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Family-run cos centralise HR, accounting functions
December, 22nd 2007
A silent revolution is sweeping through India Inc. Leading family-run business groups such as the Birlas, the Ruias, the Goenkas and the Jindals are making efforts to centralise functions such as IT and payroll processing under a single entity, that mirror the large BPO and IT captives currently being run by multinationals such as Citi and HSBC.

Some groups like Essar and the Jindals have already put in one to two years into these efforts and have recruited senior managment consultants to head the ventures or put key group executives in charge of them. Other groups, like the Kolkata-based RPG group, are in the process of shortlisting consultants to help them come up with a blueprint for the new venture.

Ours is a large diversified group and it makes sense to have a separate company to handle all IT and related activities. Especially as we have been expanding internationally, the need to have unified company for these services is vital, said Prashant Ruia, director, Essar group.

This is what has happened globally. We are following the same trend, said Milan Sheth, partner, Ernst & Young. According to him, as these large family-run businesses go global through acquisitions, having a single entity that handles all the IT and support functions also makes integration easier. In future, these companies can be listed or valued as a commercial business, he added.

Most promoters ET spoke to said the goal was to run the companies as shared service centres, facilities that cater to customers even outside the group fold, making it easier to monetise them. The immediate driver, however, is to build economies of scale and higher efficiency across the group firms.

We could see three options emerge. One is that the company continues to service all the group companies. The other is, they take the concept to market and take on third party business. The third is, eventually sell it out to a specialised provider like what happened in the Philips-Infosys BPO deal, said Vikash Jain, engagements director, Everest Group.

The Essar group hired Vijay Mehra, a former McKinsey executive with international experience and designated him as group CIO to outline the unified IT and BPO strategy. One of Mr Mehras first tasks was to come out with a 160-page vision document setting out the blueprint for the delivery of IT solutions across the group, as well for processes such as payroll, human resources, accounting and procurement.

Today, Essar Information Technology Holdings (EITL) is being built to serve all the common IT needs of the group and some functions such as payroll are being handled by its BPO, Aegis BPO. There will be three legs to it, BPO, IT applications and data centres. To start with, we will service the six Essar business under various holding companies and later, also take on external clients, said Mr Mehra.

Similarly, Aditya Birla group firm, PSI Data Systems, is now being repositioned to handle the IT requirements of all the group companies. It will be more inward looking now, group chairman Kumar Mangalam Birla had told in a recent interview.

The appointment of Dev Bhattacharya, a key member of the Birla group think-tank as group executive president, IT & ITES also reflects this focus, Birla group officials said. In the JSW group, the common IT functions are being centralised under a new firm, JSoft Solutions, formed for this purpose.

Accounting, payroll, procurement, HR and other common functions will be run as shared services. In another six months we will also extend the operation to outside the group, said JSW group finance director, MVS Seshagiri Rao. Others like the RPG group are in the process of shortlisting a consultant to guide it on this exercise. We are evaluating presentations made to us by two firms. The motivation is to free up management time for more important tasks and cost savings. If these functions are centralised, it would cost much less than each company having its own individual department, said VP, group finance, Sunil Bhandari.

While most of these efforts are still in the initial stages, the move signals a huge shift in the way the large Indian business conglomerates view their support functions and the emergence of the Indian captive BPO.

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