Thank first of all, I'd like to thank everyone for coming today. My name is Bharani Bhavan, and I'm Head of Investor Relations at Genpact. And on behalf of all my colleagues here and all of our colleagues globally, I'd like to welcome you to our twenty fourteen Investor and Analyst Day. We've got a really exciting and action packed I was joking with some of you, packed morning. And before I hand it over to Tiger, our Chief Executive Officer, I just want to cover a couple of housekeeping items.
In terms of how the day is structured, you're going hear from some of our leadership team. But given the amount of materials we want to cover, we basically have asked or we basically structured the day such that we've got two sections for Q and A. One is right before mid morning break, which will come around 10:30 and then at the end towards towards prelaunch around 12:30. Again, we'd ask you to reserve your questions for that time, but we'll make sure to answer your questions. So that's the first point.
The second point is we are going to have a lunch. And besides those members of our management team that are presenting, we're also going to have members of our broader leadership team and team here including some new additions that I know many of you want to speak to are also going to be here so you can mingle with them as well. And with that quick introduction, I'm going to move to our Safe Harbor, move quickly through that. And before I hand it over to Tiger, I'm going to cover quickly an announcement that I hope most of you saw last night. Basically after the market closed announced a 300,000,000 share repurchase via Dutch auction.
A couple of the details for you and obviously we can answer questions over the course of the day. The price range is $16.15 to $18 The offer opens today and is through April 2. In terms of how we're going to fund this offer, the good news is we have as many of you know tremendous flexibility. We basically are at 0.25 net debt to EBITDA. And so we're going to be opportunistic with respect to funding it by cash or by credit facility.
And I think the last point I'll make is that Bain Capital Genpact Directors and Executive Officers do not intend to participate in this offer, which again goes through April 2. So again, with that as a quick introduction, again, I'm going to hand it over to our CEO, Tiger, Tiagarajan.
Bernie, thanks. Good morning, everyone. Thank you for taking the time on a cold winter morning, calling a day in March winter in New York doesn't sound very good and very exciting. And for some of you who come from Boston and Milwaukee, think part of the winter here is because of where you're coming from. I know there are a bunch of questions that are there on the announcement that Barney referred to.
And some of the feedback that I've received just before the session started have all been around, hey, this is great So we'll still hold all those questions as well for the Q and A session that we have possibly for the end of the whole day because then you can bring it all together as well as during the break. What we'll do through the day is an opportunity for a number of the leadership team to take you through some of the key elements of our growth strategy, the four pillars of our growth strategy as we talked about, as well as how it's playing out in a number of our key business. So you'll see a number of the leaders go through that in the pre break session. And we'll do the break and then we'll cover GE, the financial update and then I'll do a wrap.
Apart from all the leaders who will anyhow interact with you through their presentations, there are two leaders here who are not going to be part of the presentation, but are in the audience. I just want to introduce them so that you have an opportunity to talk to them. Mohit Tukral, who runs our banking, financial services and insurance vertical, as some of you know our largest vertical and Jani. Jani, where are you? Gianni, our Chief Marketing Officer.
So again, an opportunity to interact with them and then a whole bunch of other people from our client facing teams that will get introduced during the session. So we are a company that prides itself on running very critical operations for our clients and driving efficiency and effectiveness for them, really driving bottom line impact, working capital improvement, helping them to drive growth in markets that are sometimes very tough to drive growth in. And we do that on a foundation that we built over many years of operational excellence, a foundation that we inherited in the service that we provided originally to GE with things that we learned with them that we use and strengthen every day as we go forward and things that we collected as benchmarks over our fifteen plus year journey serving not just GE, but a bunch of global clients across the world. So that's who we are driving efficiency and effectiveness, driving outcomes and helping clients undertake a long transformation journey that drives better outcomes for them and makes them run better in a very, very competitive environment. We are in a unique position at a unique time in the marketplace.
If you look at the markets we serve, these are large, highly underpenetrated and continue to grow. Every one of those statements, we'll try and go through as we go through the day in the specific segments that we are working on large, highly underpenetrated and continue to grow. We have a very strong highly referenceable client base in every one of the segments that we operate. A number of them have been with us for many, many years and a number of them are new and become highly referenceable very quickly. It's core to our strategy to continue to have a reputation that is as strong as that when it comes to client referenceability.
Our client needs are changing rapidly and we'll cover that as we go through today. And a lot of the changes that we are doing is to map the changes that our clients want in the way they drive their competitive environment. We partner with our clients on a number of very unique engagements through our history And some of the new engagements that we are now partnering with them over the last couple of years are even more unique and even more transformational for them. And finally, over the years, we've really found a way to drive a true virtuous cycle between what we call the run side of our business, 80% of our business that runs technology and processes for our clients drives efficiency and outcomes. And the side of our business that takes the data that gets produced and builds insights from that data.
So the virtuous cycle that gets created drives insights for our clients, drives transformation for our clients and drives bottom line impact. A minute on our history, particularly for those of you who are new to the company and I know a number of you have been with us for many years, but some of you are new. Obviously, started off with GE in the late '90s, served GE Capital and GE in the first seven years of our evolution, spun off into an independent company, listed on the New York Stock Exchange around 02/2007, now serve 700 plus global clients, really built over the years, particularly over the last five years, a very strong benchmark driven ability to work with clients to diagnose the way they run themselves and take them to best in class. We call that enterprise process. I think you've heard us ad nauseam speak about it.
Bain Capital came in as a significant investor in 2012. And then we are in the execution mode of our four pillar strategy to continue to drive growth in the business and in the markets that we serve. I want to start off by talking about client referenceability. And this is, as I said, core to who we are. Our Net Promoter Score which is the way we measure this and we do this systematically twice a year has been consistently going up year after year for a whole range of our clients and this doesn't this applies to GE, this applies to a lot of our global clients across the board, across all our industry verticals.
And what that does is gives us the right to grow with them and give us the reputation to have them promote us to others to then grow with others. And that is fundamental to our business strategy. It's always been that way and it will always be that way. Our leaders are incented on it because it helps them to drive growth. 80% of our growth comes from existing clients.
And part of our strategy that you'll hear today is how do we further leverage that client referenceability to grow a number of our high priority relationships. The logos that you see there are a subset of all the logos that we serve. As you know in this industry, you don't necessarily get approvals to share the relationships that we have. But even the ones that we have here are brand names that anyone would be proud to have as a relationship and it straddles all the key industry verticals that we serve. The virtuous cycle I talked about, it allows us to move from just sheer efficiency to effectiveness and outcomes.
It allows us from being just tactical to very strategic. It allows us from being someone who's looked at as cost and efficiency and labor arbitrage to outcomes around bottom line, customer satisfaction, growth, risk, risk mitigation, dealing with regulations, very, very strategic in that transformational journey that we continue to be with our clients. It's that virtuous cycle that we build over time. It's that virtuous cycle that we want to leverage even more as part of our four pillar strategy. Talk about some of the unique things we do with our clients.
Three examples, a pharma major, take work that is being done for the CFO across 60 locations that serve 100 plus countries and over a journey of a couple of years, move them to two or three delivery centers that are shared services that allow standardization harmonization that allow things to be taken to the cloud that allow impact to be driven, whether it is buying less than before, getting DSOs down, closing the books faster, all direct impact to the bottom line and doing it in a manner that drives efficiency in terms of cost of finance for that organization as well as true bottom line impact in terms of outcomes. Long journey, very critical journey driven by the CFO directly from his or her office. Taking that order to cash and moving it completely to the cloud, this is a different slice than what the CFO does. It starts with sales, moves into orders, then moves into fulfillment, into billing and then collecting. And in that cycle, lots of things break.
You move that to the cloud, you bring visibility, you bring dashboards, you allow that to be driven globally for 100 countries with one set of dashboards on one platform in the cloud, get it implemented in fifteen days without touching the core reality platform. That's one of the stories you'll hear today. And for a large U. S. Bank, given the kind of regulatory changes that the banking industry has faced and the kind of product changes that have to be done to deal with regulations, how
do
you model those out? How do you model it from a growth from a pricing and from a risk perspective? Some of the work that we do. So three examples of the kind of things that we do for clients that drive true deep impact. And we measure that with very diligently every year in terms of the total impact we drive for our clients.
And in our history of the last seven years since we spun off into an independent company, 22,000,000,000 of what we call business impact that have been generated for our clients, confirmed by our clients as things that they have seen hit their bottom line. And this really has nothing to do with the work that we take on and deliver from a global delivery perspective. The markets we talked about, it doesn't matter whether it's $390,000,000,000 of total market size. Of our argument's sake, let's say, only $350,000,000,000 The reality is penetration rates are 13% to 25% depending on what slice you take. You want to take insurance as a slice?
It's a number. You want to take finance and accounting as a horizontal slice across verticals? That's another number. You want to take life sciences as a vertical? That's a third number.
But every one of those numbers much lower than what it could be and therefore being driven to low teens growth for sure. Some higher than that, some lower than that again depending on the market and the slice that one takes. And finally, no single market leader. Often one talks about this industry being fragmented and the fact that there are many, many players. The answer is yes.
However, the reality is that depending on the slice you take and the specific area that you're focused on, the competitive landscape is actually pretty narrow. It's a few competitors who compete very fiercely for that market, because they've built depth and expertise in that space. And part of our four pillar strategy is to identify those spaces, continue to create that differentiation and then win in that space in order to continue to grow with the growth rates that we want and we expect. When we kicked off our strategy exercise seventeen months sixteen months back and we said, let's think about our next five to seven year journey, Let's think about how do we drive growth over the next five to seven years. One of the things that we were very clear about is that we need inputs from our clients, from our potential clients, from our targets in the industries that we serve.
So we obviously partnered up with a consulting company, got them in and had them talk to our clients and our targets to understand their journey and what are they looking for in terms of a partner like us. And that's what you see there from being tactical in terms of I want to get some cost out and therefore I want to engage with a partner like you to strategic. I really want to change the way finance runs in this company. I want to change the way claims get managed in my insurance in the insurance industry. And I want to be a leader in that.
I want to change the way order to cash gets done. And I want to completely take it to the cloud, because I want to bring receivables down. I want to generate cash and take that back to my shareholders or I want to take that back to investments, because I want to grow in emerging markets. Every one of those much more strategic, much more long term and much more transformational. The role of data and analytics, again, something that's front and center to almost any conversation these days, but it's also front and center to our conversations.
The reality is if someone wants to drive insights from data, you better have clean data, which means you better have great processes with underlying great technology that allows you to get great data, but then you use technology to build the insights, all of that done in the context of understanding the domain, the client, their competitive environment in the absence of which you just have a bunch of nodes producing regression analysis. So the demand from our clients being we need our partners to engage more in those types of journeys because that's what we need to create value in our space. And the last one, and you'll hear this term through the day, is we love you guys for execution. We always came to people like you and others for execution. That was fine when we were tactical, when we said we wanted to take cost out in this space.
Now what we want is to look around the corner. Help us look around the corner, help us design, help us transform and then help us execute that design and transform. And by the way, we think the people who are best positioned in some of these spaces to help us design and transform are the people who have actually run it, who run it today and you know how to run because that makes it pragmatic, practical, database, benchmark base versus telling me what to do without actually any basis of having done it themselves. So our positioning is clearly around we do this for a living. We've done it for fifteen plus years.
We do it for hundreds of clients. So when we come to you and tell you this is the way you should design yourself for the future, we talk on the basis of that foundation. So that really sets us up for what is our four pillars of our strategy that we are in the process of executing and that we are on the journey of that we think will drive growth for us going into the future. The first is a set of choices and you'll hear about how we made those choices, what choices have we made and why we made them. Choices around which industry vertical, which service line and which geography to focus on.
Choices that tell us that you can concentrate your investments. In our history, we've always spread our investments out. Our history has been one of saying we'll do everything for everyone everywhere. And when we do it, we'll do it Great story, great execution to take us from $400,000,000 to $2,000,000,000 of revenue. But to go from $2,000,000,000 and beyond now, we think it's necessary to concentrate those investments in areas that we could create competitive differentiation even more, in areas that allow market growth even more than other markets, that allow margin expansion more than other markets and markets that are transforming for various reasons that those markets are transforming.
So make those choices for investments into those specific areas not everywhere. And what are those investments? The next three pillars are the investments investments around domain expertise in those chosen areas investments around building solutions, building solutions that further enhance the differentiation we have. And these solutions are things that our clients are asking for these days, bring together technology analytics and process and then execute on that. Solve big problems that we are facing.
Solve big problems that our industry is facing. Some of the examples you'll see today are around those, because then that drives differentiation and then that drives growth. And finally, have people who have the ability to have all the conversations that I just explained with my C suite because sometimes I don't know what I want, I don't know what others are doing, and I don't know what I should be doing. So a lot of our investments are also people who have the ability to have those conversations, who know the industry that you're dealing with, who know the clients you're dealing with, who know the pain points they're going through, who know the changes that have to be driven. And it's those people.
So it's investments around domain. It's investments around building the solutions and capability and enhancing it further in our chosen areas. And it's investments around people who can take these conversations, create the sole source deals that create the value for our clients. So we have an execution road map. And what you'll see through the next couple of hours is the elements of each of these execution road maps.
We have a game plan to get those client facing people. What's the progress against that? We have a game plan to get lead solution architects and these are people who build all these solutions together. We have a bunch of them. We are just expanding them rapidly.
Have subject matter experts in claims. We have subject matter experts in life sciences. We have subject matter experts in risk and regulatory reporting for banks. How do you expand those in order to be able to partner with a lead solution architect and with the client facing teams to build the solutions that the clients are asking for. Further embed technology and analytics into our solutions.
We think that as we go down this path, we'll be embedding technology and analytics much more than we've done. Where we've done it so far, it's been a home run. And again, you'll see some examples. Embedding them more makes the whole conversation very holistic, makes the whole solution bigger and makes the conversation with the clients stickier and therefore the value creation for the clients bigger. Strengthen the pipeline on large deals.
We've talked about the fact that our large deal pipeline is strong. As we add some of the new people at the levels that we are adding, we think that pipeline on large deals will only grow. And therefore, strengthening that pipeline is very, very important. And then you take that and move that to 2015 and beyond. And that includes continuing the journey on investing on those client facing teams, lead solution architects, the subject matter experts, really seeing sales productivity.
As we bring in new people, we expect sales productivities to start rising up. Clearly in the beginning there'll be new people, but as they mature, we expect sales productivity to rise up in the different segments of our business. That will lead to higher bookings. It's something that you'll hear a little bit more through the day and particularly at the end, and I'll talk about how we're going to share some of that with the investor community. Bookings is a key metric metric for us as we think about long term annuity stream of our business.
Accelerate the conversion of those large deals that we've seen in the pipeline that we continue to see getting added and that we want to strengthen. And all of that not just in the context of building our own capabilities and taking it to market, but also figuring out the right acquisition opportunities to build those capabilities as well as partnerships that are very critical as we continue to expand the pie in the chosen areas And we'll track some of these metrics internally to make sure that we are making progress against those investments that we've charted out in those chosen areas and the outcome of those investments in terms of what they deliver for the company and for the financials of the company. And finally, at the end of the day, it's very important for us to think about this holistically from the perspective of total operating margin total operating income growth along with the right capital decisions in order to make sure that the total shareholder return continues to be focused on as a financial outcome. So from a long term trajectory perspective, making sure that that combination is holistically looked at to drive growth in total shareholder returns.
So with that, I want to hand over the first section and a set of sections to take us through each of the pillars that we talked about in terms of the way we are executing the four pillars of our strategy. So with that, I'd like to invite Sasha to the stage.
Good morning. So Tiger has talked about the overall strategy. I'm going to spend the next twenty minutes or so talking about the first three pillars, which are around how we made the choices that we made and really what types of investments we're going to make in those areas. So the first thing that I'm going to take you through is how we made the choices. What are the dimensions that we actually used to make the choices that we made?
So to make these choices, we used four sources of insight. The first two were very scientific number oriented. The second two were a lot of inputs from our customers and clients. The first source of insight was actually Genpact data. So one of the things we did when we started the strategy exercise is take the entire $1,200,000,000 and put it across the 23 verticals that we previously had.
And we looked at two dimensions revenue and profitability. And one of the things we realized is there was a massive dissipation across these. The second thing we looked at and I will spend a little bit more time on that is absolute market size. Saivat talked about the $300,000,000,000 the $390,000,000,000 but where does that sit across the various verticals that we had that we work in. The second two was really about validating.
So as we looked at where growth was coming and where the markets were growing, we got a lot of input from our clients on whether those were the right areas that we should focus on. With all of these, we created a database and then we applied two dimensions across that database. The first was market attractiveness and we talked a little bit about that. And the second was Genpact differentiation. Now really what we did here was a couple of things.
One, we looked at how many clients we had in each of these spaces. And two, we looked at the range of capabilities we had. And where we had a large number of clients and a high degree of capabilities, those are the areas that we realized we had a greater differentiation. The one other element which is very different from how we previously looked at our choices was profitability. So in market attractiveness and our ability to differentiate profitability was actually a big, big part of making the choices.
So one of the things we consciously did is look at areas of focus where we also have the opportunity to make larger profits. So what we did is across our verticals and our service lines, we used these dimensions to make a set of choices. The market sizing element and I think this is something we've talked about a lot recently. McKinsey was involved with us in the blueprinting process and they brought to the table their proprietary market sizing methodology. Geiger talked about the $300,000,000,000 The 300,000,000,000 is across all the areas we previously worked in and that is going to grow to $390,000,000,000 We are assuming that across all these areas penetration will go up.
It's still extremely low. So if you look at an average penetration, it is at about 13% and it will go up to 19%. So what that does is it creates $32,000,000,000 of additional market size in the next five years. Now this doesn't assume the increased penetration in the $300,000,000,000 that already exists. So as you will see the market size is very, very large.
So what does this all mean for us? We narrowed down our choices from the 23 verticals that we had to nine verticals. And if you actually look at banking, it's a single vertical, so it's eight verticals. There are two types of verticals that exist in this space in our space and the way we look at it. The first five are where we have a very strong starting position, which I talked about.
Here what we're going to do is continue to concentrate our investments to enhance our differentiation. We want to be number one, two or three in each of these areas. The second set of verticals which are cap markets, health care and high-tech are verticals where we have a strong starting point, but each of these industries is going through a massive degree of change. Change. So one of the things that we will do is continue to use our investments to build solutions that actually deal with the changing needs of the client.
Within these verticals, we are going to build two types of service lines and we will talk to you a little bit about those as we go through the day. The first type of service line is what we call core operational service lines. These are capabilities that will deliver only to these single verticals. So for example, claims in insurance insurance or regulatory affairs in life sciences. These are problems that our clients are trying to deal with.
The second set of service lines is where we have historically had where we have historically grown up and these are F and A, IT analytics. These are also areas and you will hear about this where we will continue to enhance our differentiation. What are the types of investments we will make? And Ehmed will talk a lot more about the client facing side, but we will be investing in client partners and we will be investing in the specific chosen areas in two roles one, lead solution architect and the second is subject matter expertise. These people in conjunction with the client investments will be the ones who will architect the big solutions solve the big client problems.
So let's talk about how we will enhance our domain expertise. We're enhancing our domain expertise really around two dimensions. The first is and I talked about the service lines. We have 40 service lines that we have chosen across the core operational and the enterprise service lines. We have a new role that we have created called the service line leader.
We've had this in F and A previously, but we're enhancing that. We're actually expanding that across all 14. And this person has a single goal. One is all the investments that we have made using them to drive the return on investment on that service line, building the right solutions, understanding the client problems, bundling and integrating all the various pieces to build the solutions for our clients. To do that, we will then enhance our LSA and SME capacity.
We are actually doubling our LSA, our lead solution architect capacity And we're increasing our SME capacity by one third. The second thing we're doing is as we're bringing in these people, we're actually massively upskilling the types of people that we have. So all of these people have north of fifteen years of experience and in some cases much, much more in the areas that they focus. So what does that allow us to do? That allows us to have people who can have those strategic conversations with those customers, solve the customer problems, create those complex solutions and as a result create much, much larger deals for Genpact.
Just a few examples of the types of people that we have hired. I will just focus in on Andrew Wilson as an example. Andrew has in excess of twenty five years of experience in consumer products in a very niche area that we want to build capability in, which is trade promotions. This is a $4,000,000,000 spend in the consumer products industry. So this is how focused we have become on the types of people that we're hiring.
I'm going to spend a little time talking about how we're going to differentiate our solutions. The first thing we talked about are the service lines. Now core vertical problems. Again, examples such as trade promotion, So the solutions that we will create, the service lines that we will create are much more complex. And the last point and this is something that we have done in the past, but we will continue to enhance.
One of the things we recognize is that we cannot organically build all capabilities. So partnerships? How do we do the right set of acquisitions to accelerate cycle time in the markets that are growing and to enhance our capabilities quickly? So an example of moving from point solutions to service lines. This is a service line and it's a bit of a complex chart, but this is a service line in the banking industry.
We would previously go to market with the eight point solutions that exist below, When really what the customer is trying to solve are two things: one, a single view of the customer two, understanding their buying behavior and when they would buy a particular product and through what channel. So what we did when we stepped back is pulled together all these point solutions, integrated all the various elements of analytics and technology to create that single problem solving service line for our customers in the banking space. I'm going to now talk to you about two partnerships that we have created. The first is one that a lot of you in this room would be familiar with, the know your customer in the cap markets business. These are industry changing, game changing partnerships.
So the way it currently works is when you do a know your customer and we all know that not doing that for clients with which you engage is a massive regulatory issue. Each bank does this individually and each bank has to set up their own KYC capability. What we're doing in partnership with market is creating a utility solution that centralizes and standardizes this capability. The other thing it does is it brings together all the information about the customers into a single space. So what happens is in the future when a customer wants to do KYC, they leverage that utility.
So all the information sits in a single space and allows them to leverage this capability. We are working with four design partners, two banks that we've mentioned here HSBC and Morgan Stanley. So it's actually a three way partnership between the banks market and Genpact to create this capability. The second one is a little bit about going end to end again in a space that is top of mind for CEOs. With the massive volume of regulations that are coming in,
one of
the things that is really top of mind for CEOs is the risk agenda. And they are looking for partners who allow them the ability to deal with these regulations across the design transform and run pieces. So what we are doing is we're working with a very large risk consulting firm and we're creating a capability to do things like model building, validation, stress testing, dealing with all the new regulations, again across these three dimensions, which allows the clients one to variabilize and two to have a price point that works for them. So what does this all mean for us for Genpact for the investors? I think it's really three things.
One, through all of this focus in addition to just a focus, focus, focus on investments. One, it allows us to engage with customers with very, very, very sharp value propositions. Two, it allows us to move from the incremental solutions to really solving big problems that are relevant to our customers. And three, which is most critical is it allows us to create these much larger sole source deals again in areas which are relevant for the customer. So with that, I will hand over to Emma.
Thanks, Tiger. Thanks, Sascha. Good morning, everyone. The theme from this morning clearly has been focus. The theme has been around upgrading our services and the theme has investment.
And one of the areas that I'll cover this morning with you is on client relationships and investment in that space. So we're clearly at a very unique time. We are
at a time
when as an organization, Tiger described sixteen, seventeen months ago, we went back and we relooked what were we going to feel like, look like and be for the client in the five, seven years? And that really meant every aspect. And that included how we work with clients. And in the area that we are where the market has shifted, we say shifting, I think it's more it's shifted. The market has shifted where clients are demanding solutions that are more end to end, clients are demanding solutions that are more complex.
And for that, we certainly needed a sharper focus on how we engage with them. Ultimately, as Tiger described, the outcome we're looking for is accelerating growth and accelerating value to our clients. And an area of focus being sales or client facing, which I'm working with the global teams on. And we were thinking about this as the fourth pillar, the fourth pillar of our strategy. Investments is great.
So Tiger talks about focus. Let's be sharper about what we do. Sasha came and shared focus on service lines, 40 to half a dozen. Then Sasha spoke about how we're investing in expertise. And when all that is built, how do we take to market?
And how do we ensure where we're not fulfilling demand, but creating demand. That's the big change we're attempting to drive. And the framework of connecting the dots on this investment are broadly in four different areas. If you think from fundamental, sales compensation, let's get to the basic, sales compensation. We have launched a completely revamped plan, a plan that is A, aligned to enterprise growth, long term value creation.
One, it is uncapped. It is completely uncapped. And the third is, it's transparent. And this is what salespeople love. It's done, implemented January 1.
Second bid is you bring in people from the outside. We've spoken about raising the bar. We bring in people from outside. And if we do not drive focus, a sharper focus, we will dilute them. So there was a time where we were actually trying to sell into or selling into 3,000 different accounts and prospects.
We've cut that list by 75% and we're now focused on 800. 800 and increasing sales capacity by 25%. And in a strange mathematics, could say that's four times. But there are accounts and areas of focus where our focus from a client standpoint could be 10x. And that's what we are trying to drive.
So Tiger raises it reminded me of a mobile operator in K. Everyone, for everyone, for everything. It's called EEE. And I think that's what we're going away from.
When we talk to our teams, we say we're going from wide and shallow to narrow and deep. So if you think from a concentration standpoint, we go from 3,000 who we thought were attractive, 800 and then we said 800, well actually it's 100, 100 top priority accounts and we've done a further drill down to say 50. And in these 50 accounts, we're actually adding a leadership layer of client facing executives who we call client partners. So you have sales comp, which will drive the whole comp the engine of client facing executives and they will be excited about it. You have a concentration of how you want to bring the resources in and have them focus on.
But like any organization, we could have client facing people do the wrong things, not spend enough time with clients. So we now have a sales back office. That might sound like a back office doing transaction work, but the objective is very simple. What doesn't touch the customer shouldn't be touched by the client facing person. So we're taking that back, creating a centralized function for customer intelligence, for lead generation, for reporting and for analysis and we're setting this up essentially to create and generate more client facing capacity.
And with these three things together and the layer we call client partner, well, there's more to it because it's not about bringing senior people high caliber resources, creating back offices for them, great comp, but how does the ecosystem come together? And when I spoke about 3,000 to 800, 200 to 50, which is the sharp focus, the client partner ecosystem is really about Sasha commenting about SMEs, Andrew Wilson, Daniele. We will have dedicated account teams aligned under these client partners. So about five years ago, we spearheaded an idea in Europe. And the idea was can we bring in people of a very high caliber and make them successful?
And that in some ways never called it client partner, but in that in some ways is what we're looking to build and we've actually launched it. Of the 50 accounts, I couldn't say we're at 50, but 18 accounts are currently owned by client partners. And these are accounts which are $25,000,000 50,000,000 potentially 100,000,000 relationships in the future. We've aligned teams with them, so they have dedicated lead solution architects, subject matter experts and both internal and external resources to create value propositions, very encouraging signs. Again, outcome versus in process.
In accounts where we have client partner ownership, we're seeing a much larger share of sole sourced deals. I mean, there are an account a couple of accounts where half the pipeline is sole sourced. We're seeing significantly larger deals happening, because what essentially this has done to us is it has helped elevate the conversation of this is not about 100 FTEs or 200 FTEs. This is about can I stick with the CFO of a brewery company and talk to him or her about the supply chain distribution challenges that they're going through and how we could help as a company? This is about financial services partner who can go and have a conversation of the new challenges in the regulatory space and how we can come and fulfill some of their needs.
And that's really how we think we can elevate the conversation and get a seat at the table. It's was a point in time we've been in this industry where CXOs would engage on cost. Now is the time about value. Now is the time about tell me something maybe I don't know. As a colleague of mine who would say, my aspiration is to be at a point where I know equal to or better than the CFO who sits across or the CEO who sits across.
It is an aspiration. And at this point in time, when we thought through and we saw that spearhead of an idea that we launched in Europe, we said we must do it across the world. And it's probably opportune for me to introduce two such client partners. We actually have three. We don't have a picture of the third, but we have two in the room.
Jerry Gump, Financial Services. You'll have an opportunity to meet Jerry. Picture, sorry. Casper based in our London office and Rob in the middle. No picture, but you can see him.
So different backgrounds. So Casper five years in the system Jerry, five months in the system Rob, five days in the system five. But it's just a different level. And the whole philosophy that we've been driving is, we will take the game at a level where the engagement moves as Tiger said from efficiency to effectiveness, from demand fulfillment to demand creation. This period example we spoke about, it's a very simple chart, but it tells us a couple of things.
One, five years ago, we took a bold step to bring in people from the outside and make them successful. And you see the charts. CAGR on bookings for the European team is 20% year over year. We started investments in 02/2009. Sales force productivity, Tiger spoke about it, 50% higher than global enterprise and our and the contribution of European revenue to global revenue up from 12% in 02/09 to 20% as we speak today.
I'd like to wrap up, talk about two aspects. The first three are to measure progress. There's a dozen others we probably measure, but very relevant. They're all about measuring progress. Are we headed in the right direction?
And the last is about outcome. The last is about enterprise value. And the last is really about creating long term value for the company. So in summary, we started by saying focus, chosen verticals, investment in capability, investment in LSAs, SMEs, subject matter experts, investment in sales. We started the journey.
We're on the journey now, 4.7%. It's a 6% target. We'll get there. The hurdle rate we're keeping for investments is high. So it is slow, but we're making tremendous progress.
So what does that wrap up? The wrap up to that is, well then show me examples of clients. What are we doing with clients? And in the next section, my colleagues will walk you through some client examples. At this point in time, I hand it to Shantanu Ghosh.
Good morning. Great to see a lot of familiar faces and old friends here. Thanks for coming and really appreciate your time today. So the good news is that finance and accounting after a grueling set of return on investment calculations and market prospects, I've been able to secure focus from Tiger. So we talked a little bit about focusing our investments and energies.
I'm in a good space now that finance and accounting is going to get focused. So most of you know that it does happen to be our single largest service line. We've got market leadership position in terms of where we stack up there based on external analyst view and based on our own understanding of the market and size of revenue and all of that, number of customers, people who are in that financial services finance and accounting service line. I think there are two dimensions which is worth specifically commenting on. One is, if you look at all the chosen verticals, almost in all verticals, we are very strong in finance and accounting services.
There are a few verticals there where we have disproportionate market share, for example, in life sciences, and we'll talk a little bit about that when B. K. Comes in and talks about life sciences. So that's one. Two is, across the entire span of finance and accounting services, whether it's transactional, whether it is contextual, whether it is very high end analytical, we've got unparalleled depth and scale both and across verticals.
So clearly, we are starting off on a good solid foundation, a really strong base. It's been a growth engine for many years and hopefully continues to be our growth in the future. The way we see the market is finance and accounting has been outsourced for fifteen, twenty years, yet it's an under penetrated market. It's a huge market. If you really look at the top companies in the world, mid to big sized companies, not more than 30% has really done anything in terms of outsourcing.
You can add another 20%, 25% who's done anything in terms of even internal shared services. So there's a huge play there both in terms of what you can think about doing from a centralization standardization perspective. Even for those who have done and even in with some of our mature customer relationships, the penetration doesn't go beyond 30%, 35% at best. In most cases, it's 15%, 20%. So there's a huge amount of potential as to what you can do in terms of being relevant to the CFO just in the core finance and accounting service line area.
In terms of where the market is going and I think this is very important for us and we feel very encouraged. I've been doing this for the last eight years ever since Genpact became independent. And I can tell you the conversation with the clients are far superior to that and what it has happened before. The clients are really looking for end to end design of their target finance operating model. It's no longer about I've got a set of folks in some shared services, can you just take it off, can you just decouple the process, process, get me some cost benefits and stuff like that.
It's about how do I change my operating model, so that finance and accounting for that particular client becomes a real business partner. The second thing on technology is with everything that's happening in terms of development towards cloud and mobile technology, that's actually allowing the clients to have an ambition for transformation, which overcomes the limitations of cost, the ROI challenges of trying to work on just core And we all know the story on ERPs, which is fragmentation, inflexibility, so the sheer amount of investment that it needs to sort of get up to speed with changing business models and changing business needs. And the third is, if you really look at CFO's remit and you know it as well or better than many of us, their remit no longer is just core finance. Their remit is how do I change the operating performance and the operating leverage model of the company. If you therefore mean one single metric there is if you look at transformation leaders and global business service leaders across the big companies, every 99% or 95% of them report into the CFO.
So we feel very encouraged in being very strong in an area, in a buying center, which has so much relevance and there's so much changes going on and just augurs very well in terms of how we think about the business. So what are we trying to do in finance and accounting? We have historically been very, very strong in the run side of the business in executing finance and accounting process from simple to complex across different verticals, across different industries. And we are not able to give that up. We are able to continue to strengthen that.
We put in a lot of investment on that in terms of operating frameworks and stuff like that. We also continuously focus on what are some of the gap areas. Is there a particular industry regulatory piece that we can get better at? Is there a particular industry in a specific supply chain kind of area where we can get even better in terms of understanding how to apply developments in finance and accounting processes and bring value in those areas. So we're going to continue to focus that.
But there and over the last four years or five years, we have spent enormous amount of intellectual capital and investments in building what we call the proprietary framework of smart enterprise process, which is really how to transform finance processes. It's commented in the external media. A lot of independent analysts and advisers believe industry analysts and advisers believe that it's our source of strength. It's a big differentiator. And clearly, clients in terms of their feedback and their the way they perceive value from us believe that we bring a lot of value in that transform part of the process.
Where we are now focusing on is strengthening our capabilities in two fundamental areas, which is on the design side, which is how should I think about my target operating model? How should I think of my overall finance structure? Not how should I think of improving my procure to pay process. So it grows a little more upstream. That's the kind of conversations we're having with CFOs today, and we are putting investments in that.
So what kind of investments? Two kinds of investments in this area. One is people. So we are recruiting people of the same caliber that Ahmed spoke about that Sasha talked about. So I'm not going to repeat them.
That's why we don't have pictures. Also possibly they're not as good looking in the finance and accounting area. But otherwise, we are recruiting the same caliber of people. So just two examples. On the operations finance risk side, we recruited a person from Deloitte, twenty nine years of Deloitte experience in operations risk, partnered there heading that particular practice for a set of for a geography in North America.
For our design side consulting side, we recruited from a big four, twenty years experienced lady who's been advising global Fortune 50, Fortune 75 companies on the design side. Having said that, we are not creating a separate design arm. We are putting that as an integrated whole of our global subject matter expert practice organization and taking to the customer a holistic view of design, transformation roadmap and then the ability to run it seamlessly and make that design and transformation roadmap objectives get realized. And that's the fundamental difference. It's not about producing a benchmark report.
It's not about producing report of our classic hybrid structure of shared services and outsource. It's about then how do you get the benefits of that delivered on the ground. And that's where our that whole span of design, transform, run becomes relevant
for us and makes us a
little unique in the marketplace because most of our competitors really go at it through very specific separate set of organizations within their organization. And in many cases, the run is not their core part of the business or is not the leading part of their business. The second set of investment we are doing is on the technology side. And the trend on that technology of being able to leverage agile platforms, whether it is a specific process utility or it's an analytic platform or it's a cloud based solution for workflows, that is clearly opening up a completely set of new set of playing field for us versus classic technology players. So this is no longer about system integration capability.
This is about can you integrate process intellectual property and process insights and domain expertise in leveraging the best of breed technologies to drive that end output for the customers. So what we are trying to do here is we have carved out everything that we were doing in technology for customers. We have put it under one common group. That group is now intrinsically linked with the whole domain consulting and the domain subject matter expert and the RAN support groups. And all they do is try and figure out how do we bring best of breed technology, which ones we develop ourselves and how do we bring best of breed technologies to the customer.
And I wanted to spend a couple of minutes more on discussing that whole technology side of the game. So if you look at a classic client situation, any client situation, everyone has and especially our target clients, which is really the mid to big sized companies, everyone has a core ERP platform and a core ERP landscape, okay? Most of the time it's fragmented. It's inflexible. It's tough to modify.
Anytime you touch it, it's a $200,000,000 gig. And at the end of the day, 90% of the time, it's not going to happen on time, it's not going to happen to produce the results and stuff like that. What new technology is allowing us to do is to take that reality of system of record and actually put a platform of engagement, a platform of collaboration, a platform of analytics on top of that to drive the standardization and transformation. And what that means is for the customer, for the CFOs, it gives them a different set of options in terms of thinking about ROI, thinking about speed of transformation, thinking about what can be their ambition in going in and not get constrained by the reality of their current IT infrastructure. Because of where we come from and our DNA, we are in a unique situation to really play the best of both worlds.
What do we invest in, in terms of developing our own proprietary technology, where are market gaps and where do we leverage extremely well developed external platforms and bring them together because it's no longer about the system integration, it's no longer about the coding of the software, which makes the difference. It's about how do you bring it together to solve that business problem. And what you see there from a customer validation is Delphi, for example, is exactly the same situation as I described and ERP landscape, which is a reality, but order to cash performance being improved by putting in an order to cash collaboration and analytic platform on top, which is cloud based, which is mobile and driving DSOs down. So it's no longer about what I want to do with my technology per se, it's about how do I get DSOs down. Okay.
So those are the two charts on theory as to where we are investing in design expertise, technology expertise, bolstering what we had in run expertise and transform expertise. Here are some examples and proof points of that. And I think the and then the core theory here is as we get engaged in design and transform, it feeds into run. And as we keep running more, we get more engaged in design and transform. So it's a really nice virtuous cycle that we are getting into.
And if you look at some of these examples, the insurance company on top example is, we first did the design, we looked at the transformation of the whole FP and S setup. And as we obviously did that, the obvious natural conclusion from there over a period of time became how do you think about the center of excellence, what returns back with the customer, what do we set up for them. If you think of the CPG company or the foods company, we did a major design element and a transfer element from an order to cash perspective, led us to a unique opportunity of actually creating an order to cash COE from their existing base for us. One of the fastest cycle time to closure in that kind of a deal, which in any other time would have taken 3x time to close. And almost all of these examples follow the same pattern of starting with one, going into another and then feeding back into another because transformation and change is obviously not a static cycle.
It keeps on happening over and over again and that whole cycle keeps playing out. I also wanted to spend one minute on fleshing out what that can mean potentially for our customers. So this is a pharma company example where we have been engaged with them over the last few years on initially just executing a run situation from their fragmented shared service model and then progressively getting engaged with them in as they started getting into their end state operating model discussion in the design and run part. And as you can see over the years, the kind of benefits that then starts accruing is completely different from what you would associate with an F and A outsourcing model. It's not about arbitrage.
It's not just about transactional efficiency. It's about driving end business outcome, which is in this case, look at the numbers on working capital, look at the numbers on just the productivity, which by the way is not something to sort of gloss over. So that's what we are doing. Finance and Accounting continues to be a real focus area. And with that, I'd like to hand over to B.
K. For taking us through Life Sciences.
Thank you. Hi, I'm B. K. Lead all of our Consumer Goods and Life Sciences business. And thanks Shantanu.
And I love when you gave all of the Consumer Goods and Life Sciences example even in your F and A, because there's a healthy competition always going on here. How many examples in different verticals and especially in the service lines like F and A? Thanks. I think in all the three examples you named two were one was from consumables life sciences and so competition is on to you Scott wherever you are. No, never there.
So my story today is about where we originated from and what are we doing actually also beyond F and A. Clearly, as we go along okay, let me go along. So if I just go back in history, back in 02/2005,
when we
started, actually we didn't have any life sciences as a customer in F and A, though we had Tiger spoke about domain today, Latif spoke about focus. That's what we did for last seven or eight years in life sciences. So what we have as a result in last seven years, we have built a significant franchise and we are the leader in F and A and in rec procurement. And we work with eight of top 10 customers in life sciences, have north of 30 plus relationships in that space. So what we do is run the entire finance operation for many of these customers clearly ranging from simple to all the complex including management reporting, financial planning analysis and so on and so forth and are therefore wired with the CFO.
And wiring with the CFO obviously helps us given what's happening and how changes are happening in the Life Sciences space. It is there is an increased voice of the CFO in the entire ecosystem of Life Sciences. And our connection with him obviously enables us to open many new conversations. So if I take a thirty second detour as to what's happening in Life Sciences as you most of you are aware, we have heard enough about patent cliff. Actually patent cliff is behind us.
So patent the top of the patent cliff was when $50,000,000,000 of revenues evaporated in 2012, 40,000,000,000 evaporated in 2013. And there's a long tail of patent cliff where for next five to six years each year anywhere about 25,000,000,000 to $30,000,000,000 of revenues will evaporate as patents expire. And as you know, there are many as you may be aware many of the molecules are getting filed, but the drug cycles are long. Drug development cycles are long. It takes eight to ten years.
So there is a fundamental shift that needs to happen in the life sciences space in that business model, because revenues won't stack up for a period of time. And earlier wherever while the significant shift was happening in many functions as in finance, procurement, IT, analytics so on and so forth, that fundamental shift is also happening in sales and commercial. That fundamental shift is happening in R and D. And our connection with the CFO is helping us strike those conversations in those spaces. And again, going back to focus as to what we are think how we are progressing ahead as we thought about what we want to do in life sciences after significantly building our franchise and finance and now clearly also designing and transforming.
So we chose two buying centers, just two more buying centers, sales and commercial and R and D. And within those two buying centers, we have further drilled down and goes back to the focus that Tiger spoke about. We further drilled down to two or three service lines in each one of them, and I'll enunciate through an example in a minute. But in sales and commercial, there are two or three service lines and within R and D there are two or three service lines. And these are large spends and going through some catalytic changes.
And given our basic model of efficiency, effectiveness, connecting the dots are positioned very well through the office of CFO and striking conversations as we go along in changing our destiny as we go through building the flight center franchise. And obviously, are weaving that in with the analytics, weaving that with technology, some of the technologies Shantanu enunciated. So I think building the clouds, building a lot of platform, leveraging insights, clearly listening posts from a social media standpoint. Let me take this example that we are in the execution phase for one of the large life sciences companies amongst one of top 10. So here, it's a global company operates in 130 countries around the globe.
So in many different business units within this company, many different geographies and many different functions, they have this secular issue of how do we do the summation of patient experience as well as safety. And each one of these business units and different countries were operating in a little bit silos. And they so we did actually about seven to eight months, we did many workshops in about 15 countries in different functions, in different business units. And then build this solution together that we are implementing for last five months. It will go on for another possibly five months.
And the solution is getting implemented for 40 countries, where we are now delivering where we brought in some of our competencies from a customer experience standpoint, contact center, analytics, building the insights, listening post through social media, put it on a cloud and we are now implementing this. Actually, we will deliver out of four countries, out of these 40 and then that is going to get replicated across 150 countries for this particular customer. And as we do this, this is one to many solution. It's the same solution that we are talking now to many other life sciences companies. Obviously, you need to change and model the context and so on and so forth.
But there are four different conversations going on with another set of life sciences companies as we build the same safety and patient experience solution because those are secular issues in this industry. Let me give you another example from an R and D. When I said within R and D, we chose actually only two service lines that we're going to focus on, regulatory and safety. And let me give you a little bit context of regulatory standpoint. Standpoint.
We looked at the data and Satya mentioned, hey, we did a lot of data analysis. So let me give you a clear picture of that data analysis and what this data analysis demonstrated to us. Over the last twenty years, 30,000,000,000 of fine has been levied on many of life sciences companies, because of safety supply chain issues and so on and so forth. Of that $30,000,000,000 in those twenty years, interesting fact was 60% of that, 18,000,000,000 of that was in last five years. Last five years, 18,000,000,000 of that fine was labeled in all
these companies. So
as they go through, one, there is a fundamental issue just from our revenues not stacking up, as I mentioned. Two, there is a whole pressure coming in from FDA, European Medicine Agency and so on and so forth to have far more safer environment for patients and so on. So I think we are again leveraging the CFO connection, we are going back to the R and D of where this regulatory service line kind of reports and building solution from a regulatory standpoint and are actually in some of the advanced conversations with some of these customers, working with some of the boutique firms as well and partnering with them and building the scalable solutions. And our endeavor is to actually have a dominant place like we have a leading position in finance and accounting or procurement. So very exciting time.
And it seems that I think we will continue to we've been growing at a very rapid pace within Life Sciences, grew from zero to some significant number today within Life Sciences and then we are on the same journey. With that, I'll pass it on to Scott to take us through the insurance journey thus far. Scott?
Thanks, Vijay.
I'm Scott McConnell. Good morning, everyone. This is actually a very exciting time in the insurance industry. And I've been in the industry for many years and I got to tell you exciting and insurance is not usually used in the same sentence very often. But we're pretty excited about it because the industry has traditionally been slow to move.
But when it moves, it moves together. And the probably the best word that I can use to describe what's happening right now with us and the market that we're serving is momentum. There's been a combination of clients that have been with us for a while and they're taking it to the next level. And then there's been a and the other part has been there's new clients that are now going into the and embracing the idea of using service providers like us. So it's a very exciting time in the insurance industry.
And really what's happening if you look at what their problems are is they are looking for and this applies to the commercial insurance space, the personal lines space, the life insurance space, they're looking for some ways that to permanently change their cost structures. And again part of that is this PAC movement. As they see their competitors making embracing the use of global sourcing and global services, they're being forced to change their cost structure. So they really work so they're moving in that direction. The second thing that they're very concerned about is underwriting quality.
So a lot of the focus that they have is how do I make sure that I reduce this cost, but I can't sacrifice how I'm doing my underwriting. I can't sacrifice my long term relative to returns because of what I'm doing in the short term relative to operations. The second thing they're really concerned about is entry and exit into markets, which again in the insurance world this may not sound exactly intuitive. But if you look at the commercial insurance space, these commercial providers, especially the specialty providers are constantly launching new programs. And they'll set up a new program around a certain type of risk with an MGA, Managing General Agent and it will work or it won't work.
And what they're looking for in their back office support and the support from companies like us is do you have the agility to help us launch these programs and understand that some of them work and some of them won't work and be able to pull back with us. So we're seeing a lot of pressure from especially in that market, the specialty market of the agility of entering into the marketplace. And even in the broader markets like personal lines, if you look at what's happened with property insurance by state, there's been movement in and out. So for example Allstate moved out of Florida for a while and then moved back in waiting for the state regulators to actually make it a market that they can compete in. So there's a bit of that going on in the personal line space as well.
And then on the customer experience side, this is getting a lot of focus relative to the industry. So there's the on one side there's a whole what are you doing to enhance my digital experience being able to file claims electronically what have you. And then on the commercial side, there's a lot of what happens relative to placement of risk comes down to how quickly the insurer can react to the broker request for a quotation. And going back to the first piece, if you're too fast to react to that and you don't hold your underwriting quality, you're going to have long term problems. So they've got that pressure.
So we think this is a great market. We've seen a significant increase like I said in activity over the last twelve, eighteen months. We've got especially in the last six months, we've got two of our larger longer term relationships that have really taken it up to the next level relative to the use of our services and they'll actually break into that. We talk about this over $25,000,000 customer bucket. So we'll see two of them go into that bucket in the next in this year.
We're also though seeing not just the large providers, but the middle market. So we've had some great activity in the middle market. I'll talk about one of them that they're really starting to understand and embrace because of these pressures that companies like ours that quite frankly have learned by working with these large carriers that we can help them in their space as well. So like I said, it's an exciting time for the insurance industry. We think it's a great market and that's why it's one of our focus areas.
So I won't spend any time on finance and accounting because Chantanu spent some time on this. In the insurance world, we are one of the largest finance and accounting providers in the marketplace. So that's a great market for us and we continue to see activity there. But insurance is also one of the industries that actually we started in the core processing when we started as a company back in the GE days, because we were doing work for what became Genworth. We were doing work for what became part of Swiss Re when they were part of GE.
So the interesting part about our industry is that we really got a head start in the core processes. So what we're seeing now is like Sasha talked about earlier relative to what we're doing with our insurance with the other businesses is we're moving further and further into this design and transformation areas within insurance. And we're building off of those core capabilities. And our clients are asking us to build off of those core capabilities. So for example, we just had a recent win and we've just gone live with one of the specialty line carriers in the cat modeling area, catastrophe modeling area.
We think that's a very hot area for us in analytics. And the key is how do we take that and tie it into the core processes.
So let me talk
about one of the opportunities that we've been working on for quite a while and that is this is a specialty lines carrier and they had an interesting model. What they basically said is look what all we care about is underwriting And what I said earlier, how can I get high quality underwriting with speed to the broker so I can go out and win this business? In order to go after this market what they said was I'm going to go out, I'm going hire the best underwriters I can find in the industry. I'm going to let them run their business. And as far as how we process this business, how we process the claims, how we do the policy administration, how do we make sure that they're successful as far as underwriting support, I don't want any of that including the technology.
So we competed with a couple of the global players that we run into. We won. We won because of our domain. We won because they agreed and understood that we could connect the understanding that we had around process with technology with analytics. And so they've given us the whole back office.
And the good news about this story with them is that we've been able to take half of their cost out of their back office. We've taken three points off their expense ratio. They were able to grow their premiums by about a quarter and we literally added five people to the back office. So it's been a great success story and we're just still early in this transformation. So we're collectively the client and us very optimistic about where this goes next.
The final thing I want to talk about is one of the service lines. So Sasha talked about the different service lines that we have in play. So in the insurance world, one of the prioritized service lines that we've decided to come to was claims and specifically around fraud. And fraud is a big problem in the industry and especially in personal lines auto. Estimates are that somewhere around 10% of claims paid are potentially fraudulent claims industry.
The challenge the carriers have is it's very expensive to go after fraud, right? So what they do is they focus on ring fraud. They focus on repair shops that are participating in fraud. So they've gotten pretty good about identifying ring fraud. Where they can't focus right now is they can't focus on opportunistic fraud.
And that is that I'm going to go and bump up my claim. I'm going to do some type of fraudulent action in order to get more out of the claims that I'm putting in place. And in the past, the way that we would have approached this problem is that we would have worked with the client with what's called their special investigation unit and we would have said, great. How do you run that process? Wonderful.
We'll take we'll train the people. We'll put them in India and we'll run the process for you. What we're doing with our fraud solution is and this goes back to the virtuous cycle is that we're actually putting a complete solution in place that starts with the data management includes the fraud engine. And there's nothing magic about fraud engines. There's a lot of them in the market.
The key is what do you do about the flagged fraud and how do you improve that engine based upon the actions that you've taken on that flagged fraud. So what we're putting in place is a solution that starts with data, provides the engine, but also provides the ability through cost efficiency to act on the flag fraud. And then the results of that action, we then tune the engine, so that we can then improve the hit rates relative to the flags that we're pulling out of that engine. So this is one of the service lines that we're going through we're developing with an insurance and there's others in the claims area, policy administration area, underwriting support and of course the F and A world. Thanks.
I think it's Q and A time.
So
before I open it up for questions, what is clearly every time I listen to this and obviously I should know this inside out in my role, but every time I listen to this I just get even more excited. The fact that we've done this for many years and yet it is so exciting, because we've done it differently. We've done fraud for many years. This is not new. We've run claims for many years.
We've done order of cash for right from the beginning. We've done contact centers from the beginning. We worked with life sciences companies for eight years now. What is different is a few things. All those things that we do that are connected to the same buying center, to the same outcome the client is looking for, we're really beginning to string it together.
And we've done it now for quite some time over the last year or so. That's part of the reason why the big deal pipeline is big and is growing. It's also part of the reason why these decisions take time. I mean, just think about listening to this, your head start spinning a little bit. The reality is these are big decisions for clients.
It takes time for the client to say, okay, I think I've got it. And I'm ready, but I'm not ready, because now I have to prepare myself to do all the things that I'm going to ask you to do and you're going to help me do. So there's a lot of change management that I have to do. So that's going to take another six months. And by the way, suddenly three months later, someone jumps in from the Board and says this kind of big change, the Board needs to get to approve.
So that elongates cycle time, but it doesn't change the fact that these are big changes in the industry, in our clients, and we are in the middle of some of these conversations. The fact that we are now stringing this together is different. Two, you cannot string this together in the way we used to think about our business earlier. You can only string it together when you decide, here are the choices we've made and we're going to string this together in these chosen areas. There's just no way you can do this in 100,000 different areas.
Third, there's absolutely no point in doing this unless it's relevant for the client. No CFO has time, no CEO has time unless it's really important and it's a burning issue for them. They wake up in the morning and think about five things. We must talk to them only about those five things. The sixth thing is irrelevant.
You do that by making the choices. They got to pay. These are big, big changes. They drive big value and there must be a true partnership in sharing that value in a fair way. So the choices we've made drive the investment dollars in the direction of making this happen.
It drives it in the direction of relevance. It drives in the direction of those industries where change is real, insurance, life sciences, commercial and consumer lending, which we haven't touched upon today, but big changes happening there. And you look at the risk and regulatory space that Sascha referred to in the partnership. New areas, for example, the life sciences space and that's just one example. In every one of the industries, are some new areas because those industries are structurally changing.
Again, we're not touching capital markets as a business today, but the partnership with market is I think completely game changing in that narrow space in that market. But that narrow space just in terms of value is massive. And it's not just in terms of value for what it creates for us and market in that partnership, but more importantly the value that it helps for the client and the value in terms of regulations and penalties that it prevents from becoming losses for our clients, something that all our clients in that space want. So every one of our choices by industry verticals, service lines are driven by what is relevant for them, where is change really happening, where is our competitive differentiation real and can be enhanced further. And when we do that, we won't do it alone.
We'll bring in the right partners, create the bigger deals and we'll deal with the fact that some of that pipeline will take long to convert. That's the journey we are on and some of the things that you heard in terms of examples was part of that journey. And of course, not forgetting what Amit covered, which is the people who can take these big conversations to clients who haven't really thought about it. So this is not about, okay, what's your need and I'm going to solve it. This is saying, have you really thought about war frauds that by the way totals up to $180,000,000 last year?
Have you thought about dealing with it very differently? Let me sit and tell you what I think you should think about. It's not about a solution that I'm going to offer. It's about the way you should run your business differently. At some point in time that leads to can you guys actually help me execute this solution.
So with that, really want to open it up to questions. Bhani, how much time do we have before we break for We have about fifteen minutes. Fifteen minutes and then we'll take a break. Yes. I'm going to quarterback this and if I think I need to bring in someone, I'll just bring in someone from my team.
Hi. It's Keith Bachman from Bank of Montreal. I wanted to understand you mentioned different scope. Could you state the number again of the focus areas or practice areas? What you're going from and to?
And the corollary of that is can you talk about outward bound teams whether it's sales reps or sales reps and SEs, how that number is changing as you look at from the two? And then I have a follow-up.
Yeah. So let's start with industry verticals. I think Sascha referred to 23 industry verticals that we were doing business in. And that means that there were people whose job it was to find the next client in that industry vertical. There were people whose job it was to in that client conversation then come back and say, oh, this client is looking for this.
And therefore, let's sit down and find a way to solve for that conversation that I just had with my client, 23 industries. We're now saying, let's focus our energies around eight nine, sorry, nine. The good news is that 85% -plus of our business is in those nine. The bad news is that that 10% to 15% of business, which is not in those 9%, still takes 25%, 30% resourcing from sales and lead solution architects, subject matter experts. So the ratio of what resources get aligned to smaller things that don't produce enough value, industry verticals.
Then in each industry vertical, if you think about that we are offering, we used to, as I said, go to market with 1,500 solutions aligned to those 23 verticals. Now they are 40 service lines. And if you actually count the point solutions that sit inside those 40 service lines, I would guess it's about eight hundred, nine hundred point solutions. So you've actually halved the point solutions and then taken that half and strung them together into service lines. By the way, the client actually talks about these things as end to end problem because that's all they worry about.
I want to solve this end to end problem. So what does that do? It allows us to free up resources who are thinking about their little space that would end up contributing maybe $1,000,000 extra over the next couple of years and 50 people thinking about those little things trying to win those little battles. And by the way, you don't talk to your client on little things at the C level, because they don't care. You talk at
the lower levels. So those are some
of the numbers in terms of focus. In terms of sales, our sales headcount will grow through 2014 by 25%. But more importantly, if we think about the journey over the last couple of years and then into 2014 and beyond, there are only three parts of that journey that I would break it up to. First is where we actually churned a number of sales resources and client facing resources, bringing in a number of people from the outside. Casper is an example of someone who came in from the outside much earlier in our journey.
And it was not just an addition, but also a churn, so a combination of that. Second part of the journey, particularly in the last year or so is in the areas where we decided we don't want to focus our energies around that 10%, 15%, we moved those resources. So it's a churn, but it's an internal churn of resources and reallocation of resources. And now it's a journey of 25% growth of resources, but that growth being driven by a completely new layer also being added of client partners. So that's the way I would think about it.
Okay. Then my follow-up and I'll
cede the floor is, you gave guidance on your last call for FY twenty fourteen and then you're also talking about changing sales compensation issues. That always makes me a bit nervous when you're changing comp plans. Are you comfortable that that comp plan that you articulated with all your sales reps will allow you to meet the targets that you put out because it can allow for some hiccups? Have you allowed for some hiccups with the sales force related to that comp plan?
I think one of the interesting things about our comp plans now is that it's much more focused on what we think is most important for our kind of a business. We are a very long cycle business. The most important thing for us as we think about our business, as you would think about our business is what are we bringing in that is going to be a long term contract that's going to get delivered over many years. The ramp up on that contract often is eighteen to twenty four months. So something you win doesn't even show up as revenue except maybe a couple of percentage points of that total revenue shows up in the year you book it.
So a lot of the comp plan change has been focused on measuring bookings and compensating people for bookings. The second change is the extent to which that comp plan is leveraged for the individual, much higher leverage. And we all know that salespeople when you drive higher leverage just perform better. Great salespeople perform outstandingly well when you leverage well. And the third is uncapped.
Again, great salespeople uncapped is the best way to have plans. So we think that the comp plan change actually reduces the risk in a very interesting way on the current year's plan, but actually even further improves the opportunity to capture for the future. So it's a combination of both, because the more we book some part of that will become revenue for this year. So in some respects it actually reduces risk. But most importantly, it's going back to focus.
The fact that these people are focused on the things that actually will convert where we are differentiated to building solutions that actually lead to better win rates, that actually lead to better conversions over time. Again, it's a question of time because these are long
cycle. Yes?
Tiger and past it's Joe Farezi from Janney. In the past you've added salespeople before and you haven't seen the results on the top line. And then we talked about large deals not converting. So maybe you could give us some color as to why you think this plan is going to work and why those other plans weren't taking hold?
So Joe, would say this plan is actually expanding the plan that we executed in the last couple of years, and let me explain that. So we first laid out a vision of investing in the front end and in client facing teams. As we started on that journey of investing, we were clear about a couple of things. We absolutely did not want to compromise on the type of investment, the quality of investment, the type of people. We also did not want to compromise investment.
And what that means is, we didn't want to press the accelerator, because in our business, I suspect in most businesses, when you bring in people from the outside and the caliber of people that they're bringing in, they need to get integrated really well into the company, because you're really trying to do two things at the same time. You're bringing in new DNA, but you're also preserving the operating excellence that you have and you're trying to combine the two to win more, create more. So part of that journey of investment was saying, let's make sure we're doing the right thing and let's make sure that we actually integrate such people well. And if that means it's a slower journey than originally laid out, so be it. The second part of the conversation turned out to be when we started looking inside, we realized that we needed to churn.
So what that ended up meaning is we hired a lot of people, we integrated them, but they actually replaced existing people. So it didn't show up as investment, but actually it was a churn. The third is, it was much more dispersed. So it was a little bit of investment everywhere, because that's the way we ran the company. All three of those dimensions have changed, concentrated.
Now we have very clear view on integration. And the last thing I would say is over the last six months, we've built a set of foundational elements that Amit talked about that actually we believe allows us to accelerate more on those investments and get the payoff. Foundation around hiring of these salespeople, foundation around training and coaching, very dedicated groups and teams, frameworks that allow that to happen, a sales back office that takes away non value added work from great client facing teams, who by the way, if you don't do that, they get frustrated and they won't get integrated. And lastly, sales and pipeline analytics that actually arms them much better. Those foundational elements have been put in place and that's investment again.
It's actually sales and market facing investment. It just doesn't show up in client facing teams. And the last thing I would say is, if there was one microcosm of the company where some of these actually came together, it's the microcosm of Europe. When we started that journey, 12% of revenue of the company. So in the context of the company, only one tenth.
Today, one fifth. And very clear view that a lot of us have that the journey from being one tenth to one fifth was a combination of obviously the market, but also the fact that we did something. And all we are doing is staying at least on the sales side replicating that across the globe. So the vision that we laid out on the front end sounds similar in terms of numbers. The reality is we actually didn't press the gas pedal on that vision as much as we thought we would, because we said we'll do it correct.
We learned a lot. We now have the right foundational elements that I think we can undertake this journey.
Yes. Thanks, Tiger. Dave Koning at Baird. And as we look the last few years, certainly you've decelerated from above market growth to now a little below market growth. Are your competitors are you seeing them with these more focused vertical and horizontal offerings?
Did they just win more because of that now? You're kind of following that pattern seeing that that works pretty well. And maybe you can just talk about how quickly you can get back to above market growth? Maybe is it the second half of next year? Or is it maybe the first half of next year?
So the context of 2014, if you look at our global client growth rate, which is 7% to nine percent is what we've guided to from a global client growth rate perspective. The reality is there are a couple of things there that we think will disappear as we get the right year to year comparisons going as we get to 2015. And two of them would be the downward pressure on the mortgage business, which once it flows through will be a year to year comparison that is comparable and foreign exchange in emerging markets and the conversion that it has to the dollar. So if you take those two aside, we're already at the 10% odd mark on global client growth rate. It's still lower as you rightly said than what you would think as the market growth rate for our kind of a business.
We think that by the time you get to 15%, you obviously start moving above that number. And then as you get to beyond 15%, our objective would be clearly to get to mid teens growth, which then puts us back into above market growth. So to cut a long story short, our objective is clearly to get back to global client growth rate being above market growth. We think that actually it's a function of the not so much our strategic moves, but some of the headwinds that we faced as well as the fact that we have moved our pipeline to larger deals that take longer. And again, a year to year comparison will change that.
So a couple of things flowing through the 2013 through 2014 and to parts of 2015 and you're back again to global trend growth as being above market.
Great. Thank you. And just I guess one follow-up. Just it seems like with the focus on certain types of revenue, the margin profile might also get a little better. Maybe you can talk a little bit about I think historically if I remember right, you kind of said 16.5% was kind of the top before.
Are we at a new level like can you get to 17% or better over the next couple of years?
I thought your question will be will you get back to 16% to 16.5%. Conceptually, David, you're right. We are clearly the choices we've made has to get us to longer term better margins. Also larger deals, more complex as well as more value to our clients. However, I don't think it's right for us in this business to think about we'll get back and get to 17% margins, because I think we'll miss the fact that the market still provides so much opportunity.
As global client growth rates come back up in 2015 and beyond, the reality is in our business that drives investments during that transition phase. There's a pretty significant lag between growth on revenue and margin benefits of scale. There is margin benefit of scale, but there is a lag on that. And I think it's also a function of as these investments get made and as they start paying off, stepping back at the end of this year, for example, and saying, if they're paying off so well, then should we continue to add more fuel to that jet engine? So I don't think it's necessary to definitively say that we should start raising margins again.
I would say that it's natural in the choices we've made that the portfolio will get better in terms of overall margin potential.
You guys indicated that you're now increasingly focused on I guess it was 100 target accounts and within that 50 where you're putting in client partners. I was wondering if you could expand a little bit on the specific characteristics of those clients that made you identify them as the relationships that had the most opportunity whether it was size of existing relationship or existing penetration. And how much of that growth is predicated on kind of doing similar things to what you're already doing maybe in different units or geographies? And how much of that is doing higher level functions that might be less accepted today or less widespread today?
Yeah. So unfortunately Chris' answer is it's all of the above. But the way we made the choices on the 100 accounts, 100 priority targets and accounts is first of all, it's not a static list. It's a dynamic list. Because apart from potential, which obviously is the most important number to look at, what are the if you take that total addressable market $390,000,000,000 and then you bring it down to a particular corporation, you can figure out what that number could be in that particular corporation, given the type of company industry it is in.
And then you look at the competitive landscape inside that particular organization. And then you look at your position, so apply the strategy application at the company level right down to the microcosm of that company. And then you look at one other thing that's very important. What is happening in that company from a leadership perspective? What are the triggers that are going on there?
What is that company saying about what they are focused on? And a bunch of those things then lead you to say that's a trigger account that should get the focus, that should get a client partner, that should be ready to have conversations that would resonate for the type of conversations we would have. And when we have those conversations, I think it's a combination of two things. You take what you already do with one of your clients to the five other clients where you haven't had that conversation at the right levels in those organizations. So to me that's a low hanging fruit.
You do that quickly, make that happen. You do one of the big deals, the one that B. K. Talked about in the life science space to manage patient care, do that with one client, create that proof point, take it to eight of the 10 top pharma companies in the world whom we serve. Take it to the 30 of 20 others who are not necessarily the top 10 whom we also serve.
So that would be low hanging fruit. But at the same time, you also create new solutions for new problems that those industries are facing. So it's a combination of both. But that 100 is a dynamic list. It's not based on only current relationship size.
It's actually based on potential. But as you would expect, a number of them are also large current relationships. But in the context of total opportunity versus our relationship, our relationship is still very small.
Good morning, Ed Casewell, Wells Fargo. Sorry, was a little late, so I hope I didn't this wasn't answered earlier. On the share repurchase, two part question, I'll ask the first one. Just some math here. How much is cash?
How much is debt? Where is your cash U. S. Or offshore? And what's the rate on your debt?
Hello? So Ed, Good morning. We
We can just stand up.
Yes, sure. So we it's premature to know how much exactly will get tender obviously. At this point in time, we've offered $300,000,000 And on the assumption that it's an exact amount of $300,000,000 that actually does get tendered then we intend to use our own cash. We had $571,000,000 of cash on the balance sheet. We have at least 300,000,000 or more of cash in the right place to be immediately utilized for this purpose.
So we don't need to repatriate from any of our locations. And we also in case of oversubscription, we have a discretion of topping it up by 2% of market cap, which is another $75 odd million. But like I said, it's premature to know what gets subscribed. And as that happens by second April, we'll know. In the event that we as a management team choose to go for an oversubscription, there may be a temporary use a minor temporary use of the revolver.
And what's the rate on the cash that you're giving up?
The cash that we're up is only less than 1%.
And the follow on question is a month ago it was pretty clear that share repurchase was not priority and investments for growth was. So what happened in the last several weeks to change the Board's mind and management's mind?
So Ed, I know exactly what I answered. And the answer I gave was that growth and acquisitions in the context of growth and capability build was a priority and that answer hasn't changed. It's still a priority. The opportunity provided by the current market dislocation was very clear that it allowed us to use ID cash without impacting the flexibility that we want and have and will continue to have through the cash that we will have even after the $300,000,000 through the leverage capacity that we have in existing lines of credit and through the leverage capacity that we have given that our net cash net debt to EBITDA is so low. That flexibility hasn't doesn't change through the $300,000,000 not forgetting that we are really, really strong cash generating business as you all know.
So nothing really has changed. What did become obvious was given our view of where the company is going, it was the right use of cash in order to create accretion for the company. Barney, keep us on time.
Hi. Thanks. Tien Tsin Huang from JPMorgan. Just want to ask on the sales and marketing. I know there's no great benchmark in terms of how much spending is enough.
But I guess my question is how do we know that it's enough? If you look at some of the pure play BPO names, I
think they spend a little
bit more as a percent of revenue. And I know Accenture and Cognizant are not great comps, but their sales
and marketing spend is probably in
the low teens as a percent of revenue. They're obviously very front end domain oriented. So how did you think about those the benchmarking of how
much the right level of spending is enough?
So the start of this journey in 2011 was an initial benchmark, which said that we have to raise the extent of the spend in that whole arena. And we said, let's go to six. It was not a magic number. It was the kind of number that we said we can reach. As we did the strategy exercise beginning of last year, we once again using external help did a similar benchmarking exercise.
We came to kind of a similar conclusion saying in this part of the journey, let's undertake this journey. As you can see, it takes a lot of effort to undertake the journey. Takes It a lot of effort to then get the leverage of what you've invested to start playing out into bookings and revenue. So the right answer to your question is don't know if there should be another layer on top of this, but I think that's something which we should evaluate at some point in time in the future. I think it's just too early to be able to say that it's right.
By which time, I would suspect we would have become a bigger company. We will be doing more complex things. We'll I mean Accenture does and Cognizant people at Cognizant and Accenture do spend much more for a reason. One, they are bigger and two, they are in domain areas that require it. As we do more of that, we may also require it.
But I think we're not yet there in terms of evaluating that and we'll get there at some point in time.
Tycho, I wanted to ask a question related to risk management. As you're signing more complex deal, larger deals and now the sales force is incented to sell more and there is pressure internally to grow the top line, how do you make sure that you don't over promise and under deliver? How do you manage these risks of these new deals? What is the process?
It's actually a great question. It's actually one of the things I don't worry over promise and under deliver. I actually often worry about that we promise less than we can deliver. That's the DNA that we have. So which is why I talked about it's not replacing our operational excellence and our understanding of delivery with client facing, C level conversations, big solution creation.
It's the combination of the two, which is why it's important to make sure that the people coming in are fully integrated, which is why it's a team sport. It's not a single person sport in a deal conversation. We have pretty strong governance mechanisms that have always been in place and are not changing from pricing approval, solution approval. The solution team is a separate team. The lead solution architects that we talked about belong to a lead solution architect group.
The practice team and the subject matter experts actually are domain experts. They are the people who actually build the solutions. Architecting those are done by a team that is a separate group as a set of lead solution architects. And ultimately, the business leaders are responsible for full P and Ls. So there is enough checks and balance in this journey that have always been there and will continue to be there.
A lot of the big deals come right up to people in this room from the leadership team for a sit down discussion and approval. So don't worry about sales compensation leading to wrong promises. We are integral to the promises being made and debating those and wrestling those to the ground. If anything, I actually think we wrestle we take a long time back and forth and wrestling them to the ground because that's our DNA. And it's a good DNA to have.
Take one more question before we break here.
I'm sorry. There we go. Take my mic. Thanks. Just two questions quick.
Just one, do you have any comments on the difference in margin profile between the revenue buckets $1,000,000 versus $5,000,000 versus a $25,000,000 customer? And I have a sense that it goes higher as you go up, but just can you give us a range as we think about maybe not penalizing you for fast growth in the 1,000,000 to $5,000,000 bucket that might hurt margins in the short term but lead to higher margins in the future? And then also as you move up the food chain, how do you just ensure that the people executing so called farmers are adequately trained to support those domain experts? Yeah.
So the interesting thing about our business is that as you go from $1,000,000 relationships which tend to be point solutions, one or two point solutions to $5,000,000 $25,000,000 and above, you really are doing three or four things. You're changing three or four dimensions, all of which contribute to driving more productivity for your client, driving more value for your client, and therefore being able to drive more value for yourself through better margin. One is scale and that's obvious. But actually that's the smallest piece of the equation. The second is the ability to actually string solutions together that actually deliver bigger value and therefore better margins.
The third is you therefore end up getting into more complex arena. As you to Shantanu's slide, as you deliver more through running things and then you get into transformation and design by definition transformation and design is higher margin. So the overall blended margin has to go up. As you get into Scott's description of predictive fraud modeling, it does mean when you layer that into actually managing claims, your margin does go up. And then lastly, when you expand geographic footprint, which is the other way you expand and grow relationships, you just layer in the same management structure for a larger relationship.
So all of those tend to mean that as relationships tend to mature, as relationships tend to expand, there's a natural improvement potential improvement in margin. You have to balance that with the fact that as improvements get driven, clearly the expectation of every client is to continue to drive productivity, is to continue to give that productivity back to them. And we do that really, really well. In fact, do that outstandingly well, which then drives our Net Promoter Score, which then drives our client satisfaction. So there is a balance between the two.
But on the balance, as you grow into larger relationships, you would tend to improve margins. Yes. Second part of the question was to train people. So it's a very, very important part of a domain expert group is not just to build a solution, but it's the same group that actually distributes their time between building the solution in their practice domain area and creating the collateral and the methodologies and the frameworks and the training for a whole bunch of operating people to deliver on that domain that they know and they are using to create to solve for the customer's problem. So if you take the KYC example, know your customer example in the partnership with Market, where we are at the moment building out an operating team that will be able to deliver through that requirement and they are being trained by a set of domain experts that we've got in.
Part of their job is to build a solution in that utility, but part of their job is to train the 5,100, 200, 500 people who keep getting built out. So it is divided up. It's a classic, what I would call a classic consulting organization that spends some time on actually doing the consulting work and some time on building the expertise and some time on institutionalizing it across a range of people. We'll take a break now?
Yes. We'll take a break for fifteen minutes. We have a couple of other sessions and then we'll have another Q and A session post that. Everyone, we're going to get started in about one more minute. So if we can get organized, one more minute we'll start again.
We'll kick this part of the session off. I want to get Monty up here to talk about our GE relationship the way we think about that. Monty owns our GE relationship, has done that for from the beginning. And he also runs our capital markets IT business, which as you saw some of the things that we are doing in Sascha's presentation in our partnership with Market as an example is one of industries undergoing significant change and we are positioning ourselves and have positioned ourselves really well through the original Hedgehog acquisition, the integration of that acquisition into our ecosystem and then bringing that technology and process and all of that and building utilities etcetera for an industry that's changing. And now Monty leads that business and taking that forward.
But he's here to talk only about GE. So Monty?
A very strong and diversified relationship for us. It's been fifteen years, fifteen years very unique in the industry. And it's been driven by a consistent delivery over years and years with GE. Day after day to very high standards over a very long period of time. And that's the foundation of this relationship, day after day to a very high set of standards over a very long period of time.
And it reflects, if you look at the bottom left chart, an NPS of 74 over fifteen years and increasing. And that's the relationship that has been built over a period of time. The other reason which is very important in this relationship is we are very close to them. We grew up as a part of GE. We understand their DNA.
We are very close to the businesses. We are very close to people in the businesses. We are very close to the problems of the businesses. And that helps us to drive not just cost and productivity, which Gee loves, but it helps us to drive and improve what's important to them and their business. We work together as one team.
Our people sitting in their teams, in their shops, trying and working and solving, let's say, how to improve inventory turns, sitting in their shops and how to improve cash flows, how do you work and improve working capital, problems that the business faces on a daily basis over and above the cost productivity things that they anyway drive. And it just shows the character relationship. And it's been going on for fifteen years. And obviously, they keep us on our toes. They keep us honest.
They put a lot of pressure on productivity and cost on us. And that keeps us sharp. And that keeps us on our toes ourselves. And that's how this relationship has grown over a period of time. It's important to keep a fifteen year relationship fresh.
It can be stale. And I think that's one of the things we do very well with GE. GE likes new things, new ideas, new thoughts. And if you really look and I'm just thinking through all the acquisitions that we have done, we've taken them to GE. GEs love them.
Whether
it's Access, the compliance and audit firm we bought, we took it
to GE, GE Capital a lot. They needed it a lot. That is the accretive cloud platform, which we acquired. We took it to G, their ODC platform, they're using it, right? New ideas on the cloud, whether it is engineering services acquired, it GE loves it.
They're using it. Whether it is the third pillar, just recently dialogues are going on. It is a huge company, very diverse across multiple industries. Its hunger for ideas, its hunger for performance, its hunger for delivery keeps us honest and keeps us edge on our game, which I think is very, very important for our relationship. We're also very close to the way Gee thinks about the future.
And that also allows us to think what we should take to them in the future. How are they organizing their processes? How are they thinking about new areas of investments? GE is an acquisitive machine. Obviously, it goes ups and downs and which years they acquire, which years they don't.
How do they integrate to the maze of processes and systems that happen over a period of time? We play a part in them, right? So it's very broad based. It's across a lot of disciplines, finance and accounting, technology, analytics, onshore, offshore, cloud, order to cash, very pervasive. So we think we are highly correlated to our performance to how GE performs.
And that's the way we see this relationship going forward. And it is obviously very well most very dependent on how we perform. I want to make that very, very clear. We don't perform, we have a problem. We perform, it's fine.
And I think that's a very important relationship equation that I want to explain to you. And it's hard to capture a fifteen year relationship in a few sentences, but I wanted to do that what it means, because I think it's the core essence of this relationship. We love GE. They love us and we like it that way. It's very important.
In 2014, GE will shrink around 5% the revenue our revenue with them. GE Capital as you all know it's publicly stated they are shrinking their balance sheet. And our business is highly correlated to the assets of GE Capital. What do we do? We book loans.
We service loans. We collect the money. So as assets go down, our businesses get affected and rightly so. But the good thing about this is the reduction of revenue is far, far lower in the reduction than the reduction of their assets, which really means the trust in this relationship, the quality of the delivery, the cost of the delivery and the teamwork and the trust that we have built to this partnership. In 2014, the industrial businesses have announced a productivity and cost drive right across GE and we are partnering with them.
When you are a partner of fifteen years, you're going to go through the same thing, the same emotion, the same excitement that the client is going through. And that's what we are doing with industrial businesses. We are actually stepping up and saying, how do you drive productivity? How do you look at end to end processes where we can combine ourselves and give you more productivity? And I think that's another essence of this partnership.
When they feel the pain, we feel the pain and we always should. And we see that as a core strength. And I think whenever we miss that equation, we are very well reminded very harshly, don't miss it. It's important the way we think. And I think it just shows again, I want to go back to about fifteen years.
And we continually invest in GE. And we have increased our investment in GE a lot more. But all that you have heard till today and the way I think about it and I think Joe and none of you have asked us questions, one of the things the way we think about what we're doing differently is a coordination and orchestration of multiple activities, choosing the right spots, building capability in the right spots, hiring the right solution SMEs domain in those spots to build the capabilities, then hiring the right client partners and salespeople to take them there. If we do one of them and you don't do the others, the effect doesn't come. Similarly in GE, we are investing in client partners.
We have client partners by subdivision. They're looking at coverage in a very detailed different way. Some things when you sometimes may have taken for granted over a ten year relationship, fifteen year relationship, a relook, a refresh and looking at the same dimensions that the investments are putting. So client partners, lead solution architects, domain expertise, all that we are building from somewhere else and how do we combine it and take it to GE. And I think the way we think of GE over a period of time, roughly flat, roughly flat highly correlated.
Obviously, it depends on ebbs and flows on how GE performs, but I'm saying the relationship equation because of the correlation we see roughly flat minus 5% to maybe slightly negative roughly flat going forward. And obviously over the period of time we'll see what's going on in GE in terms of the industrial businesses or the asset reduction and that may change a few numbers. But that's the way we see it. There are a lot of places in GE. There are a lot of changes.
Like I said, we're very close to GE, right? So obviously, we know where there's potential to play and where there's potential to play and where we can't play. So I'm going to walk you through some of the areas that we are trying to look at in the same dimension that all the speakers who came before and talked about, design, transform and run. We grew up as G as a captive. One way of defining a captive is we could have classified ourselves as best executors of direction.
That's changing. We are going back and saying we're to help you in design, we're to help you transform and we're to help you run. And combining that same philosophy to GE. GE is appreciating that. Some of the examples I'm just throwing up, the first one, GE Capital has been classified as too big to fail, which means it has completely different completely different regulatory requirements from earlier not being one of classified as a bank.
It's a full relearning process. And imagine the capability we have, regulatory readiness, what does it mean? It means technology systems, processes, data flows, what reports come out, all those changes. Think about what we do. We look at the underbelly of that every day.
So our ability to influence that is huge. And some of the examples that we're doing is we're setting up we just got we started setting up a 200 people regulatory reporting team for GE Capital. We are looking at Sasha spoke of our partnership with a global risk consulting firm, combining that with our operational capabilities and going back to GE to really do design, transform and run across these new regulations, whether it's risk modeling, whether it's stress testing, it's data reporting, all that. GE told us, as we change, you need to change. We have hired people from the Fed.
We expect. They want us to think about how we are thinking about it, right? So it keeps us live. Great opportunity for us and we think we can partner with them as they go through the journey and change and add value to them. The second is GE does these things and it drives initiatives across the board.
It gives you a lot of dimensions of change that you can leverage and learn or actually partner and I'll give them an opportunity. So one of the things that we are trying to do is really standardize and drive systems across GE. And it's amazing that this is a Chairman this is a program called Fastworks in GE and it's driven by the Chairman and CEO, Jeff Emile himself. And one of those slivers of work is, just want ERP rollouts in GE done half the time or even faster than that. So it's pre poning everything and saying, understand process simplification, I understand process standardization, but if you get your systems in ERP much quicker rolled out much faster, I think GE can become better.
Now think about our opportunity there. We already have a large we have an ERP practice that works very well with process. So very highly engaged with them and how we can cut the cycle time so to speak to drive that out. Huge opportunity has come up. And it's come up just because they said, I just want it done much faster and much better.
Get me to a higher benchmark, higher standard. Give me the don't come and do it the traditional way. I'll look at the process, I'll improve it and then I'll implement your Oracle solution. What is the best in class? What is the standard so we can leverage our SAP frameworks, which you're familiar with and say this is how you do an Oracle rollout, bigger voltage.
The last, I think it's pretty well known, but they came out with this. As GE has grown the last five to seven years with so many acquisitions, they are really trying to standardize this enterprise wide processes like finance and accounting, HR, legal and they're coming to get to new target operating models. So again, they're leveraging our SAP framework, how we helping them design, partnering with their teams. I want to be careful of that. We're not saying that on doing it.
It's partnering the teams and on design, transform and run those operations. Just for example, the quarterly report, we anyway do it, right? We do it for them. But there's so many different businesses still doing it in so many different ways. So what's the new target operating model?
How do we get how do we drive that and make GE more efficient and effectively? There are a lot of these areas, but you can see the kind of areas and the kind of dialogue we're having them is really rich and I think it will be very fruitful for us. Just in summary, we're very proud of this relationship. We really are. Many of us have grown up there.
And many of us have grown up there and we're extremely proud of this relationship. And we're very thankful to GE for getting us to this place and we are very hopeful that this will grow for a long period of time. Thank you. Mohit? Good morning, all.
I hope the story so far is resonating in terms of what we're stepping out to do. In this reasonably brief section, I will summarize the performance of the company over the past few years against key financial metrics and speak to what the strategy and the associated investments mean to our future outlook. Historically, we've been an operating excellence company focused on operating excellence for our clients. And this has led to consistent revenue growth, scale, diversity of operations and healthy cash generation. I think the journey since the IPO, we now have a global footprint across the world that can hold its own not just versus competition, but also in terms of providing comprehensive solutions to our clients.
But like Tiger mentioned, we grew from an $800 something to a $2,000,000,000 company. And as we think of our journey ahead, we believe that this is the inflection point where we want to make the changes, we want to make the investments, we want to do the integration to set ourselves up for success over the next few years. You also heard during the course of the day that we have we are in an underpenetrated market with a huge runway for growth, especially in our chosen areas. That and the investments that we want to make, we believe will continue to have global clients propelling despite the temporary slowness that we're seeing at this point in time. GE, like Monty alluded to, where we have very strong fundamental relationship, will actually come down to just over 20 odd percent of revenue by the end of this year.
Overall, we feel very good about the diversity, be it our client relationships and client distribution or our geographic delivery location distribution or the revenues that we're getting from different service lines. Our margins have been stable to up over the last six, seven years. And obviously, stability in these margin means that business as usual investments, wage inflation, etcetera, are being funded through normal productivity. But it's really now that we are thinking of playing offense and making material investments, changing the trajectory of those investments in 2014 to really set ourselves up for the next part of the journey. And that may have some near term impact on margins that we've spoken to.
And we believe that the impact on these margins will gradually come down as we start getting more revenue and more growth as we keep investing over 2015 and 2016. The whole concept of this investment is with a single-minded focus of long term growth. If you see the chart on the top left hand corner, it's the sales and marketing as a percentage of our revenue. Despite what all of you have been asking that we've been talking about investing in sales in the past and so forth, if you have a look at the metrics, they've been reasonably flat over a three year period. There has been some improvement.
They've moved up 4.2%, 4.2% to 4.8 and so forth, but reasonably flat at least over a two, three year period. It is in 2014, if we execute well to the strategy that everyone has been speaking about is when we think we can get the sales and marketing as a percentage of revenue all the way close to 6% is how is what our current ambition is. We are also investing in what we call R and D. So if you look at the chart on the lower left, that's R and D. R and D for us in Genpact, unlike what B.
K. Spoke about in the pharma world, is a little different. R and D for us is really our domain expert teams, our lean Six Sigma teams, our subject matter experts, the folks and teams who keep us on the cutting edge of technology and solutioning. We want to keep investing in that area, right? We don't want to invest in HR and finance people like us.
We want to invest in these areas, okay, which keep us on the cutting edge of technology. And that too has been flattish over time. And the inflection point you see is in 2014 when we want to take that up almost sixty, seventy basis points on the R and D side. And all of this we want at least in part to get funded from other G and A, which has been coming down and we believe will come down even more with some of the productivity discipline we've put in place and some of what I like to call free leverage as we get more revenue. And Over a five year period, if you look at this chart, our revenue and margin growth has been ahead of comps, and this revenue is total revenue.
This is not Global Clients. Additionally, the volatility of revenue and margin compared to comps has been much lower. So this is just standard deviation from me. But I think more importantly, we have been growing very well with very strong margin profile in the past. And as a management team, we believe that as we execute on this new strategy, reconfigure, we can come back to those high growth rates is what the team has been speaking about so far.
We are a growth company that generates a lot of cash, and I don't want to be apologetic about that. Our free cash flows have more than tripled since IPO. Additionally, over the course of time, we have been improving the utilization of our infrastructure, technology, doing virtualization, consolidation, optimal sharing of infrastructure, which has basically reduced the average need of capital expenditure for the company. And all that leads to a free cash flow growth, which is materially ahead of the CAGR of revenue growth over the past six, seven years. And we believe that that trajectory on free cash flows would continue.
Liquidity is very strong. There have been a bunch of questions during the break on liquidity and buyback and everything else. We've basically been a debt free company for the most part. The first material debt the company took on was in 2012 recently when we announced a special dividend of $500 odd million. We took on a credit facility.
We drew down a credit facility of seven sixty million dollars at that time. And when we did that, our net debt to EBITDA was about 1.2x. In the sixteen odd months since then, that net debt to EBITDA is already down from 1.2 to 0.25, again suggesting the strength of our free cash flows. We did announce a $300,000,000 buyback transaction last night. Like I said in a previous question that came to me, we do not know how much gets tendered etcetera.
But just for people who are interested in math, on the assumption that the an exact amount of $300,000,000 is tendered and we use our own cash for that, That should take up my net leverage from 0.25 to just shy of one, one point zero. Again, lower than 1.25 that we did just in August 2012. So strong free cash flows and very easy to manage the leverage. Tim, we spoke about length on investments and productivity. Pricing continues to be competitive but stable.
Wage inflation also is stable and well within the ranges that we planned for. We had a terrific year on effective tax rate in 2013. We reported very low ETR and that's basically because a lot of our growth happened in low tax jurisdictions across the world in Genpact. And it is our endeavor to continue that strategy across 2014 and 2015. So in summary and in review, we guided to 2,220,000,000.00 to $2,260,000,000 especially for folks who are new, who haven't seen it, which implies a global client growth rate of 7% to 9% in 2014 and an adjusted operating margin of 15% to 15.5.
We're going to invest about $45,000,000 this year, two thirds of that in front end client facing team sales and marketing and about a third of that in domain experts and lead solution architects over the course of time. So $30 million in the front end, 15 odd million on the domain expert side. Tiger and others spoke to temporary headwinds including areas that we are not going to prioritize, which would be a temporary drag to the business. But as we get into twenty fifteen, sixteen and beyond, we expect therefore to see those growth rates come back and accelerate. That's all I had.
I was going to invite Tiger to run away. It's all about design, transform, run. Come back Tiger, take us home.
Thanks for it.
Design, transform, run. No better way to recap than repeat all the slides that I had in the beginning. Four pillars of our strategy, start with focus, build the domain expertise, continue to build the domain expertise, enhance the differentiation and further invest in client facing teams that elevates the conversation to take those solutions. None of these are new. Just so we know, pillar number two, three and four is just dramatically increasing what we've been doing for many years.
The first is very new. So in this four pillar strategy, it's the first that really sets the stage for the other three to be very successful. The other three are not that dramatically new. It's much more focused. It's materially bigger and it's bringing a bunch of things that we used to do in a disparate way together.
I just want to clarify that because this is not one of those revolutionary changes. It's actually evolutionary and it's really honing in on what's working really well. The execution road map, you saw a glimpse of some of those as we went through what we're trying to add. I think during the break, there were questions around, so how many salespeople, how many lead solution architects. Lead solution architects is a doubling.
And it's a doubling of a reasonably small population. You don't need as many as you have client facing and salespeople, but you really need those to be aligned to the client facing and salespeople. Subject matter experts is a much larger population, but it's also at a different level, so you can. And the other question was can we actually hire so many people? I mean, the one good thing about us as a company is that, in some respects, we are a hiring engine.
And it's not just hiring at the delivery end, it's a hiring engine that cuts across many levels. Obviously, there's a different scale. And we've actually been on this journey for some time now towards the latter part of last year and the beginning of this year. I can tell you the early signs of all of this is very, very good. On track for the investment journey we're on, on track for the capability journey we're on.
The key is making sure that that investment actually gets integrated well pays off and all of that. And I can't say we are on track on that because that part is very, very early. I want to spend a minute on total bookings. And I want to spend time on that because that is one of the metrics that by the time we get to probably the end of this year, we'll start sharing as a metric for this population. We track bookings like every other good company in our kind of a space should.
Important thing to understand is that bookings are highly volatile by definition. Quarter by quarter, they move up and down depending on what you book, what you close, etcetera. And our business is a long cycle business. So as we continue to walk down this path, we are making sure that we understand that volatility are able to relate that volatility to what impact it has in the longer cycle of our business. And the reality is that as the front end teams and the capability teams come in and start progressing the big deals by the end of the year is a good time to start reporting out on bookings.
By the end of the year is when we'll start sharing how those bookings look for the company. Remember that actually inside the company will get measured by different segments, because the different segments will have different cycles, will have different annuity streams. So it's going to get aggregated for a total booking number of the company. And a few sophisticated competitors in our space who've been around for many more years, obviously, do report bookings. So in some respects, it will be similar.
We are a much smaller company. So to that extent, our bookings will be more volatile and more We will start sharing some of the progress we're making on our investments in terms of actual investments versus what we said we would make earlier in the journey. So you should expect us to start sharing the actual investments we're making versus the investments we said we would make earlier in the year. And then towards the end of the year is when we'll start sharing bookings as a metric that I think is important for our business in any case. So as we think about this business 2015 and beyond, to go back to the question that I think David you asked, this is a business that will get back from a global client perspective from our perspective beyond 15% into the mid teens global client growth rate, which then puts us ahead of the industry, the way we think about the industry.
The important thing to understand is this definition of industry by the end of these last four hours, it should be pretty clear that it's probably wrong to think about the industry as one big blob of an industry. We would like to think about the industry as this space that we play in, the second space that we play in and the third space that we play in. And we'd like to be the top three in every one of those chosen spaces. Monty talked about GE. It will be roughly flat up and down as it's always been.
2014 is a clear exception. We had one more exception four or five years back at the beginning of the global financial crisis, but we think it's broadly flat up and down with the clear understanding that as Monte explained, it's connected to what GE does in its entire portfolio because that's the penetration that we have with GE as a business. Margins normalized, I mean that's a nice term to use. What it basically means is the answer that I gave earlier, which is we think that a combination of factors as you grow scale as the big deals start happening will actually put pressure on margins. But at the same time, you have revenue growth kicking back in 2015 and beyond that actually allows that leverage to come through.
So that kind of works one in favor, one against. And then I think you have the more important aspect of do you continue to drive the fuel on investments and how much do you continue that and how much do you calibrate that? I think to turn to your question on why stop at 6%. At the moment in our mind we are saying that's how we are calibrated. But there is no reason to actually say, yes, we should completely stop at six So one answer could be everything balances out and we continue down the current margin trajectory for some more time.
The other answer says, start moving that margin slightly above 2014 as we get into 2015. And as we get beyond that, get it back to what we thought were normalized levels before we started down this investment journey. But I think it's too early to just say exactly what those margins would be, because you really need to calibrate it based on how well the investments are paying off. Because really this is a business that's underpenetrated and has still a huge runway for growth. And our job should be to capture that growth to deliver value to our shareholders and our clients.
And that's what it is. I think again, we are in a unique position at a unique point in the market space. There are changes happening in a number of industries that I think position companies like us and others like us to participate in driving and helping that change happen. To not position yourself and capture it is I think wrong. So as a company and as a management team, this is the right thing to do at the right time to leverage off everything else that we spoke about in terms of bringing solutions together, the referenceable client base we have, the choices we've made where our referenceable client base is some of the best and then building out those solutions and doing the investments to take those two markets.
Good time to break into Q and A?
Yes.
Hi. George Tong with Piper Jaffray. I just wanted to explore your sales cycle evolution for a second. In the earlier part of your presentation, you talked about a focus on accelerating the conversion of your pipeline into revenues. And obviously, a lengthening sales cycle from say twelve months to eighteen to twenty four months has been a key driver of the near term revenue growth deceleration.
So can you talk about that strategy to accelerate your conversion and whether that can drive accelerating revenue performance over the coming years?
So
what I was saying is not drive acceleration, but it will I think acceleration is probably the wrong word. From a year to year comparison, when you move from a pipeline that has a lesser proportion of large deals to a higher proportion of large deals, with large deals taking longer cycle time, then obviously on a year to year comparison basis, you clearly see a slowdown on decision making on the whole. As that continues on and then decisions start happening with that original big deal pipeline, then you will see a year to year comparison that is comparable and that would automatically lead to a more normalized flow of those big deal conversions. That's really what I meant when I said conversions will become more normal. Right now in a year to year comparison conversions are not normal.
Our investments are less about accelerating conversions. It's more about creating more such deals that really add value and winning more of them partly because since you created them you're in a better position to win them partly because since you created them you actually have a right to actually do it and the client turnaround as you do it sole source and partly because you have built capabilities that allows you to win in the competitive marketplace better.
That's helpful. And I guess as a follow-up to focus a bit on GE. Can you talk about where you are in your conversations with the renewal of the GE contract? Whether you see any upcoming potential pricing concessions as the contract comes up for renewal in 2016?
So I think Monty painted the picture well. For us the contract is not something that is an event. We've had contract renewal processes with GE many times before and in many, many situations. Our minimum volume commitment with GE is smaller than our current relationship. It's not something that we focus our efforts on.
We focus our efforts on what Monte said, Are we driving value? Are we driving productivity? Are we aligning ourselves to what GE is driving in its different businesses? Are we building the capabilities to be able to deliver what they want in their new journey. And as long as we are doing all of that, they love us.
We'll continue to thrive with them. Contract renewal is one more event. In some sense, it's a nonevent. If we don't do a good job in that, then contract renewal is irrelevant. Work will be debated as to whether we have the right people to do that work if we don't deliver all of that.
So for us, clearly contract renewal is important. Typically, the relationship we have with GE, it typically starts off much earlier than when the contract renewal ultimately happens. But it's not the most important thing. The most important thing is actually continuing to drive value and productivity.
Thank you.
Yeah. Hi. It's Brian Keane, Deutsche Bank. Can you give us a sense of what total bookings because that's going be a key metric what total bookings have been in the last couple of years maybe in 2013 and 2012?
We'll share that at the right time Brian. We will by the end of the year, because when we share the numbers for the end of the year, we'll also obviously talk about what it means in the context of previous years. Therefore, it means. To just give you a number, one, would not make any sense and two, you would not be able to make any sense out of that number in any case.
Well, yes that was going
be the follow-up which is what's that conversion of bookings? How does that look like? Because if it's just renewals that's really not going to drive the top line. No. I
would talk about bookings not in the context of renewals. I'll talk about we'll talk about bookings in the context of new bookings. Okay. And then
I wanted to ask about the business being winded down. I guess that's is that the 15% that's kind of the non core focus? You talk about focusing on 85%. And then are you just ending those contracts? Or how does
that wind down? No, no. Are not ending any contracts. We deliver great outcomes for those clients. Our Net Promoter Score in many of those areas is as high as in other parts of our business.
All we are saying is we will not go and replicate those in those chosen areas with new contracts with new customers. We will not invest in building new capabilities. We'll not add subject matter experts. We'll not add client facing people. In fact, any client facing person who was trying to reach out to other clients, we've actually redirected those efforts.
So it's really that. We expect actually those relationships to continue to thrive. We expect and we are continuing to drive value for them, productivity, end to end process improvement, outcome improvement. Our Net Promoter Scores therefore continue to be high. What then therefore happens is growth and new bookings in that segment of the business will not be there and therefore it dilutes overall growth.
As you go forward that becomes smaller and smaller part of our business and therefore by definition will have lesser and lesser impact as you go into the future. Go ahead.
Arvind Ramnani from Summit. It's admirable that you're changing your sales force and some of the kind of the like you mentioned the you're buying kind of new jets and you're putting kind of new fuel behind that. But in terms of like measuring kind of productivity or milestones to make sure that some of these investments are actually paying off, are you looking at things differently? Or are you going to use the same kind of measures and milestones as you did in the prior years?
Significantly differently. And when I say that, it's not changing, it's actually adding. And two metrics that I would point out is much more granular focus around bookings, annuity booking streams. And the second is productivity by different cohorts of vintage and time spent and different segments of the business. Amit talked about it in his section where we're defining productivity metrics and goals for different groups.
We are tracking against those metrics and performance against those metrics of those different groups. We used to do that. We're just doing it more granularly and more systematically and we're lining up compensation against the same metrics because you've got to measure what you reward and you've to reward what you measure. So it's pretty natural.
Great. Thanks.
Yes.
Manish Chambrzani from Oppenheimer. Just going back to the GE contribution, is there a risk that over the next three, four years GE could be more of a growth headwind than we currently expect? It's averaged around $480,000,000 over the last six years. We're now looking at 5% lower. If I look at the MSA, $360,000,000 was the minimum commitment last year, dollars $250,000,000 this year, 150,000,000 next year, 90,000,000 the next.
So can you just talk about that?
So Manish the question was therefore will GE in the future of the year? A More of a growth headwind. Growth? More of a growth headwind. Growth headwind.
So again as I said, we don't think there is any relationship that drives whether it's growth or growth headwind that is driven by minimum MVC in the contract versus our current revenue. I mean as it is there is a big gap. So I don't think that changes the answer to your question, will it be a growth headwind? It's a function of one overall growth of GE and what it does to its portfolio and so on. And two, it's a function of how we perform.
It's just those two things. Our view is that based on information available in the public domain, we think GE Capital would have finished its journey around its balance sheet shrinkage by the time we get to 2015. So we think that that then becomes a more regular business. And in the industrial businesses, think the productivity drive will continue. So I think that goes on into which is why it is flat to slightly up but slightly down.
And our job apart from delivery is to talk about all the new solutions we are creating for the new paradigm that GE is driving in its different businesses. So we wouldn't look at the contract as a headwind and the minimum volume commitment of the headwind.
Just a follow-up on that. Can you share the margins you have with GE right now versus the rest of the company?
No, we don't share that Manish.
You're correct.
The reality is actually the question that was asked around what happens to margins as you do more complex work and you do more global work and you do more scale. And that applies to a lot of our clients who've got to scale. So it's not just GE. So and that's been the journey with a lot of our clients. Yes?
Hey, thanks. Moshe Katri from Cowen. ISG is talking about a peak year this year in terms of contract renewal activity in the space. First, does Genpact have any exposure to that? That's number one.
And then number two, I'm kind of looking at your chart. The stock hasn't really done much since you went public. I would say significantly underperformed some other names in the group. And you mentioned that you're changing the compensation scheme from management. Can you kind of give us some details in terms of what sort of changes are you putting in?
Is it more packed to the stock price performance to growth to margins free cash flows etcetera? Thanks.
So from the time we went public stock price performance, I think the way we would think about it is that was pre global financial crisis number one. Number two, we were a much, much smaller company. And therefore that stock price was in the context of a very different price earnings ratio if I remember right. So lots of things in that equation. The way we would think about the current total shareholder return is what should that be in the context of the space that we operate in and the competitive environment we operate in and therefore comparing our TSR versus other people's TSR in our space.
That's the way we would think about it. Compensation for management and the leadership team is has always been a significant component of that being equity long term equity compensation. Long term equity compensation that's therefore that therefore aligns their motivations directly to the motivations of investors. That's been the way it's always been and that continues. Therefore, for example, as it relates to 2013, a number of the leadership team who had performance share grants for the year don't get them because of the revenue financial numbers not being met for 2013.
So there is significant alignment and as there's always been significant alignment between management leadership team compensation and things like shareholder returns. The one other point I would make is there is just as in the sales teams, there is a sharper alignment to long term annuity bookings, not just revenue as one metric for the year. The same is going to apply to the management team So there's a balance between revenue for the year and long term bookings. That's probably the only change and that's a reflection of the change on the sales team as well.
I have a question about ISG and the market.
Yeah. So ISG obviously covers an even broader space than the space that we look at. So our $390,000,000,000 and then it covers a whole lot of things that is not even included in our $390,000,000,000 And therefore, the renewal activity they're talking about covers the entire spectrum. Obviously, in our business given the maturity of our business, we are now in our eighth ninth year of being an independent company. So to the extent that as we go further, we are dealing with five year contracts that are now coming up for renewal, four year contracts that have been renewed twice and are now coming up for the third renewal.
Our history of renewals has been, I mean, nothing short of outstanding, as you should expect in our industry and in our business. As you should expect, if you have high net promoter scores, should expect if we deliver value to our clients. So we have our fair share of renewals. Nothing different than it's been and what you would expect as a growth company, if you just dial back to three years back, four years back, five years back contracts. And we don't think there is anything significant in that renewal activity that impacts our numbers.
Yes?
I had a question on the industry growth rates. Obviously, said you're in your seventh year and we've seen some of your competitors bring down their revenue growth rates kind of consistently as the industry has matured. What gives you confidence that the industry growth rate is actually I mean there seems to be structural differences in this industry that sales cycles take longer, the deals are bigger. So why would that growth rate go back up?
And what gives you confidence that it is going back up when it seems like the industry itself is maturing?
So Joe, we would think about industry growth rates to the extent that there is such a thing as industry growth rate as low teens. We would think about our aspirational growth rate that we are going for from a global client perspective as mid teens, which then puts us above the industry. The very reason why you said that right now the industry seems to be experiencing slowdown is the reason I would say it actually comes back up, because I mean you're undergoing a transitionary phase of bigger more complex longer decision cycle things entering the pipeline with people saying I want to do this, but I want to do it in a very big and restructuring kind of way. And once that settles down, then the industry growth rate from our perspective will come back to what it was for the very reasons that I talked about underpenetrated growth and value. It probably will be more low teens than mid teens.
But again, I don't think there's any point in splitting hairs because this notion of industrial growth is a little bit of a question mark.
Yes.
Tayo, can you talk a
little bit about Analytics as a Service? A few years ago, if I recall correctly, there was effort to build sort of a practice around analytics. And in this reorganization, what happens to it? There were conversations around smart decision services and I haven't heard today that word. So can you just help me understand a little bit what is the thought process around analytics going forward for
the next It's a three great question. You haven't heard today about smart decision services because we've actually taken that to a level where we can now think about integrating it with some of the broader service lines that we're offering. So if you think about Smart Decision Services, it really was composed of three big three things, not all of them equally big. Analytics was a big piece. The second was our reengineering and redesigning and transforming processes and driving outcomes for our clients.
And the third was risk services. We've actually taken all three of them in this journey and actually even more pulling them up and integrating them into our broader service lines. Analytics and you saw enough examples of that being pulled in into many more of our service lines more directly. And our view is that when you do that, you end up doing bigger analytics deals that drive even more value for our clients that are more integrated to the broader services that we offer, the life sciences, patient care example, the fraud example. And that changes actually the analytics value proposition pretty dramatically for our clients.
It changes the value proposition for us. I talked I think a couple of earnings calls back that it's absolutely important for us to do this also because you run into a situation where you can't run a treadmill by doing little solutions beyond a point in time. So the fact that we did that for some point in time gives us enough capabilities in those point solutions that now we are integrating into broader service lines. The same applies to reengineering. We're now taking that and integrating that with the design, the consult in the specific areas that we think we have a right to win and a right to play in and a right to create differentiation.
And then in risk, we talked about building out even stronger risk capabilities not just ourselves, but in partnership with people who bring a brand and a stamp that like an audit firm is needed in the risk arena. And then you create a great partnership that delivers that value. So the push on smart decision services, which is absolutely the right thing that we did, allowed us now to actually pull that up and integrate that to the broader service offerings of the company. We still run it as a separate business. We still track it as a separate business.
We still have a business leader who runs it. The solutions that they work on are more integrated to the broader solution. So the opportunity to grow that business is actually by doing that. If you don't do that the chances of growing that business become lesser and lesser because you run into scale issues. Yes color?
So how do you determine where the responsibilities of the lead solution architect hand off to the domain expert and the other way as well? Shantanu?
So we don't view it as a handoff. We view the lead solution architect to be like conductor and the domain experts like the individual musicians. So the job of the lead solution architect is to core on a deal or an opportunity along with the salesperson, understanding the client needs and then converting that and converting our capabilities into a solution that meets their client needs. The domain experts come in as individual pieces in many different areas of that solution expertise and pulls that. So for example that patient care example, you'll have domain experts from social media analytics, you have domain experts from contact center, you have domain experts from technology, the lead solution architect along with the sales team pulled all of those together to say here's the overall value proposition, here's the overall commercial structure.
So there is no handoff. Just works.
And then you've got the client partner as well as I think a hunting sales rep. So there's kind of four people working together. How is that different than a couple of years ago? And how the responsibility has changed? So again, I
don't think it's for people because the way we think about it is that the client partner is really the salesperson on that. Now depending on the size and scale of the opportunity that person might have assistance or people sort of helping on how big that opportunity is and where it is and stuff like that. But the client partner owns the opportunity. The lead solution architect who operates with that client partner co owns that opportunity. The person who runs that account from an operating P and L leadership is part.
So it's really three in a box which is has always been the situation for us. So it doesn't change that game. The quality of the people in this mix given the scale and the complexity of the solution is changing.
Okay. So you don't see it as a change?
We don't see it as a from a process wise a change.
Okay.
We see it in terms of the caliber quality of the conversation and the people as a change.
So Colin the way so it's not a change. It's three people. I think the level and caliber and what they work on is definitely changing. The bigger change in my opinion is what they work on is not something that they've been asked to work on by the client who has decided what they want to do and we become then executors. It's actually something that we've gone to the client, meaning the client partner with the ammunition of the lead solution architect and the SME aligned there to saying, I think you guys should be thinking about your world this way, which could be a six month conversation.
In fact, in some cases, it's actually a one year conversation, but then you create a much bigger opportunity over time.
So that's the way
I think about it.
Hi. I believe
it's been about two or three years since you acquired Headstrong for $550,000,000 or so and 2.5 times revenue. And I believe the maybe the growth in the capital markets industry hasn't been quite as expected. And are there any key takeaways in terms of lessons learned? How you spent that capital? How would you grade that as a use of capital from a financial perspective?
And then how do you translate that experience into future M and A as you look to bolster these nine core verticals that you're talking about? Thanks.
Great question. The fact that capital markets is one of the choices that bubbled up very quickly to the top nine that we made is one answer to, I mean, was that the right choice to have made three years back in doing the acquisition that we did? We think it absolutely was. And the reason for that is the same reasons we talked about massive headroom, lots of change that will go through in that industry, a great starting point with that acquisition. We see that in the kind of conversations that we are able to have over the last one year as we brought the market partnership together.
The design partners the four design partners HSBC Morgan Stanley and the two others, we are talking about engagement at the Chief Operating Officer, the Chief Information Officer level of those investment banks. And you don't get that unless one there is real credibility, there is real relevance. And when they get engaged, they're getting engaged for long meetings, deep dives together. So first of all, they're all together,
which is a wow. The four of
them sit together and actually build something that's amazing. So long and short I mean long and short of the answer is love the vertical. Lessons learned, I wish there was something called a crystal ball that you can look at and say tomorrow morning a couple of these firms are not going to exist. And therefore, just wait for three days and then do the acquisition. Still searching for that crystal ball.
But other than that, still love the vertical. And the thesis, the multiple pieces that we built on during the acquisition, we always knew it was going to take time such as technology and process and domain bundling those together for a solution that works. To me the market example is a classic example of bringing bundling that together. What we are building could not be done with only technology. What we are building absolutely could not be done with only process.
The only reason it can be done is because it's those two with people who really understand what's happening in the capital market space. Anything else? Okay. So really appreciate the time that you took to spend listening
to all
of this and dialoguing. I hope you got a sense of what we're trying to do and what we have been doing. You also got a sense of the excitement from the team on why we truly believe that this is the right thing to do in a space that is continues to be truly exciting with a much sharper focus that then allows us to direct all the energy that you saw today into those areas with a very high excitement around our opportunity and our capability to win in our chosen spaces. Thank you.
Thanks, Tiger. One final reminder, we do have lunch and we will be the Genpact team will be staying around for at least another hour to mingle with you all. Thanks again very much.