Department today, company tomorrow?

Updated on May 25, 2007 02:45 AM IST
Service providers are no longer adjunct departments for manufacturers, but equal partners in many respects. They derive their own sense of identity, organisation, accountability, efficiency and profitability, writes Narayanan Madhavan.
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None | ByNarayanan Madhavan

The news this week, that Citigroup Global Services is planning to sell off a strategic stake to bidders, including IBM, could be the latest in a global wave which will only become more visible as the days go by.

So what is new about this thing?

Citigroup Global Services used to be called e-Serve International, and, as a listed company on Indian stock exchanges, had a great run during the early years of the BPO boom because it had listed itself much before the boom happened to catch the fancy of investors. It was serving mainly Citibank customers. Citigroup later de-listed e-Serve and took it private.

Since then, Firstsource, an ICICI spinoff, has also listed, and in the overseas exchanges, India-centric outsourced service companies like EXL (Nasdaq) and WNS (New York) are making waves.

An interesting thing in the game is the way some of these companies are created. Much before IT entrepreneurs and savvy venture capitalists came into the game, General Electric had quietly but surely set up its call centre operations in Gurgaon, and when some others were still founding their independent service companies, GE had built up more than 10,000 employees in a set-up meant for captive use.

Now, e-Serve was doing something similar for Citigroup customers, although it was technically registered as a separate company in India. WNS, in fact, has its origins as a ticketing office for the British Airways (BA).

All these were essentially “back-office” departments of well-known companies. BA’s job was to fly passengers, General Electric led in engineering, finance and plastics, and Citi was a financial services group. Yet, as third-party companies like ICICI Onesource (now Firstsource), and Daksh gained ground, winning the eyes of private equity investors and venture capitalists, it became clear to the managements of companies like British Airways, General Electric and Citigroup that those back-office agents sending credit card reminders and taking customer calls were not an internal “department” but in effect, functioning like companies who could serve other customers and make more money. In the process, companies could stick to their core competencies

GE Capital International Services (GECIS) was spun off in 2004 as an independent company with funding from big names like Oak Hill Partners and General Atlantic Partners. It was later named Genpact, which this month announced steps to go public on its own with an initial public offer (IPO) of shares.

WNS is already a public company, and chances are very high that Citigroup Global Services will also sprout (before long) a fancy name reeking of modern management speak and talk of going public. I suspect Hewlett-Packard’s BPO unit, which has a 6,000-strong team in India, could go the same way, being spun off and later, taken public or into a merger with another of those service firms.

IBM is now a major service player and acquired Gurgaon-based Daksh in 2004 for an estimated value of around $150 million. General Atlantic Partners and Citicorp were both investors in Daksh e-Services. Agents like these are the match-makers in the new game called services globalisation.

Yesterday’s departments are now lucrative companies in their own right, because telecommunications and software are enabling new ways to build “factories” of the knowledge economy.. The original owners remain customers while making money from selling shares in the spun-off companies.

It logically follows that service providers are no longer adjunct departments for manufacturers, but equal partners in many respects. They derive their own sense of identity, organisation, accountability, efficiency and profitability. This maturing will get stronger in the coming days. Before long, departments of many companies will be spun off as separate companies and merged with other companies in the same sphere to create specialised service powerhouses.

Services globalisation has only just begun.

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