By guest author Tony Scott
The outsourcing series makes its return with this ninth interview, in which I am talking with Naresh Lakhanpal, executive VP and president, Americas, and Hiro Notaney, VP of marketing, of Patni Computer Systems. Patni offers IT services, product engineering services, customer interaction services (CIS), business process outsourcing (BPO), and infrastructure management services. From its headquarters in Mumbai and its more than 33 offices and 22 delivery centers around the world, the company works with clients in industries ranging from insurance to manufacturing to media & entertainment. The interview begins with a discussion of Patni’s history and its plans to grow.
Tony: Hello, Hiro and Naresh. Let me give you some context for this interview. A couple of years ago Sramana Mitra wrote an article called “The Death of Indian Outsourcing.”
Naresh: I read it, yes.
Tony: It got a lot of knee-jerk reactions, but I think the point was well made that if you look at pure labor arbitrage . . .
Naresh: It doesn’t work.
Tony: Yes, exactly. The question is, how can the outsourcing industry continue if that is the only model? At a certain point you just run out of lower-cost labor. I wanted to find out how leaders in the industry have seen it change over the last few years, and how they see it evolving over the next few years. I pointed out to Sramana that for a number of companies I’ve worked with, they evolved into a solution-based approach, and those that did were able to continue to grow dramatically.
Tony: But it doesn’t necessarily automatically happen for India to move to higher value, solutions-based approaches, does it?
Naresh: That’s right – and there are a lot of alternatives out there: off-shore, near-shore, on-shore, and all of them are interesting alternatives. Some are coming from what is sometimes called the Third World, or, in the United States, from lower-income states such as Mississippi.
Tony: Actually, I’m originally from Jackson, Mississippi – there is plenty of talent there that could be tapped in an on-shore outsourcing environment, both for business process outsourcing and technical outsourcing.
Naresh: I grew up in the Bronx, but I’ve been there, to the American South, and I see the opportunity there. The point is a lot of people in those communities in Arkansas, Tennessee, and all through the middle of the United States could do a lot of the same kind of things that we have been shipping off-shore, and at a certain point, labor rate arbitrage becomes much less attractive.
Tony: That’s clearly starting to happen – pure labor rate savings are becoming less attractive. The reason I got interested in this entire issue is because my own work as an executive search consultant is focused on human capital and leadership acquisition. Different types of companies have different types of human capital needs, and different levels of emphasis on the old human capital and labor versus capital, plant and equipment equation. But if you look at an outsourcing company, their people are almost the only assets they have, and those assets walk out the door every day. Outsourcing companies are also at forefront of the whole idea that the world is “flat.” That combination of pure services that are delivered on a global basis also means they are very vulnerable to shifts in the industry, and vulnerable to new competitors.
Tony: That being the case, my question is, how do successful outsourcing companies build their teams? How does the leadership team drive things forward in that kind of environment, and what do the challenges mean for the type of talent that is going to be required for an outsourcing company to be successful in the future? That is what I am trying to find out.
Let’s start with the history of Patni. When did Patni begin, how did it get started, and how has it evolved over the past few years?
Hiro: The company is actually the first of the Indian outsourcing companies. It was started by Naren Patni in Cambridge, Massachusetts, in 1972 under the name Data Conversion Inc.
A lot of these outsourcing companies took off in the 1990s and 2000s – some grew faster than others. I think there were strategic decisions made by our senior management at that time about how fast we wanted to grow. I was not privy to those, but right now, you have your Infosyses and your TCSs that are $5 billion companies. Next year we will be about a $700 million company, so we’re not a niche player and we’re not a big player, if you will. I think for us, we have to decide where we want to be, and I think we’re in the position right now where we need to make the jump to the billion-dollar plus range so that we can scale up and compete with the big guys.
Naresh: I don’t think it’s size that we compete against; I think it’s initial perception of size and how that relates to ability. When you talk to people about why they chose an outsourcing company, you find out that often people are just going to the media. There are some who look at, for example, customer satisfaction survey results as well. But the media is a main source, and they are so focused on a company’s size as the main measure of success. It’s at that time you find out that the attributes that make us successful are the attributes that also slap us in the face every now and then. The size of the organization is an appropriate point of evaluation to be sure. But I’ve seen customers who are only concerned about that, to the exclusion of all the other factors that should be going in to their evaluation process. I scratch my head at this.