A Candid Conversation about India, Security, and Price/Earnings Ratios with ACS’ Mark King | Article
Mark King, 48, is the President and CEO of ACS. As one of its first 100 employees, he has been instrumental in creating the company’s corporate philosophy through its many metamorphoses. Here are his thoughts on challenges to the industry, the growing popularity of BPO, and competition with the strong Indian firms.
Q: How did you prepare for a career in outsourcing?
A: I joined Price Waterhouse as a CPA after graduation from the University of Texas at Austin. Accounting trained me to always keep my eyes on the numbers. Then, I joined an oil and gas firm in Dallas, which was owned by the government of Kuwait. I loved being in oil and gas because it was an exciting, glamorous job that was always going and blowing.
I got into outsourcing by accident. I received an offer to join MTech as its manager for financial reporting. MTech did data processing for banks and was the shared services company of MCorp. I don’t know why I accepted because it sounded like the most boring job on the planet. But the company was ready to go public, which sounded exciting, so I agreed to join. This was 1987.
Once I got there, I learned data processing for banks is much harder than I thought. My first six months at MTech I had one day off and worked late almost every night. MTech was in downtown Dallas and crews were filming RoboCop down the street. So when I got off work at 10 p.m., I would walk over and watch the filming.
Q: How did you get to ACS?
A: MTech existed 18 more months. We were a big success–our stock went from its opening offering of $17 to $30. The management team was ready to buy the company in a leveraged buy out; we had already arranged financing from Citibank and others. Then EDS came in with a higher, unsolicited offer and bought us.
Most of MTech’s management quit EDS and formed ACS. I jumped at the chance to join the new company.
I didn’t intend to go into outsourcing, but I’m glad I found an industry that thrives on change and out-of-the-box thinking…two of my favorite things.
Q: From your viewpoint as an American supplier, where along the acceptance spectrum is offshoring?
A: Twelve months ago no one could talk about offshoring because of the presidential election. Our buyers wanted us to be careful in our press releases. We could never say we were offshoring!
Today offshoring is accepted and expected. Look at Thomas Friedman’s book “The World is Flat,” which has been on the best sellers’ list for months. It talks about how offshoring is good for the world economy. I think outsourcing buyers are turning into believers because the cost savings are there and so is the quality of work.
In 2000, I presented at a Wall Street analysts’ meeting in my capacity as CFO. Three people in the room were interested in our offshore strategy. No one else cared. That’s certainly not true today. Today it’s clear you have to have a global footprint to survive. I think our wide global range is one reason why ACS has been successful.
Q: You embraced offshoring early, but not in India. Why?
A: We have always been contrarians. That is especially true in the offshore market. We went to Mexico and the Caribbean first because we were practical. But, I’m now worried about wage inflation and the growing employee turnover rate there. When you have a 60 percent annual turnover rate, it really impacts your financial model. On the other hand, our turnover rate in Ghana is only seven percent.
We are seeing a backlash in the HR arena in India; some of our clients told us they were unhappy. Today almost none of our 2,600 Indian employees are involved in call center activities; they do BPO and IT. We put a call center in Juarez, Mexico because they speak with a Tex-Mex English accent. Then we expanded to Jamaica because everybody loves that Caribbean lilt. Our buyers love both locations!
Q: Do Indian suppliers have any advantages over their older American counterparts?
A: They don’t have the revenue cannibalization that American firms have. If you do applications development and maintenance (ADM), it’s a war out there. The Indian firms have been nibbling away at the revenues of EDS and CSC in this area. The Americans have had to cut costs just to keep the business.
The Indian firms want to beat us, and they have a great work ethic. They have a hunger to move up the outsourcing food chain. For example, productivity at Indian call centers is higher than at US facilities because here a call center position is a ho-hum job and there it translates into an increase in lifestyle.
Currently the Indian firms are the darlings of Wall Street. But, we are an established global player with a strong American presence.
But to date only US firms have won the complex HR and F&A deals. I think that’s because Fortune 200 firms by-and-large choose American-based partners for this type of work.
There’s a lot to be said for meeting directly with the supplier if something goes wrong without having to fly to India. CIOs may not mind a trip to the Philippines or Jamaica as much where it’s closer and more like home.
Finally, there’s the cultural divide. The Indian firms’ staffers don’t come to a meeting on Monday and say, ‘How about that football game!’ unless they mean soccer.
Q: So you don’t think India will be able to maintain its dominance?
A: I think China will be the next big thing. But that doesn’t change the fact the Indian firms are a real threat. We are making sure we stay as competitive as we can.
Q: Are there worries in the BPO marketplace?
A: I think security and privacy have become big issues and some suppliers are not yet prepared for the consequences. It’s a big issue today because of the new California law called The Notification of Risk to Personal Data Act, which requires any company that puts a Californian’s personal data at risk to notify them of the problem. Almost every outsourcing service provider has some customer presence in California.
The law is a wake-up call to the outsourcing industry. Security and privacy have become both an opportunity and a headline risk.
Security and privacy are challenges in the IT arena, which has established, standardized practices. Imagine what happens when you take over human resources (HR) or finance and accounting (F&A) functions; that’s exactly where security and privacy collide.
Q: What’s a supplier to do?
A: We have decided to handle our security and privacy issues with standardized processes that are customized for each client. But the big thing is: you can’t be too confident. You have to have set guidelines and then make sure everyone is clear about how to adhere to them. You must stay vigilant. Two years ago we created a safeguards and security committee which I chair.
The problem with security is technology is NOT the problem. You can encrypt everything and still have a problem if someone becomes lax.
Q: What’s new in the BPO landscape?
A: Eighteen months ago we thought the mega deal with bundled services would dominate BPO. But that didn’t happen. Instead, buyers want to do business with the best-of-breed. Today they want to do several different BPO deals for each service area.
Three years ago, the Procter & Gamble BPO procurement was the watershed. It started out as a multi-tower transaction. But it became clear that one supplier couldn’t do everything. So P&G split the procurement into ITO and multiple BPO contracts.
This makes sense because BPO was immature as an industry. I think once buyers started checking references, they discovered one supplier really couldn’t do everything well.
Q: Will the industry consolidate?
A: I predict we will see a lot of consolidation. I see hardware and software companies moving aggressively into services. And, there is a lot of venture capital money floating around.
Currently, the industry’s price/earnings ratio is trading at 15. But the industry’s average ratio is 19 or 20. When the P/E ratio is this low, it means it’s time to consolidate and wring out the inefficiencies.
Q: ACS is certainly a success story! What are your secrets?
A: I consider us the blue-collar outsourcing firm. We didn’t come from a consulting background. We roll up our sleeves and get the work done. We are blunt and honest and our clients like that about us.
Q: What’s your favorite book?
A: “The Universe and Dr. Einstein” by Lincoln Barnett. I try to read that book once a year because it reminds me how Einstein really thought out-of-the-box. It’s a mindset I want to emulate. I also like Spencer Johnson and Kenneth Blanchard’s “Who Moved My Cheese.” I’ve read that one five times–you have to be open and able to change when your industry changes as fast as outsourcing does.
Q: Where did you grow up?
A: I’m a Dallas native. I got an accounting degree at the University of Texas at Austin and graduated summa cum laude.
Q: Do you have any hobbies?
A: My work is all-consuming, so I give my free time to my family. I am married and have a seven-year-old daughter. My niece also lives with us. I’m fortunate to have a great family and work I enjoy.