Outsourcing firms turning to digital for new revenue streams is pretty much the norm these days and Genpact is no different, with legacy IT services under pressure as clients shift budget to digital transformation.
The firm’s Q3 numbers show that IT revenue is in decline, down 5% year-on-year to $134 million, supporting CEO Tiger Tyagarajan’s assertion that the world is changing around Genpact:
Companies [are] undertaking big transformational journeys, including adopting new digital technologies to leapfrog and disrupt established business models. In order to meet today's challenges and compete in the future, companies need partners that understand new digital technology, have industry and functional domain expertise, and have deep process knowledge to reimagine the way companies do business.
We believe Genpact is uniquely positioned to meet these needs. Using new digital technologies to automate and eliminate work streams; together with data and advanced analytics on redefined processes allows us to drive not only better productivity, but achieve more effective and dramatically improve business outcomes for clients.
So far, so pretty much what every BPO and IT services firm is saying these days. Where Genpact differs, suggests Tyagarajan, is its adoption of the Lean Digital solution focusing on the middle and back office:
Currently many digital transformation journeys fall short of expectations and hype for two primary reasons: First, many digital interventions have been largely focused around the front end or customer interface without sufficient attention to a complete end-to-end solution that encompasses the middle and back offices; and second, companies digitizing broken or inadequate processes that are not fully reimagined based on desired step-function improvement and business outcomes.
Our Lean Digital solution addresses these transformation shortfalls by first leaning out and then reimagining operational processes by incorporating automation in digital technologies with a focus on delivering a step-change in business outcomes. More specifically, the end-to-end Lean Digital approach transforms and digitizes company's middle and back office ensuring a seamless connection to the front end.
This is going down well with customers, says Tyagarajan:
The feedback we are beginning to receive is that Lean Digital is a game changer that builds on our strength of using Lean principles to drive disruptive improvements. This launch has been the culmination of many months of building our digital Smart Enterprise Process frameworks and getting a number of our key project and improvement leaders trained on specific Lean Digital capabilities.
We now have a digital certification program for Black Belts and Master Black Belts that we are also taking to clients. For example, at one of the largest global banks, our Lean and Digital experts are designing automated solutions, leveraging new technologies for underwriting, customer service and fraud detection – all critical areas for the bank and its customers. We're getting great initial feedback on the way the teams are reimagining these solutions and how other banking processors will run in the future.
Tyagarajan cites a number of examples of this Lean Digital approach in action:
First, we designed a solution for a large equipment fleet operation of a leading OEM client that captures and analyzes vast amounts of data generated from its equipment that is then combined with repair and maintenance information in order to predict machine performance. We are marrying our deep domain knowledge with the ability to triangulate and interpret data to identify performance issues. All of this enables our clients to isolate and fix serious problems and reduce machine downtime as well as warranty and maintenance costs.
Second, we developed an automated solution for a large global CPG client that significantly improved their ability to manage and create promotions, a major portion of a CPG company's cost structure. By eliminating legacy manual processes and applying new digital technologies, we have been able to link customer payments to contract terms and company trade policies reducing revenue leakage related to trade promotion management. This represents a great example of how critical it is for a client to ensure that the middle and back offices are seamlessly integrated with the front end.
[Another] big win is for a global company in the services industry, where we will implement a digital system of engagement platform on top of multiple ERP systems to unify and standardize finance and accounting operations across 40 countries. This deal represents a great example of applying Lean Digital in the finance and accounting domain and bringing design, consulting and analytics together with process depth to drive transformation and outcomes for our clients. This deal includes a material component based upon outcome improvement.
The firm this week also announced the formation of a digital incubation program. Tyagarajan explains:
We are now partnering with an exciting group of new technology startups that have interesting cutting-edge technologies in such areas as dynamic workflows, advanced cognitive and artificial intelligence tools, robotic automation, and machine learning. Through this program we will develop, pilot and incorporate these new solutions into our service offerings for our clients.
For all the digital talk, there is still a more traditional IT services business, which Tyagarajan says should now be thought of as being in two groups:
The first represents legacy IT services, such as ERP implementations, which is under pressure as Global Clients shift spending from these legacy areas to new digital technologies, and GE divests its GE Capital businesses. We expect these trends to continue for some time.
The second bucket encompasses fast-growing digital technologies. These include our systems of engagement platforms, mobility and big data analytic solutions, as well as disruptive initiatives, such as the move towards utilities within capital markets, like our KYC.com joint venture with Markit.
While we provide a breakdown of our revenues between BPO and ITO, in the new digital world, we do not think of these businesses separately. Increasingly, both business process and IT are being bundled and embedded across all of our service lines, leveraging our domain and process expertise to provide value for clients. IT services will always be part of our core offerings. However, our journey will be to bring new digital technologies to the market in order to provide clients with innovative solutions to solve their critical problems.
If you look at any of our clients, any of the global corporations across the world, you will find that the amount of money that they are spending in maintaining and building on that legacy side is constantly being reduced. That's the [attitude] that most CIOs are approaching their role with, because they want to take that and reinvest it back pretty dramatically on the digital side.
That’s the theory on which Genpact - in common with most other outsourcing firms - is betting the farm. It’s a rapidly changing world, as Tyagarajan notes, and one with no clear winners as yet.