Sudhir Agarwal, president of global M&A and business transformation at outsourcing services firm Aegis, says acquisitions typically fail because not enough attention is paid to the softer aspects of integration. Aegis, which has completed 19 mergers and acquisitions of firms located across the globe, has a detailed framework to address this issue, which calls for the company to roll out its initial announcement and strategy within nine hours of closing the deal and to achieve a full integration within 99 days.

In a conversation with India Knowledge at Wharton, Agarwal discusses current trends in the outsourcing industry, what his company has learned from its past acquisitions and why integration after a merger is, above all, about dealing with the emotions of the employees. “You’ve got to empower and make people feel comfortable,” he notes.

An edited version of the transcript follows.

India Knowledge at Wharton: Can you tell us about yourself and your company and also give us an overview of current trends in the outsourcing industry?

Sudhir Agarwal: I’ve been part of the outsourcing industry since early 1999, pretty much since it was set up in India. I worked with GE for a significant period of time and then I [joined] Aegis. In the past six-and-a-half years in Aegis we’ve [grown to] about 52,000 people globally and we’ve done about 19 mergers and acquisitions.

If you look at the industry overall and map it over the past 10 years, we saw a large number of companies, specific to India, starting in the BPO space. And over the past five years to six years, a lot of consolidation has happened. The industry did see challenges in terms of the recession….

At Aegis though, our business model is different. We are not a pure play off-shoring BPO company. We have over 5,000 people employed in the U.S. We have operations in the U.S., South America, South Africa, Saudi Arabia, India, Sri Lanka, the Philippines and Australia. And leaving [out] maybe the Philippines and part of India, which do domestic work as well as offshore work, all the [Aegis offices in] other countries actually support domestic work. This has helped in not letting [the recession] impact us in a major way.

India Knowledge at Wharton: Can you share some lessons that you have learned from running these operations abroad?

Agarwal: When we started Aegis there was a core team of about six of us that came on board within the first 12 months. Even today, all six of us are [still with the company]. And I think that is fundamental. You’ve got to have the foundation very strong. Other than that, we have a core management team. The way we run [operations in different] countries is to have leaders who [think] like entrepreneurs and who run it in their own model.

We obviously have defined processes and defined systems to make sure that a customer can be serviced from any part of Aegis, that they get the same feel [everywhere]. But as far as the management teams go in each of these countries, they are local…. If you go to Australia, you will see a management team [of] Australians. And then when you go to South Africa, you will see a local team more of South Africans. But the foundation — the processes, the systems, the IT and everything behind it — is common in every single location of Aegis.

India Knowledge at Wharton: What are some of the hurdles you’ve faced as you tried to expand outside India?

Agarwal: We’ve done 19 mergers and acquisitions, most of them cross-border. There are basically two reasons why we’ve done so many acquisitions: One, to acquire or enter a [sector] where we did not have expertise. Second, to [establish] a geographical presence [in a particular area]. Very early on in our M&A journey, we realized that the integration framework has to be really, really strong. So the framework that we built after the first two or three acquisitions is very detailed. It’s called the Five Nine DNA framework. In fact, we won an award for it from NASSCOM [the National Association of Software and Services Companies] last year.

India Knowledge at Wharton: Can you share some details about this framework?

Agarwal: If you study the last 100 acquisitions that have happened, irrespective of which geography they were in, I would say more than 80% failed only because [the acquiring firm] did not do a good job in terms of integration. Integration is not about acquiring a company on a piece of paper. It’s not about combining the balance sheets. It’s really about dealing with emotions. You’ve got to empower and make people feel comfortable.

I’ll give an example. We’ve got colleagues who were [earlier] probably running a small — let’s say a US$20 million — company. Once they became a part of Aegis, they now handle much larger roles and have larger responsibilities, sometimes spanning continents. I think we have been able to manage the emotional part very well. The Five Nine framework which I’m specifically talking about is actually very simple. It is focused a lot around people. It says that in the first nine hours after you acquire a company, you need … to make the announcement, roll out the organization charts [and] make sure that there is no room for questions…. And the last “nine” would really be 99 days, which means that the entire integration and acquisition needs to be completed by then. Whether it’s a US$10 million acquisition or a US$150 million to US$200 million acquisition, the framework would be the same.

India Knowledge at Wharton: Can you share some insights into what you think is unique about Indian management philosophy?

Agarwal: The biggest comfort that you have as part of a management team working for an Indian company is that you’re not just an ID number. They really empower you and they enable you to run your own business like an entrepreneur. When we acquire companies, we understand that it’s not just about letting people go, it’s about doing the right stuff with the management teams, sitting with them, discussing with them. A lot of time is spent on soft aspects, which I feel is a big thing in terms of Indian best practices. In any acquisition, even before doing the M&A, we would meet the management team, and [ask for] the commitment that they would stick with us for at least 18 to 24 months. In some cases we walked out of a deal because those core people said they wouldn’t stick with it. I think that’s very unique. The other good Indian management practice is they believe [in the] long term. They can look at returns more in terms of five years and 10 years and not kind of panic and say, “What’s going to happen next quarter?” That’s another big comfort factor that you get working for an Indian company.

India Knowledge at Wharton: What’s the one thing you would change about Indian management practices?

Agarwal: The group I work with, the Essar Group, has managed to strike a perfect balance between the role of a promoter versus the role of a management team that runs the company. That whole structure is very well defined. They spent a long time over the last six to seven years defining that. And I think as long as that is defined — and the management team has that comfort factor and the freedom to run their organization — I think companies will do well. That’s something that MNCs in the Western part of the world do really well.