This document discusses the acquisition of Daksh by IBM in three parts: 1. It provides context on the global BPO industry and reasons for India's leadership in offshoring. Key drivers included cost savings, the internet enabling cheaper delivery, and breaking down silos through IT. India's advantages to sustain its lead included language skills, time zone differences, and an established skilled workforce. 2. It describes Daksh's growth from $0.04 billion to $5.1 billion in revenue from 1999-2005. The founding members' best options were to diversify into new lines of business like application development, conduct an IPO for funding, and expand their service offerings. 3. It evaluates

1. Pavan Gujar | 39233 | Operations Management | SIBM Pune
Assignment ITDM, Case Analysis: IBM-Daksh Acquisition
PART: 1
1. Discuss the dynamics of the global BPO industry. What are its key drivers?
Can India sustain its lead as the world's preferred offshoring destination?
Main Drivers of the Industry: (Drivers as per Industry prospect in 2000-2004)
 Rapid business and Technology changes which necessitate the to improve faster
responses from the BPO Industry
 The Internet emerges as cheap delivery and communication channel for
businesses
 Use of IT to breakdown the hurdles between traditional and functional silos.
 Cost Arbitrage
India has some inherent Advantage:
Yes India can sustain its leads as world preferred offshore location.
 Advantage of strong English language legacy which could ease any outside
organization for seamless integration
 Advantage of time zone 4-5 hours ahead of western Europe, 10-13 hours ahead
of North America which served as ideal location to provide 24X7 service
 40%-60% cost reduction for offshore processes, Labor cost arbitrage- the reason
for cost saving likely to exist for 20 to 30 years
 Faster turnaround time, zone difference 27X7 service
 Learning curve effect, given increased activity cross the companies and Increased
experience within the companies
 Established new methods and processes are adopted for excellent performance
 Defined quantifiable metrics are designed for quality and processes
 Access to highly qualified skill pools
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2. In terms of the lifecycle of an enterprise, describe the progression of Daksh
from inception to maturity. Evaluate the harvest options open to the
founding members and suggest the best way forward.
Below is the growth table of the Daksh from its inception:
1999 2000 2001 2002 2003 2004 2005
0.04 0.14 0.36 0.67 1.57 2.83 5.1

2.  It can be seen that from its inception Daksh outsourced opportunity in billions
grows from $0.04 Billion to $5.1 Billion in just 6 years.
 In 2001 they expand their company to 1500 employee organization and open
new delivery centers in New York and London which help them to get $40
Million.
 They have strong business model which help them to get top notched a profit
of $100000 on turnover of $2.33 Million
Foundation of the Model was: Single Channel Delivery, Single City
implementation, Functional organization structure, Strong People practice,
Contracts of reference-able deals, Funding paradigm, Sales Model
 The Emerging threats for Daksh were that Market was under transition while
Daksh was doing good in its traditional business model, Major players are
established their presence in India, New contracts were becoming larger and
smaller India players were not able to cope with the such deals.
Way Forward for Daksh founding Members:
1. As market is in transition Daksh should generate the other business lines by
taking part in application development, application maintenance lines of
business while keeping BPO as their main stream of profit
2. They should have open their IPO to get enough funding to enter into new
business lines
3. As they have BPO services in key function of the business like CRM,
Finance and Accounting. They should have diversified their offerings in
other business processes like Technology Support, SCM, system
maintenance.
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3. What are the common paradoxes associated with high-growth industries?
 A large part of the progress in late decades included production of less
expensive and more convenient varieties of products that already existed. As
development has pushed down the cost of specific sorts of items, people began
utilizing the investment funds to spend more on different things — especially
education, health care, child care, and housing— where efficiency development
has been much slower.
 Thus by the passage of time low-efficient segments have turned into a bigger
offer of the economy, while high-productivity goods manufacturing has turned
into a smaller share. Furthermore, an economy commanded by enterprises with
low profitability development will develop gradually.
 Two things can happen when a given industry enjoys soaring productivity — it
can expand, as new production techniques lead to a surge in output and

3. consumption, or it can shrink, as a smaller and smaller number of people is
needed to serve a fixed market.
 High growth industries are victims of their own success. In late decades, the
manufacturing sector has consistently experienced higher productivity growth
than the economy overall. Manufacturing is contracting with respect to the more
extensive economy exactly on the grounds that it has kept on getting more
profitable even as interest for manufactured goods plateaued.
 A few ventures like, health care, education, and child care, experience the ill
effects of low profitability development since they are labor-intensive and
difficult to automate. Others, eminently housing well-off zones, have turned out
to be increasingly costly because of natural and legal limits on supply.
 To have policies that are gone for designating work resources to productive
sectors and building up extra areas that will likewise absorb this workforce. This
would not only involve examining labor-market rigidities but would also involve
maintaining a competitive exchange rate.
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PART: 2
4. What prompted Daksh to sell out to IBM instead of pursuing the much-
publicized IPO?
By the end of 2004, IGS, IBM global service division, was not doing as well as
hoped. It missed its revenue and earnings targets. This was contributed to a
sluggish European market. Therefore, IBM cut 14,500 jobs in its European
operations and added 15,550 jobs in India. IBM acquired Daksh for 170 million,
which was assessed to be 50-60% not as much as the esteem it would have
come to had the Initial Public Offering been launched.
Major Reasons for Daksh to collaborate with IBM:
 Existing customers of Daksh could felt more comfortable dealing with big name
companies such as IBM
 Due competitive hierarchy of multinational companies such like IBM, it could
provide guidance in case of career growth to Daksh employees
 Daksh forecasted that Long term benefit of being part with IBM were perceived
as far better than being IPO based company
 Currently IBM was the ERP implementation partner for Daksh enterprise
 India was part of BRICS, IBM decided to build a BTO hub in India, the idea was
to sell PwC’s high end and high margin consulting solutions which Daksh could
implement it at low cost
 IBM had plan developed to further enhance Daksh’s ability to provide end to
end outsourcing capability to clients
 IBM had signed a multi-billion dollar outsourcing deal with Sprint and a $750
million deal with Bharti Tele Ventures in India, which the company could not

4. fulfill without acquiring more skilled labor. Sprint was already a major Daksh
client. The familiarity between the two companies was a bigger advantage.
 IBM proposed the right approach concerning the values of Daksh. Rather than
changing the organization from top to bottom, IBM concentrated on
continuously changing the Daksh's operations keeping in mind the end goal to
fit IBM's method for working together.
 It was difficult for Daksh to understand some of the values of IBM. This
acquisition was deliberate to transform the company in order to provide an
innovative service. While, IBM found an answer for this issue by giving Daksh
a chance to rethink this value, the long haul outcomes of this difference can be
great.
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5. What role would IBM Daksh play in IBM's overall strategy?
 Daksh was known for effective leadership and robust operating processes; it
was specialized in traditional BPO service, CRM and finance & administration.
 It has role as dominant service provider of off shore customer support to Sprint
including some processes that were to be handled by IBM.
 It acts as delivery engine providing customer service to clients acquired by IBM
sales team. The collaboration between IBM and Daksh was “Light Touch
Integration”.
 Due to Daksh it was expected to increase the scope of IBM’s global network
also adding capabilities in India and Philippines.
 Before acquisition Daksh had clients in areas like e-commerce, retail, and
telecom, electronics (Amazon, Sprint, and Yahoo). Past acquisition IBM Daksh
had been able to offer services integrating capabilities across research,
development and consulting solutions to its customer like IBM Daksh had
successfully leveraged IBM’s research capabilities to develop text analytics tool
ProACT.
 Another technology that was developed was software application that used to
combine info collected from customers by call center operators which could
help to find potential problems and alert clients.
 Leveraging IBM’s research and consulting skills, IBM Daksh attracted growing
outsourced businesses from Fortune 500 clients.
 Daksh moved into analytics, supported by IBM’s strong expertise, it also
involved into risk analytics practice and legal service outsourcing. Its strategy
to leverage percentage and pitch for integrated deals resulted in increasing
revenue growth.
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5. 6. Discuss the issues that arise from M&A integration and evaluate how IBM
Daksh worked towards achieving successful post-acquisition alignment.
 How to manage future growth?
The major challenge before IBM is how to manage the global growth of the IBM
leveraging the process excellence (BPO) developed in India with
management/consulting talent that understood the clients businesses and the
resources available with existing IBM global network.
Solution:
As IBM has already knows the work culture and business environment of Daksh,
they have spent almost two years to get this acquisition fully integrated. To emerge
as powerful player in BTO, IBM followed step by step approach to get the sub
systems of Daksh to be on the on IBM board. Initially they started integrating
Daksha’s Financial & Accounting solutions to the IBMs board and then slowly
moved to acquire CRM- Customer Relationship Management from Daksh.
 Realigning Values:
Daksh value system was based on the 6 core tenets that all employees are greatly
identified with. These specially includes three main values that Daksh employees
have: Freedom for being entrepreneurial, Honesty, Integrity
Dash has problem in integration with IBM in above three values of Daksh. Most
employees struggle to connect with IBM related to innovation in the Daksh context.
Solution:
30 senior leader of core strategy team were collective asked to define descriptor
under three IBM values which can benefits business after bringing them into life &
culture of the IBM Daksh work environment that were the foundation of the Daksh.
This solution worked out. Senior employees who left Dash at the start of acquisition
returned to IBM Daksh.
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