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Barbara Hodge interviews Shantanu Ghosh, SVP, Practices, Solutions & Transitions, Genpact, on the eve of SSON’s North American flagship event: Shared Services & Outsourcing Week 2012, at which Shantanu is leading a panel debate.
BH: Shantanu, could we start by you describing your current role at Genpact?
SG: Gladly. Genpact is structured like a classic knowledge services firm, with industry verticals that provide the day-to-day operational services to companies in that particular industry and which own the customer relationships. Then we have the service capability horizontals, which are the groups that own the competencies and capabilities, the new product development, the best practice sharing, creating differentiation, etc – basically the intellectual property of the company as far as service lines go. And this group works jointly with the verticals in terms of getting new business and promoting best practice sharing with the customers.
There are three broad service lines – IT Services, Decision Services (analytics, risk, reengineering) and everything else is clubbed under Enterprise Services (areas like finance and accounting, financial services back office operations, contact centers, sourcing procurement). I head the Enterprise Services group, which makes up a little over half of our company revenue. I also head our entire solutions group and our entire transitions group for the company.
What was your background prior to Genpact?
Before joining Genpact, I was with Unilever in India for a decade and then was the India country CFO for the General Electric Company. I basically came into Genpact when it was moving from being a captive to a commercial entity. My role was to grow our finance and accounting business outside of GE, ie to develop new customers. Today, I am happy to say that finance and accounting is our largest line of business.
Thanks for that overview, Shantanu. I’d like to start our discussion with "process" – because you’ve made that a core element of your delivery strategy at Genpact. What limits an organization from getting the maximum effectiveness out of its processes?
I think there are a few core, common issues. The first issue is that companies are not typically organized along an enterprise process flow. So, if you think of an order-to-cash process, no company is organized as an order-to-cash organization; they have a sales organization, which generates orders; they have a fulfillment organization, which codifies orders; they have a supply chain organization, which delivers the products or services; they have a finance organization, which raises bills; and then they have a collections organization, which collects the money. Each group or vertical operates on its own optimization principles; clearly, therefore, they’re only addressing the efficiency of that particular operation. For example, a collections group can figure out how best to increase the number of accounts per collector, but it might not solve how to reduce the total number of delinquent accounts simply by eliminating errors in order generation. In addition, their structure and the way incentives are structured – both from a compensation, or reward and recognition perspective – maintain this siloed thinking.
The second factor is that companies often don’t have data at a granular level. So any discussion that has to go through those silos becomes a finger-pointing exercise, as opposed to a data-based discussion.
And the third thing is: even if you have data across your various sub-processes or sub-activities, you need the framework which connects, at a granular level, what the lowest level operating person does on a day-to-day basis to the CFO’s vision for order-to-cash performance. Creating that pyramid of metrics and relationships and tracking the impact of each of those metrics to each other, and the ability to access benchmark data and best practices within the industry and from other industries – ¬both at an overall and a granular level – that is where the knowledge and the expertise needs to come in.
You’re describing some fairly large-scale change initiatives here, Shantanu. I imagine that there’s some hesitation, on the part of clients, to taking on the scale of change that this engenders.
I think the answer to that question is in two parts. If you want to get to your entitlement performance change, you have to do the whole scale change, right? However, there are ways of making that change modular. And one of the biggest benefits of using a framework like Smart Enterprise Process is because, from the start, that framework is used to understand where the biggest gaps are from a performance entitlement perspective, across the value chain.
In any company – again, just taking order-to-cash as an example – you can have 20 or 30 areas that can be optimized and that can be improved. You need insight and knowledge to decide which of those areas are most critical and which have the largest pay-off in terms of leveraging your end outcome. Once you identify that, you can then go to the next level, ie, the investment required. How much is the technology investment? How much is the process retooling investment? How much can be done from an outsourcing perspective?
And then there is also the issue of how much change can be driven in the organization. Some things, even if blatantly dysfunctional, are tough to change overnight, right? So, you have a list of priorities, based on your analytical prognosis. Then you have a list of investment requirements, change management challenges … and all of these have to be blended together to arrive at a roadmap for the customer. In most cases, the roadmap is not a one-shot fix, it’s sequential, and its speed depends on urgency.
I want to get back to data for a moment. We’ve identified "data analytics" as a core area of growth for the shared services and outsourcing market. You mentioned that the customer has data but doesn’t necessarily have access to it in the right way. What do you mean?
The reality of life is that everyone has data. And actually, everyone’s access to data is going up in geometrical progression because as you digitize, as you use more and more new technologies, you keep generating more and more data. The data is in the system; it’s just that people are not capturing it.
So, the first problem relates to capturing data – how much data gets captured versus how much data is in the system. The second problem concerns the proliferation of data – how does one focus on the most relevant and contextual data – which ones are relevant to the end objective the company wants to drive. The third is the issue of making intelligence of the data - how you use it to make intelligent decisions. These are the kind of issues our analytics team is working on, and it’s what differentiates us.
So the grasp and manipulation of data is what sets organizations apart?
Exactly! So: here are the facts … here are the numbers … and because of these numbers, our point of view is that you should prioritize this versus that. Of course the real challenge lies in execution. This requires a hundred steps.
Take for example customer service; we all know that if you can direct certain callers into self-help channels it works well for certain types of queries. Data analysis helps you identify what kind of query is best served this way but you need to get the penetration levels up. What is important is: first, your capability to understand the type of queries that work best for self-service; second, agreeing the overall service strategy so that it’s consistent with the customer’s service strategy and image; and third, helping them implement the hundred steps necessary for adoption. If you can string those three things together, then you are really adding value to the customer. If you are only doing the first thing, then you’re a research firm; if you are only doing the second thing, you’re a consulting firm; it’s only when you do all three that you become a service provider who adds value.
I wanted to talk to you about industry verticalization. You’ve identified "SEP suites" across industries – commercial finance, insurance etc. Is this indicative of the direction that you are moving towards? In other words: segmenting and tailoring processes according to industries?
I think, it signifies an evolution of our direction and let me explain why. We were always hugely industry-focused in one specific industry, namely financial services. For the rest of the industries, we evolved from a horizontal process capability and expertise perspective – so, finance and accounting across all manufacturing, or consumer products, or service industries; analytics across each one … all lateral stuff. What we wanted to do was evolve our approach to these other industries as we had for financial services. Over the last seven years, we have got critical mass in many other industries like pharma, discrete manufacturing, hospitality and services, high tech, consumer products and now – with the Headstrong acquisition – capital markets. So we wanted to strengthen each of those verticals in terms of our vertical offerings.
At the same time, we want to maintain and continuously expand the scope and capability of our horizontal service lines and offerings, like financial service back office, or like finance and accounting sourcing and procurement areas. So to your question – is it a new direction? – I don’t think it is new. I do think it represents a natural evolution. But we have given it a lot of impetus over the last 12-18 months and therefore it’s being talked about more.
But do you agree that this is the way of the future from a provider perspective? To offer your clients an even better match?
I do think it is an "and" situation, Barbara; people make a mistake if they think that the solution is to become purely industry specialists and not to have horizontal specialization and expertise. Remember: there are lots of industry-specialized processes where the specialization is in the last 20%.
The last 20% of what, the process?
Yes, of the process. If there are a hundred elements to the process, 15 to 20 elements are very industry specific; the balance, in other words 80 elements, are actually common with any other industry.
For example, in procurement, one category of procurement is very distinct from another in industries, but at the end of the day, every industry buys computers, every industry purchases services. So, if you don’t develop horizontal capabilities that cut across every industry, what you will do is you will create small standalone units of capabilities for those types of processes, for each individual industry. So, while you will optimize on the 20%, you will sub-optimize on the 80%.
The other thing, which is less intuitive and grossly underestimated, is the power of applying best practices from one industry to another. Let me give you an example. Financial services lives on collections capabilities. There are many techniques and strategies and practices which you can take from these services and apply to a consumer products good, which sells to a multitude of retailers and a multitude of wholesalers. Now, they are two completely different industries – one runs on a receivables portfolio, one almost wants to get rid of the receivables portfolio; but there’s a huge amount of best practice that can be leveraged.
So, back to your question – I think it’s an "and" situation; I think people who don’t get industry vertical specialization will miss out on big opportunities on that side to move up the value chain. But those who do it without strengthening their horizontal core functions should realize that they’re only playing at the "nuance" area – they are missing out on a bulk of the processes and being able to innovate in those practices.
How do you leverage your global capability for different service delivery – are you regularly reassessing your location strategy to allow for new countries? And are you getting more requests for nearshore?
I think there are two parts to that answer. First, let’s assume clients have no constraints – and then we’ll overlay the constraint part. So, assuming clients have no constraints, as long as they are confident in you, you can serve them from anywhere.
There has been a big evolution in our location strategy, which originally focused on optimizing cost – ie, producing maximum value in terms of process effectiveness. Now, when you talk of value, cost is a big part of that but sometimes it makes sense to work right next door to the customer because that is where the highest skill and capability exists.
For example, say your customers are selling to a well-known retail store, and they have large deductions as a result of the store’s sourcing strategy. If you want to negotiate to get some of those deductions back for your customers, you have to use people who’ve dealt with that store for 20 years – who know it. However, once they get the deduction back, applying the cash in your ledger can be done 20,000 miles away. So, the logic of location strategy without customer constraint is based on how to optimize value. Now when it comes to skill requirements, you can decouple what is really unique versus what is a transactional part of that skill, and service those two pieces from two different places. Back to the retail store: the people dealing with it only spend 30% of their time negotiating; the balance – 70% of the time – is spent on paperwork. So that means that I can provide 70% of this service from somewhere else and keep only 30% close to the client. So there’s a nuance of how you can play the skill requirement, but you don’t have that when it comes to language. If you have to speak Russian, you have to speak Russian; you can’t do anything else.
Now let’s factor in customer constraint, where customers have sensitivities because of environmental factors or corporate image, etc. This has become a very real issue in the last year or two, with regards to onshore and nearshore. As a result, we’re coming up with innovative commercial constructs in terms of having some things onshore and then, over a period of time, optimizing and commercializing those assets. We’ve done this for Walgreens in Danville, for example; and SAB Miller in South Africa; and an insurance company in Hong Kong; and also a manufacturing company in Japan. The question then becomes: how do you come up with innovative commercial structures and how do you use those assets and commercialize them for other customers?
Is there a region that you think offers Genpact potential for expansion right now?
I think we are relatively underpenetrated in Latin America. And I think, clearly, given the way the economy and others are moving, that is one area where we want to scale up pretty quickly and grow much faster. We have a couple of footprints and we are looking at what else we can do out there.
The other area which we don’t have a great answer for right now is Eastern Europe itself; not in terms of serving Western Europe, but serving Eastern Europe and Russia and some of those areas, where people are getting more focused in terms of ensuring that they maintain control and have good governance. It’s proving a bit of a challenge in terms of how you serve it from somewhere economically, and in a viable, scalable model.
You’re talking about providing services from Eastern Europe to Eastern Europe?
Yes, providing services to certain Eastern European locations. Take, for example, Russia: to service Russia from outside Russia on a large scale is a challenge. So do you do it from inside Russia? China obviously has to be done from inside China – you just can’t do it from anywhere else. Similarly, what do you do with some of the Middle Eastern states and some of the other East European states, like Kazakhstan?
Is this "local to local" trend accounting for a significant part of Genpact’s growth?
Absolutely. Every economic indicator now points to a two-speed world, where the developed markets will grow at a certain speed and we’ll need a specific set of optimization levers for their survival and success, and the developing or emerging markets will grow at a very different exponential speed and actually require services as platforms for growth.
An exciting time to be in your role. Thanks for your time today.
Meet Shantanu at Shared Services & Outsourcing Week 2012, where he is leading a panel debate on Debunking Myths: Exploring the Validity of the TOP 6 Common Industry Perceptions.