Volatility and Adaptation Index 2015 Report

(Feb 1, 2013 – Jan 31, 2016)

www.genpact.com/home/volatility-adaptation-index

VOLATILITY AND ADAPTATION INDEX (VAI)

Monitor signals in large companies, anticipate structural changes – and provide leaders the intelligence to drive agility

http://www.genpact.com/home/volatility-adaptation-index





2 © 2016 Copyright Genpact. All Rights Reserved.

Introduction: Genpact Volatility and Adaptation Index (VAI) 03

Why Volatility and Adaptation Index (VAI)? 03

Methodology 04

Section 1: Overall insights 06

Recurring themes for volatility and adaptation 07

Main drivers of VAI 09

Section 2: Industry specific analysis 12

Comparison across industries 13

3 years historical trend across industries 13

VAI across industries (last 3 months) 14

Comparisons of 2015 (Feb’15-Jan’16) vs. 2014 (Feb’14-Jan’15) 15

Retail banking 20

Commercial banking 21

Capital markets 22

Insurance 23

Healthcare 24

Life sciences 25

Consumer goods 26

Manufacturing 27

High tech 28

Contents


• Unprecedented economic volatility leads

global companies to adapt, often through

transformed business operations

• Events like profit warnings, cost-cutting

initiatives, M&A, change of senior leadership

signal volatility, and adaptation measures

• Genpact Volatility and Adaptation Index (VAI)

is a directional measure based on monitoring

of large data sets across a sample of over

800 companies

• It provides senior leaders with the

intelligence to inform structural decisions and

facilitate organizational alignment

Objective

WHY VOLATILITY AND ADAPTATION INDEX (VAI)? INSIGHT INTO GLOBAL ENTERPRISES’ ENVIRONMENT AND STRUCTURAL MOVES


VOLATILITY AND ADAPTATION INDEX - SAMPLE

Methodology

Heathcare

Others

High tech

Manufacturing

Life sciences

Insurance

Consumer goods

Capital markets

Retail banking

Commercial banking

9%

5% 7%

10%

11%

21%

9%

12%

7%

9%

Europe Asia-Pacific and Japan

North America

63%

16% 21%

By Industry By Geography


Methodology

VOLATILITY AND ADAPTATION INDEX (VAI) - METHODOLOGY

800 global

companies

with sizeable

operations

63% North

America

21% Europe

16% Asia

Pacific and

Japan

Identified

“events” that

signal current

or future

volatility

correlated to

changes in

operating

strategy-

restructuring,

change in

leadership,

regulatory etc.

Monitoring of

online media,

newswires,

publications,

financial

statements,

databases and

social media to

screen content

Analytics to

filter the news,

attribute

relevance and

salience

Volatility and

Adaptation

Index =

[% of companies

displaying

events]

X

[average number

of volatility

events per

company]

• This release covers 36 months with data updated till Jan 31, 2016

• Events include both macro industry-wide events such as regulations and company

level events like financial underperformance or cost cutting

• Industries - banking, insurance, capital markets, healthcare, life sciences,

manufacturing, consumer goods, etc.

Quarterly Index Analytics Definition

OVERALL INSIGHTS

SECTION 1


ENTERPRISE VOLATILITY CONTINUES TO MODERATE

Executive summary

TIME FOR CEOS’ ACTION

Insights Implications for C-suite

• Total index for 2015* lower than

2014#average levels

• Financial pressures and mergers and

acquisitions increase; fewer companies

engaged in restructuring activities

• Retail banking and consumer goods

report the highest VAI in 2015 driven by

leadership change and financial pressures

• Largest reduction in VAI for high tech

and manufacturing

• Results corroborated by Genpact’s own

operational measurements e.g.

mortgage operations in banks; consumer

goods companies’ keen interest in

operations transformation services

• Future still uncertain, and temporary

stability is a good time to prepare

• Heed agility imperative: comparative speed of

adaptation might determine success against

competitors and has implications for

shareholders as performance is scrutinized

• Enhance ability to change enterprise-wide

direction fast: speed of strategy formation and

organizational alignment can be shortened by

• Observing practices adopted by early

movers-some monitored by VAI

• Creating a burning platform internally

by communicating those competitors’

moves

• Utilizing lean-management principles

to: align strategy with execution; sustain

the pace of change by discovering better

ways of working and enabling people to

contribute fully; generate material impact

by delivering value efficiently to

customers

#Data covering Feb 1, 2014 to Jan 31, 2015

*Data covering Feb 1, 2015 to Jan 31, 2016



RESTRUCTURING UP, FINANCIAL PRESSURES DOWN IN THE LAST THREE MONTHS COMPARED TO 2015 TREND

Overview ► Main drivers ► Last 3 months (Nov’15–Jan’16) vs. 2015 (Feb’15-Jan’16) V

ola

tili

ty a

nd

Ad

ap

tati

on

In

de

x

Financial pressures

reduced in the last 3

months compared to the

2015 average trend

Restructuring activity

increased in last 3

months compared to the

2015 average trend

M&A activity reduced in

the last 3 months

compared to the 2015

average trend

ALL INDUSTRIES

Nov’15– Jan‘16

Ove

rall

Ind

us

try,

reg

ula

tory

or

ge

og

rap

hic

ch

an

ge

Fin

an

cia

l

co

nd

itio

n

Res

tru

ctu

rin

g

Ac

qu

isit

ion

or

geo

gra

ph

ic

ex

pan

sio

n

Lea

ders

hip

ch

an

ge

Volatility events

Adaptation responses

-59%

Nov’15-

Jan’16

2015

+46%

Nov’15-

Jan’16

2015

-71%

Nov’15-

Jan’16

2015


LEADERSHIP CHANGES, FINANCIAL PRESSURES AND M&AS ACCOUNT FOR MUCH OF VAI IN 2015

Overview ► Main drivers ► 2015 (Feb’15-Jan’16) vs. 2014 (Feb’14–Jan’15) V

ola

tili

ty a

nd

Ad

ap

tati

on

In

de

x

Financial pressures

increased in 2015

compared to 2014

Restructuring reduced

in 2015 compared to

2014

M&A activity increased

further in 2015

compared to 2014

ALL INDUSTRIES

Feb’15– Jan‘16

Ove

rall

Ind

us

try,

reg

ula

tory

or

ge

og

rap

hic

ch

an

ge

Fin

an

cia

l

co

nd

itio

n

Res

tru

ctu

rin

g

Ac

qu

isit

ion

or

geo

gra

ph

ic

ex

pan

sio

n

Lea

ders

hip

ch

an

ge

Volatility events


2014#

-80%

2015*

2014#

2015*

+15%

2014#

+113%

2015*




HIGHER ADAPTATION AMIDST FALLING VOLATILTY IN 2015

Overview ► Main drivers ► 3 year trend (Feb’13–Jan’16) V

ola

tility

an

d A

dap

tati

on

In

dex

ALL INDUSTRIES

Feb’13–Jan‘16 Adaptation responses Volatility events

34

22

43

39

19 21 21

25 25 27

31

25

13

24

30

Financial condition

Industry, regulatory or geography changes

Acquisition or geographical expansion

Leadership change

Restructuring

INDUSTRY SPECIFIC ANALYSIS

SECTION 2


COMMERCIAL BANKING AND CAPITAL MARKETS RECORD THE MAXIMUM INCREASE IN VOLATILITY AND ADAPTATION

Industry comparison ► 3 year trend (Feb’13–Jan’16)

80

60

40

20

ALL INDUSTRIES

Feb’13–Jan’16

Vo

lati

lity

an

d A

dap

tati

on

In

dex

Capital markets

Retail banking

Commercial banking

Healthcare

Consumer goods

Manufacturing

Life sciences

Insurance

High tech

Feb’14– Jan’15 Feb’13–Jan’14 Feb’15–Jan’16


HIGHEST LEVELS OF VOLATILITY AND ADAPTATION IN RETAIL BANKING, FOLLOWED BY CONSUMER GOODS IN 2015

Industry comparison ► 2015 (Feb’15–Jan’16)

24

2

1316

19

39

4851

5456

All

Ind

ustr

ies

Fe

b’1

5-

Ja

n’1

6

Hig

h te

ch

Insu

rance

Ma

nu

factu

rin

g

He

alth

ca

re

Co

mm

erc

ial b

an

kin

g

Ca

pita

l m

ark

ets

Life

scie

nce

s

Co

nsu

me

r g

oo

ds

Re

tail

ba

nkin

g

Feb’15–Jan‘16 Retail banking showed highest volatility and adaptation

index between Feb’15-Jan’16 (explained by financial

conditions, regulatory and leadership changes)


HIGHEST LEVELS OF VOLATILITY AND ADAPTATION IN CONSUMER GOODS IN THE LAST 3 MONTHS

Industry comparison ► Last 3 months (Nov’15–Jan’16)

24

13

225

10

1416

23

30

47

Re

tail

ba

nkin

g

Ca

pita

l m

ark

ets

All

Ind

ustr

ies

Fe

b’1

5-

Ja

n’1

6

Ma

nu

factu

rin

g

Insu

rance

Life

scie

nce

s

Co

nsu

me

r g

oo

ds

Hig

h t

ech

All

Ind

ustr

ies

No

v’1

5-

Ja

n’1

6

He

alth

ca

re

Co

mm

erc

ial b

an

kin

g

Nov’15–Jan‘16

Consumer goods showed highest volatility and adaptation

between Nov’15-Jan’16 (explained by financial conditions,

regulatory and leadership changes)


Retail

banking

LEADERSHIP CHANGE FOREMOST ADAPTATION RESPONSE; FINANCIAL PRESSURE KEY VOLATILITY TRIGGER


Life

sciences

Consumer

goods

Overall

Index

Number of

events

% of

companies

impacted Main volatility themes

1. Leadership change

2. Financial condition

3. Restructuring



3. M&A



3. Restructuring

Feb'15-Jan'16


SHARPEST RISE IN VOLATILITY AND ADAPTATION EVENTS IN LIFE SCIENCES AND CONSUMER GOODS

Industry comparison ► 2015 (Feb’15-Jan’16) vs. 2014 (Feb’14–Jan’15)

% of

companies

impacted

Avg.

number of

volatility events

per company

Retail banking, Consumer goods

High tech

Retail banking, Consumer goods

High tech

Acquisition or expansion

Leadership changes, cost cutting/restructuring

Financial conditions

Vo

lati

lity

an

d A

dap

tati

on

In

de

x

% delta from 2014

0

15

30

45

60

-300 -200 -100 0 100 200 300

Retail banking

Manufacturing

Life sciences

Insurance

High tech

Healthcare

Consumer goods

Commercial banking

Capital markets

Feb'15-Jan'16


42% OF COMPANIES REPORTED ATLEAST ONE VOLATILITY OR ADAPTATION EVENT IN 2015


10 20 30 40 50 60 70

1.8

1.5

1.2

0.9

0.6

0.3

Avera

ge n

um

ber

of vola

tilit

y e

vents

per

com

pany

% of companies impacted

Healthcare

Q4 2015

Consumer goods

Commercial banking

Retail banking

Capital markets

High tech

2015

Manufacturing

2014

Insurance

Life sciences

Feb’15-Jan’16


H L

H

# o

f ev

en

ts p

er

co

mp

an

y

% companies impacted

DETERMINANTS OF VOLATILITY AND ADAPTATION VARY WIDELY BY INDUSTRY

Industry analysis summary ► 2015 (Feb’15–Jan’16)

Retail banking Commercial banking Insurance Consumer goods Capital markets

Life sciences Manufacturing High tech


A R L Restructuring/

Cost cutting

Acquisitions or

geo expansion

Leadership

changes

Volatility events

F I Financial

pressures

Industry, regulatory or

geography changes

A

L R

I

F

A

L

R

I F A

L

R I

F

A

L

R

I F

A L

R I

F

A L

R I

F

A L

R I

F A L

R I

F

A L

R

I F

Feb’15-Jan'16

Healthcare


19%27%

2015 2014


Financial condition


Leadership change

Restructuring

VOLATILITY AND ADAPTATION INDEX – RETAIL BANKING

VAI ► Retail banking ► 2015 (Feb’15-Jan’16) vs. 2014 (Nov’14–Jan’15)

2015* (FEB’15-JAN’16) VS. 2014# (FEB’14-JAN’15)

Ad

ap

tation

Vo

latilit

y

0.30.4

2015 2014

Vo

lati

lity

an

d A

da

pta

tio

n I

nd

ex

Financial pressure reduces

Leadership churn reduces

% companies impacted Avg. no. of volatility

events reported per

quarter per company


events reported per

quarter per company


events reported per

quarter per company

77.1

2015

56.3

2014 * #



25%38%

2015 2014

0.51.0

2015 2014


19%29%

2015 2014


Financial condition


Leadership change

Restructuring

VOLATILITY AND ADAPTATION INDEX – COMMERCIAL BANKING

VAI ► Commercial banking ► 2015 (Feb’15-Jan’16) vs. 2014 (Nov’14–Jan’15)

2015* (FEB’15-JAN’16) VS. 2014# (FEB’14-JAN’15)

Ad

ap

tation

Vo

latilit

y

0.20.4

2014 2015

20%13%

2014 2015

0.20.1

2015 2014

Vo

lati

lity

an

d A

da

pta

tio

n I

nd

ex

Financial stress reduces

M&A activity increases


events reported per

quarter per company


events reported per

quarter per company


events reported per

quarter per company

*

48.1

2015

38.9

2014 #




26%23%

2015 2014


Financial condition


Leadership change

Restructuring

VOLATILITY AND ADAPTATION INDEX – CAPITAL MARKETS

VAI ► Capital markets ► 2015 (Feb’15-Jan’16) vs. 2014 (Nov’14–Jan’15)

2015* (FEB’15-JAN’16) VS. 2014# (FEB’14-JAN’15)

Ad

ap

tation

Vo

latilit

y

0.40.4

2015 2014

19%32%

2015 2014

0.4

0.8

2015 2014

Vo

lati

lity

an

d A

da

pta

tio

n I

nd

ex

Financial pressure increases

Leadership churn decreases


events reported per

quarter per company


events reported per

quarter per company


events reported per

quarter per company

61.2

2015

48.1

2014 * #




11%

3%

2014 2015


Financial condition


Leadership change

Restructuring

VOLATILITY AND ADAPTATION INDEX – INSURANCE

VAI ► Insurance► 2015 (Feb’15-Jan’16) vs. 2014 (Nov’14–Jan’15)

2015* (FEB’15-JAN’16) VS. 2014# (FEB’14-JAN’15)

Ad

ap

tation

Vo

latilit

y

0.1

0.0

2015 2014

19%

7%

2015 2014

0.3

0.1

2015 2014

Vo

lati

lity

an

d A

da

pta

tio

n I

nd

ex

Financial pressures increases

Leadership churn increases


events reported per

quarter per company


events reported per

quarter per company


events reported per

quarter per company

2015

13.2 4.2

2014 * #




2015

18.7

2014

18.1

9%4%

2015 2014


Financial condition


Leadership change

Restructuring

VOLATILITY AND ADAPTATION INDEX – HEALTHCARE

VAI ► Healthcare ► 2015 (Feb’15-Jan’16) vs. 2014 (Nov’14–Jan’15)

2015* (FEB’15-JAN’16) VS. 2014# (FEB’14-JAN’15)

Ad

ap

tation

Vo

latilit

y

0.1

0.0

2015 2014

8%13%

Last 3

months

Trailing 12

months avg.

0.10.2

Last 3

months

Trailing 12

months avg.

Vo

lati

lity

an

d A

da

pta

tio

n I

nd

ex

M&A activity increases

Financial pressure reduces


events reported per

quarter per company


events reported per

quarter per company


events reported per

quarter per company

* #




2015

51.0

2014

21.5

28%

10%

2015 2014


Financial condition


Leadership change

Restructuring

VOLATILITY AND ADAPTATION INDEX – LIFE SCIENCES

VAI ► Life sciences► 2015 (Feb’15-Jan’16) vs. 2014 (Nov’14–Jan’15)

2015* (FEB’15-JAN’16) VS. 2014# (FEB’14-JAN’15)

Ad

ap

tation

Vo

latilit

y

0.5

0.1

2015 2014

15%13%

2015 2014

0.20.2

2015 2014

Vo

lati

lity

an

d A

da

pta

tio

n I

nd

ex


Financial pressures increase


events reported per

quarter per company


events reported per

quarter per company


events reported per

quarter per company

* #




2015

54.1

2014

32.2

33%

17%

2015 2014


Financial condition


Leadership change

Restructuring

VOLATILITY AND ADAPTATION INDEX – CONSUMER GOODS

VAI ► Consumer goods► 2015 (Feb’15-Jan’16) vs. 2014 (Nov’14–Jan’15)

2015* (FEB’15-JAN’16) VS. 2014# (FEB’14-JAN’15)

Ad

ap

tation

Vo

latilit

y

0.4

0.2

2015 2014

20%26%

2015 2014

0.30.3

2015 2014

Vo

lati

lity

an

d A

da

pta

tio

n I

nd

ex

Financial pressures increase



events reported per

quarter per company


events reported per

quarter per company


events reported per

quarter per company

* #




2015

16.0

2014

21.2

13%8%

2015 2014


Financial condition


Leadership change

Restructuring

VOLATILITY AND ADAPTATION INDEX – MANUFACTURING

VAI ► Manufacturing ► 2015 (Feb’15-Jan’16) vs. 2014 (Nov’14–Jan’15)

2015* (FEB’15-JAN’16) VS. 2014# (FEB’14-JAN’15)

Ad

ap

tation

Vo

latilit

y

0.20.1

2015 2014

5%

12%

2015 2014

0.1

0.2

2015 2014

Vo

lati

lity

an

d A

da

pta

tio

n I

nd

ex

Financial pressure increases

Restructuring activity reduces


events reported per

quarter per company


events reported per

quarter per company


events reported per

quarter per company

* #




2015

2.3

2014

3.8

5%

1%

2015 2014


Financial condition


Leadership change

Restructuring

VOLATILITY AND ADAPTATION INDEX – HIGH TECH

VAI ► High tech► 2015 (Feb’15-Jan’16) vs. 2014 (Nov’14–Jan’15)

2015* (FEB’15-JAN’16) VS. 2014# (FEB’14-JAN’15)

Ad

ap

tation

Vo

latilit

y

0.1

0.0

2015 2014

2%

10%

2015 2014

0.0

0.1

2015 2014

Vo

lati

lity

an

d A

da

pta

tio

n I

nd

ex

Financial pressures increases

Restructuring activity decreases


events reported per

quarter per company


events reported per

quarter per company


events reported per

quarter per company



* #


About Genpact

Genpact (NYSE: G) stands for “generating business impact.” We are a global leader in digitally-powered business process management and

services. We architect the Lean DigitalSM enterprise through our patented Smart Enterprise Processes (SEPSM) framework that reimagines our

clients’ operating model end-to-end, including the middle and back offices. This creates Intelligent OperationsSM that we help design, transform,

and run. The impact on our clients is a high return on transformation investments through growth, efficiency, and business agility. For two

decades, first as a General Electric division and later as an independent company, we have been passionately serving a few hundred strategic

clients including one-fourth of the Fortune Global 500, and have grown to over 70,000 people in 25 countries, with key offices in New York City.

The resulting business process and industry domain expertise, and experience running complex operations, are a unique heritage and focus

that help us drive the best choices across technology, analytics, and organizational design.

For more information, visit www.genpact.com.

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© 2016 Copyright Genpact. All Rights Reserved.

Genpact Research Institute

The Genpact Research Institute is a

specialized think tank harnessing the

collective intelligence of Genpact –

as the leading business process

service provider worldwide - its

ecosystem of clients and partners,

and thousands of process operations

experts. Its mission is to advance the

“art of the possible” in our clients’

journey of business transformation

and adoption of advanced operating

models.

www.genpact.com/research-institute

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Volatility and Adaptation Index 2015 Report