Genpact Ltd. - Analyst/Investor Day

| About: Genpact Limited (G)

Genpact Limited (NYSE:G)

February 20, 2013 8:30 am ET


Bharani Bobba - Vice President of Investor Relations

N. V. Tyagarajan - Chief Executive Officer, President and Director

Shantanu Ghosh - Senior Vice President of Practices and Solutions and Transitions

Sandeep Sahai - Chief Executive Officer of Headstrong and Senior Vice President of IT Solutions

Arvinder Singh - Senior Vice President of Sales and Marketing and Re-Engineering

Mohit Thukral - Senior Vice President of BFSI, Healthcare and Phillipines

Pascal Henssen - Senior Vice President and Chief Operating Officer of Europe

Mohit Bhatia - Chief Financial Officer and Principal Accounting Officer


David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Edward S. Caso - Wells Fargo Securities, LLC, Research Division

Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division

Bharani Bobba

Good morning. My name is Bharani Bobba, and I'm Head of Investor Relations at Genpact. It's great to see such a great turnout. And on behalf of 60,000 colleagues worldwide, slightly more than that, I'd like to welcome you to our 2013 Investor and Analyst Day.

A couple of notes, logistical points, while I allow you to peruse our disclaimer and Safe Harbor. One, we have a very full schedule, but we want it to be interactive as well, so at each -- within each individual section, we're going to allow time for questions. However, we'd like you to sort of keep those questions till the end of the session. Allow us to get through the specific PowerPoints, and then you can ask your questions. And even if we don't have time within that specific session, we'll have plenty of time at the end to answer I'm sure what will be a lot of good questions.

The other thing I'll do before handing it off to Tiger is say that we've got 10 members of our senior leadership team here, as well as an additional nearly 10 members of a broader management team. They're interspersed throughout the room. You'll have time to interact with them, and they're really looking forward to telling you how they drive value every day for clients, as well as for you.

And with that brief introduction, I'm going to hand it over to our first speaker today, who is our President and Chief Executive Officer, Tiger Tyagarajan.

N. V. Tyagarajan

Many thanks. Good morning, everyone, and once again, thank you for taking the time to be with us today. This is -- I have to stand in the corner here. It's blinding me -- for taking the time to be with us today. And really I want to reiterate what Bharani said. We'll go through a section and then really have time for interaction. And then we'll have a bunch of time later at the end as well for interactions.

Before I kick off, a bunch of the leaders whom Bharani referred to are actually going to talk about their individual businesses, how they think about their clients, the value they drive, apart from, obviously, our CFO, Mohit Bhatia, who will talk about our long-term trajectory in terms of the financials.

With that, our goal really is to talk about a few things today, and I'm sure the way we see the world. We're clearly in a highly underpenetrated high-growth market that we serve. Our business model is very unique. We compete with a lot of global competitors, but the way we see -- when we compete, the way our clients tell us when they choose us, they consider us to be very unique and differentiated. It's a highly diversified and resilient business model. It's a business model that's diversified consistently over the years. And the last one sounds very self-serving, but we all truly believe that it's a very special management and leadership team, composed of a set of people who grew up with the company and therefore, have real tenure and experience; a set of people who in that tenure and experience established the industry in the space that we operate in; and then a set of new leaders who joined the team with experiences that are hugely valuable in terms of adding new domain, new thinking and new innovation to the company and to our clients. And finally, from a financial perspective, clearly high-growth stable margins and very interesting cash flow conversion profiles, very stable sticky revenues, that's our world.

So let's spend a few minutes on the world in terms of the growth environment we talked about. Today's world, the new normal that people talk about is a world where clients want really efficient and effective processes, really efficient and effective cost structures. They wouldn't deal with a world which is slow growth. They want to deal with a world, therefore, that has to run differently for them. They want to deal with a world where outcomes that they deliver for their investors, for their clients, actually changes. It changes in the direction of being positive for investors, it changes in the direction of capturing more share of wallet in an environment where regular GDP growth is going to be low, and therefore, just adding new clients is not going to be the way they will grow. And therefore, it's a client base that requires continuously revisiting the way they run themselves and therefore, transforming themselves. And that's a journey. And that's the journey we are clearly becoming part of in many of these partnerships with our clients.

As I said, we talked about our differentiated DNA, and what you will hear through the next few presentations is specifically how we're investing in some of those areas, how we're continuing to build that DNA and what does make us different and why do people consider us to be different.

A significant part of the revenue that we have through the relationships that we have are nondiscretionary, are sticky and are long-term. And that's a significant difference between some of the profile of what we do versus some of our other competitors in this market space. And you're seeing the financial profile. So clearly, if you think about the marketplace, the under-penetration, the growth, our differentiated value proposition and the stickiness of what we deliver to our clients and the fact that we partner with them on long-term transformational journeys that are becoming very relevant today, we think we have a huge sustainable value proposition from a shareholder and investor perspective.

So what is the world we are in, it's a world where people like us are becoming extremely relevant for clients in a changing world. And on the left-hand side, you see some of the elements of that changing world. It's a world where our clients are saying, "I want more variable cost structures." It's a world where people are saying, "The developed economy, they're going to give me low growth. So how do I capture more share of wallet in that economy? How do I drive lower costs in that economy while capturing the slightly better growth in emerging economies that require more investment?" It's a world where everyone wants to leverage the cloud. But the reality is you've got to get ready to leverage that cloud. You got to be standardized and simplified to leverage that cloud.

So on the right-hand side, you'll see things that clients want either themselves to be able to do or a partner like us to do it for them. Standardize and simplify what I do. Make my cost structure more variable. I love to create insights with data, but guess what, my data is not clean. So help me make my data clean, help me make my processes more streamlined so that it produces clean data forever. Help me design the way this company should run in the future in that new world. And I'll talk a little bit about the progress we've made in actually getting to a point where we now have a seat at the table in many of these conversations in helping clients to design themselves for the future.

So if you think about our evolution, at the left is what we do for a living. We run things for our clients, be it finance, be it procurement, be it mortgage processing, be it credit card processing, be it supply chain management, delivery of parts. You name it, and we run it. And our value proposition there is very simple: We deliver operating excellence, we deliver global delivery, and all of that delivers value.

But the real value proposition starts coming in as you walk up that chain to once we take something on, we improve it. And we have tools that do that, that's deep in our DNA. We then think about those processes end-to-end and drive outcomes by looking at end-to-end processes and changing it. And finally, it's this whole journey that we've been on to create IP and benchmarks in every one of the end-to-end processes that we serve for our clients, our Smart Enterprise Process, which is a combination of the IP that we built over 15 years of running these processes for a large number of clients, it's understanding what takes clients to best-in-class, and it's creating benchmarks at a very granular level to take those clients through that best-in-class journey.

When we are able to traverse this journey, we are able to then have a seat at the table with our clients to say, "We can help you take your company to run itself differently over the next 5 to 10 years." And that's the seat at the table in terms of, "Help me design my company differently. Help me design my functions differently. Help me run differently. By the way, some of that you're going to run for me and drive better outcomes for me."

Why are we different when we do this? At the center of all of this is culture, because the trick here is all the knowledge and learning that you get when you run things. How do you take it to the point where you can actually bring it to your client and helping them design their processes and then make it available for people who are talking to them out in the field in a consultative, conversational, strategic mode with a CFO or a Chief Operating Officer or a CEO. It's the culture that drives that knowledge creation and drives it across the teams that work extremely collaboratively. It's a culture that's taken many years to build. It's a culture that actually becomes a competitive differentiator. It's a culture that's very difficult to copy. It's a culture that actually is very difficult to change if someone wants to change their culture to match ours. It's the reason our clients point as one of the top 3 reasons they choose us, it's our culture, and it's the culture that allows us to do this, which is what our clients want.

What does that do? It's produced consistent, stable, very healthy revenue growth. Apart from the 18% compounded growth rate, the more important one is to look at our growth rate with global clients, all the clients that we serve outside of our original GE foundational relationship. And that compounded growth rate of 33% has been based on the back of outstanding delivery that we measure through Net Promoter Score consistently. And we finished our 28th half yearly metric around Net Promoter Score. And as of December, which is when we completed the metric, we are at all-time high in that 28 cycles of Net Promoter Scores that we measured.

So I want to touch on every one of these 7, but really what I want to say is as we go through the next 3 or 4 hours, some of these are what we will try to explain: how do we actually take that Smart Enterprise Process and make a difference to our clients that is uniquely different? How do we create that culture that allows us to do that? How do we take domain expertise that allows us to build not just domain expertise around finance or procurement, but domain expertise that then intersects with the way finance is done in a life sciences company or the way finance is done in a consumer products company? And the depth we are now building in each of those chosen verticals and chosen horizontal enterprise service streams.

The DNA of saying, client comes first and what that does to our growth, what that does to our stickiness and what that does to leveraging our client relationships to grow with our existing clients, which is the way we've grown for many, many years. So we continue to believe that we are defining the industry that we pioneered. And it's now our 15th year of that evolution.

We focus on 3 compelling growth markets. I started the one that is probably the least mature, the most talked about and the most exciting: analytics. It's a space that is only just starting off; it's a space that is still being discovered by our clients and by people like us; it's a space that has attributes of annuity streams, sticky revenue streams, as well as discretionary spends; it's a space that's highly fragmented from a competitive landscape; it's a space that's highly fragmented from a buyer landscape; but it's a very exciting space because the value addition that you can build here is incredible.

The middle is what I would call classic Business Process Management, which is highly nondiscretionary in most of its aspects, highly sticky and very difficult to change once you deliver value. It's the space which is still highly underpenetrated, anywhere from 5% to 20% penetration, depending on which service line you pick; and it's a space where leaders are clearly emerging and segregating themselves from everyone else.

And then you have the IT space, which we believe still has runway and room for growth, but is clearly at a different maturity level as compared to BPM; has many more elements of being discretionary versus only nondiscretionary; has many more elements of being not that sticky and therefore, many more elements of a multi-vendor strategy.

Looked at another way, what's that size and what's that growth of the 3 segments that we participate in? Clearly, analytics, if we start at the bottom, a market that is hugely underpenetrated, much higher growth rate of 20% plus and potentially could become very big over a very long term. At the other end, IT, still a large market, much better penetrated and continued to grow but at a much lower growth rate. And Business Process Management, in the middle. The interesting thing for us is that our ability to leverage our growth in BPM to then go and say that we really can build insights because we understand the processes that we run and the data that flows through those processes, the data that create -- that gets created through those processes is much better than someone who just does analytics and doesn't understand the processes they run because they don't run it. On the other hand, it's fascinating to have conversations, where you say, "I can really run these processes better because I actually create insights for you in the same process." And then to be able to add value in changing the way that process runs because of the insights you create on analytics, so the interplay between process and analytics, the interplay in chosen areas between process and technology. And we'll talk about our view of that, which is a very biased view that it is chosen areas where that intersection plays very strongly, it doesn't play everywhere. And that's a difference between our point of view and many other people's point of view.

So we are in 3 compelling growth markets that total up to a very significant size that continue to be underpenetrated even in the most penetrated segment of that market and therefore, provides us huge runway for growth, and we participate in the right segments of that market.

So what are we doing to capture that growth? Investments is clearly the way to capture that growth. Four buckets of investments: operating excellence, which is a core of what we are, we've been investing in that for 15 years; our people, grow them, their careers, drive the lowest attrition rate in the industry in our space and continue to build both leaders and experts; but the more important one in the recent past has been the investments we've been doing in client-facing sales and marketing teams; and what we now call R&D in our business, which is Lean Six Sigma, Smart Enterprise Process, new product innovation, our global practice teams, our domain expert teams. Our objective, and we've talked about this the last couple of years, is to drive that investment in that sales and R&D up as we go through our journey, fund that through driving other G&A down so that we continue to maintain our total SG&A at a flat rate.

And the right-hand side is probably the one that really captures our imagination in our ability -- and makes us different in our ability to take that consultative side of the house, which is the domain experts, the client-facing teams, these people who have the strategic conversations; with the operating and the technology side of the house, who are the people who do things and improve things, these are the black belts and master black belts; with the analytical side of the house, who are the people who change things, they change based on data and insights being built. They are the insight builders or they change things based on their understanding of processes, and they redesign processes to produce better outcomes. Our ability to make these 3 work seamlessly with each other in a highly collaborative fashion, it's completely driven by culture. And again, it's one of those cultures that you cannot build overnight, and it's a culture that dramatically differentiates us in terms of the way this team works collaboratively, and our client sees it.

So let's pick one of those investment buckets that we've talked about for the last 1.5 years, our investment in sales and front-end, client-facing teams. We're about halfway through that journey of investment in that sales teams. We obviously went out and hired people who we thought were the best, real domain expertise in the industries they serve. We really laid out a very strong training and emersion plan that got them to understand what we deliver and the value we deliver to our clients and the ability to then package it and take it to strategic conversations with our clients. We have a very strong integration process for such very strong domain experts that come into the company. We know the metrics that we need to track, and we have a very scientific granular way, as you would expect us to have, in tracking those individual metrics to begin to understand the payoff on those sales investments. Based on the metrics that we see at these individual salespeople's level, we believe that the early signs of the return on their investment is positive.

The metrics that we track are pretty simple actually. How much new business are each of them getting in? At what speed are they getting it in? How much of that is converting into wins? Some of them take longer, some of them take much faster. In some streams of work, it's faster, for example, Smart Decision Services. In the BPM side of the house, it's much longer. Some people don't make it. So the early signs on their return on investment is very positive. We think that we are on the right track, and therefore, as we continue to bring these people and integrate, we will continue to make these investments in waves because their ability to digest those investment and make it successful is very important to continue down this investment path.

The 3 core markets we serve and the way we go to market: Business Process Management, Smart Decision Services and technology. The important thing to understand here is that every one of these interplays with the other, and it's all led by process and domain. The reason we can have a conversation on technology with someone in the capital market space or someone in the health care space or somebody in the commercial lending space or someone in the insurance space is because our conversation starts with understanding claims as a process, understanding mortgage process and origination as a process, understanding the mortgage industry. It doesn't start with, "I understand your platform" because understanding the platform only delivers so much value. The real value gets delivered in some of those areas when you combine process and domain with that technology. We believe that there are areas, such as the ones I just named, where that combination is lethal. We believe there are many, many, many other parts of the world and many other industries and many other services where the combination is reasonably meaningless. And it's great to have someone who understands process, it's perfectly important to have someone who understands technology, and the train may never meet. That's our view of the world.

So our investments in every one of these is in those areas where we can add direct value to our clients, and therefore, our investments in technology, and you'll hear [indiscernible] about this later, is where we believe that domain and process-led technology is going to be a winner and will therefore make us different.

We pride ourselves on driving value to our clients every year through a combination of Lean Six Sigma and Smart Enterprise Process that we take through enterprise services that we deliver, finance and accounting, procurement and those types of enterprise services, technology enterprise services and Smart Decision Services. And a number of these services cut across all industry verticals that we want to focus our energies on, through to a set of industry verticals that we've chosen to continue to drive investments, to continue to build domain expertise, and you see some of these here and actually hear some of these today: banking, financial services, insurance, capital markets, health care, manufacturing, pharmaceutical and life sciences, specifically chosen verticals that we take our process understanding, combined with our understanding of the domain and technology that I talked about and build value, both through process and through analytics.

And what we measure ourselves by and we measure the value that we deliver by is outcomes that we deliver for our clients. That's the only thing that matters in the world. Can we raise revenue for our clients? Can we reduce risks for our clients? Can we drive lower costs for our clients? Can we make that cost more variable? Can we drive working capital down? And on and on and on.

Four key elements of our growth, I think we talk about this often in our earnings calls. We lead with taking clients to a best-in-class journey. I talked about that. We invest in domain, we invest in R&D, we invest in adding to our capabilities. Some of that investment could be acquisitions of specific capabilities, but a lot of that investment is investment in capabilities through people, technology, platforms and tools. We provide insights for our clients, combining the data that we see and the process that we see. And finally, we keep evaluating expansion into new markets from a market perspective and new delivery centers from a delivery perspective, as well as new markets from our industry vertical perspective. I think we cover a significant portion of what we'd like to cover, so the chances are that we won't be adding a lot every day. Our idea would be that we cover a lot, and we'd like to get deeper at what we cover and create more differentiation in what we do.

At the core of this is the fact that we deliver great delights to our clients. As I said, Net Promoter Score, systematic robust way we measure this, it is at a historic high. In comparison to typical benchmarks around the way Net Promoter Score gets used, this is one of the top deciles of Net Promoter Scores that you could get to. What this does is really 2 -- 3 things: it makes our client relationships sticky; it allows us to penetrate that client more as they talk about us internally within the organization; and it makes our clients our biggest rotaries [ph] of getting new clients. Those are 3 things, and that's why it's so important for us as a business.

This is the one eye chart that I like because it's -- the more it gets filled up, the better. These are the awards and recognition that we get from people who understand the space, understand what people do in this space and understand the value they drive. And what is most interesting about that is that it cuts across all kinds of verticals that we serve: leader in banking and financial services; leader in health care; leader in capital markets; leader in finance and accounting; leader in analytics, that's what we like. And the other thing that you will notice is it talks specifically about innovation with client X, innovation with client Y.

Global deliveries that we've given. We now think that our global delivery capabilities really allows us to serve a global corporation for every part of the globe that they have. From our delivery footprint that we have, there's not one part of the world that we are not capable of serving with our current global delivery footprint.

The other interesting thing about this, because we do compete with people who have similar global delivery footprint, is that it's actually different. And it's different because it's more contemporary. We are fortunate to be born later, and therefore, we have had the opportunity to go into newer places that have deeper talent, that have talent that's probably going to last a longer time, and therefore, we believe that when we compete in the markets, and I think you'll hear about this particularly in Europe, where this plays out very strongly, our delivery footprint is more contemporary for our clients and therefore, more sustainable in the long term than the ones that we see in the competitive landscape.

We pride ourselves in the company of the brands that we serve. You recognize a number of brand names here. What you don't see here are a bunch of brand names that we serve because we can't name them because we don't have the permission to name them. But there are as many and more clients that we serve with great brand names that you don't see on this list.

GE, foundation of the way we started, still a significant portion of our overall relationship but a relationship that's getting more diversified in the company over time, now accounts for about 26% of our total revenue. A relationship that is again within the Net Promoter Score I talked about, the GE Net Promoter Score is also at a historic all-time high. The most interesting thing about GE, and this is classic of a deep relationship that's been there for 14-plus years, is that we are now able to do more innovative services. We're now able to think about the next service act, the next solution that we often together work on and then becomes available to a large number of our global clients once we hone it and refine it. And you see a number of those there. And a number of those are actually cutting-edge services that we actually don't see anywhere else from anyone else in our competitive landscape or in our client base.

So with that, I want to turn it over to the broader agenda, where I'm going to invite a set of my leaders to talk about their individual spaces. What you will hear about is overall transformation through Smart Enterprise Process, Smart Decision Services. You'll hear about the enterprise solutions that we talked about, finance and accounting, procurement, and how we add value there and why we're differentiated there; specifically, how we go after verticals, and we'll pick 2 and talk about them.

We'll talk about Europe, I think it's very topical. It's also great for us because it's one of our growth markets and has been a growth market for more than a couple of years. The other interesting thing about Europe that is worth mentioning is that it's a market where we invested in the front end 4 years back. And it's very clear that, that investment is paying off, apart from the fact that Europe itself is changing. The fact that, that investment is paying off, and I think that's a reflection of one of the reasons why we picked up that as a significant investment for the whole company.

We'll talk about capital markets and IT and the transformation that's happening there. And then finally, finish off with a financial overview and a summary and then really open it up to questions. So again thank you very much. And before I hand off, Bharani, do I have some time for questions?

Bharani Bobba


N. V. Tyagarajan

Okay. Yes, sir?

Question-and-Answer Session

Unknown Analyst

So you -- I mean, an impressive name of investors, but are you too diversified in your client base, are you too shotgun, would you be better off tightening up a little bit here, the focus? And maybe the follow-on question is do -- can you just stop getting new clients and just mind [ph] the ones you have to drive growth for the next several years?

N. V. Tyagarajan

Great question, and we debate aspects of that often. I don't think it's right to stop getting new clients, particularly if the new client you are getting is a client who could become one of your top 10 clients 7 years later. And some of these journeys, one has to think about as a 5-, 7-, 10-year journey. But we are constantly looking at 3 things: One, the industry verticals that we are focused on and which ones are we building real expertise; the horizontal enterprise services, and which ones do we have and continue to build real expertise. And if a client falls outside of that sweet spot, I think we're getting really more active in terms of, is this something we want to do and we want to build expertise in? So it's a dialogue, and therefore, there are times when we say, we don't have expertise, we don't want to do this, and we don't want to build it. We do not define the yes or no based on the original size of the relationship. Our view is and it's played out this way for many years, that it doesn't matter if you start small. Is the potential big? Is the conversation big? And is the vision big? And do you have a differentiated value proposition that will allow your client to actually take you to that vision? But it is something that's -- that's something that's a debate constantly that is had within the company. And the bigger we get, the more you will find us focusing even more, which is interesting but counterintuitive, but that's the way it'll be.

Unknown Analyst

Can you share with us just some of the metrics quantitatively around the sales force? I know that you put it up there, and you said that you're tracking them. But if you could share with us maybe one of the more important metrics, any goals you have around it and any color on the attrition rate on that on the new hire side [indiscernible].

N. V. Tyagarajan

So the attrition rate of new hires is great. I mean it's great, meaning it's not there. We do have churn, very deliberate churn in the sales team. As you would have in any good sales team, that is driven by metrics and that is driven by performance. Obviously, ours is a long-cycle business, so the churn is not quick. It's a long churn, but given the fact that we started this investment in the middle of 2011, some of that churn has happened and will continue to happen. And a proportion of that churn is what one would expect. Metrics are actually reasonably simple metrics. It's how many deals are you -- how many clients are you -- potential clients are you talking to? What stage are those? And how are they spread? Because you don't want someone after a certain time to be only talking to early-stage clients, and it remains there forever. What's the total value of the conversations you're having on a per-person basis? Now the important thing there to understand is that you could have 10 conversations around Smart Decision Services, and the total value could be a couple of million dollars. You could have one conversation with a BPM discussion that could go on for 2.5 to 3 years, and that could be $40 million annual contract value. So you obviously have to -- I mean, you've got to peel the onion and do that. But this a metric -- these are metrics that we track and have always tracked by person. It's tracked every month. It's discussed with individuals. Their compensation is linked to the business they bring in, pretty substantially, so to that extent, there is a huge motivation to make sure that they are successful. Therefore, churn is often not so much us telling them that it's not working. It's them realizing that it's not working.

Unknown Analyst

Is it safe to say that those metrics are going up 5%, 10%? I'm just trying to wrap some quantitative numbers around what you're seeing when those metrics do get reported. And have you seen any change over the last 6, 12 months?

N. V. Tyagarajan

When you take the aggregate pool, the metric goes down, right? Because you have a pool of x people that were all mature salespeople, and now you suddenly made that pool 1.5x, and you have a bunch of people who are new and who are starting up the learning curve. Therefore, the overall aggregate metric on a per-person-average basis actually goes down. What all of us are interested in is obviously, one, when does that metric on the aggregate goes to a equalized aggregate average number that is the same, and more importantly, the total, when does that go up? Our pipeline has been growing in the right directions, in the right places as we've done this investment. Part the Smart Decision Services growth is because of new sales teams. Of course, it's because of the market, but it's also because the sales team was there to capture it, because Smart Decision Services, you can capture faster versus BPM, which takes a longer cycle.

Unknown Analyst

Can you talk about the benefits business is seeing from Bain investment of last year?

N. V. Tyagarajan

I can, but it's too early, but I can. The investment closed in October. We had actually our first full-blown, face-to-face board meeting in the first quarter. We've had now, obviously, 4 new board members. I'm sure you've seen the announcement, et cetera. Our starting point was, we're going to get an investor who we will really work closely to further some of the causes and some of the strategic directions we have been taking. One, how do we get known more? How do we get even more differentiated? How do we understand even deeper capabilities that we can bring in? And the first thing I would say is when you have someone like Bain Capital go through a process and decide to invest the amount they invested in the company, it says something about the company. It says something about the leadership team. It says something about the client's feedback about the company. And to all of us, that was a reinforcement of the path we are on, and that's probably the most important thing in that question. Clearly, we're working with them on identifying the right opportunities to add new capabilities through M&A, et cetera. I think they bring deep capabilities in helping us understand that better, understand laying the roadmap for the strategic direction for the next 5 to 10 years, what areas do you focus on, how do you focus and how do you build more capabilities. The third would be leveraging their network, 20-plus years of deep DNA, deep network, global, very global and our ability to access that network in order to be able to get to the right conversations to talk about the design of the company of the future. That's already beginning to play out. We have teams that are defined. We have teams that are facing [ph] off each other. All that is great, so early, very early days but very good.

Unknown Analyst

So just going back to the first question, if you think about GE as a customer that started 5, 6 years ago or earlier than that actually...

N. V. Tyagarajan

14 years ago.

Unknown Analyst

14 years ago, sorry. And if their penetration rate in their business is some number. I don't want to guess, right? The rest of your client base, where do you think that penetration rate is because the great piece about your business is that you not only win one deal, but you win multiple deals over and over again. So I'm just trying to get a sense of -- on the existing base if not -- if you didn't get any new customers next year.

N. V. Tyagarajan

Yes. So it's a great question, and that's the way we think about our business. It's taken -- after 14 years, we continue to grow granted almost flat, very low-single-digit growth, but we continue to do that, for example, in 2012 with the 3% growth that we had. And we do that by finding new services that are very different from what we've done in the past. What it, therefore, says is that the runway with a lot of our global clients, who are equally eminent corporations in their individual industry verticals, is huge. And that's why when we say runway is huge, it's often runway with our existing clients apart from runway with new clients. If I were to pick a number, probably 30%, 1 in 3 is the penetration that we would have versus what one would call where it could get to. The reality is everyone will not get there. Everyone will not take same time -- take the same time to get there. Somebody will get there faster, somebody will get there in starts and stops, and we see that across our portfolio. But broadly in the portfolio, I would say 1 out of 3.

Unknown Analyst

Talked about areas where you look to build expertise, so can you walk through your thought process on when you -- how you select the next area, like selecting mortgage processing? So what do you look for? And once you identify it, how do you go about building expertise in an area where you don't have for instance?

N. V. Tyagarajan

So I'm actually going to defer answering that question if you may because of 2 reasons: One, I think, as you listen to the enterprise services and how we are building capabilities there and the industry verticals and how we are building capabilities there, I'd like to come back to that answer once that is done at the end. If I don't, just remind me. Thanks. Yes?

Unknown Analyst

I wanted to get back to the sales for a second. Can you get -- tell us how many sales teams or individuals you added in '12? What was the base? How many you plan to add in '13 and how many in '14?

N. V. Tyagarajan

The -- rather than the numbers, what I'd like to say is that we increased our sales force by how much? 55%?

Unknown Executive


N. V. Tyagarajan

45% in 2012. Our sales teams are organized around 3 vectors: industry verticals, which are classic enterprise-level, consultative salespeople who talk about everything that we do in the context of the journey their clients are on and take them on that journey. Then, we have salespeople who are focused on specific service lines that are very different and unique and you need specific capabilities. More importantly, the buyer is often very different, IT, some of our analytics' capabilities, et cetera, and we have sales teams that are organized in that way. But they, too, are aligned within the vertical because they talk to the same customer. And the third is geographic. Again, we'll depict Europe. We built our sales team in Europe -- as I said, started building it out actually about 4 years back. Those teams are aligned not just by industry verticals and horizontal capabilities but also often by geographic country given the fact that you need a specific type of salespeople to deal with German or French corporations versus someone who's dealing with the U.K. or Benelux countries. In the context of, therefore, building out the sales team, it's picking each of these areas, figuring out which ones of them you want to invest first, which one's second, et cetera. And the third element of that would be people who are focused on getting in new clients and people who are focused on growing existing relationships. I would say that a lot of our focus going into 2013 is clearly going to be much more than it has been in 2012 in adding people focusing on existing client relationships to grow them, having spent the initial part of 2012 focusing on building out the teams that are getting in new relationships in the industry verticals. The journey that I talked about, which is halfway complete, will not get completed in 2013. The way we think about, it'll probably take easily well into 2014 before it gets completed. We talked about taking the cost of sales and marketing to revenue to 6%. We are about halfway through that journey. It'll take us another 1.5 years at least to finish that journey. Last question and then we should probably call Shan Ghosh, yes [ph]?

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Dave Koning at Baird. And I guess, my question just when we look back in, I think, 18 months ago or so in your last Analyst Day and you talked about organic growth kind of being in the 16% to 20% range, and it's been very sustainable, very strong 12%, 13%. I'm just wondering if you can kind of describe a little bit of the delta between kind of your expectations then and kind of now and kind of what you look at in the future.

N. V. Tyagarajan

Yes, yes. I don't know if we said organic growth, 16% to 20%, but you're right. I mean, it's less than what we thought it would be when we were here in middle of '11. I'd start by saying that, clearly, the macro started changing, in fact, soon after June of 2011, which is when we had our Investor Day and the biggest piece of the macro that started changing was Europe. And what it did was less about Europe. What it did was what it did to everything else in terms of the way people thought about the short-cycle nature of their -- of the decisions they were taking, the investment cycles of their decisions being less investing than they should be, cash holding becoming the order of the day in many corporations. So I would say the view of the world in June changed as we got through, particularly into the third and fourth quarter of 2011. And while I think we are in a better place now, clearly, we're are still not coming -- there are still things that come up, so the volatility is still real. The second thing that did change was in some industries, there have been some pretty dramatic secular restructuring and changes that have been happening, and the one that I would pick out is capital markets where in there investment banking and capital markets space, without naming names here, almost every big name has announced a big restructuring exercise. And while companies like us should be great partners in a restructuring exercise, the reality is that there's a time lag when actually the initial slug of restructuring is just taking things out, shutting businesses down, shutting product lines down, exiting businesses, exiting countries. And we don't participate there. When that phase is done is when typically we would end up participating saying, "Now that I've finished that, now let's figure out a way to drive efficiency in what is left." We think, for example, in the capital markets space, given the dialogues we are having, we are beginning that phase, which is why we've been talking about -- and you'll see a couple of examples of large business process conversations that have been going on for quite some time, but really, nothing has been happening. Because people have been caught up in, I need to get something done now in terms of restructuring. So I would call those 2 out as -- and interesting that reasonably both macro as 2 big things that have -- are probably the ones that would, one would say -- so therefore -- and we'll talk about this later in the financial portion of the deck. We do think that in the medium term, it's kind of still the same trajectory, but it's not going to happen immediately.

Okay, thank you, and I'd like to now invite Shantanu and -- okay, Shantanu.

Shantanu Ghosh

Good morning. My name is Shantanu Ghosh. I lead our enterprise practices, which is the service lines, which cuts across all verticals like finance and accounting, Source to Pay, supply chain. I also lead our solutions, Smart Enterprise Process, transitions and quality organization, so part of that R&D cost bucket that Tiger talks about, and like any investment, responsible for producing some returns, I suspect, on those investments. What I wanted to talk to you about is really our approach to transformation. Now I suspect that, that's not a word, which is new to you. Everyone in our industry has talked about that. So my objective here is to try and focus on what makes us a little different, how do we approach it versus someone else and why do we think that, that really creates a sustainable differentiation. So it's really based on 4 planks on the transformation: One is the approach; Second is framework; Third is culture; and fourth, are capabilities. And what I wanted to do is to just take you through those and then give you a few examples and then open it up for questions and answers.

So the first thing of about approach is we are a firm believer that the clients that we serve, they run real businesses. There have value chains, which have to work for them, for their business to be successful. And all value chains is really nothing but a set of processes. So whether you think of a mortgage process or whether you think of a mortgage company or a manufacturing company, where it's an order-to-cash process, and therefore, the real transformation has to start by saying what should that process look like and what should the outcome of those processes are. The transformation is not about whether you implement the latest technology, whether or not you have the best advice on those processes. It's about what the outcomes finally turn out to be, which is really what you see at the bottom, which is cash flow and cost, a revenue increase and higher controllership and compliance. So we approach transformation from that perspective of saying, how should a good process look like end to end, regardless of which industry or which business you are in. So if you're in the claims process [ph] [indiscernible] you're an insurance company, how should your claims management process look like? If you're a mortgage company, how should that look like? If you're a manufacturing company, what should your order-to-cash process look like? And that is the framework that we apply, and we'll talk a little bit about the framework, which includes process design benchmarking and a point of view about driving outcomes of that process. Now once you do that, then you obviously have to figure out what the technology you will use to get to that outcome and what data and insights you can generate from running that process, which helps you create the differentiation, and that's really what this Smart Decision Services part of our portfolio focuses on. So that's really the approach, which is process centric, using analytics, using technology to get to the process outcome.

So let's talk about the framework. So we created the Smart Enterprise Process framework a few years back, and essentially, the idea was that take one of those value chains across any business segment and really start on the top saying what is that value chain supposed to deliver. So if you are an order-to-cash process, it's supposed to deliver working capital. It's supposed to deliver you low rates of deduction. It's supposed to deliver you low rates of bad debt and stuff like that. And then you start building that process down to its granular level. So just taking that order-to-cash example, you have to find out how you get a good order in, how do you get an order first time right. Then, you have to figure out how you get a shipment first time right. Then, you have to figure out how to get a billing plus [ph] time right. Then, you have to get -- figure out how do you get a collection first time right, and then you have to figure out how to get the accounting model of that right, so that you are not having mismatched accounts from your customers and debtors. So at that very heart of that process is starting from the end objective and then going right down at the granular-most level, which is what you see on the left-hand side, which is assessing performance at a granular level.

Now an absolute performance obviously means something but not too much. You have to assess that performance comparatively, both based on internal, as well as external benchmarks, both based on that particular industry, as well as cross-industry benchmarks and in terms of what it could entitle maybe. And that's really the whole place where benchmarking on our ability to look at those processes across millions and millions of transactions, hundreds of millions of transactions that we do for our different customers, comes into play.

The third is, it's okay to say that I have been through working capital, but there's no one action, which improves working capital. There are 500 different things that has to happen at the granular level be it in order, be it in dispatch, be it in shipment, be it in billing, be it in collections. That finally gets that working capital improved. And I think the trick here lies on understanding how do you move the needle on those 500 elements, which 50 of those are more important, what's the leverage of each one of them have to that final working capital view, which you then need to do to make that change happen in working capital. And I think that's the sauce which is the most toughest to get. The conceptual bits about working capital is not tough to get the conceptual piece about saying I need to get my orders right. It's not tough to get. It's about linking that chain is what makes the difference between being successful to drive that outcome versus not being successful or being partially successful.

And last but not the least is that transformation is not magic. It doesn't happen overnight. People and corporations don't change their processes and their performance overnight. It is about a sustainable roadmap. It's about prioritization. Everyone has investment realities. Everyone has change management realities. Everyone has leadership bandwidth realities. And therefore, the question is how do you prioritize between the different elements and the levers that you have to put to get to your transformation and get to the end outcome and what is the pragmatic roadmap that you create. And that's really the framework that we have been consistently using for the past few years.

Before that, we used it without having created an overarching framework, and now I think we're in a much better place having created that framework and having created organizations which own that framework.

Now a framework is only as good as what you put into it and how you continuously evolve. and I think this is possibly the most important part of our differentiation, which is the culture and the ecosystem that we have created to be continuously ahead of that curve. Tiger mentioned about the culture, and what I wanted to do is to give you a little bit more detail and color on what that ecosystem looks like. So one is we run, as I said, millions of transactions, thousands of processes, and we get a lot of insight and data from that. We understand what it is. But end of the day, we're not only 1% of what could be potentially the total number of opportunities that we could go out and do. So there's 99% of forces outside and people running those from which we can learn, and that's really the external virtual expertise ecosystem. So that's become a real big drive for us over the past few years where for almost any client engagement, any solution, any transformation idea that we are taking to different clients, we tend to engage a bunch of virtual experts. These are people who are in those industries. They are people who run those processes. They could be consultants. They could be actual operating managers, leaders who are able to then provide us with additional insights and views apart from what we have internally.

Now getting knowledge is one thing and creating an ecosystem, which stores, shares and encourages use of that knowledge across 60,000 people because we deal with customers at each of those touch points. Ours is a game where 60,000 people touch customers. Now how do you build that ecosystem through a knowledge-sharing model and drive that as the knowledge-sharing culture is possibly one of the toughest things to do and possibly one of the most sustainable and one thing the [ph] differentiation that you can create. And I think we have made some pretty giant leaps in that area over the last few years. Obviously, it is possibly at 25%, 30% of where it could be, and by the time we get there, obviously, the verticals [ph] will change because this is an ever-changing and an ever-evolving area. But we feel good about what we've been able to achieve. We feel good about the culture that we have created, and we believe that, that's the biggest piece of differentiation that is there in terms of what can be copied and what can be replicated.

When we were born 14 years back, we were born with 1 big advantage, which was the fact that we got Lean Six Sigma drilled into our DNA from the very outset because we were born at the high noon of Lean Six Sigma in G. So that DNA continues, not by accident but because we continuously reinforce on it. Our promotion policies, our compensation policies, our career management models, all revolve around people focusing on being good in Lean Six Sigma, being able to use it day on day for customer processes and being able to drive value out of it. So that's the Lean Six Sigma DNA.

And then we obviously now, as where we were [ph], we have multiple parts of our organization, which work for customers. We have the practice groups, which is, for example, my team, which focus on developing capabilities, competencies and insights across processes. We have the reengineering teams. We have the operating teams. We have the Lean Six Sigma group, and this all needs to feed off each other. And that feeding off each other is most critical because otherwise, this whole model fails. And I think this whole virtual ecosystem is getting strengthened every day. There's a leadership commitment to it. It's something which we are passionate about. We focus on it. It's something, which we ask of our leaders, and therefore, we are creating a pretty significant competitive advantage in the way we run it.

Now let's talk about capabilities. I mean, it's good to have a framework. It's great to have an ecosystem. But you need to have to back it up with some real hard capabilities, right?

Now, obviously, on the process side, depending on what type of industry, what type of process you do, we really do complex stuff. And why is that relevant? Because when you try and drive transformation, you try and drive it across a value chain. A value chain has transactional pieces and has complex pieces. In a traditional BPM kind of model, you end up only focusing on transactional pieces. We have been lucky that in most of our areas, we go right up the value chain in what we actually execute and deliver. And therefore, if we are, for example, working on transforming a closing and reporting process for a customer, it's not something which is alien to us because we close and we report books for our global Fortune 500 customers. So we understand how the process actually gets executed not in theory but in practice.

The second part is technology. We are a big proponent of smart technology and the right technology and the highest return on investment technology implementations. So we obviously work on standardizing, optimizing ERPs, but we also work acknowledging the realities of investment of our customers on a bunch of bolt-on technologies and platforms, many of which progressively we are taking to the cloud and are selling as or implementing as Software-as-a-Service. And it's a bunch between owned versus partnered, and it's very, very deliberate because we don't want -- we -- what we want is to take the best of the breed to the customers. What we don't want is to become an average product developer or technology product developer across the whole chain. So we will develop our products. We have done acquisitions of technology platforms, which are very niche, which have a clear competitive advantage, which has a white space in the market. But then there are a bunch of other stuff where there are very good players in the market and the value comes from partnering with them and taking it to the customer in the right way and implementing and configuring it the right way, and that's really the approach on technology.

Reengineering. We started reengineering in terms of taking it to the customers and saying, how do we better your upstream and downstream processes? So we were running a part of the process, and that's how the reengineering -- the genesis of reengineering happened. Where it has morphed into now is that it's getting far more involved in the design of the end state process and design of the operating models and then, of course, being part of delivering some of the benefits and some of the improvements in some parts of that process.

And as you can see from some of the stats out there, our ability to drive value -- and I think there's only one stat which makes sense, which is really the customer reaction, and you can see that on the 90% overall satisfaction with almost 100% repeats. So every customer, we have done a reengineering, we have gone back and done another one. And that's an incredible stat if you think of what it takes to make that happen.

And last one is the whole analytic capability. We have one of the largest groups of what we call business analysts, very different shaded [ph] skill sets, very high skill sets, both on the numerical as well as business side, and every data and every process that we run through, these people are able to feed back the insights back into our teams to, therefore, take it back to the customers. So that's really on the capability side.

So what it allows us to do -- and this is an eye chart and I apologize for it, but I'd just point what I'm trying -- the message I'm trying to get across. What it allows us to do is, at a very granular level, have a clear view on what's the performance of an enterprise process and what is the gap to best in class and what could be our roadmap. So I'll show the roadmap later. But this is very simple. I mean, clearly [ph], this is a procure-to-pay process, some of the process which many of us would really not want to bother about.

This is how to get a purchase order to a vendor and get a material and pay a bill.

So if you see on the top side, there are a bunch of metrics that you typically manage now, for it is intuitive, obviously, you will do that. And then what you see is on the bottom side, a bunch of metrics from what's best in class. This is straight out of our customer presentation. So they have North America, Europe, and APAC regions, how do this sort of stack up. And as you can -- I mean, this is -- I just picked up one metric, First Basel. First Basel is how do you get an invoice through processing without having to go multiple loops on it? Why does it matter? It matters because it increases productivity, it increases the ability to pay on time, it increases the ability to get discounts. So it seems to be an innocuous metric. It actually impacts bottom line straight, if you do it right versus you don't do it right.

And that's the kind of granularity that we are able to then take to our clients. Now what then we do is once that granularity is done, then how do you create a roadmap? So this is an insurance client. And the game out here really is to create a scalable, flexible platform and create an operating model, where, really, our customer is just a front-end insurance company, which is doing the underwriting and the origination, and everything else on the back end, including technology, is being done by us. So we are the quasi-operating company of the insurance -- of this customer. And the customer is really the front-end, the front office, of the whole insurance business.

Now as you can see on this roadmap, it starts by doing basic traditional outsourcing activities. You've got a bunch of processes, which we can take over, get some cost leverages out, start the process. Then it goes into process standardization and then it finally goes into creating a financial operating model and a capability, which is sustainable and which is scalable. Okay.

So what I'd like to do now is to give you 3 examples, and start with a very simple example, then give a very different -- from a different industry and then close out with possibly a little more complex example.

So the first example. Again, very simple, procure-to-pay process, but I think what I wanted to -- the only reason we wanted to put this up is not because this process is complicated or the interventions are complicated. But how simple interventions, how thinking end-to-end can generate significant benefits. Now if you look at what we did out here, it's basically standardizing vendor terms and creating a different process flow of how you will categorize, prioritize different sort of vendors and pay them at different times, offer them early payments to get disproportional discounts.

And you can see -- now, if you think what do you need to do that, this is not about payment process modification, this is actually about sourcing modification, procurement process modification and then payment process modification or transformation. And you can see some of the results of that, this is only a small division of a big, large company. And in that small division, you get $23 million of working capital and $9 million of discounts captured.

Very different example, and this is something which I think you as individuals could possibly relate to. So this is a global pharma company. The commercial operations group spend a lot of time, senior leaders, in research analysis. And the whole idea here was, how can you create a process and an operating model, by which you can get research and analysis on tap, thereby releasing capacity of the senior leaders and by creating competency for types of research and types of analysis. So that both quality improves, as well as capacity gets created in the commercial operating group for them to be better business partners and spend the time there.

So we created a completely pay-by-the-drink transaction price list [ph], competency-based model. So different types of research, different types of analysis. There's different groups. Part of the group is fixed, part of the group is floating. So you're able to create a completely scalable capitalized [ph] model for making that happen.

Last example, healthcare. Now what you see on the left-hand side are some of the common metrics that is there in the healthcare payer industry, okay? So 3% to 10% healthcare spending lost in fraud and abuse, 20% claims have some error and potential leakage, in this particular client case, of about $6 million a day. And as you can see, in this particular transformation, it's a process reengineering, it's technology implementation. It's about changing policies. It's about new operating models. And then you see the results of it, which are quite astounding in terms of the amounts and the numbers. And I think Tiger showed a chart earlier, which talked about the $3.1 billion of business impact and $540 million or $530 million of P&L impact, which we have delivered. This is how that number gets made up. So this is that $160 million out of that $3.1 billion. So obviously, there's a bunch of other similar cases in this thing [ph].

So with that, let me open it up for questions.

Unknown Analyst

Could you just speak to how you retain some of your domain and vertical expertise in the context of the attrition, and just having some of the experts walk out the door every so often, et cetera?

Shantanu Ghosh

Yes. So the first thing is, when you think of the vertical and domain experts' attrition, they are a completely different number than what you associate with the rest of the average of the company. For example, in my group, last year, the attrition is 6%, as opposed to what you'd think of averages of somewhere in the mid -- high-teens or early 20s. Okay?

And the reason why the attrition is low is really because of 3 things: One is these people really get to do interesting stuff. They are at the front end, working with customers. They're making big impacts, they're driving a lot of change. Two is, I think that culture is very important because these are people who tried in that culture of knowledge management and culture of empowerment and culture of doing something which is bigger and better. And I think, therefore, holding them back is not about the compensation that you pay them. Holding them back is about giving them that sort of kick in the morning that they want to go up and sort of be part of a virtuous cycle kind of model. And it sounds fuzzy, but it is really what holds them because compensation-wise you can always sort bid and take them out.

The third aspect of this is that because of the inter linkages with the rest of the group and I think this is an important piece, and it differentiates us from the competition, that we don't create them as separate islands and ivory tower researchers and consultants and experts. They are closely involved with the operating group, they are closely involved with the region and [ph] groups, they're closely involved with the transition groups, they are actually part of the larger ecosystem. So they get that energy coming from being part of a full-fledged business model as opposed to being just specialists. So while the focus on that -- and that's what gives them the job satisfaction, they work on a much larger ecosystem, which makes them stay.

Shantanu Ghosh

Okay. Let's move on to the next section, which is on enterprise services. So what I'd like to do is I'd like to focus on just 2 enterprise services, I'll spend a little more time on our flagship service, which is our finance and accounting service. I'll spend a little less time on our sourcing procurement services, but happy to take questions and go deep into any one of them.

So finance and accounting. We enjoy market leadership positions and higher [ph] positions in finance and accounting. This is our single largest individual service line. Both from external analysts' perspective, also from whatever we understand internally. If you think of market shares, we are right there at the top.

We have huge diversity of what we do. And I think there are 2 things that sort of differentiate us in this service line: Firstly, we obviously do a lot of transaction processing. So you can see some of those numbers, $150 billion of payables, $120 billion of receivables management, 130-odd customers, we must be closing 5,000 legal entreaty [ph] books and stuff like that. But I think what differentiates us is the proportion of complex work that we do. So more than 1/3 of our resources in finance and accounting focus on high-end finance and accounting. And in the industry lingo, high-end finance accounting means working on general ledger upwards. So payables, receivables, basic transaction processes is considered to be the transactional sectional part of finance and accounting and then the rest of it is contextual. So more than 1/3. Now that's quite an outstanding ratio because it almost mirrors what an actual corporation has. And it's completely different from what most other BPM service provider corporations would typically have.

The second thing is -- and I think it came in the discussion as to whether new logos are important versus old logos. We have grown in our finance and accounting remit with almost every customer. So if you look at the history of our customers, we would have gone 2x, 3x, 4x, 5x, depending on the scale and the timeline with almost every customer in finance and accounting. So we continue to go up the chain, we continue to move up, we continue to cover more geographies and stuff like that. But the other thing is even in new logos, our win rates in logos endues [ph] that we participate is completely disproportionate to our -- where we started from. So we -- our win rates are very, very high, are very healthy, and we continue to win far more than our share of business given the number of participants in this market.

The good news for us is that while finance and accounting has been in the BPM space for a long time, both from a projection perspective by market analysts and based on what we see, we tend to exhibit them. There seems to be huge amount of runway and headroom left for us to grow. So the market is expected to grow, depending on the type of analysis and the type of segments they are looking at, anywhere between low-teens to high-teens, right? And we tend to agree with that statement because that's what we see reflected in our pipeline. That's what we see reflected in our terms of conversions and the shear amount of interest we see in the market.

The more important thing is on the right-hand side. So while finance and accounting BPM has been there for a long time, it is still relatively under penetrated, okay? And what you see out on the right-hand side is the very dark blue at the bottom is what's managed in-house, which means that it hasn't even gone to shared services or capital shared services. The light blue is where there at least is some shared service and the green is currently outsourced to service provider. And as you can see, in different areas, the transactional accounting, management reporting, financial planning analysis, I mean, even in transactional accounting area, the penetration is 20%, 25%, of shared service plus outsourced. And, therefore, there is huge headroom even in that area, which has been around for now 15 years. And obviously, as you go up the value chain, the penetration is even lower. And if you link that back to the comment I made on the previous page of our differentiator being very strong on that side of the value chain, it actually all goes very well for us in terms of how we think about headroom.

Now this is a complicated chart. So the way to read this is really market size and this is a little bit of a dated chart because I haven't got updated industry-wide numbers from the market. Relative -- this is the market size on SEV [ph], the world market size is about $4.5 billion, $5 billion and then estimated growth rate for different industries. So if you look at the industries on the right, top, BFSI, manufacturing, CPG, retail, they say [ph] outsourcing in those are large and they are also going to grow up very healthy.

Now if you look at our share there, the yellow is our share, the black is others. So fortunately, black is not one single competition. So you can make out in the 3 biggest market and then you add healthcare, pharma, which is the other fast growing but relatively smaller market, we have a lion's share of the market and it's a big market and it's growing. So as we compete with new customers, and that goes back to a little bit of why we feel good about our -- not just our historic win rates but at what we think we can do in the market, this positions us very well, because this is where the deals are going to come from, this is where the large deals are going to happen, and we have a real right to play and right to win in that market, provided, of course, we don't get lazy and we don't get complacent, okay?

And the last one is, it goes back to this whole theme of adding value. Finance and accounting being our lead service lines, being one of our more mature service lines, I think the question is no longer of whether we can do the job and we can provide cost leverage and we can provide some continuous improvement. I think most of our customers and our value proposition to the market is about whether we can make significant change in their business process outcomes. And what you see out here is, again, some very high level, we didn't want to spend a huge amount of time going into each of the details, but just 4 examples, working on order to cash in the first one, working on -- in that pharma, it's an interesting one. It is just about good controllership, and good hygiene and the change of process because you are basically losing money on tax, which you shouldn't be losing not through tax engineering but because of having a bad process. And you can get so much money back. And this is just a 2-country example in that second one. Third one, as you know, in consumer goods, deduction when you sell to your customers is one of the biggest profit leakage drivers. And therefore, to the extent you can recover deductions, you actually hit the bottom line straight. It changes the profit profile of consumer good companies who operate on thin margins at the distribution level. So 12% increase in recoveries, 9% impact. And again, when you see some of the impacts, you have to think of this impact relevant to particular business unit, particular geography, not extrapolated to the entire company because that's how many of these projects and initiatives get driven.

And the last one is a classic stuff, which I think all of you focus on when you look at customers, how quickly are they closing, what's the quality of their close, how quickly do they get results, how fast can they give projections and 50% reduction in close cycle time from 3 to -- 6 to 3 days. And this is global. So this close cycle time is not at a country or a unit level but this is at a global closure cycle time level.

With that, I'm going to shift into sourcing procurement. Sourcing and procurement is hugely exciting. It's, I think, at a stage of where finance and accounting was many years back. It's at the inflection point at this stage. We believe that is a market which is going to grow very fast. We feel very excited about this market. It's a market which allows you to really use expertise to create value. And therefore, the value proposition on this market is driving real dollars as opposed to trying to figure out whether it's cost arbitrates or labor [ph] arbitrates. And really, it stretches from the entire sourcing space of how you look at your spends. And in this particular area, we are focusing on indirect spends. How do you look at your spends, how do you think about it, you managing your different categories of indirect and then taking it right through the procurement process to the payables process. And we work across that value chain with our customers. So again, we managed $35 billion of spends. We obviously process a bunch of transactions and that's only relevant because of 2 things: One, it gives us real insights at a transactional level; and two, it allows us to look at best practices across different companies, and this allows us to, therefore, understand and create real pragmatic value creation opportunities.

And we use a bunch of platforms on this. Now one of the key things about sourcing procurement is that there are many options of driving value with customers and really, there are 3 levers, right? You have to get the process right but in sourcing procurement, the policies matter a huge amount. So how you think about your vendor models, what do you think about concentration, what do you think about PO, non-PO policies, how do you think about what kind of sourcing strategy you'll use, are a believer in the auction or do you believe on opportunistic buying kind of models. Long-term contracts versus non. And they obviously differ across different categories. Add different values and that's really what drives value in this.

The second is that, obviously, all companies have ERPs but the more diversified, the larger, the more global the company, there are lots of middleware requirement in terms of how you create visibility and how you create workbenches and workflows. And therefore, an opportunity partner with best-in-class and best and good providers and use some of our own technologies to do that and drive that. And again, what you see on the bottom is over the years, I think, we have made some headwind on this particular area. We believe it's a strong offering for us and therefore, we continue to be very bullish about this market.

And therefore, if you really look at what that translates in a simple case study here, this is a global pharma major, very classic situation, decentralized sourcing, lots of different units buying their own stuff, no real vendor consolidation, lack of standardization of policies, lack of real strategy about how to grow and drive some of the categories, how you source those. And then the numbers and the benefits of when you can pull all of that together is quite significant. In this case, 12% deflation on the spend that we managed out here. Okay. That finishes enterprise solutions. Go ahead, please.

Unknown Analyst

I actually had a question on the prior segment, I forgot to ask you. So can you just talk about the different clients that are using SEP in terms of is there relative maturity in terms of outsourcing or your portfolio? And also, can you talk about kind of SEP as its -- and whether or not it's contributed to, these smaller engagements have contributed to you kind of taking over larger processes and making larger inroads into new clients through that offering?

Sandeep Sahai

Sure. So the first question on -- is there a clear pattern of who is using SEP in terms of maturity? I would actually think that the pattern is not on maturity of outsourcing, but that the pattern is more relevant in terms of the transformation agenda that the company is signing up for. So if the company has got targets of generating certain business outcomes, for so example, that I need to improve my cash by 20%, okay? Or I need to get my overall cost of this particular value chain down by 30%. That's when SEP gets used most because then, you have to start looking at end-to-end and you have to drive a broader set of engagement and a broader set of transformation agenda. It's got less to do with how much I want to outsource and how much I want to just -- or what I have already outsourced. It's got more to do with the transformation agenda.

Now clearly, people who are working deeply with us get the exposure to that tool kit, get the exposure to what value that can be added on that more. And therefore, the propensity for those person, those clients sort of jump onto the bandwagon is higher. But it's driven by a fundamental desire to change some of the business outcomes, as opposed to an outsourcing maturity model.

Unknown Analyst

But if you're already embedded in that organization, aren't you already looking at all that stuff and improving those processes to begin with?

Shantanu Ghosh

You are. But for example, many of your engagements start by saying, do this particular process for me, okay, which is only a subpart of the whole value chain. And you have to earn the right to then say, I can do this well. Now you believe that I have capabilities. Now use my wider capabilities to then work on the value chain. This is a business of trust. First, you have to get credibility, you have to get trust on what is the initial proposal before you go and change the world for them.

So therefore, in some of our recent engagements, and therefore, the insurance example, just to take an example, which I showed, now that we have established that credibility, we have established that track record, some of the recent engagement says, come and let's shape and design it from the outset in that manner. So there's a bunch of recent engagements where SEP's right upfront. But in terms of penetration to existing clients, it could have happened at a different stage.

I think -- sorry, you had a second question on whether it's allowing us to expand. The answer is absolutely yes. And therefore, it has become a multi-lever engagement as opposed to an engagement of just execution or outsourcing. Part of the reason why you see so much of increase in the SDS or the reengineering and stuff like that is because it's allowing us to even play at [ph] things that we don't execute for them to go and work with our clients on those areas. So the answer is absolutely yes.

Unknown Analyst

On the F&A side, it looks like the logos ticked up in 2012. What caused those to pick up? What's the conversion rate of those new logos and do you expect that trend to continue?

Shantanu Ghosh

Yes, so the logos picked up is a little bit of -- reflect of what came into the market. I think our conversion rates over the last 2 years has been more or less similar and as I said, I don't -- I mean, the specific number is not relevant but if you think of the number of big players in the market, we get far more than our share in terms of conversion. And that's why we're gaining market share. I mean, when we came into the market in 2005, we were 2% to 3% market share. We are today at 16%, 17% of SEV [ph]. So between 3 big companies, we take half the market. And we obviously bring much more than 16%, 17% because that's the only way you get market share up.

So the logo picking up on 2012 had no specific reason other than the fact that we just had more opportunities and we kept our conversion rates up.

Unknown Analyst

Growth rate in that business accelerating and is it faster than a consolidated or aggregate growth rate of the business?

Shantanu Ghosh

So it is such a large part of the business that it will more or less track at the growth rate of the overall business. And the base is also becoming increasingly big. So I would think of the F&A growth as being equal or just about leading the average growth that we do in the market.

Unknown Analyst

For the business?

Shantanu Ghosh


Unknown Analyst

[indiscernible] bigger in 2012 than they were in 2011 or 2010?

Shantanu Ghosh

So the deal size average from an initial contract perspective has not changed dramatically, okay? And in fact, you could argue that some of them have become a little more modular. But the thing is that there's a difference between initial contract deal size versus how soon it becomes a set of bigger discussions and bigger engagements. And I think what has changed over the last 3 years is that apart from the initial contract and deal size, the ability to get engaged in a larger scheme of things with many of those customers pretty quickly has become much more [indiscernible].

Unknown Analyst

When looking at the different case studies, getting a better understanding of what the ROI is to the client and kind of how that's trended over time. I guess, you probably developed better processes, which maybe you can develop -- deliver better ROI declines but maybe some of the low-hanging fruit has been taken so maybe that's been an offset, just so I'm understanding, how has that ROI trended over time and what, if you can give and just talk [ph].

Shantanu Ghosh

Actually, the ROI is going through the roof over time. And the reason is because the value addition is progressively moving from incremental cost leverage to actually business outcomes. So if you think of getting -- just take that payment example, coverage is a simple example, $9 million extra on discount. Okay, now to generate $9 million of cost saving on transactional efficiency would take 5 years on a base of that kind of a process, right? But $9 million on discount on the year is just -- ROI is off the roof. I mean, it will be 1,000%, I mean, as in 3-, 4-digit percentages.

So that -- actually, most of these from an ROI perspective, and that's why we focus on the smart technology applications because we don't link it to a $10 million ERP upgrade necessarily. The ROIs are very, very high, very high. In fact, the biggest challenge is not the ROI, the bigger challenge is change management at the customer side.

Unknown Analyst

And if the ROIs are increasing over time, does that change what -- the ability is for you to price your clients are since, obviously, you feel like if the ROIs are increasing, then Genpact's ability to increase prices over time grows?

Shantanu Ghosh

Yes, absolutely. So a lot of our engagements, when we drive some of these processes, are based on contingency, are based on gain share, are based on this thing. Like every business, we wish we could charge more and we could charge faster and accelerated on that. I suspect we are lagging behind on charging than delivering value a little bit.

Unknown Analyst

I'm curious of the role of the advisor. You mentioned in the F&A world, how much came into market last year was that? How much of Genpact's work -- do you actually go out and, new logo-wise, and get without the advisor getting involved? And when does the advisor drop off? I mean, do you -- when you get on to the second and third iteration, is the advisor gone at that point?

Shantanu Ghosh

No. I mean -- I think there are 3 types of deals which typically operate: One is, where the advisor is there from almost the definition phase to really contract end. So they don't drop off anywhere in between. Then there's a second one, where they come in to ensure that the core analysis of the proposal is getting apples-to-apples kind of comparison and stuff like that. So it's more about need base to where the customer sort of brings them in and in some cases, we bring them in if we are having a conversation and if the customer is not as matured as -- or not experienced in outsourcing and stuff like that because it actually helps drive better process and covenants.

And the other question, which you said, is where do we generate deals. Now that's been a focus for the last couple of years, where we are sort of going out and creating lead generation opportunities and driving a bunch of those discussions.

Conversion from lead generation, obviously, is faster in Smart Decision Services because creating a BPM -- a BPM opportunity needs to create a change platform. It's not just about an ROI or a cost model. Customers have to buy into the change process of saying, I'm going to restructure an operating model. And that's different from saying, I'll get $5 million or $15 million or $30 million. So that obviously takes time. That has a much longer lead cycle. But, help come in and improve my process, help me think about what should by my organization model in the short term, help me sort of design my roadmap for the -- that's becoming far more. So there's a bunch of work which is coming in that through the lead generation process.

Unknown Executive

If I can just add to that, I would say 1 in 2 F&A-type deals are where the entry is when an advisor brings us in, all right? The other half, I would say most of them, given the size of the clients and the size of the corporations we're dealing with, ends up having an advisor. But that's almost after the fact and we've not been gotten by the advisor. We were there before. Our ability to get there before has dramatically changed in the last 3, 4 years through 2 things: One, the question on SEP, our ability to have a conversation independent of any outsourcing discussion, independent of any I'd-like-to-give-some-work-to-you, independent of actually sometimes even conversations on cost. It's, how do I run my company? We've just been involved recently in the last couple of years and again, it's early, with large corporations, who because of what's happening in their industry and what's happening to the world, have decided to separate themselves into 2 different companies. I don't need to name companies, but there are enough companies we know where actually they are in the process or have finished splitting into 2 companies. Think about getting engaged there and actually having a seat at the table that says, I'll help you design 2 finance organizations, 2 procurement organizations, 2 IT organizations, I'll disentangle both the companies and I'll make both companies run without missing a heartbeat. That's the conversation we are in. Those conversations don't have an advisor.

At some point in time, when it becomes, hey, I'd like you to take this work, they could get an advisor. And in fact, they will end up getting some advisor because they need a governance process, et cetera. But our ability to have that seat at the table is this whole design SEP and, therefore, bring me in because I'm going to help you on that journey. And if you project this out into the future, it should be a bigger and bigger piece of the way we get into those conversations.

I also thought you were asking on repeat. If the same customer says, okay, you've done so much on finance. I want you to do more finance, rare, extremely rare. That it would be anything other than a conversation between us and the client. Almost. I mean, there's something wrong if that happens. However, the same client says, I'd now like you to look at IT, I'd now like you look at, sometimes procurement. Procurement is much closer to finance. If the buying center or the buying person is radically different, then typically there would be a governance process, again, that we get introduced, there will be an advisor, there could be a new set of competitors. But again, remember, we are inside. Most importantly, we have granular information that allows us to create a better value proposition. Great question actually.

Unknown Analyst

How are transformational contracts and just complex and their [ph] projects typically structured? Are these mostly on employee basis or you're trying to sign more outcome-based contracts?

Shantanu Ghosh

So I think there's a very clear shift towards more hybrid pricing structures, okay? So there would be part fixed fees, part employee base, part based on contingencies. The upsides and downsides in terms of bonuses and penalties are higher. Gain share is embedded in most of those contracts. So it's more hybrid than classic traditional transactional contracts. Sorry. Last question.

Unknown Executive

Yes. I think we're, time for -- I want to take a short break. So, everyone, please fill up with some more coffee. There's going to be plenty of time for additional questions. But I think we want to go on and move through the rest of the sections.


Unknown Executive

Excuse me, we're going to try to stay on schedule. So if you want to finish up your conversations and get started. We're going to get started in just a couple of minutes here.

Arvinder Singh

I'm Monty Singh, I look after sales, marketing and reengineering and we're going to talk about -- Mohit Thukral is going to be with me on the stage and we're going to talk about the verticalizations, the vertical domain expertise, the vertical services that we deliver out of Genpact.

We've been delivering vertical services ever since inception, whether it's manufacturing, whether it's banking financial services, right from the inception. What we have done over a period of time, we invested in domain, technology and even diversified into and building the strength even in more core manufacturing and BFSI, in other words, it goes across the space.

The important thing is that -- it's important how we choose what we do. And we'll address that. I don't know if the gentleman who just asked that question but it's important how we choose what processes, what verticals we work in and it's an element of design that we think through. What's the headroom? Where does the value -- where does the customer see value? Do we see value in going up the value chain of the customer? Call center in a commoditized telecom world doesn't make sense for us. Analytics creates promotional [ph] CPG makes sense for the customer and for us.

Is there headroom in the industry? Where is the industry in that life cycle? Does our secret sauce, our differentiation that Shantanu spoke about. Analytics, process, bundling technology. Does it make sense in that space? And then we run it as a process of where we allocate investments. We have to get better at it. We're having dialogues because we also have -- like to -- at [indiscernible] point, we run the risk that we can do everything because you could literally say process, technology and analytics define [ph] everything.

But that's the process that we are trying to run through, but at a very important point of vertical processes or vertical services is trying to understand the client's entire business. If we just look at this picture, it's a kind of a picture of a manufacturing company. How does it run? Operations, it distributes goods, which means process and analytics. Fleet management, is the goods arriving up in time? Huge sweet spot for us.

Service. Customer service. What parts formation [ph]? Inventory, analytics around that, huge space for us. Production, supply chain management. Companies do a lot of forecast, because the sales is projecting sales in some place. The purchasing is -- or ordering parts in a different area, details don't match, forecasting that has happened, inventory goes up or goes down and you pay more. Huge possibilities of how you combine data and process to provide intellect.

Research and development. You would argue Genpact research and development, U.S. needs engineers. Engineering services [indiscernible] design across basic product lines, huge opportunity. If you just think of this as a banking financial services company on this chart.

Service. Customer service is a big part of banking financial services [indiscernible]. What does it do? It's process, analytics, data, technology.

Operations. If you look in any banking financial services, now what is it? Collections, account opening, transactional processes, data going through, ability to provide intellect.

What is production in the financial services company? Risk. Risk modeling, approval of risk, all that kind of stuff. After end-of-life treatment on leases, things like that, that's the kind of intellect we bring because we can actually provide our sweet spot in these areas.

I'll give you an example of leasing. What do we do with leasing? And then you'll understand the headroom and the capability that we bring. We actually rent -- somebody applies for a lease. The lease is filled in and it comes into us. We actually look at the lease, arrive at the risk model that are looked at for approval, approve or not approve a lease document. In sight of how the [indiscernible] is coming in, building the risk model, approving the loan or not approving the loan.

Booking and funding the actual lease. Dispersal of the cash to the dealer who bought the car or whatever be the product. Collecting the cash when the people pay back. Applying the cash to your books of accounts and then the F&A accounting processes take over.

So actually, what we do in many of these processes is right from the inception of the transaction to the closure of the transaction, even to the end of the term of the transaction. The core of what I was trying to get you is that it's close to the clients, understanding the clients' business and their needs.

Now if I apply the filter, which I spoke to you about and like I said, we are getting better at it, of where to focus, based on headroom, based on profit pools that make sense for us, based on our capabilities, these are the kinds of our verticals that we are currently focusing on. Like I said, we are always sharpening where -- the spots that make sense for us and the customer. We're going to talk about some of these in detail, but I was just going to hit some of the -- let's say, CPG and retail and link it back to what I said around which areas do we play. Trade promotion is a huge spend in a CPG company. What's the spend, how much trade, how much discount do they give to the retailers or to the wholesalers, the shelf space, the discounts, the buyback. It's top of their mind. What does trade promotion require? It requires a huge amount of data to report around various SKUs, various products to apply various discount configuration and say what's the return. Today, you go and say to a CFO of a CPG and say, I want to reduce the cost of F&A by $2 million, he said, tell me about trade promotion. How can you give me a better ROI? Our sweet spot, huge industry niche, huge client need.

Another area that I could talk about, let's say, you don't have clear but [ph] -- in CPG, master data management. CPG and retail are huge -- the rest of the industries, we'll talk about a little more in detail. The amount of data that is required, whether the customer data, product data, pricing data, vendor data, cash data by a customer, it's lying in different systems, in different places and the analytics around it is very weak.

What did we do? We acquired a company, I think, about 3 years back, built [indiscernible] around it. We always had some form of data, whether it's vendor data, through our accounts payable processes or even some customer data from order to cash processes. Now we have product data and pricing data. And when you combine those 4 things, you can create a lot of value of return of products, what you sell.

So we're go to talk a few industries but the moral of the story is, Genpact's sweet spot and strength of process, technology, analytics has so much of headroom over enterprise processes in these vertical processes if chosen rightly. And I think that's where we are today. We're going to walk through in some of these areas, obviously, banking, financial services, we've been doing it. We grew up -- it's a big part of our portfolio, Mohit will talk about it. Healthcare, we talked about it. Manufacturing, we grew up with that. But now we're trying to spend time on figuring out how we can make it commercialized and take it forward. So huge headway, huge runway. And now, let's just walk through some of the industries. Mohit?

Mohit Thukral

Okay. Good morning, everyone. Let me go up. Thanks for being here. I'm Mohit Thukral. I've been with the company 14 years. Good to some of you back again after more than 1.5 years now when we were here in June 2011, not here but somewhere else in some other facility.

But let me talk about banking a little bit and then I'll switch gears to a little bit to healthcare. Look, I'm not going to go through the chart and the data on it, but if you look at financial services and banking per se, including insurance and again [ph], some data here on banking and insurance, I think there's a huge headway in terms of opportunities and growth, in terms of the potential and the market size and opportunity. Market is still under-penetrated. If you look at the opportunity, it's pretty much over the next 3, 4 years is doubling up in this space. Penetrations are low, going up over the last few years. And then if you look at on the right-hand side of the page or my left-hand side of the page, it's really -- there's a big, big opportunity in whole core [ph], backing ops, insurance ops and F&A. Shantanu talked about F&A, we've been seeing a huge amount of lift coming out of the financial services institutions around -- especially in the U.S. and in Europe, flowing through on the F&A side.

So there's a huge runway. Market is still under-penetrated. We do believe that there's a lot of opportunity for us as an organization to really play in this space and play pretty much focus around what we want to do in very niche areas, where we believe our strengths are. And I think that's the way we are looking at how our business will look like over the next couple of years.

If you look at what's going on, right, the big focus on cost is a big -- if you talk to any bank, a lot of you are financial -- come from that background. You talk to most of the banks, some of you are the bankers here yourselves. Big focus on cost, how that is changing the game today, right? Growth rates are pretty much flat-to-single digit. Big driver of growth is to drive cost production will be -- put that money back into innovation, partially into innovation and partially, obviously, improving your margins as an organization. The focus on regulatory reporting, who's of the world wants to regulate here today. And I think as you look at it, there's a big focus around driving risk management. And we'll talk a little bit about that.

Banks, globally, believe and it came back from and we came out of G and they became an independent company in 2005 and mostly more and more of them are thinking around how did it drive their whole captive model. Is that the right model? What is core to me, and what is not core to me? Where do I keep my secret sauce and whether I don't keep what I don't need actually. So it's a little bit of really relooking at some of their strategies.

And then the whole focus around, can I leverage partners such as Genpact around process and technology. And if you go back to the question sometime around earlier during the day, we went and invested in a technology platform on the origination side of the Quantum product and looking at how the mortgage market is right now on the uptake. And really, we've seen some great traction building pretty much a B pass [ph] model and I'll talk about it a little bit later.

One big thing we believe and we pride ourselves and the businesses 100% reference-ability. Actually, you call up any of our customers in the banking space or in the insurance space, it's pretty much saying here's my list, call anyone you want. So there's this high reference-ability and it goes back to what I'll talk about it later in terms of the market opportunity and then for us, our ability to penetrate into those customers is fairly, fairly decent today.

Domain expertise, Monty said it, we came out of GE, we came out of GE Capital and we built upon what -- over that. And then we started working with different governments [ph]. If I go back and look at ourselves [ph], and Tiger mentioned that earlier, we had only -- in 2005, the only 2 financial service customers, which were outside of GE was 2 spinoffs of GE with General and [indiscernible] and those are banks we worked with. And if you look at it today, we've built a fairly decent practice and franchise over the years.

Global coverage. Big for us. I'll share about that. And then the big thing is the whole focus on process transformation and the full focus on really driving the big agenda. The question to Shantanu earlier, we are playing right now at the CXO, at the COO table and really trying to drive a few things in a few areas. And I'm not saying we're trying to change the bank, I mean, we -- I don't think so we can. But I think in a few areas where we are really trying to change the game for them, whether it's the collections strategy, whether it's AML and KYC, whether there is core business lending processing. So a bunch of stuff happening out there.

Eye chart a little bit, but important. This is also a memory jog over some of you who were here last time. But clearly, look, we came out of a diversified financial services company. And if you look at the way the chart is, as we started working with different banks around the world, whether it's in the United States, whether it's in Europe, whether it's in Australia, and we started learning and doing different type of work for them in different geographies, right? Out of different geographies and doing work for in different geographies. So our ability to build the length, breadth and depth of what we did became more and more strong over the years on the financial service side.

Our ability to understand regulatory requirements in these geographies became even stronger over the last couple of years, right? Whether it's [indiscernible] in Australia, whether it's the FSA in the U.K. or whether it's OCC and the others here in the U.S. So what we started doing for one, we started taking to the other in terms of our capability. We started building that expertise.

So over the years, we [indiscernible] round up of fairly, I would say, robust ability to do work for a diversified group. So if you look at our portfolio, it's not that we do work in one geography or for one type of customer or one type of work, it's highly diversified. So the breadth and depth of that is pretty good.

And look, it's low penetration still. We believe there's a huge runway here still [ph]. And you've got to answer this question. I think we have some massive runway into some of these customers in terms of what we're trying to do to penetrate.

This is what we do as a service, if you look at this, from commercial lending to leasing, risk and compliance, retail side of the bank, analytics and risk, big part of our business in the financial services space. We came out again. We built it at the back end of GE in 2000 -- 1999, 2000 and we just expanded that world, just not doing work for GE and for others now.

And then what we're seeing is a very interesting play on the finance and accounting side, where more and more companies in this space are really saying, that's not core to me. And we're talking about really high-end F&A. We're not talking about receivables or payables, we're really talking about book closing and really SEC reporting and some of that stuff.

So if you look at the suite of services we are taking across to multiple customers in the space -- in the banking space really.

Uniquely positioned. Pretty hard. I mean, Tiger shared our global map. If you look at -- we deliver financial services -- service, our delivery footprint, in a large part of the world. Uniquely positioned for our customers because we can do it for them in different geographies. It differentiates us a little bit because we have the ability to deliver in different locations. A large pool of domain experts in the whole process transformation, reengineering space in this group. And we are doing such projects whether it's in Australia or here in the United States or in the U.S. It's fairly, fairly diverse. We've delivered actually in the last year, $1 billion of business in banks. So 1/3 of the business impact I had [ph] talked about of the $3 billion, we delivered $1 billion out of that and it's -- and rightly so because we are a larger part of the company.

So that's been a focus, the stickiness we've created, the reference-ability we've created is very high. So how do you really now monetize on that and really start building upon that as we go along?

We really do believe there are some emerging opportunities. Some early days, some we believe there are in the play. Clearly, I talked about the whole focus around mortgage. We went through the downturn in 2007, 2008 in our mortgage business. We're back up. We're seeing some great volume flow through. We're growing that business, the footprint is growing more than [ph] the U.S., as well as offshore. And the Quantum technology platform, which we acquired about, I guess, 2 years ago, if I remember, is really now starting to kick in as of 2012 timeframe. Commercial lending is our beachhead. I mean, we do end-to-end of commercial lending from -- right from setting up on originating a loan to really dispersing it and underwriting and putting the risk structures around it. A big, big, big part of us, we have to commercialize it more than what we've done. So I think that's a big push for us over the last, I guess, 18 to 24 months, so how do we really get commercial lending out to more and more customers because we believe that the end-to-end element of what we do in commercial lending, including the capabilities and the platform we're looking at, will really differentiate us from our competitors.

Risk and compliance. As you all know, anti-money laundering, loyal customers is a big thing on the retail side or on the institutional side of the bank. Are we seeing a play there. Gianni, who's here, you'll be meeting during the course of the day. As part of our NPI or our product development suite, he's working on creating more and more capabilities around that.

And then while we do see prepaid card looking interesting and analytics around that, the whole -- the consumer behavior. I think that whole piece is really something we believe is a good play for us as we look at it.

Like I said, we have strong reference-ability. We're able to cross sell these services in some of our relationships. We upsell a lot. I mean we don't -- the advisors are gone at least in those deals, so we actually see that it comes back to us. But are we penetrated enough? No. Can we go and penetrate more? Absolutely. So I think we do see a play out there.

I'll share couple of case studies with you. I mean, we grew 4x with this partner of ours in Australia, really pretty much doing -- being so-so's partner and provider for them on the BPM side and really doing work from consumer retail bank to credit risk to SDS, which is process transformation and reengineering, et cetera. And so we've really built up a good relationship and a journey over the last, I would say, 4 years. So highly impactful, highly reference-able customer, again, both globally for us and also, in the market in Australia because it's a small market. It's pretty much 5 banks there and a bunch of insurance companies. So it really gets us some huge leverage in that market.

Large U.S. bank, we service them out of the U.S., do a lot of work around process transformation and technology and technology more coming out of our capital markets business. So we support technology on that end. Transaction processing and working on technology, again, out of India and a large service for voice [ph] out of the Philippines.

If you look at it over the last few years, cost is a given. It's table stakes [ph], it's something which everybody can talk about. But I think what we've done in the past is that we've created some huge amount of business impact. And business impact is something which creates a stickiness, it creates the Net Promoter Score. It will be up. If you see the Net Promoter Scores, it's like 85%, all-time high in the business. Service levels are good. So it creates -- it has created that kind of stickiness. So again, reference-ability is, again, high. So if you look at the business, what we're really trying to build on the banking side is, I mean, my key message you'll hear from us, from our perspective as a team is really say, how do you leverage on your existing relationships, how do you expand what you deliver to them and then how do you really take it to one, to many, into the market across the geographies. And Europe is becoming to be very interesting for us. Pascal will talk about everything, more and more traction out -- coming out of the financial services businesses and he'll talk a little bit about that when he speaks about Europe.

Shifting gears and the interesting stuff and I'll start from banking into the world of health care. A lot's going on here and a lot of you will be tracking it or talking about it. Clearly, for us, it is a business and it is an area where we want to make investments, right? It is something we want to build and focus on. Are we the big players here? No. Do we want to be the big players here? Yes. So we're investing. This is one area where we're really investing. Market behavior is changing because of phenomenal pressure on payers on the cost. Pretty much you're defining premiums now. You got about $0.15 to a -- $0.20 to $1 which you can play with and then generate margin and profit. Big focus around the whole electronic health records area, and then really looking at smart analytics around what you do around payment integrity and claims analytics and et cetera, et cetera.

For us, the focus is really around, how do you drive the focus around process, technology and analytics? The game is just not about just pure play process, but also the game is around very niche focus on technology. Tiger mentioned earlier about how we want to play in different markets where -- blend the process and technology where you drive really domain connect into some of these businesses.

Here's what we do today, right? It doesn't have what we acquired a few days ago, and I'll talk about that a little bit later. As you look at what we do today, it's from claims management to customer service to technology. And look, in this space we work with actually the 4 largest payers in the U.S. and one of the largest private players in the U.K. For us, we believe the runway is huge. If I total the revenue of all these 4 payers, it's anything between $250 billion to $300 billion. We're not big in this space. I think we have a huge runway to go on the payer space in some of these customers. So that's one of the reasons, if you look it, we're trying to focus on building a very strong payer business. Obviously, we do a lot of work on the provider side, on the RCM side. But I think the play for us, as we look at more and more, is focusing on the payer side of the business. And that's one of the reasons that if I go to the next chart is talk about the acquisition we did just a couple of weeks ago, we announced it. And what it does for us is it brings us a nice play around technology on the payer side. How do we take some of that and build upon that? It gives us a nice play into The Blues. We never did work for The Blues as part of our health care payer business. It gives as some play into The Blues. Clearly, it takes some of our services out of the acquired company into some of our existing relationships and takes some of what we do into some of the relationships with -- what JAWOOD has today. We want to focus on the JAWOOD model for some time. We'll have a team which drives the interplay between the cross sell, et cetera, but our pretty much focus is going to be, over the next year or so, to really keep focus on driving growth within the acquired entity, but really takes some of the -- sorry, take some of the learnings coming out of the BPM, the risk side [ph] -- the whole focus on the ICD 9 to 10 and take that to one to many and cross sell between both the companies on the integrated health care payer business.

A small -- one case study, I just want to leave that as a last slide here. We worked with a large BPM driving 2 things here. And it's not a large BPO or BPM relationship with us, it's a good analytics relationship with us. Where what we did here was really spend a lot of time with 50 process design engineers working with the customer, really driving some core value to what they were driving, $400 million of cost out was their goal. We were running 3 of the 6 streams in the business. Clearly, this was not a play around outsourcing or offshoring. It was clearly a play about really working on transformation agenda with them as they also started looking at changing the technology and the -- IBM was actually the technology partner and we collaborated with them to really drive this value. And in this relationship, actually, we worked with the client, with the partner and us to really drive some of the value for them. So this was a hugely successful project for us, and we continue to see the reference-ability or the connect with us in terms of the value we created, helps us create some stickiness and get into the relationship to do more beyond just the big transformation work we did or what we do on the analytics side for this business. So with that, I'll pause. I'll take questions. After you, you want to finish?

N. V. Tyagarajan

Just a couple of slides on manufacturing. Like I said we've built to a lot of capability out of the gate since we grew up. And manufacturing is a very, very wide space, very -- a lot of sub-industries all across the space and we're beginning to realize that there are a lot of opportunities in what we do and the leverage that's there and the headroom that's there with a lot of customers. Like I said, there's a lot of sub-industries, you're figuring out where the leverage is more, where it's less, but there is definitely opportunity. Why I say there's opportunity is that, what we do is back to my original pitch in the last -- the first 5 minutes. The kind of work we do lends itself to what the industry is looking for -- untapped potential, the dark blue, in terms of offshoring improvement, that's the data that we have gathered. But what we bring to the table, data, process, analytics, reporting, optimization is a big thing in the manufacturing industry. Data sets are lying in different places, most people are having problems with forecasting, with the sales people, sales order forecasting, inventory, stock outs, all that can [ph], now they did this. Don't get me wrong, the industry does this really well. It is just that the potential of this being opened up, it never opened up in the last 15 years and we think there's an opportunity, we're just seeing early times to it. But what do we do in this space?

This is the kind of stuff we do. Engineering services, we did this acquisition, which is really looking at product design, going in and looking at the casings of an engineering -- of an engine. The parts of an engine, designing that engine, there is so much dearth of engineers today in the United States, it's an incredible potential. Looking at the analysis of how those various engines or those various parts, will stand up in the final test, all data. Actually, writing the technical documentation of all these equipments is done, is required. The requirement is huge. So we see a huge, huge potential in that area and since the acquisition, already the pipeline has started building up already in that space. And I think it's driven by just dearth of talent and engineers and the work needs to get done. We may be late, compared to the competitors in this space, but this opportunity is still very huge. And some of our competitors have had built huge book of business, Belcan is something like $600 million, I think, I don't know what. TCS, maybe $250 million, $300 million. So huge opportunity and the dearth is so severe -- actually some conversations are like, "Get me engineers, anywhere."

There's a lot of things that I have noticed in this particular space. It's very spread out and therefore the ability to consolidate is huge, and that's where we come in. The consolidation of engineering in actual manufacturing is spread out. It's actually quite counter [ph] to your thinking, but it's pretty much spread out and I think that's a big opportunity that we bring to the table.

I talked about procurement and manufacturing, but it's around demand planning, inventory optimization, logistics fulfillment. Remember what is actually a [indiscernible] in another lens? it's ability to connect the dots, of various points of data at a very granular level. That's what it is in another lens, right? When something is happening in the company at this part, how does it affect something else that's happening in the company in this part? Because they both run as silos. Like I give the example, actual sales forecasting was actually ordering of inventory of raw materials that goes into the inventory. Our secret sauce fits in very, very well. It's a natural fit.

Vendor management. Large companies have the management of who do they order from? Huge potential area that we speak of. And obviously sales and marketing, that's another thing that we think, we have an opportunity to grow, but yet to be tested. Aftermarket services, this is a very unique area. What's happening in manufacturing? There's a lot of manufacturing companies trying to build their revenue on servicing the equipment that they sell because of the sales of equipment are going down, the margin is going down. So servicing is becoming a big element of manufacturing companies. What does servicing mean? It means customer service of, let's just take, let's take a health care equipment. A part is broken, a call comes in. The part broke, is it part of the warranty or not? Is it part of the stock or not? What levels of stock should I have? But how do I know how much of parts break in that scanner? All that data and all of those processes actually, we did it where we grew up. We are largest commercializing and taking care [ph] of the market.

I'll talk about contracts, might as well I'll give you 2 examples. The world runs on contracts. It's amazing that it runs on contracts but the management and the leakage of contracts is mind-boggling, because it touches how many parts of an organization? The sales who signs it, the procurement who actually -- the sales who signs the bill, the procurement agrees on the contract and somebody else executes on the contract and the operations are on the floor. I mean, you have seen data in companies where the companies are saying, when you do a contract, you have a warranty period, right? And people are replacing parts, which are way beyond the warranty period. Again, granular data and connections. Huge sweet spot. I want to make -- bring it live with 2 -- I want to bring it live with 2 examples. This is -- it's about the contract stuff. This is actually just aircraft engines, it says global equipment, but it's aircraft engines. These are 40-year contracts, 30- to 40-year contracts that go into servicing an engine which has upward of 20,000 parts. How do you price a contract that is 30 years and you monitor it on a quarterly basis and you still make money? The complexity around this is very clear, how many parts will get repaired in that engine? So we actually measure, believe it or not, time in air of the engine and we correlate it, I'm sorry if we're getting it technical, but I want to get the complexity around it, we correlated on what's the kind of parts that will be required. Based on the parts that is required, what is the kind of forecasting level that we need to store those parts and reduce the inventory? And guess what, based on that, we've repriced the contract so that the customer can make money. Huge ability, and this is what I was telling you about when we are moving into the industrial services, we want to get into things where we can add tremendous value, in terms of value to the customer, and finally, value to the kind of work we do.

Just another example. This is a transportation and logistic -- major, and huge fleet sizes all of the place, huge problems with parts and repair and services, stock outs happening. Didn't know that inventory -- you know what we did here? It's actually a great example of combining process, analytics and technology. We did what is called an inventory optimizer. It's a web-based tool, that's what it is, which sucks out data from the ERP systems and analyzes all the elements of the process right from forecasting -- sorry, demand planning, forecasting, purchasing, managing an inventory and it gives live dashboards. Look you're forecasting this, you should start ordering this. Or you should start making this part. So I'll leave you with that, that this industry, it's huge, it's very diversified, can make oil and gas, equipment manufacturing but our secret spot and our experience with GE, and what we have started earlier on, and the fact that it's granular and data intensive, we think there is runway, early times, but definitely a place where our secret sauce can be leveraged. So that's all that we had on the vertical services. And open for questions.

Unknown Analyst

Could you just talk a little bit about the -- in particularly, the manufacturing and services segment, the competitive landscape you'd spoke about? A couple of guys that are I guess a little bit ahead maybe? So how do you kind of take market share there or...

N. V. Tyagarajan

Yes, that's a great question. If I look at competition in manufacturing services, the best way to articulate it -- there are parts of services that are provided by very niche players that we compete with. So if I take -- there are people who just to C-parts management of inventory. We compete with those people also, right? But what they can't do is link that C-parts management to left and right of the processes that I spoke about. So like a Converse [ph] or this kind of names, you have boutique, I won't say boutique, they are reasonably large, of one set of competitors that do come in. On this segment, which I said which is engineering, R&D, there are established players. No question. Very established players, it's been there for a while. But we do believe there's a cyclical shift or a -- I'm thinking the wrong word, there's a complete shift and dearth of talent. There's a complete shift and dearth of talent in engineering in the United States and developed markets. It's even worse than what it was 10 years ago. In fact, the demand has widened. The demand has widened a lot more and therefore, the opportunity, that's one. Two, the fact that we have the privilege of running processes left and right, our ability to sell engineering service today, again, linked to forecasting. You know what we're trying to do when I aircraft engineering [ph], all these manufacturing companies is that, if this part has to be designed because you lose so much inventory, you can link it to the engineering service and let's start doing the design of those parts. That linkage, other people can't do. So that's another reason, I think that we'll be able to push this through. The trick is, which industry segment will buy faster. That's what we have to uncode [ph] right now.

Unknown Analyst

Just on the manufacturing side, trying to understand this slightly better, where are your delivery locations, how big is the practice? And I'm personally not able to understand the linkage that deeply between cat design and customization which you mentioned here, to process or to data or your typical sort of strengths. So if you can help me understand this a little better, that'll be helpful.

Mohit Thukral

More than 1/3 of Genpact is manufacturing, manufacturing services. This sliver of work, this sliver of work is a new addition through this acquisition. And the answer is similar to the earlier work. That fact about it is that when you do design, when you do product design, it is around a process in a way that, you look at the technical documentation, it's -- remember something, we're not into higher product design of a company, there's no company that will let us get into the IP of the product. There's no question around that. Let's be very clear about -- this is not, I'm designing the core of the engine of aircraft [indiscernible]. There's no GE or anybody else will get through. This is around regular casings of parts that we try to get done. The bigger opportunity that we are trying to do over here is just leverage the opportunity that's out there and try to linkage to the other parts of the process. That's the biggest opportunity that is there. And to be honest, it's reflecting already as you just got off the execution, I could easily argue it's one of the fastest-growing rates because of that play.

Unknown Analyst

This is going back to the question on competition. So there are many different types of competition out there and those pure engineering R&D as you said, in essence, so the IT services company, like TCS, as you mentioned, which offer IT services but also the BPM, BPO and they can offer end-to-end solution in that sense, and there are also others which are sort of offering the automation like the IPsoft and Mu Sigma, so how do you see yourself differentiating from them? And what have you done to really get to the point when you can offer end-to-end solutions?

Mohit Thukral

Yes, so like I said, that look, it goes back to Tiger and Shantanu's speech. What we bring to the table is looking for the customer need backwards. On what are we trying to solve for and then what our belief is, that is based on process and analytics. In spots, when you bundle them together, you solve for the needs of the customer. What are the needs of the customer in manufacturing? Working capital, stock outs, inventory optimization needs to be lower. On engineering services, technical documentation, no order throughs, low failure rate of products, right? We drive that down. Now there are spots that we will need where we may have to link between what [ph] process and analytics do, through -- whether it's tools or technology or third-party tools to drive that outcome. One such thing is the inventory optimizer I spoke to you about. The other is, even in engineering services there about nearly, I think, 19 third-party tools that link engineering services back to the whole design flow of NPI. So that's our secret spot. There will be some spots that they might come in with the whole platform and make it work. We don't believe that'll happen. Even in contract management, it's a great example between us and an IT player company. They have the system but the process and the design and the analytics of the customer, of the contracts and the data behind it, the business insight around it, is what we bring to the table, and that's that core differentiation. That's a great example. If you take that whole contract management, who do we talk to? We talk to the procurement guys and we talk of the business guys. Their whole discussion is around leakage, price raising, how do you get margin higher, how we don't lose money, how do you avoid stock outs and those kinds of discussions is what we want to bring to the table. And we believe, we still believe that, that granular understanding of processes and data is what we execute [ph]. Now we buy [ph] part of a technology, or I might get third technology around it -- or a third-party technology to get to that outcome.

Unknown Analyst

Question on health care. Can you maybe talk about or quantify the opportunity that exists in the ICD 9 to ICD 10 transition. Some vendors are actually calling it the Y2K of health care. And then how well placed are you to tap that opportunity?

Mohit Thukral

Rightly so. But the date of Y2K keeps on changing but, yes, it's a tremendous opportunity. So one of the things, we -- I don't have the data right now with me saying what's the size of the opportunity and how much will we be part of that opportunity. For us on the ICD 9 to 10 is an early game. Obviously, with what we're trying to do within our erstwhile [ph], I would say, the legacy health care business, and as we now integrate the JAWOOD acquisition. I think one of the big like this, or I put up on the slide, that ICD 9 to 10 is a big focus area for us. As we speak, the teams are working through yesterday and today to really come out with a plan as how do we attack that market and how much market share we can get. But we do see that as a tremendous opportunity for us. And as you come back maybe in this forum or some other forum, we would be happy to share with you how much do we think we can really capture that market over the next 3, 4 years.

N. V. Tyagarajan

If I can just add to that, it clearly is an opportunity. The reality is the market is really big so I think characterizing it as another Y2K is right. And we don't need to capture much of that. We have no desire to capture too much of it because it's really, really big. The bigger deal with something like JAWOOD is the fact it that you get domain capabilities which are the type of domain capabilities that you would need when you do a conversion, but that's not the only thing that you would want to do. It's really taking those domain capabilities to a broader spectrum of processes and services in the health care space which are going to become more relevant as we go forward. Some of them have not even been started to be thought through. As an example, in the end, payers have to treat consumers of health care the same way today as a credit card company treats a credit card customer. That's not the way the industry works in the U.S. today. But the way the laws are going to go forward, that's the way the industry has to run, which means payers have to define risk, have to have risk models, have to have individual consumer risk models, that's not the way they run before, that's not their capability and competency. Our ability to participate in that, given our risk background, combined with understanding health care, which we will get with JAWOOD is one of the opportunities. So ICD 9 and 10 is great, but it's very opportunistic. That's not the reason to do what we did and that's not the only reason to do what we did.

Unknown Executive

Why don't we move on.

Pascal Henssen

Good morning. My name is Pascal Henssen. I'm The Chief Operating Officer of Genpact in Europe. Apologies for my voice, I picked something up on the way over here, so I hope I'm going to keep it dry for the next 10 to 15 minutes. Specifically about Europe. This is a very simple chart and it shows where we are and it shows what we deliver. We deliver all those industries and all those services. Now why are we different and what is our differentiator in this? When -- for example, Shantanu talks about, hey, we have expertise in procurement and supply chain or finance and accounting, that expertise is not centralized in the world, in the U.S. or in India. We have that expertise on the ground, in Europe, in all those locations, with all the languages that we need, in order to service our clients in Europe. And if you combine that with a culture that was talked about several times, that's what really differentiates in Europe, and why we're very proud of our footprint and the expertise and knowledge that we have. For example, Mohit mentioned it earlier, BFSI in Europe is an industry that's really opening up right now. For a long time, there was very little movement in the BFSI industry in Europe in terms of transformation outsourcing and so on. Now they're opening up. So when you talk back on investments, and Tiger talked about where do we invest, this is one of the areas where we're investing. How do we get talent from the industry that's going to help us now also grow locally in Europe with an Italian bank, a German bank, a French bank, communicating with them in their language, and with language I mean not just English or Italian or Spanish, but also their domain expertise and knowledge.

So all these things we do globally. We also deliver in Europe, and partly on the ground, with the same level of expertise as we have globally.

Now what I want to talk to you about a little bit is, what are the real challenges in Europe? So in Europe, there is really no one Europe. And it's very easy to talk about Europe is going to do this or that. There's huge fragmentation in Europe. Many companies have grown through acquisitions, a lot of them have, especially on the CPG side, have very decentralized organizations, where the M.D. in Italy is the king of the world with his own entire team and everything around him and he would never let that go. So you have a lot of fragmentation where there is this habit of focusing on the difference. Why is Italy different from France? Or why is France different from Germany?

There's also an issue of financial metrics. If you want to move work from the Netherlands to Romania or India, it's very easy to achieve a good business case. If you want to move work from Romania to Romania, or from Romania to India, that business case is much smaller. However, companies need to drive standardization, and we'll talk a little bit about why, and so they actually want to drive that standardization, but the country, Romania, is going to say to his boss, this doesn't work for me. I'm actually going to lose money. So how do you break through those kinds of barriers and make the business case for the entire customer work?

I already talked a little bit about decentralization in Europe. Decision power is often not in the headquarters, it's very often a very strong power in the local countries. So how do you change all those different stakeholders and get them on board with you to go on those transformation journeys that Shantanu talked so eloquently about?

And then there is the cultural nuances. We've all heard about works councils, unions, the impact of the government in, for example, large multinationals in France and so on. So these issues are real and what that has led to over the past 20, 30, 40 years is that basically all these things we talked about, used to happen very actively in American companies and, to some extent, in U.K. companies, but European companies and in especially European headquartered companies, really said, well, let's not do this. This is too much trouble and they, very incrementally, did small projects here and there. But it wasn't a targeted approach of driving transformation across the business. Now that's changing.

So besides the financial crisis and all that stuff which I won't repeat because we all know about that very well, there's 3 other things that are fundamentally have changed and why? A lot of those companies are now coming to the table. The first one is, their resources are simply in the wrong place. They need their resources to be in the Middle East, in Russia, in Asia and they've got this huge installed base of all kinds of functions, back office or front office, sitting in Europe where, as you all know, the economies are not growing as much. So they need to shift their resourcing to other places in the world. Besides that, the competitive pressure has intensified. The start ups and the growth of multinational companies coming out of China and India, who have their cost base in those countries, means that they're actually competing from a much lower cost base than their Western European counterparts. Besides that, they need to have much more speed into these new markets and you can only drive that with the right standardized processes and platforms because in many of those countries controllership is a big risk. So if you look what the big controllership issues that happened in some of the multinational companies, it's from going very quickly in the new market and not having the controls and not having the framework, the IT in order to actually deliver a standardized, transparent process. And then there's the talent gap. A lot of baby boomers are retiring. In many of the European countries, the actual labor force is reducing 10% to 20% in the next 15 years. And in some countries, in some industries, that's much more visible than in others, and actually more and more customers are talking about, "I'm really worried about 5 years or 10 years from now," because all this knowledge everywhere is sitting in people's heads. How do I get it out and how do I make sure, as the labor force reduces, I can actually have well-documented processes and not suffer from this talent gap?

So we now see a lot of companies coming to the table and really thinking very aggressive about transformation, that in the past kind of said, "Well, it's too complicated, it's too difficult." So this has also driven our transformation, our own transformation in Europe. When we started, we were about moving work from expensive Western European countries to either cheaper, nearshore locations, Romania, Poland, Hungary, because language was required, or moving it to India, because language was not required and we could do the work in English. But it was almost just pick up something and move it. And the processes were being run as they were because the change management of driving change with those people in all those countries, the users of the processes was still very difficult. Now what we've seen over the past few years, as we have built that capability and that knowledge, and that Shantanu talked about, also locally in the ground in Europe, based on 8 years of experience that we had built, we now actually are doing the same kind of things that we talk about globally with European clients. So we've expanded the footprint for -- basically we expand the footprint through 3 reasons, one is acquisitions; the other one is, because we have language requirements we can't meet from somewhere else; and thirdly, because the labor pool in a certain country, or a certain city, actually is different. For example, there are some cities that have a lot of capital markets experience in their labor pool because of some of those companies had shared services there and other countries don't have any of that. So those are the real reasons why we would go into new locations and we've done that in order to serve our clients and to deliver that. But then also moving on to really providing thought leadership and working with the clients on their transformation roadmap, and in some cases, even and I'll show some examples where that's not necessarily immediately talking about, let's do BPO, give us 500 or 1,000 FTEs, but really thinking with them about what should the future look like? How should I design my finance organization? But also delivering risk services. One example is, that I'll just briefly mention here, there's -- one of the big mining companies in the world had some significant controllership issues in Africa. Now in order to go into a mine in Mali or Congo, besides it being dangerous and you need to be very safe and know what you're doing there, you can't do any work there unless you speak French. And so we needed to bring -- we could -- we were able to bring people who spoke French, who understood the domain and really understood what they were doing and usually impress the clients in those locations where they've never been actually get talent to help them with some of the issues they dealt with.

So our footprint in Europe right now and I'm leaving out Africa, Kenya and South Africa here for a moment, basically evolves on our customer needs, as well as driven by cost. We started in Hungary back in 2002, but very quickly saw that we really needed to go to a location that had a bigger labor pool, as the market there started to heat up and all shared services went there. So we grew into Romania, which really has become our de facto, I won't say headquarters, but it's the biggest location because the language capabilities and the depth of the talent there are fantastic. But we still have some gaps in our service delivery, so we went into Poland for Polish and Russian. So we deliver Russian out of Poland. We went into Rabat for large-scale French, we can do a lot of French out of Romania, but if you need to do 200, 300 in one go, it's much easier to go to Morocco. The bottom line basically came to us through 2 critical acquisitions, one acquisition and 1 re-badging of a client organization. And we're about to open this quarter in the western part of Poland for a purely Germanic solution. So we are very proud of the footprint, but there's only one way in which it works. And this comes back to culture and how you work as an organization.

If you would ask me, how is one of those centers doing, in terms of MPS [ph] and customer satisfaction? Or how is it financially doing? I actually have to go look it up. If you ask me how is this client doing, that is served across 3 or 4 of those locations, plus India locations, plus locations in Latin America, I can tell you right on the spot. And so, if you have such a footprint, what's absolutely crucial is that as an organization you have the culture to rally around the client without boundaries, utilizing Shantanu's organization, from a knowledge and expertise standpoint, and seamlessly delivering one service to the client, so that he never feels, in practice, the fact that it's actually delivered from multiple locations.

So 2 quick case studies. Here's a client, U.S. headquartered global cleaning solutions company, sounds very sexy. Serving 30 entities in 18 countries. So we are servicing 18 countries out of 2 locations. And we started, like I said, before our evolution was, first, let's take the work the way it is. Then we started to standardize and improve as we went and got to know the customer deeper. Over time, we got more and more scope from that client who said, "Hey, you're so good at what you're doing, here's a little bit more. Can you help me a little bit with this, a little bit with that?" And we drove a very rigid standardization agenda, together with the client. So what did that lead to? So overall, the cost for this client, for example, for their entire invoice processing or accounts payables division, went down by 40% while their volumes are actually up. Their closing went down by 20%, that closing cycle like Shantanu mentioned in another example earlier, went down by 20%. But more than that, thinking back of some of those challenges, we have only done initially Western Europe but we have then standardized the process so much and introduced some technology point solutions that now we were able, in a win-win situation with the client who also moved their Eastern European countries which were at a much lower cost base onto the same platform using the same team delivering these services. Something that 2 years earlier, before all of this standardization [indiscernible] would never have been possible because the business case simply wouldn't work and now we could do that and move the 7 additional Eastern European countries onto the platform.

And my last example, about a global brewer, you would all know the name, I'm sure. We basically brought all the knowledge and expertise that we have to their transformation journey. So this client felt very strongly that because of change management with their countries and their wider organization they couldn't just move to BPO. So they came to us and they said, "Look, you set up facilities every day. You recruit people every day. You design processes every day. You transition processes every day. Why don't you help me set up my shared service for Europe because I want world-class delivery and you know how to do that."

So that's exactly what we did. So we set up their entire facility in record time in a totally new country for them and in a new city. We recruited all the people within the timelines required and we got the thing up and running on time, with great feedback from their internal stakeholders and clients. And guess what, now we're talking to them about, okay, what is the next stage of evolution? Are there things you now want to move to a lower cost location as you continue to grow your own shared service organization? So we're really partnering with clients now, not just saying, "Give us your work," but designing their future finance organization and working with them on a, not 1- or 2-year journey because this now is already a 3-year plus engagement and there's still a long runway in it, with a big win for the client and very good win for us. So those are all the slides that I have. So with that, I would like to open it up for questions.

Unknown Analyst

When you look at kind of your pipeline of potential deals, are you seeing an acceleration in closing business from 6 months ago, 12 months ago, given that you guys have spent so much time on investing? Are you seeing an acceleration in that?

Pascal Henssen

That's what Tiger talked about earlier, that we indeed have seen that -- the return on that investment in sales resources, which started a little bit earlier in Europe versus some other geographies, has clearly paid off in terms of pipeline.

Unknown Analyst

When you look at Europe, do you look at sort different pockets, some people kind of look at [indiscernible] the U.K. versus Continental Europe, that's one way of looking at it and then maybe you can also, when you look at your pipeline, is it kind of different than what were you seeing in North America, which is more of a mature market for some of the things that you do?

Pascal Henssen

Yes. So the split U.K. versus continental is very common. And a big part of that is because U.K. is English, like the U.S. market, so more similarities and so on. Also some of those obstacles we talked about are actually less in the U.K. than it's in a lot of continental Europe. The social cost of doing restructuring is significantly lower in the U.K. than it's in many other countries. So yes, U.K. is a little bit of a different animal, if it's a U.K.-only client. If it's a European player, from the U.K., then it's the same as for all the others. In terms of pipeline, the only significant change we have seen is what we've talked about earlier, which is the Banking Financial Services and Insurance, now really opening up. In great discussions about where should they head in their future. So that's the one, the only one where I would say we would be significantly different from the global pipeline is that BFSI used to be small in Europe and that's now something that's definitely changing.

Unknown Analyst

And where are the pockets of strength that you're seeing in continental Europe in terms of the specific countries?

Pascal Henssen

Very good question. We see, first of all, across-the-board there is a change in mentality. If you see some of the things that have happened in France, with ArcelorMittal closing plants and Renault closing plants and all that stuff, that's really a change in culture in some of those countries. I mean, that's a major change. If you really look at what countries do we see as hotter than others, I would say, on continental Europe, the Netherlands and Germany are definitely 2 markets that are ahead of the pack, and then maybe closely followed by -- with some of the big multinationals in Switzerland.

Unknown Analyst

Given the decentralized nature of your operations in Europe, do you see a different margin profile for European customers versus U.S. customers?

Pascal Henssen

Like I said, we look at deals and customers on a global basis. What we ultimately care about is the solution for the overall client. So obviously, fragmentation but -- the counterargument is also the customer also had that cost of fragmentation before they decided to go on transformation and outsource. So it doesn't necessarily have to have an impact on them. But there are cases where, with a lot of fragmentation, it creates extra complexity and so on so there is some [ph], but I wouldn't say it's a major driver.

Unknown Analyst

How much does the bad macro in Europe affect you, because on one hand, because of bad macro, a lot of companies will consider things that they would not have otherwise considered, on the other hand, the decision making cycles are longer, so how does that play out for you?

Pascal Henssen

Exactly the same way as -- and I don't remember who it was explained earlier, initially you have a screeching halt of all big projects and initiatives as people worry about their balance sheet and worry about what's going on, how is it impacting me. But over a longer period of time, that's only going to help us and we see that in [indiscernible], like I said, again, banking as an example. They are now talking in ways that they've never talked in Europe before, local European banks. So initially, it doesn't lead to an immediate impact, but you start those conversations and then like you say, those cycles are longer, so we should see the benefit of that definitely over time.

Unknown Analyst

Are you more open to take over clients assets like their employees and assets in Europe to win a deal given like the Work Council and Union Tools there?

Pascal Henssen

It's a very good question and, again, one we debate on a daily basis among ourselves. I think, ultimately, it comes back to the same discussion we have about acquisition. If it brings up capabilities that we otherwise would have a very tough time or it would take a very long time to build, maybe something we would consider, but then we look at it similarly like we would look at an acquisition. But if there is no significant growth you can expect from that, for other clients or changing [indiscernible] utility or something else, then those -- or getting into a new country, that might be another reason why you want to do it and build onshore, for example, reengineering presence, but each one of those would be -- reviewed in a lot of detail and needs to make not just deal sense, but needs to make some level of strategic sense as well.

Thank you. So over to you, Sandeep.

Sandeep Sahai

I also have a throat problem, nothing to do with what Pascal said, though I just flew from Washington, D.C., but, so my name is Sandeep Sahai, and I'm based out of Washington, D.C., and I'm going to be talking about capital markets, and I also run IT for the company. So it's always a fun section to talk about because all of you know as much as I do. But what I think we will do is, I wanted to just give you a sense of how we view the landscape, talk about our strategy, talk about what we want to do and then let me go into some case studies.

So the way we have always approached it is obviously very technology-heavy initially, and is to build domain expertise. So we build domain expertise across asset classes, so equity-driven and things like that, and that was our go-to-market. So build intellectual properties is to build framework and that's the core of how we went to market.

What has changed in the last 1.5 years is we have now been able to bring process expertise, and that's new. I think like Tiger was saying initially, in some areas, that's very important to bring them together. In some areas, it is not. So 4 areas that you see right up there are the 4 spots in which we are investing very disproportionately. So why is that? So look at the first one. Client on-boarding. If you think about client on-boarding, it's a huge issue, it's a huge competitive issue. But it's not a technology issue and it's not a process issue. It is a process and a technology issue. You solve one and you don't solve the other and it's quite useless.

Likewise, with collateral management. Obviously, a huge issue today and most banks have collaterals spread across the world, all kinds of collateral, with all kinds of restrictions of what you can do and not do. So it's not about, can I process collateral? But do I have enough analytics to understand what collateral to deploy, where? That's the secret sauce. So again, the joint organization today can bring IT, can bring the domain expertise, but the fact that it can bring that plus process, plus analytics, in this chosen areas is what makes the difference.

In high-frequency trading. Process doesn't matter, it's mostly technology. So we haven't picked it. We're not going to pick it. So that is the genesis of what we are trying to build while continuing to grow this business. So I'm going to just talk about the market a little bit but again who am I talking to? But, look, I think the one thing which is different is, whenever this industry does poorly, everybody talks about cost. Everybody sort of pretends [indiscernible] and says, I'm going to fix it this time. And they never do. Markets go back up, everybody forgets about it and moves on with their life. I do believe this time it's different. I do believe that I've never seen such a sustained view which says that 4 or 5 years from now we continue to see tepid growth. Some will say declining, some will say mildly growing, some would say flat. but given that environment, huge pressure margins, what are we going to do? You got to focus on cost, and you have to focus on cost while the regulatory costs are going through the roof. So the urgency to address it is significantly higher. I think [indiscernible] somebody was talking about table stakes [ph] offshore, still very important to get labor cost. But it's no where near enough. You have to look at the operations. You have to get effectiveness from that solution if [indiscernible] partner to your clients. So we look at our approach here. We still do IT. We still have domain-led IT, we still do processing separately, but increasingly, we're going to customers who do SEP [ph]. And so don't think about IT applications or client on-boarding. Think about an end-to-end process, where are you? Think about collateral management, end-to-end, and approach it from there and it resonates. It resonates because people are fundamentally trying to change the cost structure and business models. [indiscernible] the markets go back up another year and maybe we really forget about it, I just don't think so. I do feel that there's a fundamental change here. I think what we're also doing is looking at platforms, big conversation around the website is what is core to a bank. And whatever's not core, should I send out? And if I'm the first guy who sends it out, can that -- around that can the industry ultimately be built. Again, you had this many times, these conversations over the last 20 years, this time it's happening. I'm sure all of you know about many, many deals in the market right now, the people, including us, are working with clients today to make things multi-term and take it out to market. Firstly, fix it for them. So that's a big part of the deal. Second part is, can I make it multi-term and take it out to market. So that is, again, I think, one, where we're uniquely poised. I think someone talked about IT companies and said, look, IT companies are also doing BPM and some said, BPM is doing IT. I think what's different here, is it's under one roof. There is strong, strong trust on pulling it together one time and seeing it from a customer's point of view, end-to-end. And that is different. Many companies have an IT division and they have a BPO division and they have an analytics division and forever go on in that way, I don't think that is going to solve the problem. The SEP-based approach, end-to-end business approach is what's going to win. So I've got 3 short case studies. I just want to sort of bring it to life and show you how -- some extreme examples, if you will.

In this case is a European bank. It was a simple process issue and they wanted to generate $90 million in productivity improvement from things like, let me give you an example, deployment of servers. That sounds like an pretty inane thing. It's actually huge. Many banks to deploy IT infrastructure, takes 5 to 6 months. And every silo is thought of differently. So what do people do? If I may need something 6 months out, I'll order it today, huge inefficiency. And we did that starting up, so 2008. Then we went to actionable metrics. People love this. 200 metrics, how many do you act on? Well, I don't know. We tried to bring that down, took it 15, measured it, put it on a dashboard, continually report on it, huge improvement on waste. And finally, trying to good [ph] the enterprise level. Now all this sounds easy, but because you have some investors who [ph] recognize it, it's very easy. It makes a lot of sense to say, why can't the bank locate it across the bank? Yes, try doing it. The power center, the geographic center, the asset [ph] class center, all kinds of issues and huge amount of waste, and the company today has the ability to go address that.

Here's another one, this is again, big thrust and business impact on innovation and optimization. Now again, obviously, everyone knows the Dodd-Frank appointment [ph] and the Title VII issues and what we came up with a solution when we built the platform. But really the platform wasn't an IT platform, it was [indiscernible] IT but baked into it was strong analytics and a really strong operations vertical [ph] framework around it. Again, we launched it and did it brilliantly, I think. Again, because it combines 3 things which are often very hard to combine and the last one, Tiger, you said [ph] you wanted to cover this, right?

N. V. Tyagarajan

So, Bharani, I thought I'd take this one as -- look, when we came together with Sandeep's earlier business, Headstrong, the whole proposition was that we will take the domain and technology capabilities in an industry vertical, capital markets, where domain and technology capabilities are core to winning, not every market is that true, in capital markets it is, that was our conclusion, and then we will bring process and building insights from any data that we know we are good at. And we thought that the capital market space is going to change and we need that to come together and will be led by domain and technology along with process, unlike many other conversations where domain and process leads it. That was the period of coming together, May of 2011. The world did change in the capital market space around the third and fourth quarter of 2011, and with global, lots of other things, and the conversation started off, but really didn't pick up momentum as I said because there was massive restructuring announcements that happened across all of the capital markets' clients that we serve. The conversations have continued and what you see here is a true example of where the theory of the case of coming together is beginning to play out and this is kind of one of the examples that Sandeep referred to. On the left-hand side is a process around account set up and client on-boarding and that's just one of those processes, there are multiple processes there, we just picked one. On the right-hand side is the traditional process Genpact view of that process in a granular fashion with metrics, with end-to-end metrics, applying SEP. So we now have an SEP that's developed only after the capital markets business has been formed, combined with the domain and technology and understanding of the space with our understanding of process, where we now can go to a client and this is a conversation we are having with this client, saying, we can take your account set-up process end-to-end and change the way it works. That conversation would not have been possible in spite of the great process capabilities we had, because that person will not listen to us because we never understood client on-boarding in that space. That conversation would not have happened without the process understanding that we have in the traditional Genpact business in spite of the deep understanding of technology and domain that the capital markets business has. That's the lethal combination that has to play out in the long term. These are big changes for any of these banks, these are bigger changes for these banks because they've never done it. These are huge changes for these banks because actually they don't understand process at all, and I'm just contrasting that with a manufacturing company where they get process, they understand Lean, so that language is very clear. These guys don't get it. But that's fine.

Because they want to get it. So this is a long-term journey. So there was a question at the break around -- so we feel very good that actually, this is going to play out this way. If the world had played out differently, it would have played out faster. But these are going to be long-term transactions. These are going to be long-term relationships. These are going to play out in the long run. And I agree with Sandeep's articulation of the industry itself. The chances are that this is such a secular change that it's not going to bounce back, so people forget about this. And the idea would be, you do one of these, and the whole industry will start replicating it across the world.

Sandeep Sahai

You're taking the point to one thing here. Just look at the turnaround time. The key metric is to onboard a client, how long does it take? And the average of completion of the [ph] building of this SAP, average of 4 days versus 64 days. Guess who gets the best clients. So it's not just something on the side of technology issue [ph]. It is a real [indiscernible] business issue, right? And I think we're uniquely positioned to go deliver on this. So I'll cover this section of the question [ph]. So on IT, we're clearly not the biggest IT shop. So that's not a surprise. So what we do is, somewhat going back to the capital market, going back to see how we got some success there, was, either we have a strong domain point of view, it can get us growth, or a strong process, which we understand really well. If we have either of those 2, we'll use the hook to try and go in. But if we don't, we're not going to play. And that's very important for us. We don't want to be another me-too IT company with very little differentiation. And I think what you've got here, look at the bottom, obviously, you've got 4 areas. And everybody's got their own terms, but we've got consulting app, development, enterprise application, so IT managed services. Each of these, the importance of domain is different from the importance of process. So when we can find the hook, we'll do it like, I think, Mohit was talking about commercial leasing and lending, we have a very strong process view. Okay, we'll go in there and build around IT. But we also understand synthetic [indiscernible] walls [ph]. And we will go and push in that, because we understand the domain really well. Or collateral management, and we'll build that. So what are these areas we think we have this in? In the industry specifically, we have it in the capital markets. We have it in health care, and we have it in insurance. When you look at the enterprise services, 3 areas: F&A. So do we want to do IT for F&A? Absolutely, because we have a strong strength there. Do we want to do it for procurement and supply chain? So we -- picking those 3 not on a basis of us being Oracle or us being SAP. It's on the basis of those 3 we are seen as leaders on the process side and sort of a stronger right to play and the right to win, if you will. And likewise in IT managed services and the computing, enterprise computing, and database and middleware. And finally, in the process transformation side, [indiscernible] intersects with analytics and re-engineering. That's where we would play. So that's fundamentally the approach to IT. It's not across the board. It's not across all verticals. It's none of that. It is in areas that either we have strong domain or strong process knowledge. So again, 2 more case studies, and then I'm done with that. So this is a health care provider, and we're talking about an enrollment and billing issue. There are many, many applications. They're all homegrown, across the board. Data was really poor. Think about that. You could solve it or try and solve it by building the great IT app, or you could go the other extreme and just say, "I will fix the process and let the IT application stay the way they do. None of them are the full answer. Genpact to date can deliver on it and has delivered on it. We can look at the whole thing from an end-to-end perspective and deliver on that. This is something, which I think, the coming together of the 2 companies allows. The second one is our rollout of an SAP system, and again, the issue wasn't technology, same thing. Across many, many countries, and we want to get to a 1 geo, as important to get the system right and the process right and just rolling out SAP. I think many, many people can roll out the SAP. But our knowledge about the industry and being able to deliver from across the world, I think it was about what Pascal spoke about, and then our centers out in Asia and the U.S. is what makes it different. So that's what I had, so I'm happy to take some questions. I don't know how much time we have -- about 5 minutes? Okay. Mr. Caso?

Edward S. Caso - Wells Fargo Securities, LLC, Research Division

How big is capital markets now as a percent of revenue and have you hit bottom?

Sandeep Sahai

So I think Mohit is going to cover much of that, but I'll tell you our view. One is the comment, I think, Tiger made. I think initially what happened in capital markets, I think we just sort of stopped it -- the initial knee jerk reaction was to cut, cut contractors. Now most banks did not cut offshore because it was sort of where they wanted to be, right? So I think you saw a lot of on-site contractors, which were not associated with offshore. So I guess if you think about this, banks have some portion of headcount here which drives the offshore revenue for that one [ph]. That, I think, has sought of ceased. I don't see much of that, right? And I'm, again, speaking very generally because I think it's different in Europe versus the United States, right? I think Europe is in a different spot right now compared to the U.S. I think what you're seeing there is very large-scale transformative conversations. And that's what we're talking about. The people feel that this is not going to improve for 3 to 4 years. And I would suspect, yes. So the kinds of conversation banks are having and starting work on is tough. I don't think I've seen it in 15 years, right? Now will it continue? I don't know. Will the economy suddenly come back roaring and the markets will be great? I don’t know. You all know as much as I do. But we feel that those deals will happen. And like Tiger said, we are working on several outcomes [ph], and I know several of our competitors are working on many of those also.

Unknown Analyst

So clearly, you feel better about the pipeline, but have the revenues -- are you starting to see some improvement? I mean, are the clients starting to move forward with projects?

Sandeep Sahai

So I'll give you my CFO's pitch to me. Look, what you're seeing is, are we growing as quickly as we would have liked? The answer is no. Are we continuing to grow sequentially? Yes, we are. Quarter-on-quarter, are we getting growth? Yes. But are we growing sequentially? No. Are we growing as quickly as we would have liked to? The answer is no. I think he'll go into some details when he comes up.

Mohit Bhatia

So [indiscernible] to your question, capital markets is approximately 8% to 10% of the company. And to Sandeep's point, in the fourth quarter, and I mentioned it in the call, the capital markets business did grow sequentially about 5% to 7%. So it's not that the business is de-growing or going down, some kind of [indiscernible]. It is definitely in a growth spot [ph]. We would hope that it grows even more. And like Sandeep alluded to, there is terrific domain expertise in this business. Once we start seeing some positive movement in the macro environment, this business should bounce really back over a period of time.

Sandeep Sahai

So more than I would object to the word rock bottom, but otherwise, yes.

Unknown Analyst

I'll be curious to understand, I mean, Headstrong had a IT focus, Genpact had a process focus, just how you've gone about infusing the process culture into Headstrong? So what are some of the measured steps organizationally you have taken over the last so many months to do that?

Sandeep Sahai

So some simple things. Like firstly, Lean Six Sigma, I think Shantanu was speaking about it. It really is culturally there. So I think about 2,600 people have been trained on Lean Six Sigma. We started to measure for each customer what innovation have we delivered, what business impact have we delivered by customer. Culturally different, okay? In the IT setup, we never did that, right? That makes a big difference. Third thing is, these solutions we were talking about is what we're using to get everybody together. So we don't want collateral management. That is a team made out of Mohit Thukral's organization, which is more BPM, and [indiscernible] organization, which is [indiscernible] organization, trying to pull all that together around a customer need. So just sort of trying to do this generic integration, if you will. I have defined 4 areas. In those 4 areas, we're going to go really deep, end-to-end, rallying around what a customer would need. So simplistically, that's what we have done. The other cultural difference you'll find is this whole thing around Lean Six Sigma, right, at the project level and at SEP, to drive SEP, right? So I think Tiger spoke about it for client onboarding, we developed an SEP. Again, a lot of people rallied around it because people saw growth coming from it, right? So you have to have a reason why people do this, right? And so a lot of development around SEP has gone on in those 4 areas, and that helped us rally. So I think the SEP story is one, big one. The other one is around those 4 areas I talked about. And the third thing is around just culturally trying to get Lean Six Sigma. And it's stuff -- simple stuff like you can't become a VP in a company, you can't become [indiscernible] until you're Green Belt certified. Just stuff like that, which sort of forces the agenda, if you will. It's a simplistic solution, but that's how you sort of drive it.

Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division

Rod Bourgeois here with Bernstein. I have a question about the long-run outlook for your sales and marketing investments. You've clearly made a move to up your sales and marketing investments. And you seemingly, at the same time, are somewhat moving up the food chain, having more vertical expertise in the markets that you compete in. When you look at other players who compete that way, they tend to have people who sell and deliver work at the same time, sort of a partner-type model. And I wonder if that's the type of model you aspire to over time, in other words, you're now building a bigger sales force. But will that sales force also have people who both sell and deliver work? And if that's true, does that allow your sales and marketing investments over time -- at least as a percentage of revenues, to come down from your plan over the next couple of years? In other words, you're increasing sales and marketing now, in the long run, will that pull back as you convert to more of a partner model if that is part of the aspiration?

Sandeep Sahai

So Rod, first of all, our sales and marketing investments have been much lower than industry average, compared to almost any benchmark. So part of the journey is actually to bring it to industry kind of standards. The second is, a lot of our salespeople, and let's divide that group into people who hunt, and sometimes, that could be a 3-year hunt because it starts with the design conversation to the strategic conversation, ends up finally with the contract. And then there's a whole bunch of people who are strategic partners and relationship managers for a bunch of accounts and relationships. In the relationship management ownership role, it's -- the responsibility for delivery is not a direct responsibility in our type of a business because these are not projects. 80% of our business is annuity and run from global delivery centers. An example would be some of the clients Pascal talked about would be run from 7 different delivery centers, delivering services to 125 countries across the globe. It's owned by a global operating leader, typically would work for one of the business leaders. For example, Pascal or Mohit or one of those business leaders, but the counterpart to that will be the person facing the client who would know everything from the operating side that are either opportunities or issues, would drive the agenda coming out of the client, back into the operating organization, and would take operating issues back to the client and would find the opportunities to strategically grow, but would not be directly responsible for operation. And that's not going to change. That can't change. The last point I would make is, therefore, pulling back on that percentage, I don't think, is one, real, and I think it would actually set us back. So I would expect us to at least be at the level that we talked about once we get to the 6% level.

Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division

But do you expect your mix of hunters versus miners to shift? In other words, people chasing new logos, it seems you're making a big investment there right now. But I would expect 2 years down the road, you're going to need to have more skill sets in the area of mining, and I guess you're agreeing with that, but you don't expect your sales and marketing investment to subside as you move more into a mining role.

Sandeep Sahai

Yes. So I think that's a question of staging and phasing and waves. So obviously, we couldn't do everything at the same time. So we picked our first battle, and we said, "Let's invest in a set of domain experts who come in from the outside and get them excited about starting conversations with a whole bunch of new clients, particularly in industries that we think are secularly changing." I mean, you heard about capital markets. We haven't talked today about life sciences and pharma. It's a great, big industry vertical that is undergoing a radical secular change for obvious reasons, probably been going on for the last 4 or 5 years and probably will go on for the next 7 to 10 years. So a lot of the initial investment that we did over the last 18 months was hunting. The next phase, which is actually already ongoing, is adding to our client facing, client ownership, mining capabilities and those owners. I think it'll get to the subsequent phase of adding the next round of hunting. So I think it will go in phases, and as the size of the company grows, you will have more of both. I don’t think it's going to be a plateau on any one of them, which is why I said the 6% number would continue, which means our total pile will keep growing.

Mohit Bhatia

Good afternoon, everyone. Just about good afternoon. My name is Mohit Bhatia. I do hope the Genpact story has resonated so far, especially how the company brings together the part of the vertical domain expertise, together with the horizontal enterprise services, and in doing so, using approaches like SAP, tools like Six Sigma, to really deliver a strong value proposition for our clients.

I'm a happy candidate. I feel good about the business fundamentals, the run rate for growth and the opportunities there, the stickiness of our client relationships, which lead to a predictability of our revenue and financial profile, and terrific generation of free cash flows, as validated by metrics like free cash flow to EBITDA at 56%, which is very healthy amongst our peer group. Add to this the fact that we have an extremely strong control in compliance environment leading to financial integrity, I really feel very confident about where we're heading. I have a bunch of pages, a few pages, which I'm going to talk through the financial trajectory over the past few years of Genpact, and I'm going to conclude with giving you a sense of how the company feels about our midterm going forward the next 3 to 5 years.

We've come a long way since our IPO in August of 2007. If you see, almost all key metrics have doubled despite an unprecedented macro environment in the latter part of that journey. Our Global Clients are now 74% of our revenues. We touched in fourth quarter a $508 million of revenues. For the first time, we crossed $500 million. This compares to a period in 2007 when our annual revenue was some $820-odd million. Free cash flows at $200 million, approximately $200 million per annum, give us enormous amount of flexibility to take care of opportunities, growth, strategic, capability acquisitions, et cetera.

Our revenues have grown at CAGR of 18%. Within that, Global Clients have grown at a CAGR of 33%. The way I look at it, even if I discount the law of small numbers, our Global Clients are still growing very healthy in the 20s, and I think that's a terrific growth rate. Our margins have been very stable throughout this journey, both adjusted net income, adjusted operating income. In absolute terms, they more than doubled over the past 5 years, and it reflects the stability and predictability, as I said, of our financial business model.

More recently -- that was a 5-year period you saw before. If you look at the most recent 8 quarters, you can see sequential growth of the revenue other than, of course, the first quarter where typically our revenues go down every year. There is a linear trajectory of growth every quarter in our revenues over the last 8 quarters. And all this in a backdrop of reasonably stable margins, given the environment and given the puts and takes that happen to every business. I feel very good about the fact that we have been able to deliver the 6 -- at 16.5% at an average in both 2011 and 2012.

This is an interesting chart that shows the performance of our revenue and EBIT versus the peer group and the volatility, which is really the standard deviation from the mean, reflecting the fact that our financials were a lot more stable over this period of time, which is 5 years, as compared to a peer group. And you can see some of the names down there of whom we were comparing with on a consolidated basis. So what this chart is suggesting is that our revenues grew at a CAGR of 18% over this 5-year period, which in itself was very healthy compared to our comps and the S&P. And I'll point out now again that the 18% is consolidated growth. Our Global Client growth was 33% that I mentioned in the previous chart. And that compares very well. And there, if you look at the volatility of that revenue, it was half of our peer group. And that connotes a certain reliability and predictability of what's been happening on the top line front.

Similar story on EBIT. EBIT performance, which is well over our comp group, again, with the volatility that has been half of what our peer group suggested. We also did an analysis over a 3-year period because that took off some of the noise. I have to admit, some of the variance is reduced, but the Genpact performance is still substantially higher, materially higher, as compared to our peer group when I did this analysis just over a 3-year period.

I spoke about strong cash generation. Just as a refresher, you can see the trending. The numbers on the top are the cash balances on the balance sheet. So we closed the year at $478 million of cash on the balance sheet. You're all aware that we did take on a debt. We took on a credit facility of $925 million towards the end of last year, and we used that -- of the $925 million of credit facility that we took, we drew down only $755 million. And we used that $755 million to repay the older debt that we had, the $355 million that you can see there on '11. We repaid that debt. And along with some of our own cash, we used it to fund the dividend of approximately $500 million. So with that, we have a debt in our books of $750 million. We also have cash in our books of $478 million. We have a net debt to EBITDA of a modest 0.8. If some of you remember, when we took the debt and I spoke to you at that time, our net debt to EBITDA was approximately 1.2. We're talking a few months ago. And it's already down to 0.8, which again, suggests the cash generating capability of this business. We have more than enough liquidity, if required, to take advantage of growth opportunities. I mentioned the $925 million. We've taken only $750 million. That leaves us a scope of $160 million. We've got $470 million around the books. So we have enough play were we to need liquidity for any growth opportunities. I mentioned free cash flow conversion of 56% as a ratio to EBITDA. And with the analysis that we've done, this is higher than some of our peer group and comps.

Our clients in different categories of revenue. Category is defined as 1 million to 5 million, 5 million, 25 million, greater than 25 million, in this case. Have consistently grown over the last 3 years. So this is a 3-year model from '09 to '12. As an example in the category of 1 million to 5 million, today, we have 131 clients. They've grown from 50, 3 years back, okay? So that in and of itself gives us a huge runway for growth. All 131 are not going to grow into higher categories, right? That won't happen, many of these are small logos on whom part services are more project oriented or Smart Decision Services oriented, could be reengineering, could be some analytics kind of work that we do for them. But there is a percentage of that 131 that will go up to higher categories. We've noticed about 15% to 20% movement from lower categories to higher categories. And as the 50 becomes 131, and the 131 becomes higher in future, even the 15%, 20% conversion from this group to a higher group means a lot of business and a lot of runway for us over the next many years. Again, our dependence on a client or on a bunch of clients goes down every year. We feel good about that. It's a terrific story. While on the one hand you see our dependence on one client, GE, has gone down from 40% to 26% over the 3-year period, at the same time, you heard Tiger and Monty and others talk about the fact that we have an absolutely terrific relationship with GE. We keep growing with GE and offering new services to them. But just from a SKU perspective, GE is down to 26%. The rest of our top-end clients are very stable in the 20%, 21% range of our revenues. And therefore -- and it leads into actually my next chart, where I talk about -- more about diversity.

This management team feels very good about the overall diversity of the business, whether you look at it from a client profile that I just spoke about, Global Clients versus GE, or even within Global Clients I mentioned, the SKU to those top clients or smaller clients. All our top clients, Global Clients, individually do not contribute more than 2%, 3% of Genpact's revenues. So that's another metric that I could throw at you. So we feel very good about that diversity, 74% now Global Clients, very even distribution, broad-based across industries, whether it's banking or insurance, manufacturing, fairly broad-based and even distribution. If you look at our services and products, led by F&A, which continues to be the biggest individual service, very even distribution of revenue coming from different services that we offer across the board. So this is very helpful, it's very helpful to me because when one of -- some pocket of our business goes through a tough time or a turbulent time. We mentioned capital markets in the year '12 for example. There are other businesses that kick in. So we're not dependent on any 1 industry or any 1 product that could pull us down in any moment of time. On the contrary, I look at it as an opportunity that if all of these services start doing well, then obviously, our numbers will be even better than they are. But we have the capacity and the capability to be able to take some negative movements that may happen in some corners of our clients' businesses.

These are our financial levers. They're very aligned to our mid- to long-term growth strategy. We're in complete control of them. We have many growth engines. We've spoken about this in the past. We have Global Clients, within that Global Clients, BPM. We have Smart Decision Services. Our focus on industry verticals and how to penetrate those more are all opportunities for us to grow over time.

On pricing, pricing used to be very competitive but stable, well within what we've been planning for in the past couple of years and what we've been planning for now in 2013. We keep looking at ways in which we can improve our realization. The mix is changing. We spoke about Smart Decision Services, where our billing rates are higher and so forth, but there are pockets where there is price pressure. But overall for the company, it's competitive but stable.

Sales and marketing. We've spoken a lot about investing in sales. And it's not just sales, it's not just resources in Monty's team actually. It's also about marketing. It's also about brand refresh. It's also about getting known more, getting known better. I think we've been talking about the fact that we don't believe we're invited to the table every single time. And one of the reasons is that there are still people who don't know us well enough, and we want to invest in that area. We want to get to be known better in the market so that we can increase the playing size, we can increase the size of the funnel [indiscernible] already good. If we can increase the size of the funnel, there's a lot of business to be had, and that's the other area besides just sales resources that we think very closely about.

This business model has a lot of productivity, which allows us the privilege to make these investments. And I think it was there in Tiger's chart where he showed our strategy on G&A. And as we want to invest in sales, we want to invest in the R&D functions and domain expertise. At the same time, we're going to get leverage in other G&A, and we want to use that leverage in other G&A to be able to make these investments for the going concern and be able to play offense for the future.

Taxes, I've spoken about before. For the most part, tax is a complex subject. Things happen. But for the most part, taxes should have peaked by the end of 2012, and we should see them stable to gradually reducing now over time. As a strategy, we take advantage of continuing to move to tax exempt and partially tax exempt locations. And that's why we feel that we will be able to gradually reduce the effective tax rate over time.

Strong balance sheet. I've spoken about cash, gives us enormous flexibility to grow. And overall, therefore, we feel very good about these financial levers and -- which leads to the last page I have, and I'll be happy to take Q&A.

Our guidance for 2013 that we spoke about is $2.15 billion to $2.2 billion at an adjusted operating income margin of 15.8% to 16.3%. This margin guidance for 2013, like I had mentioned earlier, includes a minor dilution from our recent acquisition of JAWOOD, and that's already baked into the 2013 guidance. Our midterm targets, over the next 3- to 5-year period, we think this company would be -- should be growing 15% to 20% at a stable adjusted operating income margin of 16% to 16.5%. The 15% to 20% growth, we believe, takes into account the fact that we have made some investments in sales and funding [ph] resources and relationship managers. It takes into the fact that there is a lot of runway in an under-penetrated target market that we have. It also takes into [indiscernible] the fact that it is our intent to continue to look at opportunities, bite-size acquisitions, that may add to capabilities and strengthen our offerings over time. Having said that, it also takes into account and assumes an unchanged macro with its incumbent challenges and uncertainty. Put that together, we believe that this is what we are chasing as a company over the next 3 to 5 years on the midterm. I'll pause there, and happy to take questions.

Unknown Analyst

I wanted to ask a question, first of all, on the balance sheet. I'm not clear what you're messaging. So if you're talking about you have some leverage on the balance sheet, you're looking at acquisitions, would you anticipate the debt levels coming down, staying where they are? What's the capital allocation strategy here that you have, if you can tease out your objectives between M&A and paying down the debt and/or any other capital allocation strategies? And then I have a follow-up.

Mohit Bhatia

Sure. In the short term, I don't see debt levels going up. So let's get that first behind us. Because we have, like I mentioned, sufficiently, at this moment of time with the debt that I already have and the cash in our books to at least take care of bite-size acquisitions, which we are looking at. We are not close to the idea of doing a [ph] material or a big acquisition, by the way. It's just that it's got to be something that's really strong that can change the game for us, right? But in general, higher probability that we'll be looking at smaller bite-size acquisitions which we can take care of within the current capital profile that we have in the balance sheet. The debt that we've got, which is a mixture of a revolver and a Term B, the Term B is a 7-year bullet [ph] with a 1% principal every year, which gives me enough flexibility to decide what I want to do with my cash. I have lots of choices and I'm not under pressure because of the flexibility. I can choose to repay the debt early if the economics suggests so, which they don't today, of course, because I have debt at very good terms. Depending on the pipeline of opportunities that may came our way, and I can't speculate what they might be, we can use the cash for that instead of repaying debt. Or I -- we've got an extremely positive reaction from all of you when we gave the special onetime dividend. The board may consider at any time in the future repurchased dividend or anything. Nothing's been decided right now, but these are all options for the use of cash that could happen. What I did want to say in the previous page was that we're not up against any corner. We have enough flexibility. We have $160 million that we can draw down just on the existing loan. The covenants that we have signed up allow us 2.25x of net debt to EBITDA versus the point [ph] that I have. In the case that neither rises, I could take, what, maybe another $1 billion. I don't need to. I hope I don’t need to. But it gives -- my balance sheet gives me enough strength to be able to take on that kind of funding were I to need it. I can't specifically respond to your question on what I'm going to do because I don't know about the growth opportunities that are going to come my way, especially in terms of capability acquisitions.

Unknown Analyst

Well, let me try one other question then on the same subject. So many companies talk about if they have longer-term growth. You've articulated 15% to 20%, which includes M&A. So other companies talk about maybe a bandwidth, in that is the M&A. Is there any way to think about it? Is it 1, 2, 3 points of M&A that you're thinking about that would be part of that 15% to 20%?

Mohit Bhatia

We don't know. It could be 1, it could be 5, we don’t know. So here is the strategy, okay? We want to grow as a business. We want to strengthen our offerings. We want to create more capabilities, right? We want to add to more domain expertise. We have choices of doing that in-house. We can build those capabilities in-house. Or if we find it's better, easier, to buy them, we'll buy them. I don't know how much we'll buy and how much we'll build internally at this point in time. Those capabilities are important to get the 15% to 20% growth, whether I buy them off the shelf, buy a small company, build them myself through R&D, Shantanu [ph] will build them, somebody else build them, we want to build them. If we don't build them, we won't grow 20%, right? But it's hard to suggest at this point in time that it's going to be 1% or 3% or 4%. It's not going to be a target or a goal given to the M&A team that you have to do 5% M&A. That's not how we operate. I'll be happy if that is an internal capability, but I'll be happy if it was a good buy at a good price that we picked up from the market. And that's why increasingly, increasingly, I want to move to a total growth environment, and it's really -- we'll be absolutely transparent, not to hide anything, right? If we do something big, if we do something like a Headstrong, if we do something even smaller or much smaller than a Headstrong, we'll come out with it. We'll tweak our guidance. We'll change the numbers. We'll tell you about it. But in general, we're not thinking like that right now. We're thinking about the -- what growth this company should have over a period of time, with bite-size acquisitions, with internal capability building, just what we need for mid-term growth.

N. V. Tyagarajan

One last point that I would add to the question is maybe one way to think about it is, this does not include and does not assume a big acquisition that is -- that will account for, let's say, more than 5% of that number by any stretch of imagination in any given year. It shouldn't happen because, as Mohit said, we're not chasing the big elephant. Now when it comes up and it strategically fits us, it's operationally well run, it's financially accretive, and it's culturally well aligned, those are great acquisitions. But as I just laid out, 4 bars that are tough for most acquisitions to cross. So very few will cross that bar. The bigger it is, the more difficult it is for them to cross that.

Unknown Analyst

Mohit, just to follow up a little bit. While you may not know if the M&A adds 1% or 5% to that growth rate, you probably have a better feel for what the underlying organic revenue growth would look like. So what does that organic revenue growth range look like?

Mohit Bhatia

So the way I'd like to answer that is, one, in general, organic growth rate should be increasing over time, okay? And that's how we are thinking, and that's the way we are making investment and strategizing, right? Organic growth rates should go up because of what we've been talking through the day, the law of penetration, the runway for growth, a lot of opportunity in Smart Decision Services, et cetera. Organic growth rates should go up because of the SKU of G coming down over time. Organic growth rates should go up because our sales people would have completed their 2- to 2.5-year cycle of not only becoming productive but having had enough time to close a long cycle deal, right? I've mentioned this before, but we intuitively feel that some of the impact of that sales investments will start showing up toward the end of '13. So if you put all this together in terms of the investment we made in sales, the G SKU going down, and so forth, if there is only reason to believe that the organic growth rate will keep climbing up, right? So that's one part. I do still want to emphasize on the fact that these really small capabilities that we add in are extremely hard to measure on their own form. We pick up a small acquisition, we'll integrate it, merge it, mix it up with our businesses. We pull out portfolios from them, give them new portfolios. We change the sales team. We'll redeploy portfolios. It's often meaningless to measure that small acquisition in its original form. And I just wanted to be very transparent about that and clear about that. And we don’t want to waste so much time internally on these administrations and rather focus on the total growth and total profitability, right, of where we want to be in the long term.

Unknown Analyst

I think the organic -- or the guidance for this year would suggest 13% organic revenue growth. It's your thought that over the next 5 years, that would slowly climb if the macro stays about the same?

Mohit Bhatia

That is correct.

Unknown Analyst

I'm curious about a chart that you showed about various sizes of customers, the number of customers in that cohort. Just curious, what is your expectation of growth in each of these cohorts?

Mohit Bhatia

So I guess it depends on the profile within -- these are large buckets. So in the 131, in itself, there are different profiles of customers. There's a profile of customer that is focusing only on Smart Decision Services or a short-term IT or an analytics project. And the ticket sizes are relatively small. Many of them will not go up. Many of them will stay with us, but they'll stay in the 1 million to 5 million category. Then there are a bunch of people here whom -- and all of these are a bit [ph] lower than large companies, right, who strategically want to be partners with us in the long run, whom we will cross-sell with, whom we will mine with. And clearly, some of those will go up to the next categories. And I -- don't throw this number back at me, but we feel 15%, 20%, okay, is what the history has suggested so far, and we hope that number improves over time. At least we'll start moving up to other categories as we do more cross-sell. The fact that we've got more and more customers in the portfolio, just give us that more much space and those many more customers to grow over time. And that's part of the reason why -- the investment that we're making in sales is not just in hunters, like Tiger mentioned, but also in people who are global relationship managers, people who will be with the accounts and will mine them and cross-sell them, to take them to higher categories.

Unknown Analyst

Just a quick follow-up. So the top-most cohort, is that growing at company average? Is it growing above company average? Or is it growing slightly below?

Mohit Bhatia

I wish life was so easy. Each of those 11 customers grows differently.

N. V. Tyagarajan

Yes, I just want to address that -- because one of the things that we have noticed in the books which is different from IT and BPM is the buying cycle of BPM is not incremental year-by-year. It's a very different thing. You need to understand that the reason is that when somebody's bought a big F&A transition [indiscernible] say, "Hold on, I can only do so much change management." And therefore, the year-to-year growth offered may not be similar and incremental as you think of it in cohorts. So that's an important point that we see in our industry. And we've seen it over the last 5, 6 years.

Unknown Analyst

So just on the margin side, Mohit, you gave a 16 to 16.5 range. And I think historically if we go back, the company had talked about maybe moving margins up incrementally 20 basis points. Do you expect that 16.5 range to be capped at this point and you'd invest everything over that 3- to 5-year period? Or could we see margins step up functionally after you finish the initial sales and marketing investment?

Mohit Bhatia

Okay. So in general, all these are indicative, right, the intent of the company is to invest back into the business. We're very small, we think. There's a long runway for growth. We have an under-penetrated target market. And therefore, we feel that we want to invest back in the business for growth. Having said that, there are accounting and fiscal periods after all that we get measured on, although that's a little different from how life runs when we run a business. There could be fiscal periods where we invest less. There could be fiscal periods that we invest more. We're not going to manage those investments. We're going to do what's right for the company. And therefore, you could have periods of time when the margin is slightly higher and periods of time when the margins slightly lower. These are indicative. But our intent, though [ph], very clearly, is that we want to play offense, we want to invest for the future of Genpact, a lot of runway for growth, we want to do what's right now to gain market share over time.

N. V. Tyagarajan

And let me just add to that [ph]. That language changed a couple of years back when we said actually that we would like to hold our margins, drive productivity. That language is not going to change. So the company is going to continue to drive productivity but clearly reinvest it back because our belief 2 years back and now is that the runway for growth, the capture of the under-penetrated market, the stickiness of the relationships and the value we can drive with our clients is such that not doing that is not the right thing for us or for our investors or actually for our clients. Well, that sounded a little arrogant, but that's our view. And therefore, while the 20 basis points was a conversation some time back, it was -- hasn't been a conversation for the last couple of years, and our view is that's the way we would prefer to think about the business going into the future.

Mohit Bhatia

I want to add to that, if I may. On a stand-alone, the margins can improve, right? The mix of the business is changing. Smart Decision Services is higher than company average, right? We get G&A leverage. We've spoken about that a lot. On a stand-alone, all this should fall in -- the margins should improve if we so chose to do it. But to reiterate, that's not what we are choosing to do at this point in time.

Unknown Analyst

I have a question on -- going back to the customer sizes. Can you talk a little bit about what are the sizes of the companies that are your customers? Are they global -- how many of them are Global 100, 500, Global 1000, if you have that data? And just some color on how these numbers would look ex G dollar shares and some of the larger positions that you might have made?

Mohit Bhatia

Okay. I don't have the exact number of Fortune 100 companies here, but I'll intuitively respond. The top 2 cohorts will definitely have very large client groups. GE is only one of them -- one of the 11. You think you had a specific question on GE on what that might look pre-divestiture?

Unknown Analyst

[indiscernible] from G.

Mohit Bhatia

So at a high level, you saw in some charts, over this 5-year period, GE growing from 480 to 497, right? If you were to really adjust for all the divestitures that GE has done, et cetera, that number would change to something like 440, 450, going to 497. So say a CAGR of about 2% on GE over the 5-year period if you adjust for that. We don't measure it that closely. It's very hard to, and we don't need to. But I would be 90% accurate in giving you this range, adjusted for divestitures. But...

Unknown Executive


Mohit Bhatia

Yes, predominantly, almost all of our customers are Fortune 500 or at least Fortune 1000.

Unknown Analyst

And can you talk a little bit about the scale of what you do with the 1 to 5 versus the 5 to 25 versus the over 25? And it seems like their top 10 clients have everything around $40 million each from the sales [ph] that did you gave earlier about top 10 being 20%. Again, the growth rate in that, and so it looks like at some point, we will start to see customers above $50 million.

Mohit Bhatia

So let me take that one. So in that 10 clients, I think the $40 million number is broadly average, you're right. The interesting this is there are clients where we do only technology. There are clients where we do only finance. There are clients where we do finance and procurement. The key in terms of -- so therefore, how do we think about growth in that group? A little bit going back to your question, is I think it's difficult in our business to think about growth of a group because there's no such thing as a group. It's growth of a client and what is happening to that client in that space, in that industry, because almost everything we do bars [ph] a few things, is a massive amount of change. Very few of the -- what we do is a decision taken within the company, it's often, most often taken by the board, which is actually different from a lot of our competitors where if you're only doing consulting or if you're only doing technology, then once you set the ball rolling, then the decision is actually often taken at that level, even to set the ball rolling. Because of the change involved in our business, 75% of our decision-making goes to the board. So it goes through cycles. So sitting in that group of 11, there's a client who was one of the original first year -- first couple of years relationship that we had, grew rapidly to a point where we executed on the first round of change, then nothing happened for 3-plus years. As they continued their SAP rollout, they had a set of leadership changes. Their industry went through a change. Then they came back, and they said, "Okay, now, the next round." So in the last 15 months, we've had another trajectory of growth. We think for the next 18 months, that'll continue. We think it'll stop after that for some time. And then -- so they're going to be -- so our challenge in the business is having the right people, having the right conversations to pick up the right signals, to influence it in the right direction at the right time. If any of those are wrong, you won't get it, you're too late or you're too early, you're wasting your time and so on and so forth. So it's very, very important. It's very different from just once you're in, you'll just keep picking up every time our budget gets approved. So we're not captive to any budget. We really don't care about any budget. It makes no difference to us. Again, there are obviously exemptions. I'm not talking about everything in the business. But broadly, those things don't matter to us. And the Fortune 1000, Fortune 2000 is the way -- or Global 1000, Global 2000 is a way to think about our potential customer target set, because it's also important to understand that some of the things we do and some of the relationships we have, the relationships we have in that 54 where the revenue of the client is less than $1 billion. And our relationship is getting close to $25 million. Because of the nature of that business, it's a services business with a lot of intensity of information and intensity of doing things with that information, so we are really careful about only defining it as Fortune 500.

Unknown Analyst

What kind of traction are you seeing for these integrated IP [ph] BPO deals, and especially let's say, if you feel better traction in banking, then could that be a catalyst for some of these deals going forward?

Mohit Bhatia

I'll take it. We are -- I'm going to be -- I'm going to give you an answer, and remember, it's a highly biased, deliberately biased answer. We are fundamental believers that there is no such thing as the whole world is going to converge into everything being IT, BPO or combined, our process and technology, everything combined, one. Two, we are not, at all, believers that everything will be bought that way, all combined, and so on and so forth. So therefore, this notion of everything is going to get bundled, we think, is wrong. There are specific industry verticals, specific services in those verticals, specific services in other verticals where that is the way it will be done, that is the way it is going and that is way it's already being done. Identifying those spots and making sure if you want to play there, that we are capable of bundling and we are competitive and we bundle is important. Hence, technology in capital markets, hence technology in health care, hence technology in insurance. In the case of financial accounting, it's actually the reverse. We are so strong in financial accounting that it makes sense for us to bring technology and capture that as well. So that's a different angle. But I'll give you a couple of classic examples. If you talk to 3 or 4 of the senior-most leaders in a life sciences or a pharma company, and you can have a 1-hour conversation with them, it will not gravitate to technology at all. It will gravitate to their R&D budgets, their commercial operations budget, how efficiently can they run their commercial operations teams, what's the drug discovery cycle, how do they manage clinical data, how do they create insights out of that, how do they take care of gross margins coming down from 85% to 75%. If you talk to a CPG client, it's about trade promotions, it's about the process of trade promotion and the value of trade promotion, blah, blah, blah, all of that. You talk to the person who runs wealth management, it's about technology platform, it's about the domain understanding of the technology platform. So our view is that you've got to understand which vertical, which horizontal, does it make sense to make sure it's bundled, and then define whether we can play there. And if we want, then we will bundle and play there. If we don't want to because we can't and we don’t have a competitive advantage, we will not. We don't think about the world as one world, of everything is going to converge. And I know that other competitors often think differently. That's why it makes us different.

Unknown Analyst

Mohit, your presentation focused a lot on sustainability of growth sales, the volatility of the revenue growth has been low in the past. But given that, the company is focusing on offering more IT and analytics work and some of which is discretionary. Are you -- will you proactively try to maintain that volatility at low levels or you think increasing base of the -- from more diversification will offset -- expose it to high discretionary work?

Mohit Bhatia

So honestly, first of all, we're not focusing on IT and analytics only. We're focusing on a lot more. So we can either focus on the entire diverse service offering that we have, F&A, claims processing, mortgage, everything. It's not just these 2, right? So I don't see the strength of our diversity changing too much over time. I think you're right to the extent that our Smart Decision Services is gradually but very slowly becoming a larger part of the mix. And in Smart Decision Services, you have areas like re-engineering and analytics. That do need -- some of which does need to get reserve, okay, especially in re-engineering. In analytics, again, 70-plus percent is really annuity. Now depending on how big that becomes in our mix, it could potentially, in a volatile macro, create some volatility for us, yes, absolutely. But given what we are looking at right now, I don't see that being a concern at all because it's pretty gradual and pretty diverse across different service offerings, it's quite broad based.

N. V. Tyagarajan

The one final point that I would make there is, look, I mean, would it be -- would we have more Smart Decision Services which has a little bit more discretionary component than the process side of the house? Potentially, yes. Will it be different from a volatility perspective for a long, long time to come versus our competitors? The answer is yes, because process is still going to be the biggest piece of what we do.

Unknown Analyst

In the past, you have talked about like 80% of growth typically comes from existing base of work, and 20% comes from new clients. So number one, if that's still true given that you are focusing more on hunting? And number -- second, and if that is true, is it fair to say that your existing base, these 3 groups, like tangent rate [ph], grow from existing clients for next 2, 3 years?

Mohit Bhatia

Yes, that percentage has not changed materially. We still see 75% to 80% of growth in any one fiscal accounting period coming from exiting clients. So that stays.

N. V. Tyagarajan

Okay, thanks, Mohit. I'm just going to have one slide probably to close and then really open it up for any questions before we break for lunch. Before I get into this, one of the things that I hope the last 3 or 4 hours demonstrated, because we're very proud of this, and our clients tell us once in a while, when they think we are not going to become arrogant when we listen to this, is the depth, the strength and the caliber of the leadership team of the company. And one of the objectives that we had also was to allow that conversation exposure of the leadership team to come through because this is a team that actually makes this happen, and this is the team that actually makes the difference to our clients. And you had an exposure to some of them. So I just want to start off by saying that truly, that's one of the biggest differentiators, and it's tough to talk about it because you can't touch it and feel it, but it is true. I'm just going to fly through this.

In the end, it's all about, we are in a highly under-penetrated, early-stage cycle of a long secular changing world that we are part of that change. That will deliver multi-decade growth. I mean, the way we think about this business is multi-decade growth with multi-decade relationships, which are highly sticky. We have a highly differentiated unique position in that space that we continue to find ways to add to that differentiation with. And we've created the capability to do that by creating an investment bucket that we are very focused in a very disciplined way to invest, none of which are bet the bank investments, none of which are I'm going to do a big investment, I'm going to sit back and watch, bite-size investments, clearly measurable. We have a balance sheet that allows us to continue to add capabilities, gives us a lot of flexibility. We have a leadership team that knows how to drive this bus. And we have very stable margin, high cash flow generation. I mean, I just described in a nutshell why I think we are part of a changing world and we are part of the way the world is changing.

So with that, I want to call this formal presentation part to an end so that we can open it up for questions and then probably move to grabbing lunch as well. Thank you.

Unknown Executive

When you do a great presentation, Tiger and like the rest of team, usually the questions are all answered. So I appreciate everyone's time, we had a packed agenda today. One thing I wanted to do before breaking for lunch though, I wanted everyone on the Genpact team who is sitting in the audience to raise your hand just so others can see. We have -- again, we have the broader team here. They're involved in a lot of different parts of the business. And so please, they're going to be here, feel free to interact with them, they're looking forward to interacting with you. And again, we have lunch and look forward to being your host for another hour or so. Thanks.

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