Genpact aims for high-end SCM market with Barkawi, but will it learn from past mistakes?

Genpact acquired Barkawi Management Consultants in a move to bolster its Supply Chain Management (SCM) talent and domain expertise. The injection of high-end and onshore consulting talent bodes well for Genpact in an under-penetrated supply chain services space especially at a time where the offshoring-led model is starting to tire out. However, integration of consulting talent in an annuity-based, multi-year ongoing services culture to create a seamless customer experience and go-to-market is going to be hard. And Genpact’s record at integrating acquisitions has not exactly been stellar (remember Headstrong?).

Barkawi adds to the list in Genpact’s recent acquisition spree to re-invent itself 

Genpact’s core messaging has changed over the last decade from its Lean Six Sigma-driven GE heritage to domain-led Smart Enterprise Processes (SEP) to introduction of enabling technologies through Lean Digital, and now the latest AI-led Instinctive Enterprise! The recent spree of relatively small and targeted acquisitions, (see Exhibit 1 on the next page), is an integral part of this strategic pivot from its bread and butter cost-reduction focused and offshoring-led model to a value-added services model underpinned by emerging technologies like artificial intelligence (AI), smart analytics, robotic process automation (RPA) and Internet of things (IoT).

Barkawi represents the latest addition to this “string of pearls” M&A strategy that brings in strong SCM talent and domain competency, (see Table 1).

Exhibit 1: Genpact’s acquisitions over the last five years 

What Barkawi brings to the table:

1. 170+ supply chain consultants, mostly on-shore in Atlanta and Munich
2. Supply chain strategy and technology consulting capabilities in:
   • Supply chain strategy design and execution
   • Demand planning
   • Supply planning, sales, and operations planning
   • Distribution strategy and design
3. Partnerships and expertise with supply chain technology platforms such as Kinaxis, Anaplan, SAP Supply Chain Management
4. Proprietary methodologies, accelerators, and solutions
5. Strength in discrete manufacturing, retail, and aftermarket services
6. Attractive client list including Airbus, Coca-Cola, Daimler, GE, Henkel, Siemens, and others
   

The addition of Barkawi makes strategic sense for Genpact

SCM is one of Genpact’s key priority growth areas with ambitious 20-25% growth targets. It needed to expand the service line both regarding capability and talent, and Barkawi appears to be a good fit because of three primary reasons. 

1. Under-penetrated high-end SCM services. The SCM services market continues to be relatively under-penetrated with most of the service providers focusing on the transactional processing. However, there is a significant opportunity to support clients with demand planning and other supply chain analytics (see Exhibit 2). These services require a more consulting-led approach versus a BPM-led factory approach. Barkawi consultants bring in expertise in these areas; technology transformation, supply chain software, supply chain analytics, planning (demand, logistics, sales) and supply chain cockpit and control tower.

Exhibit 2: Supply Chain Services Value Chain

Source: HFS Research, 2018

2. The offshoring-led value proposition is getting tired. The intent to offshore has dropped significantly over the last five years across the board and including SCM services, (see Exhibit 3). Service providers need to bring deep on-the-ground domain experts to make a mark. With this acquisition of Barkawi, Genpact adds over 170 on-shore consultants in US and Germany. The reason why Accenture has been successful in this space is that the firm is able to bring both advisory and execution capabilities at scale. Genpact can now compete more aggressively with Accenture in this space after the Barkawi acquisition.

Exhibit 3: Enterprise intentions for Offshore/Nearshore Slowing and Focus shifts from “Cost” to “Value”

Source: HFS Research in conjunction with KPMG, “State of Operations and Outsourcing” surveys 2014, 2016 and 2018.

Sample: ~400 Global 2000 enterprise leaders.Under-penetrated high-end SCM services.

3. Cross-sell / up-sell opportunity. Genpact and Barkawi worked together on client engagements before and got to know each other well – well enough for Genpact to pursue this acquisition hard! Barkawi and Genpact serve several same clients, such as GE, and they’ll aim to grow their existing engagements. In addition to the obvious cross-sell and up-sell opportunities with shared customers, Barkawi’s client list includes Airbus, Coca-Cola, Daimler, Henkel, Siemens and others, potentially bringing in new large and attractive clients to Genpact.

Beware of the cultural integration and go-to-market challenges

While the Barkawi acquisition makes strategic sense, the proof will lie in Genpact’s ability to integrate Barkawi in a way that provides its clients a seamless value proposition.

The go-to-market challenge. Most BPM providers (including Genpact) look at consulting services as the “tip of the spear” where consulting services are pretty much reduced to “pre-sales” in lieu of large annuity-based contracts at the backend. This often leads to a diminished role for consulting to not only create a client impact but also creates challenges in retaining talented folks. Changing a deeply embedded culture is easier said than done.

Integrating acquisitions is not Genpact’s strongest suite. Acquiring consultancy firms is famously tricky. The main assets are the people and corralling them is challenging. A strategy to accommodate the talent and protecting the culture of the acquired company is important. Otherwise these sought-after people will quickly bolt. Genpact’s track record around the integration of acquisitions is also not stellar. Headstrong (acquired by Genpact in 2011 announcing it’s big bold entry into IT Services) is the prime example of an acquisition that didn’t work out. The objective behind the Headstrong acquisition made complete sense – it enabled Genpact to offer its clients a full stack of capabilities across IT and business services especially within Capital Markets. However, Genpact could not scale it up or change the offering to keep it relevant. A lot of original consulting talent left given the cultural mismatch. If rumors are to be believed, the headstrong asset is now up for sale. The fact that Genpact has made some acquisitions recently, (see Exhibit 1) will make it even tougher especially regarding getting senior management attention.

The silver lining is that the Barkawi brand will continue to exist in the market for the foreseeable future. The Genpact SCM group will be merged into the Barkawi group under the leadership of Barwaki’s president Mike Landry.  This is similar to the approach other service providers’ (such as Accenture and Cognizant) have leveraged with the acquired digital agencies and design studios – maintaining the acquisitions as separate units, trying to keep the culture intact and bringing in culture from the acquired companies instead of immediately assimilating them into the larger organization.

Bottom line: Acquiring Barkawi is a job half done. We will congratulate Genpact next year after it successfully translates the acquisition into market success!

HFS sees the Barkawi addition as a strategic and complementary acquisition for Genpact. Adding the front-end talent is very hard to come by in SCM and will enable Genpact to move up the strategic value chain. From Barkawi’s perspective, Genpact’s scale, brand, and enabling digital technologies will help them stay relevant in the market without having to invest in and built out all these capabilities on its own.

But both firms will need to be very deliberate and conscious in cultural integration and go-to-market strategy to make this work. Sure, Barkawi brings in proprietary methodologies, solutions and accelerators, but the core of the thesis of this acquisition is Barkawi’s talent and reputation and they should plan meticulously to ensure that it does not get eroded.