India: The GE and McKinsey Club

Outsourcing's inner circle has deep roots in GE and McKinsey. Here's how they caught the fever

After General Electric Co. (GE)spun off its outsourcing subsidiary, Genpact, two years ago, ChiefExecutive Pramod Bhasin figured he wouldn't be seeing much of hiserstwhile GE colleagues. But these days, Bhasin sees plenty of the oldgang. That's because GE has been so successful with its outsourcingoperations that its managers continue to chant the mantra even afterthey have left the company. Today, GE veterans are in key positions atHome Depot (HD), Honeywell International (HON), Solectron (SLR), and United Technologies (UTX),among others, giving Bhasin a huge base of potential customers with adeep understanding of just what his company can do for them. ``We goafter GE alums,'' Bhasin says.

If GE is the primary source of Bhasin's customers,another outsourcing pioneer, consulting firm McKinsey & Co., hasproduced many of his potential competitors. Marc Vollenweider, a formerpartner at McKinsey in New Delhi and London, co-founded EvalueserveInc., a New Delhi company that provides market research and analyzesdata for hedge funds and investment banks. WNS Global Services, a topcall center and back-office shop in India, was founded by McKinsey alumNeeraj Bhargava. And Rizwan Koita, an associate with McKinsey inBombay, left the firm in 1999 at age 29 to found TransWorks InformationServices Ltd., which operates call centers and does back-office workfor banks and tech companies. After selling that business in 2003 toIndian conglomerate AV Birla Group, Koita established CitiusTech Inc.to serve health-care technology companies. ``We at McKinsey saw theopportunity early,'' says Koita.

Today, veterans of the twocompanies are powerful evangelists for the benefits of outsourcing.Like Bhasin, many of these managers are eager to tap into informalalumni networks to expand their own businesses and help drive thetrend. While there are no numbers, anecdotal evidence suggests thatscores, perhaps hundreds, of former GE and McKinsey executives andconsultants play key roles as both suppliers of outsourced services andcustomers for them. ``Every time we have an outsourcing forum, it'slike a GE and McKinsey alumni association meeting,'' says Sunil Mehta,vice-president of NASSCOM, India's software industry association.

Of course, lots of companies have seen the opportunities in outsourcing. As early as 1994, American Express Co. (AXP)and Citibank started hiring Indian accountants and math whizzes inDelhi and Bombay. But neither has spread the gospel the way GE andMcKinsey have. Insiders and outsiders say the two are unique in theirscale, their ability to attract top performers, their comfort withmultiple cultures and languages, and their commitment to outsourcing.Both also view outsourcing more as a tool to increase growth and boostefficiency than as a pure cost savings exercise, a strategic insightmost other corporations are only starting to grasp.

And managers at both companies practice what they have long preached. In 1996, GE Capital (GE)found itself short of the talent it needed to sustain the growth of itsmortgage refinance business. So it set up a small support office inDelhi that quickly earned the respect of GE colleagues worldwide. Soonother GE divisions were clamoring for similar help from India. That'swhen then-Chairman Jack Welch ordered GE divisions across the companyto use outsourcing to streamline their operations. That New Delhioffice grew into Gecis Global, which last year became Genpact after itwas sold to two private equity groups for $500 million. Genpact now hasrevenues of almost half a billion and 19,000 employees around the world.

McKinseybegan its education with a 1995 project on the digital economy's impacton services. The leader of the initiative, Anil Kumar, concluded thatplummeting telecommunications rates would create a world of ``remoteservices'' whereby providers in far-flung locations such as India andChina could work for customers in the U.S. This led McKinsey toestablish what it called a Knowledge Center in New Delhi, whereresearchers would crunch numbers, analyze trends, and even put togetherPowerPoint presentations for McKinsey consultants worldwide. TheKnowledge Center soon became a model outsourcing operation thatMcKinsey could show off to clients. ``We were the first to legitimizethe early thinking,'' says Kumar.

Having seen the benefits ofoutsourcing up close, ambitious consultants and executives from bothcompanies began jumping ship to start their own businesses. Raman Roy,who helped GE Capital set up Gecis, in 1999 started India's largestindependent outsourcer, Spectramind, which he sold to tech giant WiproLtd. (WIP) in 2002.GE, he says, taught him how to seize opportunities, take risks, andmake mistakes. ``GE is among the best incubators of talent and has agreat culture of encouraging entrepreneurship,'' Roy says. He hasclearly absorbed his GE lessons well: Roy is now on another outsourcingstartup, AccessIntellect, which does high-end analytics for softwarecompanies and others.

Manoj S. Jain, a former McKinsey associatein Chicago, runs Pipal Research Corp. The Chicago outsourcing firm hasquadrupled its sales in the past two years and now has more than 100researchers in India and China doing work for banks, law firms, andothers. Jain credits his former employer with being an ``idea lab andopportunity shop.'' Having McKinsey on your résumé doesn't hurt,either. ``Clients are willing to give us the benefit of the doubt,'' hesays.

AN EAGER BASE
As other GE and McKinsey alumshave moved on to new jobs, they have started to form an eager customerbase for outsourcers. Home Depot Inc. CEO Robert L. Nardelli, once acontender for the top job at GE, has hired India's Tata ConsultancyServices Ltd. to do call center work and back-office jobs in financeand merchandising and is now trying to create a clone of Genpact forHome Depot. Gunjan Kedia was a partner at McKinsey in Pittsburgh whenMellon Financial Corp. hired her as executive director and asked her tooverhaul its back-office operations, with an eye toward outsourcing keyfunctions.

Many of those customers have migrated back to Genpact, a trend Bhasin is happy to encourage. Wachovia Corp. (WB)strategist Peter Sidebottom, a former McKinsey partner, helped steer abig outsourcing contract to Genpact. And GE Plastics alum Arthur H.Harper in December launched NexGen Capital Partners, which buysdistressed businesses and uses strategic outsourcing -- from Genpact --to turn them around. "I know Pramod and I know the team," says Harper."Of course I'm going to leverage Genpact."