Monday, February 27, 2006

BusinessWeek - Offshoring: Spread the Gospel

Offshoring : Spreading The Gospel Outsourcing's inner circle has deep roots in GE and McKinsey. Here's how they caught the fever After General Electric Co. (GE ) spun off its outsourcing subsidiary, Genpact, two years ago, Chief Executive Pramod Bhasin figured he wouldn't be seeing much of his erstwhile GE colleagues. But these days, Bhasin sees plenty of the old gang. That's because GE has been so successful with its outsourcing operations that its managers continue to chant the mantra even after they have left the company.

Today, GE veterans are in key positions at Home Depot (HD ), Honeywell International (HON ), Solectron (SLR ), and United Technologies (UTX ), among others, giving Bhasin a huge base of potential customers with a deep understanding of just what his company can do for them. "We go after GE alums," Bhasin says. If GE is the primary source of Bhasin's customers, another outsourcing pioneer, consulting firm McKinsey & Co., has produced many of his potential competitors. Marc Vollenweider, a former partner at McKinsey in New Delhi and London, co-founded Evalueserve Inc., a New Delhi company that provides market research and analyzes data for hedge funds and investment banks. WNS Global Services, a top call center and back-office shop in India, was founded by McKinsey alum Neeraj Bhargava. And Rizwan Koita, an associate with McKinsey in Bombay, left the firm in 1999 at age 29 to found TransWorks Information Services Ltd., which operates call centers and does back-office work for banks and tech companies.

After selling that business in 2003 to Indian conglomerate AV Birla Group, Koita established CitiusTech Inc. to serve health-care technology companies. "We at McKinsey saw the opportunity early," says Koita. Today, veterans of the two companies are powerful evangelists for the benefits of outsourcing .

Like Bhasin, many of these managers are eager to tap into informal alumni networks to expand their own businesses and help drive the trend. While there are no numbers, anecdotal evidence suggests that scores, perhaps hundreds, of former GE and McKinsey executives and consultants play key roles as both suppliers of outsourced services and customers for them. "Every time we have an outsourcing forum , it's like a GE and McKinsey alumni association meeting," says Sunil Mehta, vice-president of NASSCOM, India's software industry association. Of course, lots of companies have seen the opportunities in outsourcing . As early as 1994, American Express Co. (AXP ) and Citibank started hiring Indian accountants and math whizzes in Delhi and Bombay. But neither has spread the gospel the way GE and McKinsey have. Insiders and outsiders say the two are unique in their scale, their ability to attract top performers, their comfort with multiple cultures and languages, and their commitment to outsourcing. Both also view outsourcing more as a tool to increase growth and boost efficiency than as a pure cost savings exercise, a strategic insight most other corporations are only starting to grasp. And managers at both companies practice what they have long preached.

In 1996, GE Capital (GE ) found itself short of the talent it needed to sustain the growth of its mortgage refinance business. So it set up a small support office in Delhi that quickly earned the respect of GE colleagues worldwide. Soon other GE divisions were clamoring for similar help from India. That's when then-Chairman Jack Welch ordered GE divisions across the company to use outsourcing to streamline their operations. That New Delhi office grew into Gecis Global, which last year became Genpact after it was sold to two private equity groups for $500 million.

Genpact now has revenues of almost half a billion and 19,000 employees around the world. McKinsey began its education with a 1995 project on the digital economy's impact on services. The leader of the initiative, Anil Kumar, concluded that plummeting telecommunications rates would create a world of "remote services" whereby providers in far-flung locations such as India and China could work for customers in the U.S.

This led McKinsey to establish what it called a Knowledge Center in New Delhi, where researchers would crunch numbers, analyze trends, and even put together PowerPoint presentations for McKinsey consultants worldwide. The Knowledge Center soon became a model outsourcing operation that McKinsey could show off to clients. "We were the first to legitimize the early thinking," says Kumar. Having seen the benefits of outsourcing up close, ambitious consultants and executives from both companies began jumping ship to start their own businesses. Raman Roy, who helped GE Capital set up Gecis, in 1999 started India's largest independent outsourcer, Spectramind, which he sold to tech giant Wipro Ltd. (WIP ) in 2002. GE, he says, taught him how to seize opportunities, take risks, and make mistakes. "GE is among the best incubators of talent and has a great culture of encouraging entrepreneurship," Roy says. He has clearly absorbed his GE lessons well: Roy is now on another outsourcing startup, AccessIntellect, which does high-end analytics for software companies and others. Manoj S. Jain, a former McKinsey associate in Chicago, runs Pipal Research Corp.

The Chicago outsourcing firm has quadrupled its sales in the past two years and now has more than 100 researchers in India and China doing work for banks, law firms, and others. Jain credits his former employer with being an "idea lab and opportunity shop." Having McKinsey on your résumé doesn't hurt, either. "Clients are willing to give us the benefit of the doubt," he says.

AN EAGER BASE As other GE and McKinsey alums have moved on to new jobs, they have started to form an eager customer base for outsourcers. Home Depot Inc. CEO Robert L. Nardelli, once a contender for the top job at GE, has hired India's Tata Consultancy Services Ltd. to do call center work and back-office jobs in finance and merchandising and is now trying to create a clone of Genpact for Home Depot. Gunjan Kedia was a partner at McKinsey in Pittsburgh when Mellon Financial Corp. hired her as executive director ...

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The article is sponsored by A-1 Technology Inc , dealing in offshore website development , offshore outsourcing and offshore software development .