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David and Goliath - Doomed
Marriage or Turn around in the making?
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The recent coup, Caritor’s acquisition of Keane, has raised many an
eyebrow in the industry. While the ripples have not yet settled
down, here is Prayag’s take on this. Keane has been wallowing in
troubled waters for quite some time now and been in the news for the
wrong reasons. Against this background, a relatively well-performing
but understated Caritor brand has undertaken a Herculean task by
taking Keane on board, brand name and all.
Backfire on Caritor’s existing
business
Clients of relatively smaller companies expect a high degree of
flexibility, adaptability and handholding. Caritor in particular has
thrived on building excellent relationships and growing organically.
With the perception of a larger Keane overshadowing Caritor’s brand
image, existing clients and prospects may feel threatened by
connotations of the larger brand. A lot depends on the combined
entity’s plans to assuage existing long standing Caritor customers.
Concerns of Keane’s clients
Onshore model is reassuring to some clients due to the close
physical presence of the executing team. Post the acquisition, they
may have apprehensions that this core benefit would become lost as
Keane realigns to Caritor’s offshore model. Moreover, for
long-standing Keane clients, who is Caritor anyway? So, what’s the
plan to introduce Caritor and the benefits of the integration to
Keane customers?
Integrating Teams
Roughly one-third (3300) of Keane’s employee base is in India,
whereas the majority of the 4000 Caritor employees work in India.
Integrating the erstwhile Keane team that is based out of India into
a unified culture with common values and aspirations will pose a
challenge. We have seen a live example in a French
technology-consulting firm that acquired an India based offshore
company. The company faced enormous challenges in blending cross
border cultures.
Keane’s unsuccessful attempts
Keane on its own has tried to move to a global delivery model from
an onsite model. As part of ‘One Keane Transformation’ program in
2005, the company had attempted restructuring, with limited success.
Will the Caritor management be able to work the magic Keane could
not?
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Retaining the Keane brand name
Though Keane is a larger company, it has been beset with troubles. Keane
has struggled to create a focused go-to-market strategy. Revenues have
seen marginal increase from FY04 to FY05 ($911.50 to $ 955.90 million)
and in fact dipped from FY05 to FY06 ($ 948.30 million). Another fact is
that the valuation was lower than revenues. Thus the negative aspects of
going with the Keane brand seem to outweigh the positive aspect of Keane
being the “better-known” brand.
Diverse expectations of key stakeholders
Employees of Caritor would value the flexibility, growth and learning
opportunities that a smaller company offers. The team at Keane, on the
other hand, might value the on site experience. Clients of Caritor would
demand flexibility and adaptability whereas Keane’s clients would value
closer physical presence for example. These diverse needs will have to
be matched or managed.
The silver lining
There are strengths in this marriage that the new entity should
capitalize on. For one, many of the verticals that Keane and Caritor
operated in till now are complementary while there are a few overlaps;
Caritor had presence in Retail, Communications, Travel and
Transportation for example, while Keane operated in healthcare and the
public sector where Caritor was not present. This presence across many
verticals would be a significant strength.
Keane brings to the table significant consulting experience while
Caritor has the know-how of global delivery model. Private ownership
would also give the much-needed freedom to take revenue hits while
moving to cost-effective business models.
The prescription for success
Though we have been more of doubting Thomases on the future of the new
entity, we acknowledge that, this is without doubt the boldest
acquisition attempted by an Indian company in the IT space. One
component of the solution to the questions raised lies in branding.
Management should consider re branding the new entity by creating an
identity that leverages the strengths of Caritor, the scale of Keane and
mitigates associations with any negatives of the individual entities.
As they say with M&As, the success lies in expecting the unexpected. We
would like to conclude that a focused post acquisition integration plan
and meticulous execution would go a long way in addressing the issues
detailed above. We will dwell more on this in the
'Best and the Rest' section.
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