iGATE leadership would prefer to maintain the legendary technology services brand founded by three brothers, Narendra Patni, Gajendra Patni and Ashok Patni, in 1978?
So we asked HfS’ IT services guru, Brian Robinson to discuss why...
iGATE Patni to delist the Patni name from the Indian bourse
This month iGATE Corp announced that it had raised an additional $265 million to buy-out the remaining shareholders of Patni stock and to delist Patni from the Indian bourse. More importantly, the company will likely remove the Patni name from its future go-to-market and branding strategies.
This comes on the heels of what must have been a long year for the organization. You will likely recall that iGATE announced its intent to take a majority stake in Patni in early 2011. At the time, industry and financial analysts were up in arms: revenues and key clients were at risk, attrition was a concern, and divergent cultures might not find equal footing. We first wrote about the acquisition in January of 2011. We then completed a 360 degree assessment of the organization in Q1 of this year distilling the company’s strengths and opportunities for future improvement. For our most recent assessment, iGATE Patni gave us unfettered access to both senior staff and clients.
So what did we find in our most recent study? 1) not a single client opted to leave iGATE Patni for reasons of change of control following the merger in January 2011, 2) the organization continues to impress it clients, which include some of the most mature buyers of services, and 3) they continue to meet financial estimates set by a broad range of financial analysts. Additionally, management has set an aggressive target to reach $3B in revenues by 2017. But, if all was going smoothly, then why would iGATE Patni splash out $265 million to tighten its marketing program? Three reasons:
Control, Ego and Business strategy
1. Control: without full control, their management risks that an active shareholder could interfere or disrupt their future roadmap. Buying up the remaining Patni shares mitigates this threat and management opted to pull this trigger sooner rather than later.
2. Ego: iGATE is known to be an aggressive group of managers. They set high standards for themselves and their clients, and this attitude comes right from the top. Phaneesh Murthy, CEO, has done what many in the industry thought was impossible: acquire a larger service provider by levering up his balance sheet. The strategy has worked so far – iGATE Patni has surpassed the billion dollar revenue threshold. His team still has a lot of work to do, but first he wants to cement his role as leader.
3. Business strategy: In order to reach the 2017 target, management will need to integrate the two delivery organizations. The company could chose to do this while managing a dual-brand. We think this option would simply confuse both clients and internal management. The better choice would be to integrate the company under one brand reducing the associated complexity, time and resources. Moreover, working a single brand will give management the runway they need to evolve the companies combined strengths into new value propositions and services.
Some pundits question why iGATE would retire the Patni name. Founded by three Patni brothers, the company is one of the forefathers of an industry that has helped transform India. Moreover, the company has an outstanding reputation for consistent service delivery to its clients. Both are qualities that many smaller organizations pay for dearly. Our research indicates that management may discard the Patni name, but not the strong delivery attributes that made it successful. As we note in our 360 degree assessment, the company will need to focus on several key areas beyond branding in order to reach its growth targets.
So here is our short list of predictions the industry observers will likely see at iGATE Patni following this recent announcement. The company will: 1) delist the Patni name from the Indian bourse, 2) drop the Patni brand from all go-to-market and branding materials, and most importantly 3) fully integrate the two company’s delivery organizations. To date, the union of iGATE Patni has primarily been client facing.
Clients’ and prospects’ reports regarding the changes will likely be mixed. iGATE Patni’s largest clients – in terms of revenue – will likely report little or only minimal changes to their services and transformation programs. These key accounts are critical to stable cash flows and to overall company stability. Any change here will trickle in over time. Prospects and smaller clients will likely see the introduction of the company’s iTOPS model for outcome based pricing. At the heart of iTOPS is iGATE Patni’s willingness to make investments in parallel with clients in order to produce continuous improvements. Many clients need additional time to transform their services to enable output based pricing, and iGATE Patni often invests along with its clients. These investments involve both process and technology and result in a business platform for the client.
The services industry will likely reflect positively on the announcement and the continued integration of the two companies for the following reason: continued success would highlight that mid-tier providers – not only the global majors – can integrate their acquisitions to bring new capabilities and scale to a broader brand name. Other mid-tier provides will leverage the iGATE Patni model as a precedent to qualify and build acquisition and integration plans. Most importantly, if the industry sees even a small uptick in consolidation stemming from this acquisition, then buyers will have a greater number of qualified global services provider to choose from.
Some observers may conclude that iGATE Patni management paid a high value to retire the Patni name. But further reflection shows that this investment is more about completing the process of integration started in early 2011 and positioning the company to reach its stretch 2017 targets.