Ex-CEO Bhargava: Out of the picture

On March 27, 2006, Bangalore-based Infosys Technologies acquired the 23 per cent stake held by Citigroup Investments in its business process outsourcing (BPO) subsidiary Progeon for $140-150 million or Rs 630-675 crore (Citigroup had acquired the stake for $20 million or Rs 98 crore in 2002). Since then, there have been reports that Infosys will integrate the operations of Progeon (whose CEO Akshaya Bhargava had quit earlier this year) with its own and that it will do this and retain the Progeon brand. There have also been reports that Infosys had promised Citigroup an exit through an initial public offering by 2007, and that it offered to buy out the company because it has no immediate plans to take Progeon public. This being the quiet period in the run-up to the declaration of its financial results, Infosys hasn't commented on the issue. Interestingly, however, these happenings raise five key questions that are relevant, not just for Infosys and Progeon, but for the industry as a whole.

1. What's better: Voice or data?

This isn't an either-or thing. Not too long ago (in July 2005), when Wipro BPO (previously Spectramind) was in trouble, analysts attributed it to the division's dependence on voice-business, where margins are slim. Now, says a senior executive at a BPO firm, "The voice side of the market is more mature and the opportunities higher for Indian firms." His reference is to the fact that Progeon's business model makes it harder for the company to scale up (its contribution to the consolidated revenues of Infosys was 2.7 per cent in 2004-05). Fact is, margins are higher in the data business, and volumes in the voice one; the ideal solution would be for a company to have an optimal mix of the two. For the record, 80 per cent of Progeon's revenues of Rs 103.5 crore for the nine months ended December 31, 2005, came from data business (the company has grown revenues from $17 million or Rs 76.5 crore in 2004 to $43 million or Rs 193.5 crore in 2005 and currently employs around 4,000).

2. Isn't integration across independent business units the way forward?

Yes, especially for companies that want to be truly global, which belies the argument being proffered by some analysts that Infosys could do worse than integrate Progeon's operations with its own.

3. Can employees of independent business units be treated differentially?

Yes, although it is far easier to do this with subsidiaries than with business units. As one Infosys executive points out, "Attrition is a key issue with the BPO market and there are completely different strategies to hold onto these young agents compared to retaining say a mid-30s project manager at Infosys."

4. What's the biggest plus of one brand?

Simple, the brand. Companies such as Accenture and IBM use the same brand for all their offerings. In 2004-05, Infosys' brand value was estimated at Rs 14,153 crore, up from Rs 8,185 crore the previous year. "Why build a separate brand for BPO?," is a popular refrain among analysts.

5. Does cross-selling really work?

Yes, and no. While it may help as an entry-strategy, "Customers," the coo of a Bangalore-based BPO firm points out, "like to split their work to specialised vendors, especially in areas such as financial services and telecom."