Nearshore Americas

Special Report: Sutherland’s Latin America Recipe is Not to Everyone’s Taste

Sutherland Global Services (SGS) has had some great successes over the past years. The Rochester, NY-headquartered BPO provider has expanded to the point that it now has delivery centers in 13 countries. The privately held company is estimated to have revenues approaching $750 million, a result of impressive growth since the downturn in 2008.

And SGS is still growing, but in doing so it has taken its hard-driving approach and applied it to its internal culture, which is not to everyone’s liking.

“We have a performance-based culture with variable compensation plans based on performance,” says Jason Hyde, Head of Operations, Colombia, for SGS. “At all levels you are held to the highest standard to support aggressive growth.”

This has resulted in SGS having some highly motivated long term employees – Hyde himself has been with the company for 19 years, and in Bogota for a little over one year – but it has also led to turnover. SGS has an unimpressive 56% “recommend” rating at career community website Glassdoor. While that mostly reflects disgruntled agents, there have also been problems with management and higher-level executives, particularly with regard to operations in Mexico and Colombia. David Poole, the well-known lead executive for Capgemini Americas was brought on early in 2013 to lead strategy and growth in the region. However, Nearshore Americas has learned Poole has recently departed Sutherland having stayed on for only roughly 18 months.

“There is leadership turnover, perhaps because the company is a little top-heavy in that area,” says one former employee in Latin America. “The company has a goal to hit the billion dollar mark, and that has become something of a mantra.”

In the latter half of 2013 SGS began bringing over talent from Capgemini – some estimates put the number as high as 30 people.  But this strategy of poaching the best and brightest hasn’t always succeeded. When people don’t stick around, former employees say that it is at least partly due to SGS’s top-heavy style, where the Chairman and CEO Dilip R. Vellodi relies heavily on his Chief Commercial Officer, K.S. Kumar.

“There are too many executives,” says one former manager in Colombia. “And at the end of the day only one person makes all the decisions – the CEO.”

Leadership for the Long Haul

But, though this reality may be frustrating for some on the ground in Colombia, it has stood SGS in good stead in the past. The company was started in 1986 by the Indian-born Vellodi, a CEO who is known for his loyalty to his top executives, many of whom are also from India and who have worked alongside him for years. There is no denying his team’s success: SGS employs about 30,000 people in over 40 centers worldwide, with 40% of its revenue coming from Fortune 50 companies.

“When I first sat down and met with them I was extremely impressed – they had a great operational model,” says Warren Gallant, who served in the SGS advisory board until last year. “Their reputation with their clients was excellent, and with Dilip as founder and CEO there is great stability, as there is with other senior executives.”

The challenge appears to be specific to Latin America, which relies on a business model that is heavily focused on customers in the United States. From a nearshore perspective, that is hardly unusual, and speaks to SGS’s desire to execute on a global strategy that ensures healthy margins.

“We service every country in South America for global clients with a pricing structure that is specific to a client – it depends on the scope of the client,” says Hyde.

This approach can limit opportunity when looking for regional customers. Former SGS employees in Latin America complain that the company is not that serious about capturing non-global customers, because the SGS’s pricing structure is clearly designed to build in margins that local companies – even big ones – would be unlikely to pay.

“Growing Latin America with regional customers is not possible given the profitability targets,” says one former sales executive in Latin America. “They are about 20% over-priced for the region. They understand the problem, but aren’t going to change it.”

This is because SGS’s pricing is allocated globally. Even if the combination of scale, industry, and service portfolio results in unique buyer requirements, individual service margins are built into the company’s financial system, which is ultimately controlled by the CEO.  And there is a reason it is structured like this: it is an excellent way to use labor arbitrage and automation to drive profits out of big U.S. clients.

In Latin America, SGS is proactive when it comes to servicing U.S.-based companies,” says one former employee. “The cost structure is set up to serve U.S. customers from global locations, and the company is pretty good at it. Customers are well served in that they have the business continuity they need, and can have service delivered seamlessly from multiple locations.”

But the drive for increased profitability, and the reliance on low cost labor, has resulted in some instability. In Colombia, for example, former employees have told Nearshore Americas that although SGS appears to have a commitment to the market, it lacks vision.

“They aren’t able to follow the advice of those who have knowledge of the local market,” says a former manager who has worked in both Bogota and Barranquilla. “In one example employees were hired with a third party with the promise of later being hired directly by SGS, and this did not happen.”

To address these problems SGS has recently removed much of the human factor for hiring by deploying technology to assess candidates. According to Mr. Hyde, the technology assesses for personality traits that are characteristic of top performers. The same technology is updated for each geography; that way, assessments for Colombia, for example, would not be the same as for Mexico or the Philippines. Like many industry leaders, SGS knows simply throwing bodies at a problem is not the answer.

“We are focusing on technology to drive revenue growth, and not necessarily new centers that need hundreds of heads,” says Hyde. “That said, our executive team is continually adding talent and trying to find the best talent for the right support structure to be well over a billion dollar company. Sometimes that works for people, and sometimes that doesn’t. Our performance-based culture is not a fit for everyone we hire.”

Growing Pains

Some of the comments from former employees may be a result of an inability to succeed within a highly competitive environment – though Nearshore Americas can attest that the sources used for this article have had successful careers before and after SGS. What is clear is that SGS continues to grow in Latin America, particularly in Colombia.

“We have been in Colombia a little over three years,” says Hyde. “We started in Barranquilla in 2010, and expanded to Bogota in 2012. We just opened our second facility in Bogota last month. That facility has an additional capacity of around 600 seats. The current ballpark for our headcount in Colombia is 1500 employees.”

Hyde says that SGS has worked closely with government officials in Colombia. This is particularly relevant given SGS’s strategy of starting first in large metropolitan areas such as Bogota or Barranquilla, and then migrating to smaller cities.

“We have worked with the Colombian government to look at cities like Pereira,” says Hyde. “We are also looking into a government partnership to set up an operation on the island of San Andres. These two opportunities for expansion should cover us for the next few years – this is consistent with what we have done in the Philippines and India.  We also have an operation in Kingston, Jamaica, and are in process of opening a second center in Jamaica. This is a unique model in that we have partnered with a university, so the call center is right on campus.”

The SGS corporate model has clearly worked in other jurisdictions, and may yet prove successful in Latin America, despite complaints from locals that the company does a poor job of creating a sense of employee ownership. Then again, this may not be a priority, just as seeking business from buyers in Latin America is not top of mind, given that SGS is committed to margins that are unsustainable in the regional BPO market.

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And some former employees contacted by Nearshore Americas, though frustrated by the structural impossibility of closing deals within the context of uncompetitive pricing, nonetheless remain generous in their praise for SGS.

“Everyone I have met at SGS, including the CEO, has been very professional,” says a former mid-level employee in Latin America.  “For the most part the company has done a good job of bringing in global talent. With only one or two exceptions the company has good leadership with strong, well-rounded people.”

More specific frustration has been expressed with K.S. Kumar, who has been described as a personal friend of the CEO and “more of an enforcer person” with access to the political leadership in some of the countries where SGS operates. But even with a heavy-handed management style, SGS doesn’t have a reputation for being a company that fires people. Instead, unhappy employees simply get frustrated and leave.

“If you look at the global enterprise you see great things, but there can be frustration with the inability to make decisions or take risks for the corporation,” says one former employee. “I have only seen two people leave because they were asked to. It is the ones who voiced their opinions who have left – the others have stayed, and are doing very well.”

The general view is that the centralized finances and tight control on the part of the CEO and his close circle is very much by design, and has put the company in a strong financial position. However, the need for flexibility in order to meet revenue goals is a dawning reality, as is a shift from growth mode to customer consolidation. This strategy, which involves increasing back office support for financial transactions, particularly mortgage processing, and expanding in healthcare, may be enough to get SGS to the magical $1 billion in revenue, and a decision to go public.

If so, the people who have stayed for the ride will be happy bunch. And until then, those who have left will be a little less frustrated.

Tim Wilson

Tim has been a contributing analyst to Nearshore Americas since 2012. He is a former Research Analyst with IDC in Toronto and has over 20 years’ experience as a technology and business journalist, including extensive reporting from Latin America. A graduate of McGill University in Montreal, he has received numerous accolades for his writing, including a CBC Literary and a National Magazine award. He divides his time between Canada and Mexico. When not chasing down stories, he is busy writing the Detective Sánchez series of crime novels.

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