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The "New Concentrix": a Different Type of Player in CMS BPO?

Concentrix recently briefed NelsonHall about its positioning now that it has essentially completed its acquisition of the former IBM BPO capabilities around customer management services and also some industry-specific services (excluding mortgages, which IBM retained). For details of this acquisition, see "IBM Exits CMS and Most Industry-Specific BPO: Divests Business to Synnex Corp" at: http://research.nelson-hall.com/blogs-webcasts/nelsonhall-blog/?avpage-views=blog&type=post&post_id=63#sthash.qY6jyFyI.dpuf.

Let’s start by looking at the legacy Concentrix business, which may have fallen below the radar of CMS BPO industry watchers.

Legacy Concentrix: the GBS unit of Synnex Corp.

Synnex Corporation’s primary business is wholesale distribution, providing distribution services for IT systems, peripherals and system components, software, and complementary products. Its primary OEM supplier is HP (it has not been an IBM hardware distributor). Synnex distributes technology products in the U.S. Canada, Japan and Mexico, with around 87% of its total revenue (prior to the IBM CRM acquisition) from North America. Its distribution services business also provides some contract assembly services.

Legacy Concentrix was the global business services (GBS) SBU of Synnex Corp. It offered a range of BPO services including tech support, renewals management, lead management, direct sales, customer service, back office processing and ITO. Many of these services are delivered on proprietary software platforms it has developed or acquired. Its primary client base was manufacturers of IT hardware and CE devices, ISVs, cloud service providers, and broadcast and social media. The value proposition in its BPO services was helping clients customers achieve greater efficiencies in time to market, cost minimization, real-time linkages in the supply chain and after-market product support. Concentrix served ~150 clients

Concentrix has been acquisitive - in its fiscal year (ending November 30):

  • 2010 it acquired Aspire and Encover for $40m, gaining renewals management software
  • 2011, it acquired 100% of gem, which brought in a social media platform, also certain assets of e4e and of VisionMAX Solutions for a total of $43m. These brought in additional scale, expanded its client base and geographic presence, and complemented its offerings in social media and cloud computing
  • 2012, it acquired a small business for $6.2m.

Acquisitions have accounted for over 70% of its revenue growth in the last three years. FY 2013 revenues reached $224m.

How has the integration of IBM CRM gone so far?

In terms of the headcount involved, this has been IBM’s largest divestment in its history, and many of the transferring contact centers were embedded within larger IBM sites. This was never going to be a big bang transfer, but it appears to have gone to plan. The first wave of the acquisition was completed by end January, and the second tranche by end April, with the addition of 19 delivery locations across 13 countries.  Over 95% of the acquisition is now completed; the last tranche will be completed by the end of this month.

The acquisition of IBM’s CMS business has added ~35k employees in six continents, servicing ~170 clients from >40 delivery centers. The combined entity has ~45k employees, >50 delivery centers, with capabilities in 40+ languages, and services ~300 clients.

Concentrix also announced earlier this year the addition of ~1k new jobs in Belfast, and the set-up of a new center in Varna, Bulgaria. 

Concentrix claims that it is seeing scope expansion with existing clients and also new client wins.

Its H1 FY 2014 revenues (to end May) were $420m. Excluding expenses of nearly $25m relating to the IBM CRM acquisition & integration, also amortization, non-GAAP operating margin was 9.4%,up 97 bps y/y.

But financing the acquisition has pushed Synnex Corp’s debt to capitalization ratio to 38% (Q2 FY 14), a big increase from 18% in the prior year period.

What does IBM bring to Concentrix?

Clearly, the first thing is scale: Concentrix is now a $1.2bn business, leapfrogging it into the top 10 global CMS BPO providers.

But this is not just a scale play: aspects of IBM CRM’s BPO business that were attractive to Synnex Corp. is that it:

  • Is a higher margin type of business than its distribution business 2.39% (the legacy Concentrix GBS business achieved a 6.83% segment margin in FY 2012; its distribution business 2.39%)
  • Brings in some industry capabilities in banking, healthcare and insurance, sectors in which Synnex has not operated. In fact there was very little overlap in the client base
  • Also brings in analytics capabilities (both operational and customer), that Concentrix had struggled to build internally. The company claims it has now gained hundreds of people with skills in unstructured and text analytics, speech analytics, also predictive analytics and forecasting. Operational insights might, for example, help in reducing AHT. Customer insight analytics might, for example, help an agent in making a best offer to a customer.

What is the positioning of the new Concentrix?

With the acquisition now more or less complete, Concentrix is now focusing on GTM and marketing. The drive is to combine the capabilities it has acquired from the IBM CRM business with its own attributes.

In terms of GTM, Concentrix is focusing primarily on just four verticals: healthcare, banking, insurance and technology. The first three of these are all new target markets for Synnex/legacy Concentrix, and it is looking for additional specialists in these sectors.

Concentrix’s positioning is based on its ability to deliver high value services that focus on transforming the customer experience. The emphasis is on the application of analytics, technology and process optimization, in particular to streamline the customer journey across all channels. Concentrix offers customer journey mapping, in which it looks at every interaction that a client has with its customers, across front and back office and industry-specific processes, with the aim to reduce the customer effort in every interaction. There is a clear emphasis on being able to get a holistic, single view of the customer across all touch points and all channels.  (The benefits, of course, are reducing costs of interaction, increasing CSAT and revenue).

Concentrix highlights the effectiveness of its legacy Concentrix virtual team model, now being driven to IBM clients, whereby virtual teams that have representatives from HR, finance, IP, sales, delivery are assigned to a client. Their different perspectives in team meetings help drive the innovation agenda.

This is not a “bums on seat” play to win large traditional customer contact center services. Concentrix is driving both omni-channel and the end to end story (in terms of customer touch-points throughout the customer journey), faster than most well established CMS players are doing in their target verticals.

Concentrix’s proprietary technology, a mix of legacy and IBM, includes two platforms:

  • Renewal Manager (legacy): used to service clients such as F5 Networks and Symantec
  • GIAS insurance policy administration software platform (former IBM/Genelco), offered as traditionally licensed software, SaaS or BPaaS.

The legacy Concentrix organization (according to its claims) was flexible, entrepreneurial and was very risk oriented. Concentrix says it is willing to start small with a new engagement to demonstrate how it can deliver the benefits sought by the client (for example, better qualified lead generation. Concentrix is particularly interested in commercial models where there is some level of gainshare. A lot of the work that Concentrix historically did (lead management, direct sales, renewals management) had some level of risk reward. It is now looking to introduce more risk reward work in some legacy IBM accounts.

What should we expect to see next at Concentrix?

Concentrix still contributes less than 10% of Synnex Corp’s overall revenues, and the appetite for acquisition continues. The most likely investments would be in industry-specific solutions and services, perhaps in healthcare insurance (U.S. healthcare CMS is currently an attractive market for a number of BPO providers). The IBM CRM business did not have much capability in this market.

It is possible, for example that Concentrix might look to develop Renewal Manager for use in services around healthcare plan renewals, where the U.S. will be facing much greater volumes each year. And it is likely the intention is to build an insurance middle-office BPO business around GIAS.

A sector that is perhaps surprising in its omission as a target market is retail/e-commerce, given the customer journey mapping, the focus on technology and innovation, and the emphasis on social media.

It is not yet clear if we will see more focus on the technology IP as standalone software offerings or if the intention is to build a bigger BPaaS business. 

What is evident is a greater sense of vitality as Concentrix applies its entrepreneurial approach and its willingness to invest to the legacy IBM contact center business (one that IBM described when announcing the divestment as a"commodity, lower margin" business). And we hear anecdotally that some clients are happier now than they used to be….

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