#Crazymergerideas - Infopact or Genosys?

July 11, 2015 | Phil Fersht
Two CEOs clearly up to no good... Genpact's Tiger Tyagarajan (left) and Infosys' Vishal Sikka (right)

Two CEOs clearly up to no good... Genpact's Tiger Tyagarajan (left) and Infosys' Vishal Sikka (right)

One of the great things about HfS is the fact we never partake in gossip or idle speculation. So let's change "never" to "rarely"...

I was happening to be Uber-ing myself aimlessly around the streets of San Francisco last week when I happened to drop in on Infosys' sexy new Design Thinking center (I think that's what they call it) in Palo Alto, where I caught two of the industry's finest minds having a sneaky cup of coffee.

Now, before you all jump to conclusions that Vishal Sikka and Tiger Tyagarajan are about to join forces, they are actually old friends and neighbors, and this was purely a social call...  but it did get me thinking about what if Infosys and Genpact got a little more intimate with each other...

Pros:

Challenging the old way of thinking. Infosys' fresh Design Thinking approach and Genpact's re-imagination of business processes are very well aligned.  Both firms have jumped on the importance of challenging current thinking and instilling that across their organizations (and not a CoE approach).

IT services meet BPO... on steroids. A great IT services firm meets a great BPO/operations process management firm.  This would be a real powerhouse.  What's more, Genpact is the largest "process pureplay" breaking new ground in terms of its sheer scale and size - where it takes the business next, there is no written rule book available.

BPaaS at a global scale?  Infosys EdgeVerve + Genpact's emerging process consulting capability would be very interesting. Scalable BPaaS solutions that could be industrialized at a global level... the mind boggles at the possibilities to realize a long-held industry vision.

Cross-client synergies. Great upsell opportunities across major clients, especially in horizontal process areas where Genpact is market leading, such as finance and accounting solutions or procurement where this combination would create an even stronger challenger to Accenture than they are individually today.

IT autonomics + RPA + AI potential. Interesting combination of automation capability across IT autonomics (Infosys) and robotic process automation (Genpact).  Would also be a nice playground for Vishal to put his Ph.D. in artificial intelligence into practice.  These two could certainly build a cognitive+autonomics+analytics computing platform that differentiates itself in the market alongside the likes of Watson, Holmes, ignio, Amelia etc.

Digital meets Process. Digital strategies need to bring together real process acumen and technology enablement skills  - at scale - in areas such as mobility, analytics and social media/collaboration. The ability to design "digitally-native" end-to-end business processes is core to the future of services and these guys may just be able to pull off something quite special together.

Adds real vertical strength and depth. They would nail insurance and banking in spades, have really strong presence across manufacturing/consumer/retail and Genpact's life science's presence would be a fantastic opening for Infosys.

Geographically and culturally. Very interesting spread across India, UK, Central Europe, ANZ and the US.  However, still trying to visualize (or is that Vishal-ize) the whole Palo Alto/New York/Gurgaon/Bangalore cultural thing they'd have going on.

Timing. This market is ripe for some aggressive moves to change old habits and shake up the apple cart.  This one would certainly set the big cat out loose among the pigeons, when investors are hungry for new ideas, bold moves and aggressive plans. With Vishal enjoying a healthy dose of momentum as he reaches his first anniversary at the helm of Infy, there are worse moves he could make... surely?  And this would likely be at a similar size to Capgemini / IGATE...

Fashion. Tiger could clearly show Vishal a thing or two about designer New York business attire, while Vishal could certainly help Tiger get with the West coast tech-nerdy thing.

Cons:

Who would run the show?  These are two fiercely proud firms with very strong cultures and very dynamic leaders.  Could you really fuse these together?

What methodology would they follow? Would Smart Enterprise Operations win out or would the Process Progression Model lead the way? Come to think of it does that even matter.

Limited time to integrate.  In this market, no-one can afford to take their eye off the ball.  Prices are at an all-time competitive low, several ambitious providers are eager to "buy" their way into strategic deals to develop out their offerings and maintain market share and there are emerging As-a-Service contenders willing to disrupt the old model with new disruptive approaches.

Doesn't wholly address the consulting gap.  While there is some excellent talent across both firms, this is nothing near the scale of an Accenture, Deloitte, PwC or KPMG on the strategy/consulting side. We would like to see both firms up their consulting talent pools - at scale - as the As-a-Service Economy continues to unravel. While the expertise-as-a-service model emerges, there does need to be the right blend of managed services and consulting acumen to really get ahead in this market.

Big isn't as beautiful these days.  Just looking at the efforts the likes of IBM, HP and CSC have made to make their business more manageable with more clearly defined business units, getting to monster size for the sake of being just bloody huge (and this one would become one of the largest services firms on the planet) is not a reason to do this.

The old IT+BPO thing isn't washing as well as it used to.  Up until recently, the whole talk in the services business was always about IT services firms offering BPO as there were so many great synergies between developing and maintain apps and being able to deliver process solutions.  Hey - you not only could you support a legacy ERP platform, but why not milk the dollars processing invoices and paychecks off the back of it?  With As-a-Service, that isn't so appealing.  When you can get much of the IT you need in the cloud, the ambitious BPO these days is pushing "Finance-as-Service" or "Revenue-Cycle-as-a-Service, or "Insurance-operations-as-a-Service" as so on... The future isn't about buying IT services, but more buying a business outcome delivered As-a-Service.  If a credible BPO can enable and deliver business services in the cloud, who cares who is developing and supporting the underlying apps... especially when they are standardized?

The Bottom-line:  This could be a match-made in Heaven, Palo Alto, Gurgaon or Hell... 

It's fun to speculate, and this one is especially interesting.  When we looked at IBM+TCS, there were clear service line synergies, but the cultural gap between those firms is huge - and the sheer sizes involved make this too unappealing for so many stakeholders. However, in this case, Infy (we think) has just about enough cash if it really wanted to take a serious look at G, and there is clearly a closer set of synergies in terms of cultures and less overlap. These are also two ambitious firms who are clearly not ready to rest on their laurels and want to break new ground if they can. They are also led by two popular and visionary guys who are in tune with their people and the market. However, at the end of the day the bankers do the real talking and these may just be too many complexities to make something of these sheer scale and size pay off.

Posted in: #CrazymergerideasAnalytics and Big DataBusiness Process Outsourcing (BPO)

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1 Comments

15 Comments

  1. TFM
    Posted Jul 11, 2015 05:28 AM | Permalink Reply

    A point that seems to be ignored is that Infosys is also in the Process business through its wholly owned subsidiary Infosys BPO, which may be an underperformer (like many BPOs of IT companies who try the IT model to the process business, ignore the fact that the CFO / CPO / CHR are different from the CTO / CIO and find it hard to integrate IT+BPO as a single proposition to the client) but nonetheless existing. So why would Infosys be interested in Genpact unless they want scale in process business and this seems unlikely - low margins, too linear in terms of high headcount, distorts revenue per FTE and attrition or staff turnover ratios. Infosys may be better off in paying attention to leveraging process capabilities in BPO for delivering 'as a service' to clients, with the underlying technology being the enabler. Genpact may want Infosys for its end-to-end technology capabilities but not sure if the vice-versa is true.

  2. Jeff Smith
    Posted Jul 11, 2015 01:16 PM | Permalink Reply

    It's amazing how little people understand the depth of process and domain depth that could be built if processes / operations ... Often called BPO is run well . I have in my earlier role as head of supply chain dealt with Genpact as well as IT providers and night and day difference in understanding industry , how end to end process works and hence the ability to sit back and provide insights !!

    It's fascinating that as technology becomes ubiquitous , modular , open source , connectable to each other the " king " of the world is the design architect the process and domain "guru" ... So don't be surprised at all if IT providers like Infosys need process and domain experts like Genpact desperately .... It's a fast changing world and expertise can't be built in a hurry ... So the comment of this person is in my humble opinion wrong !!

  3. Rajesh
    Posted Jul 10, 2015 12:11 AM | Permalink Reply

    Great photo and great piece!

  4. Jeff Mills
    Posted Jul 09, 2015 04:24 AM | Permalink Reply

    Phil,

    Excellent analysis on "what could be". Genpact would be a wonderful acquisition for the likes of Infosys - you just have to question whether they would put all their eggs in one basket,

    Jeff

  5. Eric
    Posted Jul 11, 2015 08:35 PM | Permalink Reply

    Phil,

    Superb viewpoint on what this marriage could look like. Seems like there would be many synergies,

    Eric

  6. Paul Walker
    Posted Jul 10, 2015 10:19 PM | Permalink Reply

    Phil,

    Well articulated and a great picture. I just don't see it - Genpact is too large for them to swallow and I would expect Infy to make more software / technology centric acquisitions,

    Paul Walker

  7. Phil Fersht
    Posted Jul 11, 2015 09:11 PM | Permalink Reply

    @Jeff Smith - am in violent agreement with you here. You could empathize with TFM's viewpoint 3-5 years' ago when this really was all about labor arbitrage at scale, but you are so right when you say the design architect and process/domain guru are moving to the forefront as IT becoming the enabler - not the driver - of outcomes.

    PF

  8. Phil Fersht
    Posted Jul 11, 2015 09:13 PM | Permalink Reply

    @Paul - I do not believe Genpact is too big to consider - especially when you look at Capgemini/IGATE and Cognizant/Trizetto. This is more about whether Genpact is too big a BET to consider ;)

    PF

  9. Durgesh
    Posted Jul 12, 2015 10:21 AM | Permalink Reply

    From M&A 101 course. The mergers are viable when final output from the combined entity is more than the mathematical sum of outputs from both entities. This difference is called “Synergy”. IT biggies would acquire to get synergies coming out of either capability or scale. Capgemini/IGATE was a good example of scale.

    While I agree with Phil and Jeff that Genpact will bring in capability, however it’ll drag with it a lot of scale. And why would Infosys mind this scale and volume – because it is just a mathematical addition with low (or perhaps negative) synergies. The additional business is at lower margin and Infosys already operates a BPO business (although smaller than Genpact) at better margins.

  10. Ashish Bhatla
    Posted Jul 12, 2015 08:07 PM | Permalink Reply

    Interesting speculation and well articulated! Looks like a good fit when you evaluate the strengths, challenges and cultures of both firms. Can Infy really afford Gen?

  11. James
    Posted Jul 12, 2015 10:38 PM | Permalink Reply

    Phil - a masterful analysis on something that hasn't happened :)

    James

  12. TFM
    Posted Jul 14, 2015 04:32 PM | Permalink Reply

    Phil & Jeff Smith,

    Both of you guys got me wrong and I wonder why ! I am all for business needs driving technology (currently it is a case of tail wagging the dog in terms of IT driving the business - example our systems platform does not allow us to do this) and that is why I have a problem with the way IT companies (Infosys / TCS / Wipro / Cognizant et all) operate their process or operations business with a IT / CTO centric model. The one exception seems to be Accenture which has performed way better in integrating process + consulting + IT as a value proposition for clients and demonstrated this with some success. Maybe to lesser extent, Capgemini has also done that. However, a bitter truth is that the client is willing to pay way much more for IT ($ / hour) than for process / bpo and sadly this view is supported by the non-CIO / CTO functions of clients. This could also be that IT has done a better job in selling services to clients than BPO or process which started with lowly (sometimes unfairly) rated "voice or call center" business.

    Further, on the point of acquisition of Genpact by Infosys, the key question is that if Infosys is not able to fully integrate its existing BPO capabilities with IT, in a sufficiently impactful manner in the market place for clients, how will they succeed in acquiring Genpact which is much bigger beast to deal with. At the end it has to be better value for investors and clients.

  13. Durgesh
    Posted Jul 15, 2015 10:03 AM | Permalink Reply

    TFM, agree with you on IT service getting more ($ / hour) than business processes. I guess the cause was the demand and supply of resources(talent). BPO processes can be made relatively simple (read: dumbed down) so that one can put any graduate anywhere and rotate people as and when required. Even Managers and Team leads are not tied to one type of business process. IT services, on the other hand, need technical knowledge, programming language, platform certifications and most graduate are engineers. Now how much of this is actual need versus selling pitch – is a different discussion. But this creates a rate gap between IT and BPO services. Integrating them will have its benefits but few short term challenges as well – impact on profit margins one of them.

    My hypothesis is that Accenture was able to integrate it well because their margin were already low so there were enough synergies for them. Infosys / TCS / Wipro / Cognizant were enjoying better margins so not enough incentive to take a short term hit that will affect stock performance.

    So the point is ‘IT biggies not able to integrate business process’ wasn’t a capability issue. I think it was a deliberate decision. But now with changes in management, things might change.

  14. Ash
    Posted Feb 07, 2018 09:57 AM | Permalink Reply

    At the outset, I think you are very clear in your mind that Genpact as a stand alone entity is a) too attractive to be single and/or b) doesnt have much of a future as a pure services engine. First it was CTSH and now Infy as potential suitors. Having said that, I do think an Infy-G combo would be awesome, but only if Tiger et al are in charge.

  15. Phil Fersht
    | Posted Feb 07, 2018 10:55 AM | Permalink Reply

    @Ash - Interestingly, this is probably a better fit than ever, with Infy's strong analytics culture and Genpact's focus in digital processes. Would create a strong rival to Accenture with some added consulting depth....

    PF

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