First, Fire the Executives: iGate Patni CEO on His Merger of Unequals
iGate Patni CEO Phaneesh Murthy addresses his controversial acquisition of a much larger IT outsourcing company, the debt the combined company has incurred and the way Patni executives were treated during and after the deal.
CIO — When iGate completed its $1.2 billion acquisition of Patni Computer Systems in May, the two offshore outsourcing providers instantly leapt over their mid-tier outsourcing peers to become one of the biggest IT outsourcing providers in India.
The merger is hardly one of equals. iGate was known for its fast growth and risk taking, most notably in its embrace of business-outcome-based pricing. Patni, nearly three times its acquirer's size, was a pioneer in Indian IT services but had seen its growth stall in recent years and was known for high volume, lower value work. Patni's upper management (many of whom were subsequently fired) were not involved with the buyout negotiated by the company's large investors. iGate leveraged its purchase of Patni, leaving it with a heavy debt burden.
Now, the combined company, with nearly a $1 billion in revenue and 26,000 employees, faces big obstacles as it attempts to compete head-to-head with much larger offshore rivals including Tata Consultancy Services, Infosys (INFY) and Wipro.
iGate Patni CEO Phaneesh Murthy, who made a name for himself as an Infosys sales and marketing executive in the 1990s, says these hurdles can—and will—be overcome in the next year and a half. CIO.com talked to Murthy about acquiring a larger competitor, clearing out Patni's executive suite, and why the IT services market has not yet embraced business-outcome based pricing.
CIO.com: Prior to your investment in Patni, iGate was unique among outsourcers for its willingness to challenge industry norms, such as by embracing outcome-based pricing. Why do you think you weren't able to capture more of the offshore outsourcing market with that unique proposition?
Phaneesh Murthy, CEO, iGate Patni: Actually, we were growing quite nicely. We grew over the last five years. Our earnings growth was number one in the industry based on our differentiated business model. We hit two roadblocks. First the mortgage market collapsed, and we had a lot of mortgage business. Then the financial services market fell through a hole. In spite of that, we were one of the highest earning [IT services providers] in India.
The fact is that, for most of our clients, there is an intense amount of scrutiny from their procurement [offices]. Procurement likes to be able to compare your offer to five other offers, but what we offered was different from other providers.
The investment in Patni makes you a much larger company—one of the top ten in India. But you're still smaller than the real heavyweights TCS, Infosys and Wipro, which are five to seven times your size. What will differentiate you in the offshore IT services market?
