TBR

T EC H N O LO G Y B U S I N ES S R ES EAR C H , I N C .

TBR EVENT PERSPECTIVE

With an eye toward the future, Genpact builds platform solutions

upon process knowledge Genpact Industry Analyst and Advisor Forum

Cambridge, Mass., May 9, 2014

Authors:

Jennifer Hamel (jennifer.hamel@tbri.com), Professional Services Analyst

Ramunas Svarcas, Professional Services Principal Analyst

TBR Perspective

With the advent of the cloud delivery platform, the continued commoditization of parts of Business Process

Outsourcing and the convergence of IT services providers, differentiation becomes difficult. Pure strategy players

are expanding their technology consulting capabilities. Pure labor arbitrage providers are venturing into consulting.

Every vendor wants to provide the full stack of IT services as customers search to streamline their interactions with

services suppliers. For successful differentiation, vendors must focus on client outcomes, which requires

understanding of client challenges within specific industry verticals. Genpact is moving toward addressing the

challenges facing clients by utilizing its heritage of a process-oriented and innovative Six Sigma approach, and

focusing on successfully serving only a select group of industries.

Event Overview

TBR attended the Genpact Industry Analyst and Advisor Forum in Cambridge, Mass., on May 9, 2014. President

and CEO N.V. “Tiger” Tyagarajan kicked off the forum by reviewing Genpact’s key strategic initiatives over the past

three years and outlining the firm’s plan for growth over the next five to seven years. The firm remains committed

to the road map it codeveloped with advisory firm McKinsey & Co. in 2013, which involves narrowing its vertical

focus, investing in analytics and technology R&D, and building client-facing resources to deliver more consultative

services. Leaders from Genpact’s key verticals and service lines presented updates on strategy and portfolio

investments, with additional insight from representatives of a key client, alliance partner Markit Ltd. and recently

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announced acquisition Pharmalink Consulting. TBR also attended one-on-one meetings with several Genpact

executives.

Impact and Opportunities

The forum centered around Genpact’s four-pillar strategy to accelerate revenue growth from global (non-GE)

clients, which includes concentrating investments in select verticals and service lines, building domain expertise,

developing unique IP-driven solutions and strengthening client relationships.

Genpact is integrating consulting, technology and analytics and merging them with proven BPO processes providing solutions to improve clients’ business

Genpact strives to break out of the BPO mold by layering analytics, industry expertise and process re-engineering

capabilities over traditional back-office services to solve business problems and reduce operating costs.

Streamlining its verticals from 23 to nine enables the firm to deepen investments in areas where it can deliver the

greatest business value. Genpact committed to invest $45 million in 2014 to build client-facing teams and IP-based

solutions to differentiate the firm’s services in its designated focus areas, which include banking, financial services

and insurance (BFSI), life sciences, manufacturing, healthcare, high-technology, retail and consumer goods. The

firm acknowledged that such investments will impact margins, projecting a reduction of between 100 and 150

basis points resulting in an adjusted operating margin of 15% to 15.5% for 2014. TBR believes Genpact is following

a similar strategy to that of Cognizant, which has historically adhered to a margin range of 19% to 20% to reinvest

profits in revenue growth opportunities. The firm will also leverage strategic alliances and acquisitions to fill gaps

in expertise and technology.

In presentations, the firm highlighted three of its chosen verticals: industrial manufacturing, capital markets and

life sciences, and one key horizontal service line: finance and accounting (F&A). Each of the presentations

emphasized Genpact’s ability to dive deep into the industry-specific pain points of its clients and deliver practical,

scalable solutions through a combination of process, analytics and technology:

The firm is working with a key client to develop a Federal Aviation Agency (FAA)-approved predictive

maintenance solution for the aerospace industry that leverages analytics and sensor technology to

prevent unexpected expenses from engine failure.

In capital markets, Genpact and financial services firm Markit provided an update on the strategic alliance

announced in 3Q13 to develop a centralized client onboarding solution to reduce compliance costs

associated with Know Your Customer (KYC) regulations. The joint venture “soft launched” the solution in

April 2014 with four banks signed on and several more expressing interest.

The firm will merge recently acquired Pharmalink Consulting’s expertise in regulatory strategy and

operations with Genpact’s Smart Enterprise Process (SEP) framework and analytics capabilities to expand

into regulatory affairs outsourcing services, addressing the evolving regulatory spend challenges in the life

sciences industry.

Building on recent acquisitions such as SaaS provider Akritiv and enterprise resource planning (ERP)

integration practices around SAP and Oracle, the firm developed the CFO Services Platform, a suite of

tools designed to improve efficiency, effectiveness and governance in F&A functions such as order-to-

cash, accounts receivable, accounts payable, record-to-report and source-to-pay. In addition to process

optimization products, the suite includes workflow, robotic automation, performance analytics and

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collaboration tools. The business process as a Service (BPaaS) solution leverages Genpact’s SEP framework

and cloud, analytics and automation technologies to streamline and standardize F&A processes, enabling

clients to focus on larger business transformation initiatives.

Genpact will hire industry experts from consulting firms to form deeper client relationships and outcompete India-centric peers for transformational deals that require C-level discussions

Genpact recognizes that, for its vertical specialization strategy to work, it must deliver a level of industry insight

and process optimization within its selected domains unmatched by competing firms, particularly India-centric

competitors such as TCS, Infosys and Wipro. To address this, the firm plans to devote two-thirds of the $45 million

earmarked for investment to add client-facing resources and solution architects with domain expertise. Genpact

also intends to spend 6% of revenue on sales and marketing in 2014, up from 4.7% in 2013.

In 1Q14, Genpact hired 21 salespeople within the firm’s verticals and service lines. Although some of the new hires

spent time with peers such as Infosys and Accenture, the firm focuses recruiting on top-tier management

consulting firms such as McKinsey, PwC and Deloitte. TBR believes this tactic highlights Genpact’s goal to

differentiate itself from the India-centric group and portray an image as a strategy and implementation specialist

with a strong back-end processing foundation, rather than as a low-cost services provider with some consulting

capabilities. The firm continues to focus sales efforts on large-scale, transformational engagements, which

comprise approximately 40% of the firm’s deal pipeline. By combining client-facing, industry-oriented consultants,

experienced solution architects and the firm’s IP-based SEP framework, Genpact can offer end-to-end

transformation services (design, build, run) that position the firm better to engage with clients on the C-level for

deals involving intricate regulatory compliance issues.

In addition to hiring, Genpact continues to work with consulting partners to expand industry expertise and access

to clients. In April, the firm announced a strategic alliance with management consulting firm Oliver Wyman to

develop risk management solutions for the financial services industry that blend strategy, analytics and operational

execution. Genpact estimates the addressable market for these solutions at between $3 billion and $4 billion, of

which the firm expects to realize $300 million to $400 million over the next five to seven years.

Genpact will continue to develop portfolio of standardized, “as a Service” solutions that layer process expertise and analytics over partner technology

Increasing adoption of cloud-based delivery models and automation reduces the need for labor resources to

deliver services. Genpact manages this shift by spending the remaining one-third of its $45 million investment pool

on R&D to create IP-based solutions and by proactively approaching clients with technology-enabled offerings. A

common theme throughout the executive presentations was Genpact’s intention to transform its value

proposition from delivering labor arbitrage to delivering business insights. Each presenter spoke of efforts to take

raw data gathered through the course of a BPO engagement, apply analytics to resolve a particular industry

problem and roll out services to multiple clients on a utility-based pricing model. The firm was clear that it does

not want to become a product company; rather, Genpact will be an advisor, integrator and managed service

provider while relying on partners such as Markit to deliver technology.

TBR believes this strategy is wise for a number of reasons. First, focusing on process-oriented business problems

such as regulatory compliance plays to Genpact’s SEP strengths and addresses a demand that shows no signs of

slowing down. Second, scalable solutions enable Genpact to offer its clients flexible pricing structures, which are

becoming a necessity to encourage investment in transformational programs. Third, offerings that blend IP and

industry-specific expertise in a way that very few of its competitors are doing differentiate the firm in its selected

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verticals. Finally, increased leverage of automation and analytics to deliver services helps Genpact optimize G&A

costs, which will partially offset expanded sales and marketing and R&D expenses to maintain margins within the

15% to 15.5% target band. As the firm is still in the early stages of R&D investment, we do not expect significant

revenue impact from SaaS solutions in the near term. However, we believe the initiative positions Genpact to

retain clients that value the firm’s BPO expertise and are considering their IT options in the emerging technology

landscape.

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, telecom and enterprise network vendors, and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients’ needs. Our analysts are available to further address client-specific issues or information needs on an inquiry or proprietary consulting basis.

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