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Stefanini and the Digital Revolution: Transforming and Being Transformed

10/2017-6328

This case was written by Felipe Monteiro, Affiliate Professor of Strategy at INSEAD and Senior Fellow at the Mack Institute for Innovation Management at the Wharton School, and Gabriel Rozman, INSEAD EMI Distinguished Executive Fellow. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Funding for this project was provided by INSEAD’s Emerging Markets Institute.

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It was a beautiful spring morning in 2017 when Marco Stefanini, founder and CEO of Stefanini Group, arrived at the INSEAD campus in Fontainebleau for a business forum on digital transformation, to address the challenges posed by the digital revolution – something which was on the top of his agenda.

Created in 1987 to provide staff augmentation for information technology development projects, Stefanini had morphed into the largest IT and technology services provider in Latin America, with a staff of over 23,000 professionals, half of which were in Brazil. Over this period, and with no outside capital investment, Marco had not only taken on global competitors like IBM, Tata Consultancy Services (TCS) and Accenture, some of them over 15 times his company’s size, but had also had to contend with the vicissitudes of Brazil, a very complex home country base.

By 2017, Stefanini was one of Brazil’s few truly global companies, with a presence in 41 countries and revenues of more than US$800 million, 60% of which came from projects outside Brazil (see Exhibits 1 and 2). But Marco had even more ambitious plans for the future:

Is it a question of scale or efficiency? Stefanini does not need to be one of the largest companies in this industry, but we need to grow our average engagement size substantially to pay for the investments in digitalization. We should reach 50,000 employees in five years, which is about double our size today. But in the same period we need to grow revenues three times and five times our EBITDA to finance our growth.

In the near future, based on the digital transformation, we cannot see IT companies like us with hundreds of thousands of employees. So which should it be – to be big enough or small with high efficiency? Because in the age of automation, what is the ratio between revenues x margins x team size? What we are looking for?

Marco’s vision of the future was encapsulated in what he called “Vision 2022”, which was widely distributed among the firm’s staff and shared with major customers (see Exhibit 3). In it, he explained the need to transform Stefanini’s its sales and delivery model and simultaneously expand its global footprint, both in emerging markets as in the more mature markets as North America and Europe. The strength of the firm was to understand how to move from Brazil to other countries, and to understand the local culture and feel comfortable in it. Tania Herrezeel, EMEA Marketing Director, was optimistic about this strategic approach:

Being global means understanding the world but also your local environment. Europeans buy services very differently from North Americans, and the differences exist even between Germany and Spain in Europe and are significant. We understand both the local and global markets.

To achieve Vision 2022, Stefanini had plans to invest more and grow stronger in China and other parts of Asia after 2019. According to Ailtom Nascimento, VP Global Accounts at Stefanini:



We have 90 offices in 41 countries, including 30 development /delivery centres. It looks like a lot, but it is part of our strategy to be close to our customers. In some of those countries we are there today just to serve our global customers, such as Thailand, Australia and China, although in the latter we are planning to also start operations with local customers in the next three years. In another example, we are in Romania and Moldova because we can offer our clients lower rates and 35 different languages. We are always testing new locations – right now we are piloting very small delivery centres in Morocco and Hungary.

Increasing both revenues and profits in the near future would be no easy task, nor would expanding the network. The big global players already occupied significant space in most major and medium-size markets, and had been in business there for years as exemplified by Accenture and Cognizant (which operated in 40 different countries). But there was still an opportunity because some of these global competitors were already making higher margins compared to Stefanini’s 10% to 12% EBITDA (Exhibit 4).

In the past, Stefanini had successfully funded acquisitions of companies mainly via cash generation. Now it could fund a new period of acquisitions with internal resources or bring in external resources to acquire larger targets. Among the alternatives being evaluated were to bring in a minor partner or to IPO the company.

However the main thrust of “Vision 2022” was to increase margins by improving operational efficiency in services like BPO (business process outsourcing) through modernization and digitalization, as well as new approaches like Industry 4.0, the Internet of Things, Cognitive/AI, digital banking and insurance, new banking technologies such as blockchain, and in other domains where Stefanini offered solutions and where there was a great future for IT. In other words, it was becoming a solutions provider in the digital age, as Marco highlighted:

This is the main part of our strategy and has been since 2014, when we made our most important transformation plan, which was ‘Run, Grow and Transform’, which will be consolidated now in the strategic plan 2022.

Like most firms in the industry, Stefanini was facing perhaps the most dramatic change in the industry to date: the digital revolution. On the one hand, it was bringing new business opportunities – Stefanini was helping many multinational companies with their global digital transformation or embedding innovation in traditional IT services, such as Sanofi, AGCO, FIAT, América Móvil, Vale, Visa, Banco do Brasil, Angloamerican, Embraer, Nike, and others. On the other, Stefanini itself was being transformed. A significant portion of its traditional sources of revenues were under threat of diminishing (and in some cases disappearing) as budgets for traditional IT legacy projects were migrating to digital projects. Digitalization was a great opportunity to increase revenues, but at the same time a big challenge as it would require transforming the company, as Marco explained:

The move to digital transformation in every industry will be very fast – in three to five years our market and that of our competitors will be quite different, and we have to be prepared. All organizations are rapidly going towards this digital transformation, so the question is where and how do you start transforming yourself?



I think you should start selling digital services first to your own best customers, the ones who trust you. To do this, you have to have very strong delivery capabilities to back your services. If you have difficulties delivering services in today’s environment, you will have many more in the digital environment. And you have to coach your own teams not to be conservative, to innovate so you can create digital journeys in a step by step digital transformation.

In the 30 years heading Stefanini, Marco had transformed a local Brazilian company into a global player, but knew he could not rest on his laurels:

Nobody knows who will be winners and losers in the digital revolution. The jury is still out for us, and for all companies in our industry. Flexibility and innovation are in our DNA. Now, more than ever, it is time for us to be flexible and innovative. These are the most exciting times in Stefanini’s history.

Son of a Crisis1

One of the prime skills Marco had developed over the lifetime of his firm was to deal with extreme crisis situations which originated in his home country. Some arose from changes in the political composition of the Brazilian government, which frequently rewrote the business rules as the ruling party swung from right to left and back again. Others involved substantial devaluations of the currency, the introduction of new currencies and new denominations, with the result that inflation rates could exceed 100% in a 12-month period. This added to other headaches like changes in the labor laws which made hiring and retaining staff more expensive and downsizing more difficult.

Through all these changes, Stefanini was able to survive without local or international assistance, even when it looked like the firm might cease to be a going concern. Despite the ups and down in the early years (and a major currency devaluation), Marco was able to steer a steady course towards growth and profitability, securing new important multinational customers while maintaining the loyalty of his existing client base and expanding business with them, as well as opening new offices in new countries and adding capable technical and sales staff (Exhibit 6).

The Beginnings

It all started in 1987, when Marco set up a business to provide IT training services to firms that were having a tough time hiring experienced computer professionals from the local talent pool, amid great demand for their services and in the face of restrictive regulations. He saw an opening to extend his services from training to staff augmentation – more commonly known as “time and materials” (T&M), which removed from his customers many of the costs and risks of dealing with manpower, especially for multinationals which were less able to navigate the local culture and tough labour legislation. This was the starting point to secure contracts with major European and US companies. It also required a transformation at Stefanini, as the change to staff augmentation services shifted the responsibility for having properly trained people from the customer to Marco’s organization.

1 Title of a biography of Marco Stefanini by Rogerio Godinho, published by Matrix Editora.



The next major change occurred in 1990, when he proposed to change from providing T&M to outsourcing IT services to some of his premium clients. This was a new model that already existed in major markets and whose time had arrived in Brazil, but involved another major change in Stefanini’s service model. While under staff augmentation the ultimate responsibility for the quality of the resulting project was on the customer’s shoulders, the outsourcing concept shifted responsibility to the provider. The contracted firm now needed to have – in addition to well-trained professionals in different stages of a software development cycle such as analysis, design and testing – a methodology framework, project management tools and quality control functions to ensure the overall success of a systems development project. Additionally, experienced project managers with English proficiency were needed to interface with the users and technical staff on his clients’ home turf.

After almost failing financially in 1992, the firm recovered and secured its first IT application support contract. By 1993 it was already profitable and growing 100% per year. Under this new outsourcing model, the client contracted not only for specific development, but gave a complete system (such as sales or purchasing) to the vendor, which then took charge of improving it. Contracting for application support, the provider took full responsibility not only to develop new software, but also to maintain and make changes to systems that were developed by resources internal to the client or developed by other external vendors, sometimes with limited knowledge of the previous history of maintenance or incomplete (or non-existant) documentation.

Until that time, there had been changes to the business model but not serious disruption, more a maturing of the previous model. But as the turn of the century approached, the falling cost of hardware provided new opportunities to develop software for applications which were not previously considered viable from a cost standpoint. Companies started focusing on new technologies to outdo each other and gain competitive advantage, developing new software and hardware. Firms such as SAP in Germany and Oracle in the US came up with integrated Enterprise Management packages (ERP) which replaced hundreds of individual and unconnected programmes with a single core of code – interfacing such diverse activities as HR with Finance and Manufacturing. It took large teams of consultants and IT engineers to tailor what was a generic package to the needs of individual clients – frequently organizations which were multiproduct, multi-country and different legal entities.

This shift by customers to standardize their systems worldwide – like their technology providers – led Stefanini to expand its network beyond Brazil’s frontiers, although its approach did not often require financial resources. In some cases it acquired a small successful firm in a foreign location, but mostly it expanded by offering services to global companies which it had successfully served in Brazil, like Johnson & Johnson, GE, Ford, AMBEV, Whirlpool, Citibank, Caterpillar, Santander, 3M, and Alcoa. Marcos Almeida, Director of Affiliated & Subsidiary Companies, supported explained:

Our culture is to develop long-term relationship with global companies. We start serving them someplace around the globe, do good work, and continue serving them in many new locations. That is the way we started with Johnson & Johnson 30 years ago, and we now have over 50 global service agreements. Now we are serving customers all over the globe.



Lack of human resources created fierce competition among IT service providers for multimillion-dollar IT projects, pushing up demand for competent staff. One alternative which was considered due to the scarcity was to outsource to destinations like India and Latin America. According to a 2004 report by Tata Consultancy Services “Seven of our top 10 customers, as well as 60% of our overall customer base had decided to outsource.” Tata Consultancy Services outsourced mostly to India.2

Not only was the industry enjoying high growth rates and high margins (see Exhibit 4) due to a scarcity of technical personnel, there was also a lack of success in implementing complex projects, as indicated by several well-publicized major cost overruns in both internal and outsourced projects, such as Nike, Bank of America, K-Mart and McDonalds.3

It was at his point that a major disruption from an external factor gave even more favourable market conditions to IT services firms: the Y2K (year 2000) problem.

The Y2K Effect

The growth of the IT Services industry at the end of the century can be linked to the phenomenon known as Y2K, which was basically a computer problem that customers did not visualize when they developed systems because it was too far into the future. It centred on the way dates were used for comparison purposes for a multitude of applications, or the YYMMDD formula, for instance, for calculating the age of a customer for targeting products to different age groups.

As memory was expensive in the early days of computing, programmers were forced to save space in the computer’s central processor, a mistake that most organizations had committed (notably banks, insurance companies, government offices, etc.). They had thousands of individual programmes in their archives, many with antiquated coding languages and programming structures which had been migrated to other companies or simply retired – it was anyone’s guess how many programmes used the YYMMDD formula, for what purpose, or what would happen when 1999 became 2000.

In the face of the Y2K “bug”, companies had three choices: ignore the problem and risk disruption of activities after December 31st 1999 (too high a risk for large firms), pay IT services firms to read computer code page by page to spot the date formula, or implement a modern ERP system which would solve the problem and offer the benefits of a modern concept of software development and maintenance. Most organizations opted for this third alternative, creating a demand for IT services professionals which far exceeded supply. This raised the revenues of IT services firms by creating competition for resources and a demand for training armies of professionals in technology, preferably in emerging countries. As these new software projects were only to last a finite number of months, companies preferred to contract specialized firms rather than hire people (and terminate them after the ERP conversion).

2 Harvard Business School Case N9-705-020; April 4th, 2005; Tata Consultancy Services Iberoamerica. 3 MIS Executive, Volume 6, Number 2; July 2007. IT Project Management: Infamous Failures, Classic

Mistakes and Best Practices.



To illustrate the scale of the problem, the US was estimated to have spent US$100 billion getting ready for the Y2K bug – of which the Federal Government alone spent US$9 billion. The rest of the world’s expenditure was estimated between US$300 and US$500 billion.4 This heralded the birth of a huge IT outsourcing industry, for which Stefanini was the standard bearer among Latin American IT firms.

The Road to Outsourcing

As the year 2000 approached – and the number of available professionals dwindled – leading companies understood that they had to look for “temporary” resources in places that had huge numbers of graduates in engineering and other STEM (Science, Technology, Engineering and Mathematics) disciplines, where salaries were much lower than in the West, yet English was widespread and the rules of business understood. Although some early players like Accenture turned to the Philippines, the clear winner was India, which met all the above criteria. Forward-looking organizations – among them American Express and General Electric – tried out a number of IT firms in India with good results and then expanded exponentially.

The strategy suited not only these companies but India as well, a country that was desperate for exports which would generate hard currency. In the years that followed, India’s IT industry generated millions of outsourced jobs which spilled over to call centres and business process outsourcing centres (BPO), changing the country’s employment topography. Hundreds of IT firms were created in India around the year 2000, some of which today have hundreds of thousands of staff, among them Infosys, Wipro, TCS, HCL and Cognizant. In the last 10 years there has been a significant shift to India by Western IT services providers such as IBM, Accenture and Cap Gemini, which in 2015 had larger numbers of staff in India than in their home territories.

Savvy entrepreneurs in other emerging markets looked to develop similar industries from local IT services operations. Few succeeded, but among the winners was Stefanini, which by 2010 was the largest Latin American firm in this sector, thanks to Marco’s understanding of what he saw happening elsewhere in the world. Taking advantage of the arbitrage that Latin America gave him over comparative costs in developing markets, and his knowledge from serving a growing number of global players in such different markets as health care, banking and automotive (see Exhibit 5) he started expanding to overseas locations where he opened operations, combining sales offices in major markets with software development centres in low-cost countries such Romania and Mexico. Before long, Stefanini was large enough to tackle large projects in open competition with Indian IT firms, but at the same time flexible enough to adapt to different company cultures, creating value for customers through innovation (opening four innovation centres in diverse places such as Brazil, the United States, Romania and Singapore).

Stefanini’s corporate values emphasized closeness to the customer, backed by Marco’s extensive travel schedule. He aimed to meet every important client at least once a year, in addition to personally meeting – in the same period – the entire personnel working for Stefanini around the globe. This was fundamental to the corporate culture. Many within the firm believed that a large part of its success was due to the entrepreneurial culture Marco had created and wanted to preserve and transmit to his people. 4 Slate Magazine, November 11th, 2009, article by Farhao Manjoo.



Stefanini’s organizational structure, including its sales organization, was based in over 250 business units called “cells”. The people managing those units made – within an overall yearly plan which established growth rates, global revenues, margins and headcount – all decisions related to the business unit, thereby creating an entrepreneurial culture where every head of a unit knew what was expected and was rewarded accordingly. Units could be focused on a single large multinational customer, a development or innovation centre, an industry practice or a software product such as a core banking package. VP Ailtom explained the importance of the concept:

Many years ago we restructured Stefanini on how we sell services and overall manage our firm. I would say that Stefanini can aggressively go after market opportunities thanks to our management model. We created the concept of a Business Unit. Each Business Unit is a self-standing micro-company within the overall company, with an entrepreneurial person in charge called a Business Manager, it is one of the characteristics we seek when we hire people. (See Exhibit 9)

Marco and his team were convinced that Stefanini’s entrepreneurial culture would be critical to the next revolution facing the company and the industry as a whole. Marco explains:

Our leaders are now our key people to propagate this culture of innovation and must be reaching out to our entire global team. I’m convinced of the importance of our leaders having a “flexible mindset” where we keep trying, never give up, and learn from feedback. We are, and will need to continue to be resilient. My understanding is that the future will be about taking on jobs which are not well defined and which we will keep changing all the time. Our leadership should embrace this “flexible mindset”.5

The Digital Revolution

Unlike most revolutions, there is no date marking its occurrence. The advent of social media (which helped to understand people’s spending patterns and how they chose their purchases) and new tools for data analysis of buying trends and product lifespans as well as hard evidence of relationships between different parts of the organizations, gave rise to new client demands. Customer shifted to buying through the internet rather than visiting stores, to making banking transactions at home rather than at a bank, to making their own airline reservations rather than through third parties. As the McKinsey Institute described it, “Recent developments in robotics, artificial intelligence and machine learning have put us on the cusp of a new automation age. Robots and computers can not only perform a range of routine physical work activities that include cognitive capabilities once considered too difficult to automate successfully, such as making tacit judgments, sensing emotion, or even driving. Automation will change the daily work activities of everyone, from miners and landscapers to commercial bankers, fashion designers, welders and CEOs.”6

5 The idea of “flexible mindset” was developed by Stanford’s Professor Carol Dweck. For a recent interview

with Dweck, please see https://www.theatlantic.com/education/archive/2016/12/how-praise-became-a-consolation-prize/510845/

6 Mckinsey Global Institute, January 2017, Harnessing automation for a future that works.



Rather than to lower costs, most CEOs saw the need to be more attuned to the ways their customers preferred to interface with them, and started taking interest in how technology could help. Herrezeel, Stefanini’s EMEA Marketing Director, put it in these words:

The reason why our customers must undertake digital transformation is that the environment around them is rapidly changing. The way they communicate with their customers and vice versa has changed substantially with the introduction of new channels, new buying habits, new search tools.

Large global IT players recognized this shift in the use of technology and sought to take advantage of this trend, as McKinsey & Company put it: “Being the CEO of a large company facing digital disruption can seem like being a gambler at a roulette table. You know you need to place bets to win, but have no idea where to put your chips.”7 Firms like Accenture or Cognizant were so large that a major disruption in the IT industry meant that they had to retrain hundreds of thousands of technicians to serve clients differently. Their ships were too large to turn around in the short term, hence most of them started small groups of staff selling different projects.

Clients had trouble deciding who to trust to support their digital journey – there were simply too few success stories to follow. Many market analysts insisted that clients now considered a “flexible mindset” to be as relevant as scale when deciding on a vendor to assist with digital transformation. Some felt that the financial outlook under the digital revolution scenario might not be favourable for IT service providers. Projects were structured differently, and did not bring the same revenues as legacy projects – they had to be agile, which meant smaller teams over a smaller period of time, focused on specific areas of a company.8

This new outlook would severely affect the way in which a customer interfaced with companies. The new technology offered the possibility to communicate with the customer through many channels (unlike walking into a store), through the use and analysis of what was happening in different social media, be it Twitter, Facebook or WeChat, interactive websites where opinions were expressed, photos taken on mobile phones (which could explain a problem with a product better than any written document), or filming an event – whether a complaint or a suggestion – and sending it to the company.

Machine learning, robotics, artificial intelligence, blockchain and other new technologies had to be analyzed in an effort to stay ahead of competitors by being more agile, robust and quicker to deliver a quality product. The days of relying on arbitrage had shown that applying modern technology gave more value to a client than ‘people arbitrage’ could deliver from low-cost countries. It now seemed that mature countries – whose societies spent more on R&D – would have the upper hand in building new products and technologies for the growing digital service market. IT providers like Tata Consultancy Services saw revenues from digital services (which they had not tracked previously) grow at a much faster rate than legacy revenues. The above-mentioned press release indicated that major markets grew 3.1% quarter-

7 McKinsey Digital, Feb 2017 8 As an example, a Tata Consultancy Services press release for first quarter 2017/2018 reported that revenues

had grown only 3.1% and net income had decreased 1.8% year on year, citing as one of the reasons that of the total number of employees of 385,809 over 215,000 staff had to be trained in the digital economy. Tata Consultancy Services Press Release for Quarter 1 2017/2018.



on-quarter in US dollars, while digital revenue grew 7.6% quarter-on-quarter and 26% year-on-year.9

For instance, with digitized documents the BPO on which Stefanini relied for part of its revenues was likely to be fundamentally disrupted. Such services were often based on people following the standard “stare and compare process” – two related documents (a purchase order and its corresponding invoice) being physically compared by a person working with adjacent screens to determine if both documents offered the same information and if the invoice was properly prepared. Machine learning not only allowed faster comparison but could ‘learn’ from the experience, building a repository of frequent mistakes or compile a catalogue of errors made by each vendor or salesperson, in much less time than it took for a person to perform just one of those functions. The effects of the digital revolution would clearly be felt in all businesses and in all areas of the organization. By being a first mover and using its flexibility and closeness to clients, Stefanini believed it could grow faster than its competitors.

Transforming and Being Transformed

Beginning in the early 2010s, the ease of working in internet-driven technology environments accelerated the number of applications that were the object of better, faster, more complex and more automated procedures, allowing business entities to communicate with customers, suppliers, employees and other stakeholders through internet-based channels, and revolutionizing the way organizations conducted their business. Until them, Stefanini had relied upon growing traditional IT services (an industry growing up to 40% a year), arbitrage between major market and emerging market rates, and the opening up of markets with the efforts of the World Trade Organization, all of which forced firms to reduce costs to be globally competitive. In an industry unshaken by disruptive forces until then, the majority of players kept growing, their customers tended to remain loyal given the high costs (monetary and cultural) of switching and the risks involved when transferring large portfolios of systems from the present provider to a newcomer.

But by 2015, Marco understood that the industry in which he had built Latin America’s largest IT services provider had to be radically transformed if it was going to survive and prosper. The IT industry was turning away from the traditional models of assisting its customers – processing larger volumes, faster and more reliably, and relying on vast numbers of technical people, based mostly on rate arbitrage rather than technology. “Stefanini was partly built on arbitrage but without the scale behind to back it,” said Eliezer Silveira Filho, Marketing Director LatAm of the organization.

In order to succeed in the future, the industry that had led a major disruption in the way business was conducted in the last 20 years was now being disrupted itself – because customers had decided to conduct their businesses in a different way. What worked in the past would not work in the future. Clearly the winners would be those who could adapt their service offerings and products – and in the operational and financial terms their customers expected –by meeting the technological demands this new wave required.

9 Ibid.



New tools would need to be built to handle this demand. For instance, in the BPO area there was room to develop new platforms which could meet opposite ends of the same market. For instance, Stefanini could use technology to link the performance of medical services by health providers with payments which insurance companies or governments made for customers, substantially reducing claims disputes, which were common in this industry. In 2017, Stefanini was already working with banks applying technologies which could be supported on a mobile phone to perform processes currently handled by cumbersome interactions with physical bank branches – 399 branches were closed worldwide by Bank of America City Group and JP Morgan10 in a short time frame. Over 10,000 branches in total had been shuttered since 2008.11

Imagine being able to get a loan or a mortgage to buy a car or a house by simply filing a few papers and being authorized with the help of a machine that can analyse your speech patterns to detect if you are telling the truth answering a few questions over a mobile phone. Who would drive to the bank and wait in line if they could do the same thing with a digital device? The question Marco and his team were asking themselves was how Stefanini could keep growing if technical opportunities were diminishing. By creating what Marco called the “IT Industry 4.0, the next wave”. For instance, as many universities in many countries (including Brazil) were not teaching what the customers thought they needed in the next 10 years, the Stefanini Institute was created. In 2017, it was in full swing training people in these new technologies, and invested considerable resources in building the curriculum and inviting customers to participate in the courses.

Clearly innovation would play a key role in Industry 4.0 because many things had to be invented which were not yet specified. Stefanini had four innovation centres, and had plans to open others, that were open to internal staff as well as clients. Said Cintia Bortotto, LatAm HR Director:

Every customer was entitled to 30 days work a year in any of our innovation centres. Every customer was free to do joint work with us in our innovation lab to create solutions for their business challenges.

Another way to increase client stickiness and revenues was the creation of an Engineering Department, which worked with aerospace and other companies in adapting IoT (Internet of Things) techniques to measure phenomena that in the past had been ignored. Based on intelligent sensors, the IoT was being adapted to projects that measured anything from the effect of rain on drainage, to the consumption of petrol and driving habits (which could allow insurance companies decide who gets lower insurance rates).

Another strategy had to do with finding major recognized partners to address new problems created by the industry, which, while it supported the widening use of the internet, had also created the security problem of unauthorized accesses to an organization’s data. Recognizing data and process security as a major preoccupation of CEOs, Marco secured a partnership with Rafael, the largest security firm in Israel, with whom he created a joint venture to advise and build products for Brazil’s banking industry and beyond its borders.

10 Business Insider, October 23rd 2016, America’s biggest banks are closing hundreds of branches. 11 The Economist, July 27th 2017.



Sometimes a joint venture or a strategic partnership would allow a firm to offer services beyond its own portfolio, as in the case described above, but Stefanini went a step beyond contractual strategic partnerships by devoting some of its own financial resources to directly invest in start-ups, acquiring controlling stakes in small-to-medium-sized firms addressing technological key issues and innovations. In such cases the entrepreneur kept a substantial minority ownership in the firm after Stefanini’s investment, providing continuing entrepreneurship in exchange for profiting from the introduction to clients and the experience of the firm.

As a Limited Partner, the company had also invested in venture capital funds and accelerators as a way to access to cutting-edge innovation. It also launched a new investment model in which it could partner with financial investors such as private equity or VC funds, to acquire minor stakes in businesses controlled by those funds. Under this co-investment strategy, the targets were not tech firms but specific markets that were financially attractive and ripe for digital transformation.

Also on the start-up front, Stefanini offered a structured programme in which it rigorously selected top-tier players with a ready-to-market offer and funding provided by institutional investors. It worked hand in hand and allowed clients to test and buy their innovative products by embedding the start-ups’ innovations in some of Stefanini´s solutions. As this model proved to be a win-win “many venture funds who have made early investments in promising new firms or tools which address digital transformation were happy to refer these companies to Stefanini,” said Marcos Almeida, Director, Subsidiaries & Affiliates.

Another initiative was trying to forecast which industries would be the ones to succeed and grow in the future – when its largest customers could possibly be surfing in the e-commerce industry, or perhaps dealing with crypto currencies.

An additional domain where it was seeking to cope with disruption was in the financial and sales areas. In the first case, it looked to provide SAAS (Software as a Service) by developing software packages for which customers paid only when they use them and for the number of people or transactions it is used for. In the sales area, Stefanini had to train its salesforce to sell to a different place in the organization. While in the old 3.0, the main contact to assign projects would be the CIO or IT Manager in an organization, the new client was a business leader who needed technology to drive better results for a company, was looking for new sales channels, ot to reduce inventory by better merchandise analysis, or store managers seeking to provide faster assistance to customers. These were the opportunities Stefanini wanted to exploit to grow in the future.

Finally, if his customers had to ‘reimagine themselves’ as Marco had had to do, he saw a business opportunity in opening a consulting unit to provide advice on digital advancement and other hot technology topics. Although a small unit of some 40 people at this time, it was a way of getting even closer to its customers, as VP Ailtom Nascimento observed:

There are many new opportunities coming, many things are still open, but this is the future we are building right now, it’s not something we are just following. In this scenario, we are the protagonists. That’s the reason why we have said many times in our history, ‘Stefanini is helping customers in their digital transformation, we are drawing their new journeys. Along with us they will be



reaching out the new age of business.’ They can be the next Netflix in their areas of business. In summary, this is the beginning of a new chapter in our history.

A truly global IT company “Made in Brazil”?

In the past 30 years, Stefanini had navigated through adversity to become by 2017 Latin America’s largest IT services provider (See Exhibits 14a and 14b). It had been named Brazil’s “most global company” on the basis of factors including size, number of employees abroad, number of clients outside Brazil and number of overseas offices. With over 23,000 employees and revenues approaching US$1 billion, could Stefanini achieve 2022 Vision and become a major global player?

It was still largely dependent on the Brazilian market, with resources concentrated mainly in its home country, but most of its revenues were derived from work outside Brazil. How could a Brazilian firm with a majority of Brazilian staff become a global player? Cintia Bortotto, Director of HR for LatAm, outlined the initial steps:

We started a program to send some experienced executives from Brazil to other parts of our global organizations, so we can spread our values. This has been possible especially as we acquired companies in faraway places of the world.

Back home, changes in legislation in 2017 pointed to a better market for outsourcing firms. The Government was easing restrictions on financial institutions to outsource their data and processing to third-party vendors. Congress was about to pass laws which would make contracting and releasing company personnel easier and less costly.12 With Stefanini’s dominant position both in the financial industry vertical and its overall size in Brazil, this was good news – it would allow the firm to build not only expertise but also cash to make overseas investments.

To Marco, the challenges to achieve the vision were clear:

Today the digital revolution is making the world unstable. It is similar to my own life experiences and those of Brazil. In such a world, you need to be very entrepreneurial and need to be able to change fast. My challenge is to convince my team to innovate and to show good leadership constantly. There are no clear leaders driving the digital transformation, and we can be one, through good customers, acquisitions, investment and joint ventures

There are big opportunities in digital transformation. One is in BPO, or back office outsourcing – all administrative processes. The second is to create digital business solutions. A good example is the banking industry because of their direct interaction with their customers. We could create a totally digital bank in less than one year. The third is to be able to personalize many processes which are developed for masses of unidentified customers who need to need be segmented, analysed and approached individually.

12 Brazil moves to allow outsourcing in labour law modernization, Reuters March 22, 2017.



Operational costs were partly determined by scale. Stefanini was competing against providers such as Infosys, Tata Consultancy Services, Cap Gemini and Accenture, some of which were more than 15 times Stefanini’s size. Beside the cost factor, how important was it to attain a comparable size? Vision 2022 set out an ambitious goal of 50,000 people, well below his major competitors. Would it be sufficient to compete for multimillion dollar contracts?

I think size and scale are important in this industry, but only up to a certain level. When you are very large, you become a little bit heavy and lose flexibility. I think our present size allows us to be competitive; to invest in new capabilities and new tools for the digital age. Of course, in a particular market it would be advantageous to be larger, but I think customers prefer flexibility over size. The idea that most large global organizations will assign all IT projects to a single firm does not happen in real life – they always prefer to have a few reliable providers they can chose from.

Could Stefanini’s existing organizational structure of 250 business units be successful with double the number of staff in the next three years? Could the entrepreneurial spirit which permeated these units be retained, and could the closeness to the customers which was a vital part of Marco’s personal strategy be kept up? Bortotto was confident about it:

We have the vision to be the best provider of technology globally and to be recognized as a strategic partner, working with passion and energy. Our mission is to exceed the expectations of our customers, employees and shareholders through excellence in technology solutions and innovation.

That said, Stefanini was aware that geographical expansion posed major challenges. The plan was to acquire several firms around the world, according to Vision 2022, and if unable to do so, to create strategic alliances with local or other multinational technology firms. In this respect it had a good track record – 16 acquisitions of small and medium-sized companies in the US and Latin America. Taking a majority stake in a Colombian firm had resulted in a 300% growth in that country’s operations in less than three years. Several firms acquired in Brazil had been successfully integrated and their offerings were now part of the mainstream offerings available to their clients. A small banking technology firm acquired in Uruguay had been able to adapt their product line to the rest of Latin America, and had therefore paid for itself in a short time. But other parts of the world would provide totally new challenges, such as the planned operations in China, as Spencer Gracias, Head of US and Asia Pacific operations, explained:

China is a big challenge. It is one of the markets of the future, in three to five years. It is also a market where we should not go in alone because we need to operate there as a native company, therefore we would have to look for a reliable partner or acquire a local player.

Regarding its track record on alliances, Stefanini had done very well so far. It was a certified partner of CA Technologies, Rafael, Microsoft, Oracle, Progress Software, SAP, IBM and ServiceNow, among others. Its venture capital initiatives and investments in small start-ups could also be a winning strategy worldwide and attract new clients to its portfolio. But Marco knew he and his team had a lot on their plate:



This is more than a technological challenge, this is probably the most important leadership challenge I ever faced. I need to make sure our whole organization, across the world, builds on our core values of flexibility, innovation and diversity. That’s the only way we will win.

As he drove from INSEAD to the airport en route to Dusseldorf to meet the CTO of a European multinational, he reflected on the past 30 years which covered almost a whole business life cycle. Starting out with just one service offering – training – he had worked hard to get his first global customers, had weathered several serious crises, and was still building a global network of customers, sales offices and delivery centres which would be the envy of many CEOs. Above all, he had made Stefanini a recognized regional and global player in the technology outsourcing world, part of the exclusive club of global IT services firms. As he boarded the plane, he was wondering which of the multiple strategies to achieve Vision 2022 he should undertake first, whether he should allow outside investors into his firm, and how further international expansion would impact his private life. It seemed another revolution was still to come.



Exhibit 1 Timeline

Source: Stefanini



Exhibit 2 Global Presence in 2017

Source: Stefanini



Exhibit 2b Global Delivery Model in 2017

Source: Stefanini



Exhibit 3 Vision 2022

Source: Stefanini

Exhibit 4 IT Services Providers Profit Margins in India (US$)

COMPANY NAME REVENUE NET PROFITS TCS 17,580 million 3,920 million Wipro 8,487 million 1,313 million HCL 6,975 million 1,262 million Infosys 10,208 million 2,140 million Genpact 2,570 million Cognizant 13,487 million 1,553 million

Source: Companies’ annual reports as of March 31, 2017



Exhibit 5 Stefanini Client Base in 2017

Source: Stefanini



Exhibit 6 Growth in Company Employees

Source: Stefanini



Exhibit 7 Growth of India’s IT Industry

Source: ICTs for Development



Exhibit 8 Stefanini’s Main Service Offerings

Source: Stefanini



Exhibit 9 Organization Chart (Headquarters)

Source: Stefanini



Exhibit 10Stefanini Top 10 Customers Based on 2017 Forecast

Source: Stefanini

Exhibit 11 Distribution of Stefanini 2016 Revenue by Verticals

PERCENTAGE SERVICES PROVIDED 33% Banking, Financial Services and Insurance 18% Manufacturing Automotive Discrete 6% Life Sciences 5% Consumer Products 9% Telco 6% Oil, Gas 3% Utilities / Energy 6% Technology 4% Service Firms (EY, BCG, etc) 5% Mining, Steel 5% Public Sector 100%

Source: Stefanini.



Exhibit 12 The Digital Revolution

Source: Ernst & Young.



Exhibit 13Stefanini Growth in US dollars

Stefanini’s solid historic growth is in fact much higher in case we adjust for the negative impact of Brazil’s Real currency steep depreciation from 2012-2016

Source: Stefanini.



Exhibit 14 Latin America IT Services Market in 2016

* Doesn’t include all of Stefanini Group companies and services, such as BPO ** Considers constant 2013 USD, as defined by Gartner (doesn’t take into account currencies depreciation

against USD Dollar)

Source: Gartner Mkt Share IT

11

24

173

211

442

621

792

797

975

7

15

106

132

312

410

630

497

706

0 200 400 600 800 1.000 1.200

Carvajal

Grupo Contax

Algar Tech

BRQ

Kio Networks

Sonda S.A.

Softtek

TIVIT

Stefanini

Major Latin American IT Services Companies in 2016 (Consulting, Implementation, IT Outsourcing revenues)

Revenue in Current Currency (USD mm) Revenue in Constant Currency (USD mm)



Exhibit 14b Latin America IT Services Market in 2016

* Doesn’t include all of Stefanini Group companies and services, such as BPO ** Considers constant 2013 USD, as defined by Gartner (doesn’t take into account currencies depreciation

against USD Dollar)

Source: Gartner Mkt Share IT Services 2016

296

316

332

410

412

497

508

556

558

606

704

795

931

1.116

2.385

0 500 1.000 1.500 2.000 2.500 3.000

Kio NetworksTata…

McKinsey & Co.Sonda S.A.

StefaniniTIVIT

EYDeloitte

CapgeminiIndra

HPETelefonica

PwCAccenture

IBM

Major IT Services Companies Revenues in LatAm in 2016 (Consulting, Implementation, IT Outsourcing revenues)

Revenue in Current Currency (USD mm)


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