Why Salil Parekh’s journey is symptomatic of the state of India’s offshore IT legacy
Parekh made his mark at Capgemini because he made it competitive against Indian service providers like Infosys which he will now lead as CEO.
Parekh, a minimalist, speaks at a decibel level ranging between a whisper and a gentle murmur. “We will be entering the Channel Tunnel,” he told the journalists seated with him, as speeds dropped to 160 kmph. We looked out of the window. The train zoomed into a dark tunnel.
Over the next year, Parekh would race into the unknown: an executive of Indian origin — not French — residing offshore and managing the global portfolio of a multinational technology services company out of India.
He was peerless in India until June 2014, when Bhaskar Ghosh took over as chief executive of global technology services at the American $35 billion multinational Accenture. Parekh made his mark at Capgemini because he made it competitive against Indian service providers, notably TCS and Infosys, the $10 billion company he has now been entrusted to lead as CEO.
From 2007, an offshore delivery arm was imperative for multinationals like IBM and Accenture to match the cost efficiencies their Indian counterparts were generating for enterprise clients globally. The software engineers came from this land. In 2009, Capgemini India had 26,000 employees and breached the 1,00,000 mark in 2016, in no small measure due to the iGate acquisition that added 30,000 people. Parekh began creating the offshore muscle, which Capgemini now flexes.
He was a partner at Ernst & Young Consulting, when Capgemini made an audacious $11 billion acquisition in 2000 (which Capgemini founder Serge Kampf said gave him a heart attack in five days). E&Y Consulting housed 120 employees in India then. In a decade, Parekh put that office on the Capgemini map, which is no mean feat. A 12.5 billion euros ($13.2 billion) company, Capgemini operates in 44 countries, but is deeply rooted in its Rue de Tilsitt headquarters.
But something changed in October this year in Capgemini — and it dates back to 2015. It tells us not just the value of what Parekh began to build in the French multinational, but also about the future of India’s offshore model. Parekh was unavailable for comment when ET Magazine reached out to him. Capgemini responded by email for this article.
Capgemini’s chief executive Paul Hermelin became chairman in 2012, after founder Kampf, 77, decided to step back a year before. Kampf passed away in 2016. The company reiterated the role of the executive committee to shareholders: to define the major strategies to be submitted to the board of directors, and take decisions related to improving performance. Composed of 14 members, the committee then had two Indians.
Aruna Jayanthi, who was heading the Indian subsidiary, was one. The other, obviously, was Parekh, whose mandate had grown to overseeing financial services (21% of Capgemini revenue) and the English-speaking markets (North America, UK, Asia-Pacific, excluding China) of “application services”. His stock was on the rise within the group. Parekh’s application services counterpart for the non-English speaking markets was Olivier Sevillia.
In 2012, Capgemini formulated a group management board (GMB) to select the cream of the executive committee. Parekh, Sevillia and three other top managers became part of this, and remained there until October this year. They would report to Hermelin, even as the executive committee represented the leadership pipeline. The other three were Aiman Ezzat (finance), Patrick Nicolet (infrastructure services) and Hubert Giraud (people management). The GMB members came to be seen as ‘Director Général Adjoint’, though the annual reports make no reference to such a designation.
The GMB is in charge of the Group’s overall operations and Executive Committee. “This group of top managers each fulfil the role of ‘deputy CEO’ (in English) or Director Général Adjoint (DGA) in French – an internal title to describe their role,” a company spokesperson said on email. The only GM member that is on Capgemini’s board is Paul Hermelin.
According to a source, the deputy CEO announcements were made at Team One, an offsite meeting of the company’s top 100 leaders. “That’s where it was announced that Salil was part of the succession plan,” he says.
In 2014, the application services business accounted for 55% of Capgemini revenues. “It (application services) looks at business transformation, consulting, application development and management, and new areas (mobility, analytics, social, cloud and security),” Parekh told ET in 2014.
Sevillia’s non-English speaking markets like countries in Continental Europe were in the doldrums. In contrast, Parekh was able to grow revenue, according to a senior manager who worked at Capgemini.
Given his portfolio, Parekh was spending at least six months in a year in the US. The financial services business had got a fillip with the 2006 acquisition of Kanbay, which had also given Capgemini India a team here. Banking, financial services and insurance markets form a bulk of Indian IT’s revenue base.
Ezzat had been vital in integrating Kanbay with the parent company. Parekh was managing financial services, apart from application services. Both were strong contenders based on performance. But Patrick Nicolet wasn’t far because he actually understood the global delivery model in practice. As executive vice-president for infrastructure services, he was growing business.
In India, Nicolet hired Milind Dikshit in 2012 and empowered him to apply the offshore muscle for Capgemini. “Patrick was able to get the India story right, while Milind made it successful,” the source says. “Patrick got the top line right on infrastructure services, and understood the global delivery model.” Yet, it was becoming a two-horse race: Parekh and Ezzat. In 2015, the board pushed a new candidate, Thierry Delaporte, up in the group management board. Delaporte, a Frenchman, was part of Parekh’s group function: application services-financial services sector.
In October this year, the board announced Delaporte and Ezzat as chief operating officers — not one but two COOs. “Hermelin always devises a mechanism to put people in place,” the source tells ET Magazine. “He was making sure everybody is uncomfortable.” Apart from his position as chairman, Hermelin derived his power from Capgemini’s performance after Kampf quit. “That is amazing,” the source says, “and the profits got a boost with the iGate acquisition in 2015.”
Capgemini is a 1,93,077-employee company with an operating margin of 11.5% in 2016, which has grown every year since 2010 (6.8%). Hermelin himself had been appointed ‘deputy CEO’ to Kampf in 2000, and became CEO in December 2001 “What is unsaid is you have to know French to be future CEO,” the source says. “He entrusted Salil with new business like cloud and infrastructure services in 2015. Then, it looked like Ezzat would be the new CEO. There is this constant of new names, or change of roles and responsibilities.” Both Delaporte and Ezzat are Frenchmen. The former is in his late 40s, and has age on his side.
So was nationality important? Was it a reason for Parekh not becoming COO? “Both (Delaporte and Ezzat) had proven themselves in terms of delivering performance and transformation,” the company spokesperson said. “Thanks to its deeply-rooted multicultural DNA, Capgemini has grown and attracted numerous Indian-origin talented managers who now occupy high leadership positions,” the email said.
Capgemini cited Jayanthi and Srinivas Kandula (CEO of Capgemini India) who are both on the Group Executive Committee (GEC), in addition to Indians outside the GEC who have high-level positions within the Group like Anirban Bose (no. 2 in Financial Services), Ashwin Yardi (COO of India), Baru Rao (head of Cloud Infrastructure Services in North America), Deepankar Khiwani (Head of Switzerland and Belgium), Anil Agarwal (deputy Head of Sweden and Head of Norway).
However, it gets harder at the highest echelons for leaders who aren’t French. “French companies allow diversity in their senior ranks, but they don’t really want the most senior people being anything other than French,” says Peter Bendor-Samuel, founder and chief executive of Everest Group, a strategic consulting and research firm.
“They (Capgemini) are the national champions. I think Salil was blocked really by birth from further advancement at Capgemini,” he adds.
Another source from a leading executive search firm, who spoke on the condition of anonymity, says: “To conclude that Delaporte and Ezzat got the nod purely because they are French would be unfair.” All three are exceptionally bright, he adds.
“Ezzat has the finance background, a sense of operations and knows how to make the services model work. Delaporte’s performance has been stellar in the past two years, especially in financial services.” But unlike in the US, European companies tend to invest in people who understand their culture implicitly, according to the source. “In Paris, Capgemini has to be aware of its public perception—for a non-French guy to make it to the top would have been a very massive investment for the company,” he concedes.
In the past decade, Capgemini has also built a pool of leaders like Nicolet and Pierre-Yves Cros, head of strategy and development, who know how to tap its offshore base in India. The company is different from what it was before Parekh came into his own. “He has done extraordinarily well, not being French,” says Bendor-Samuel. “He was very influential. He led the argument to buy iGate, which has been a good asset for Capgemini. He is well respected, but he had probably gone as far as he was going to go in Capgemini’s culture.”
Nationalism aside, technology companies have been under more pressure than ever since 2015. There is no singular trend because there are myriad factors, one of which is nationalism. To twist Tolstoy’s immortal line: all happy boardrooms are alike; each unhappy boardroom is unhappy in its own way. This is particularly true of publicly listed companies for two reasons.
One, shareholder activists. According to international law firm Vinson & Elkin (V&E) in Texas, shareholder activists have sought to disrupt the board rooms and C-suites of nearly 200 tech companies with market caps ranging from less than $20 million to over $200 billion in the past 18 months. Meeting activist shareholders face-to-face entails aggressive confrontation, for which companies need to be prepared. Two, technology — both in the US and Europe — has come to be seen a death blow to mass-job creation. In a politically volatile environment, particularly in Europe where several countries are turning nationalistic, technology companies don’t want to incite shareholders.
In the case of Parekh, who was a contender for Infosys chief executive even in 2014 — when Sikka became CEO — it became easier for Capgemini’s board to focus on local champions than him. All this at a time when it is operating in a hyper-competitive market for digital business against the likes of Accenture. “If an American company chooses an American as CEO, it still raises eyebrows,” says the source at the executive search firm. “With European companies, they are expected to lean in favour of their own people, just as Indian or South Korean companies hire their own to head the companies.”
“For a person of non-French origin, to even be in contention for CEO succession at Capgemini is phenomenal credit to his work,” he explains. “They ramped up their global delivery base in a place like India. Nobody better understood, articulated and executed that vision internally (at the headquarters) better than Salil.”
So what happens to the empire that he evangelised in India, where Capgemini now employs almost 1,00,000 people?
Will Offshoring Wither?
A client advisor who has operated in Europe says Parekh’s appointment to Infosys is a conservative choice when it comes to innovation, but adds that he was instrumental in “Indianising” Capgemini. “He has a very organised approach, but could come across as arrogant,” he says. “Still he made sure Capgemini is no different from any of the Indian service providers.” Until 2014, most IT service providers relied on more than 90% revenue coming from existing customers.
“So the worry was to improve client margins and efficiencies in order to retain customers,” the client advisor says. “Capgemini is now looking to provide new services from the innovation standpoint.” This is where India is seen as the key because it is a factory of software engineers.
Meanwhile, at Infosys, Parekh will have to do the opposite of what he built at Capgemini. If he led the charge to Indianise Capgemini’s services business, Infosys — like its Indian peers — needs to become more global to be able to find new revenue and grow.
A McKinsey & Co report in 2015, “Shaping the Digital Revolution”, acknowledged the employment created by IT services, directly and indirectly, at 5.5 million jobs. “But digital innovators disrupt traditional business models,” the report said. “Technology is also driving massive improvement in labour productivity.” While India’s software talent was seen as an asset to build a $132 billion industry and improve clients’ margins, it is now coming to be seen as a cost.
This has manifested in different ways in India already. In 2015, HP India split its operations into two: services (HP Enterprises) and products (HP). In the heyday of IT outsourcing a decade ago, HP had bought out EDS, which had swallowed BPO firm Mphasis. In 2016, HP Enterprises sold off a majority stake in Mphasis to private equity firm Blackstone. The remainder enterprise service business was merged with CSC Technologies to create DXC Technology, which is globally headed by Mike Lawrie.
This order of consolidation is not par for the course yet. But IT services companies here find themselves with a services (people) legacy to build on, much like the US had with technology, hardware and products. It has to now focus on the quality of talent, as opposed to volume.
The source from the executive search firm says Delaporte, who heads financial services, is invested in the offshore capabilities of Capgemini and there are no foreseeable reasons for the company to pare down what Parekh built.
“Capgemini managed to become more offshorecentric than even Infosys,” says the client advisor in Europe. For Infosys, it has to collect itself in terms of organisational structure and services offered, he adds. Parekh has the hunger for the CEO job. “Infosys, when it is on the same page and united, is a very formidable company,” agrees Bendor-Samuel. “It is deeply talented, has strong values and plenty of cash — it’s a capable firm.”
While Parekh is a product of the services empire, Bendor-Samuel says the board under Nandan Nilekani has taken a big risk. “Salil doesn’t have the experience as a global CEO. However, he has the best chance of fitting into that Bengaluru-centric nerve centre that is Infosys.” Bendor-Samuel cites his characteristics — keeping a lower profile (than Sikka), and the ability to build consensus — to be just right. “Infosys needs to get all on the same page, put their heads down and execute.” Parekh is about to enter a tunnel again.