Saurabh Gupta — HFS Research[00:21]
Hi, everyone. Welcome to HFS Unfiltered. I’m thrilled to have you with us for another very exciting edition, where we deep dive into trends and transformations shaping global business services, or what we call GBS. And today, we are in for a special treat, as we are joined by none other than Sumit Mitra, the CEO of Tesco Business Solutions, a GBS powerhouse that was recently crowned the best GBS in the world. So without further ado, let’s jump right in. Sumit, welcome to the show.
Sumit Mitra — CEO, Tesco Business Solutions[00:57]
It’s a real pleasure to be here today. Thank you very much for the very kind invitation.
Saurabh Gupta — HFS Research[00:57]
Let’s kick off by talking about this — you’ve now been crowned the best GBS in the world. So as you look back on the 7-8 years that you’ve been leading this team, what were the top two or three moments or achievements that you think have been pivotal in becoming the best?
Sumit Mitra — CEO, Tesco Business Solutions[01:25]
Yeah, so look, I joined Tesco almost seven years ago, and the whole, sole objective was: how do we transform Tesco? Because if you remember, in 2015 we had one of the biggest write-offs in FTSE history, which meant we had to change the way we work, change our culture, change our processes, and change how we looked at customers. So there was a big change in terms of the transformation journey that we had to go through. At that time, Dave Lewis was the CEO who brought me into the business with that sole purpose: how do we build this global business services model that becomes a catalyst to help with the transformation journey? So if I look back now, almost seven years on — world’s best GBS — if I think about two or three things, I would say, number one, I always believe culture is the most important piece before you can do anything, if you’re going to drive change. And culture not only within the GBS organization, but also the culture of the parent organization that you’re working with to transform, because you can only go at a pace that the organization can consume. So you need to understand the culture of the organization and the pace of change it can handle. Our first two years were all about building the foundation of business services: looking at the culture, looking at our processes, building the process architecture — what should be the to-be process, what should really sit within GBS, what should sit in the markets, how do we add value? And then building those foundation layers of a culture of continuous improvement, building a transformation engine through robotics and artificial intelligence to become more efficient. Then it was about building a business assurance function looking at the risks and controls so that your business is safe. And then having a transition and transformation team that would help transition the work and build that. The next three years were all about accelerating — building on that foundation and bringing digital transformation capability to take it forward, and building an ecosystem with data science and analytics right at the heart of everything, connecting the dots. And now, some six years on, it’s all about driving experience — not thinking in a functional lens, but driving experience across multiple functions, again with intelligent, data-driven science sitting right at the heart and core of everything you do, to unlock that untapped value opportunity. It’s at a pace the organization can consume, and it’s a step-by-step approach to build. Rome wasn’t built in a day — it takes time. But it’s also getting that seat at the table, because you need to make sure your voice is heard. And just having a seat is not important; it’s what you do with that seat. So that became the foundation of building the world’s best GBS.
Saurabh Gupta — HFS Research[04:49]
So, Sumit, that’s fantastic. As you look at the next three years, what are the expectations now of your stakeholders from a GBS organization? Because you’ve built the foundation, and you’ve been very successful in what you’ve built, by whatever measure — whether it’s experience, cost, or compliance. What are the expectations now, and as you look into the future, what sort of operating model are you looking at?
Sumit Mitra — CEO, Tesco Business Solutions[05:22]
Yeah, it’s very interesting. We’ve done a full pivot in terms of how we are measured as a business. Delivering your KPIs and SLAs — that’s gone; three years ago, that’s a given. You’re going to deliver that if you’re a good GBS: you’ll have your processes, you have your technology, and you deliver your process. That’s a given. That’s your bread and butter. Then the next layer: hopefully by this time we’ve built this continuous improvement culture and a transformation engine that keeps driving efficiency. But efficiency is finite. You can’t keep churning out the same efficiency with the same bunch of people. It’s about how you unlock value. So for us, the next three years is about four things. One, how do we drive incremental revenue for the business? Two, how do we drive incremental margin for the business? Three, how do we drive incremental cash for the business — as you know, in retail cash is king. And the last one, how do we drive improvement in customer experience? Because hopefully, if you drive customer experience, that relates back into driving revenue and margin. So my targets: incremental revenue, incremental profit, incremental cash, and customer satisfaction. Those are my KPIs. Those are the things I’m focused on at the moment.
Saurabh Gupta — HFS Research[06:47]
So that’s very interesting, Sumit, because I’m seeing this with more and more of the mature GBSs out there. The expectations from a GBS, as you rightly mentioned, are not just cost, compliance, and efficiency — that’s almost a hygiene factor. I’m not saying that’s not important, but it’s got to be there. And I think GBSs like yours are being tasked with: how do you enable and support growth, market expansion, and drive business outcomes for the organization? And in that light, we have new technologies like generative AI coming into the picture. We’ve got more toys to play with now. So do you think it’s time to also rebrand GBS? We’ve been talking about global business services for what, two to three decades now. We here at HFS have been toying with the term ‘generative business services,’ because it’s not just about GenAI but also about how it can generate value and drive growth for the business. What’s your sense? Because if you ask the common layman who’s not a GBS leader, the first perception is that GBS is cost, compliance, and efficiency. Do you think it’s time to rebrand ourselves as an industry?
Sumit Mitra — CEO, Tesco Business Solutions[08:31]
Yeah, we rebranded it already. Before I joined, it was one center, one operation — it was called Tesco Bengaluru. Then when I came in, it was called TBS; Tesco gave us the privilege to use the name Tesco, and we became Tesco Business Services. But ‘services’ gives you the concept that you’re serving. Today, we call ourselves Tesco Business Solutions. And what we call ourselves is iGBS — small ‘i’ — which means intelligent Business Solutions. The world today is about solving complex problems. So how do we leverage our capability? Because data, as you know, is the new oil — well, it’s old oil now; it is data. Data is everything, and especially for a retail business, data is everything. So for us, it is a heinous crime when you as a GBS are sitting on all this data across finance, procurement, commercial, your people data, your customer data. You need to understand how you bring that data together to solve a very, very complex business problem. And I can give you some examples of business problems we’re solving — these are humongous problems that impact our business by billions of pounds. So how do you come together as a business and create that intelligence for the business? For me it’s two stages. One is about solving the existing problem. And two, predicting what will happen in the future and really bringing the brain of the CEO and CFO together so we can do long-term planning a lot better. So that’s why I call it intelligent business services — using the intelligence of data and process, and leveraging technology to solve a business outcome.
Saurabh Gupta — HFS Research[10:35]
Yeah, that’s great. Because as I think of the value proposition of GBS, I think it’s about three P’s. Productivity, obviously, is still important. Then it’s personalization — your point around customer experience is very important. And the third is prediction, because I don’t think there’s any other function within the organization that has the kind of data from different parts of the organization that you have. And the predictive capabilities — we’re living in a very volatile world; we don’t know what’s going to happen in three months. If you can start to build on the intelligence layers and predict, or at least provide that input to the business, then it becomes much more than services. So tell me — let’s double down on generative AI for a minute, because you can’t have a conversation without talking about it. As you think of the advancements there, are you excited by it? Are you nervous about it? Are you a bit of both? What’s your sense of the impact of this technology on your organization?
Sumit Mitra — CEO, Tesco Business Solutions[11:49]
So the way I think about AI is — I don’t think of AI just as generative AI. I think about it as machine learning, building AI and replicating human neural networks, and the third thing is building generative AI where you create new data. So we’ve been using AI for the last five years to build tools to help us take better decisions within the business. I see the use of AI in two areas. One is about how you become efficient as an operation, and secondly, how you use AI to predict the future better and do things now a lot better. So let me give you some specific examples. One of the things we do from an operational perspective is called product returns, where over the last few years, because of the sheer volume of Tesco, we get almost 295,000 products returned from our customers. We had almost 20 to 23 people sitting in Bengaluru who would scan those forms, get them out from the stores, classify them, understand the issues, return them to the supplier, and have those negotiations. If you remember, in 2018, 2019 it was all about bots — RPA was the big thing — so we put in RPA to automate some of the verification, and we were very proud of ourselves and said we’d delivered 15, 20% efficiency, running it with 15, 16 people. This is great, we gave ourselves a high five. But today we’ve looked at the whole end-to-end hyper-automation. Through AI, AI does the whole thing for us. I have one person who’s now talking to the supplier. So what has happened? That person’s life has changed, because instead of looking at the data, he or she is now having that conversation — a more commercial conversation — because they’ve had to upskill themselves. While all the mundane activity that was happening through bots has been taken over by AI. It’s about accuracy of how we’re doing things, quicker cash through the door because we’re doing things a lot faster, and negotiating better with better data with suppliers. So that’s one. The second thing, from a wider context: we are a 4% margin business, but we want to put our money back into our customers to build those customer propositions that help us bring in more customers and make us competitive on pricing. So AI is a really good way to look at end-to-end hyper-automation, to see how we connect different systems and make it a lot smarter. The second thing we’re looking at is using AI to build tools like a cost intelligence model, which has been a game changer for us. If you cast your mind back two years ago, the UK was going through huge inflationary pressure — the retail index went up to 16, 17%. So we had huge cost pressure from all the suppliers saying they were going to increase their costs, because they were following the retail index. So what we did was use AI to look at individual products — for example, bread. What is bread made up of? Yeast, flour, electricity, labor cost, shipment. And then we scanned the whole universe to look at what it costs now. What we found was that 96% of those ingredients were deflating and 4% was inflating. So we were able, with data, to have those conversations with the supplier to say the actual cost should be this. We’ve now rolled this out across all our products, which gives us good control. This is AI-driven. That’s the second phase. The third phase is around generative AI. We used to get lots of queries into the GBS from our buyers or finance teams, like a normal GBS would: can you compare the forecast from last year to this? Can you look at the seasonality? Now we’ve built what we call TBS GPT. This is all built in-house, because what we don’t want to do is use third party — we want to build this brain inside our organization. And our buyers, our finance people in the UK, or even our CEO can type in and ask any question, even in a graphical format, and it will do that for us, and the accuracy level has gone up to almost 95, 96%. So that has taken away a lot of mundane query-answering activity through the GPT. We piloted this in Ireland, and Ireland has been very successful. The plan is to now roll it out across the rest of the business. So yeah, the way I look at AI is: we need to be leveraging this as a co-pilot of the business, number one. And number two, you must invest some of that money back — the savings or efficiency you generate — into putting the right controls and governance in place, because you will have hallucination if you’re not careful. So you need to make sure you have the right controls and governance to say the output that’s coming out is accurate.
Saurabh Gupta — HFS Research[17:43]
Yeah, that’s fantastic. We had a very similar experience, because if you look at the analyst business, a large part of the analyst’s time is taken up answering queries and inquiries from our customers. And what do analysts do? You look at your own research and try to answer that, adding a little bit of perspective. What we’ve done now is put all our research for at least the last three years into something like the TBS GPT — we call it the HFS GPT — which can then answer a lot of the questions our clients have. Instead of scheduling time with a Saurabh or whoever, which takes a week to get answered, you can get it right there. You might not get a perfect answer, but you get an 80% answer, and that’s good enough for a lot of inquiries, which frees up our analysts to do a lot more interesting work. So I wanted to touch upon two themes. I’ll touch on the first one. You mentioned something very interesting: you want to have it as TBS GPT versus a third party. If you look at the broader services construct now, over the last 12 to 18 months, if you look at third-party services revenues, they’ve been flat, to put it diplomatically. But if you look at the setups of GBS expansions, or even what’s happening with GCCs in India, they’ve grown through a rapid explosion — it’s fantastic to see that growth. What do you think is driving this behavior, where third parties are becoming somewhat stagnant — obviously they’re a very large denominator, so I’m not saying that model is going away — but we’re seeing this rapid explosion in in-house, more controlled capability centers? What’s your perspective on that?
Sumit Mitra — CEO, Tesco Business Solutions[19:44]
Look, I think both in-house centers and third party can coexist in this ecosystem. I’ll start with that. There is absolutely a play for both. But what has happened — I mean, in my previous life with BT, I used to work with a lot of third parties; in fact it was almost 60% outsourced, 40% in-house, which I changed over time. The biggest issue I found is that they haven’t really moved from their FTE revenue model. I think the world has moved on, and the third parties, the suppliers, the partners need to start thinking about how they create value — it’s become a value play rather than an FTE play. We start with FTE, we talk about outcome-based pricing, but we never evolved to that. That’s a great sales pitch at the beginning, but it never evolves. It always remains that FTE: your volume has increased, I need more heads. So it becomes a headcount play. Two, attrition is pretty high. If you look at the true attrition — heads coming in, heads going out — it’s very high, and you can’t really retain the knowledge. And the third issue is you’re a bit too far removed from your end customer, which means you’re a customer of a customer. So that becomes a difficult point. Today, organizations are waking up to the fact that your customer is everything. You cannot run your GBS as a standalone thing that you tell what to do and it delivers. It’s not a subservient operation anymore. You’re a business partner, you’re part of the business, you’re core of the business. I always say — I remember in 2019 saying GBS is the edge that transforms the core of the business. Today I stand here and say GBS is the core of the business. So being the core of the business, you need to have both content and context. You can have a lot of content, which third parties have — a lot of good chartered accountants, good commercial guys, procurement guys — but what they lack is the business context, the ‘why’ question. That’s what the in-house centers are able to deliver. But there is always room to leverage our partners to drive transformation faster, because they have the scale and the ability to ramp up very quickly. So there is a partnership ecosystem, but I’m a big supporter of the in-house center, because you’re closer and you understand the business context.
Saurabh Gupta — HFS Research[22:46]
Yeah, that makes a lot of sense. And I think also the fact that both models will coexist — I agree it’s not an ‘or’ model. It’s not this versus that; it’s an ‘and’ model. We should leverage what works best. I also wanted to talk a little bit about talent, because ultimately it’s about people. This whole model is about people. Whether you look at the broad IT services or business services construct, whether it’s in-house or not — and you talked about attrition a lot — how do we make this industry sexy again for the cream of our talent?
Sumit Mitra — CEO, Tesco Business Solutions[23:31]
I’ll be a bit controversial here. I think it is a very sexy place to work, GBS. And we need to stop being subservient. We need to be bold and brave in terms of how we do things, how we interact, and how we position the brand. I hate the term ‘back office.’ The moment you say ‘back office,’ you put somebody off straight away. For the stuff that we do in Tesco Business Solutions, is ‘back office’ the right word? Is ‘GCC,’ ‘global capability center’ the right word? It’s not a capability center, it is Tesco — you’re working for Tesco. That’s what really annoys me. Also, what has traditionally happened in this space is we have a lot of old-school thinkers who can’t really think beyond labor arbitrage. They can’t get out of that mindset of labor arbitrage, attrition, headcount, how many heads do I have. It’s not about headcount, it’s about skill count. And we talk about a talent war — forget about the war, talent has already won the war. There’s no war. So for me it’s about how you have the right culture, the right processes, the right brand. I have some 5,000 people with single-digit attrition, and 80% of our attrition is managed attrition. People don’t leave us, because we have a brand which says you’re the world’s best. People don’t want to leave the world’s best organization and go, so your brand comes with a halo around you, and people want to associate with a brand that’s winning. Tesco is winning as a business, and therefore GBS, the enabler, is also winning. So connecting to that mothership, connecting to the culture, and making the employees feel that you are part of Tesco — not some back office, dark and remote in Timbuktu — you are Tesco. That brand is really important to sell. I have over 3,500 people in the queue to join my organization. I don’t have to worry about hiring, because our brand is out there and people know who we are. I don’t think leaders of the business spend enough time to build the brand, be visible on LinkedIn, be visible on social media. Social media is a big thing for the next generation. And then make sure the line-management capabilities are right, because people work for their line managers. Now we’re seeing a big amalgamation of different generations — Generation X, Y, Z, millennial — and you’ll see a lot of Gen Z’s coming into your workforce soon. So if the mind of a manager is still really old-school, it’s not going to work. How do you get your managers ready to deal with the change that’s coming? You don’t fix the GBS brand by changing the name to GCC or GIC — I hear all these names, it doesn’t change anything. What it does change is what you’re doing, the quality of work, your culture, your purpose, your values. Do you live your values? That has become more important than anything else.
Saurabh Gupta — HFS Research[27:12]
That is fantastic. I couldn’t agree more. It is about the brand and about the narrative you create, and I think that’s why you’ve been successful, because you’ve created that both internally and externally — and that’s what’s driving your success. So, Sumit, before I let you go, let me ask you this: if you had a magic wand and one wish that could come true, what would that be?
Sumit Mitra — CEO, Tesco Business Solutions[27:47]
Oh God. I think there is a brilliant opportunity to look at how we can perhaps accelerate the deployment of AI — finding more use cases, looking at more end-to-end, looking at process reengineering. Because I think the future is there, and it’s not too far away in terms of what AI can do for us. So we need to be change-ready. We need to look at our process architecture and understand how we can do things differently, because the next generation don’t want to do spreadsheets. So when your new workforce comes and lands here, are you ready for that? Otherwise it will be a revolving door. We have to be ready. You can’t be recruiting from the top universities, training them, and then giving them something from the 1970s to work in — it’s not going to happen; there will be a complete mismatch. So we need to adapt to the technology and the culture. My magic wand is: how quickly can I change my organization to be future ready?
Saurabh Gupta — HFS Research[29:00]
This has been a fantastic conversation. I learned so much. Thanks for taking the time. I think you’re absolutely right — this industry is very, very relevant, in fact more relevant than at any time it has been, because it’s the core of the business. It’s no longer just the edges or the periphery of the business. What we need is bold leadership and a strong narrative, both for creating the demand and for attracting the supply. I think there are lots of lessons to be learned from this conversation. So thank you again so much for taking the time. It was fantastic. Thanks a lot.
Sumit Mitra — CEO, Tesco Business Solutions[29:13]
Thank you, Saurabh. It’s a pleasure talking to you, and I wish you all the best.
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