Daybreak - Bain is switching up its strategy in India. It’s 'cutting the excess fat.'

Episode Date: June 26, 2024

On June 3, about 200 employees of the American management consulting firm Bain and Company’s India division received a rather ominous calendar invite. They each would have a 10-minute meeting with HR. But no one, other than the heads of the regional offices and the head of HR, knew what the meeting was about. During the meeting, they were all told they were being laid off. The layoffs took the consulting community by surprise, because it just wasn’t a very ‘Bain’ thing to do. What's going on? Tune in to find out. P.S. While you are here, check out the latest episode of our careers podcast The First Two Years, where host Akshaya Chandrasekaran delves into how to build trust with colleagues who don't trust you.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. On June 3rd, something pretty unfortunate happened at Bainan Company's India Division. About 200 employees of the American management consulting firm received a rather ominous calendar invite. They found out that they would each have a 10-minute meeting with HR.

But here's where things get strange. No one, other than the heads of the regional offices and the head of HR, knew what the meeting was going to be about. Now, you may have already guessed what ended up happening here. It's pretty much everyone's worst nightmare. During the meeting, they were told that they were going to be laid off. Now, these were all senior associate consultants, which is basically the second most junior employees in Bain's consulting wing. Most of them would have been freshers who had been hired by the company about a year or two ago. So they were all pretty young. That's one reason the layoffs took the consulting community by surprise.

Because it just wasn't a very Bain thing to do. You see, Bain is otherwise known for its employee-friendly workplace culture. It's considered a lot more empathetic and humane compared to its larger peers in the Big three, so McKinsey and the Boston Consulting Group, or BCG. But when the Ken reporter Abiramiji spoke to some Baynees, which is a term Bain employees like to use to describe themselves, many of them said they saw it coming. You see, things haven't been going too well for Bain for the last year and a half or so. Business has been slowing down, particularly for its private equity group division.

And since about half of its India business comes from private equity, the company on the whole has been taking a hit. So in the year ended March 2023, Bain's consulting Wing reported losses to the tune of 70 crore rupees. To put that in perspective, the year before, it reported over 50

crore rupees and profits. Bain has been forced to take some very tough calls in the last year and a half. One of them, and perhaps the most unfortunate, has been their decision to lay off about 15 to 20% of its workforce. The very nature

of Bain's business has been changing and in the middle of all of this its biggest rivals, B.C.G and McKinsey are pinching it where it hurts the most. Welcome to Daybreak, a business podcast from the Ken. I'm your host Rahil Philippos

and I'll be joining Snigda every week to bring you one business story that is worth understanding and worth your time. Today is Wednesday, the 26th of June. Companies rely heavily on consulting firms during crisis situations. And when you think about it, what bigger crisis than the pandemic, right?

So for most consulting firms, including Bain, COVID was great for business. And more business meant they needed more consultants. So the company, like other consultancy firms, went on a hiring spree in 2022. Bain went ahead and hired close to 100 freshers from the country's top IIMs that year. But it also tweaked its hiring strategy a little bit. It wasn't just freshers Bain was interested in, a former employee told Abirami that Bain also hired laterally, meaning it also hired more experienced people than usual.

For context, there are two entry points at Bain. One, for folks fresh out of undergrad and B schools at the associate consultant level, or two, for experienced employees at the consultant level and above, which could include people from other consultancies, or even industry experts with no experience at a consultancy. but the latter proved to be pretty problematic. You see, like one former employee explained, it's okay to hire inexperienced associates,

but when you get people unfamiliar with the consultancy business at higher levels, it's a whole other story. It also comes back to Bain's office culture. You see, generally, people at Bain are promoted based on the amount of time they spend at the firm, so when associate consultant becomes a senior associate consultant after about a year and then a consultant and so on. But the thing is, there's always a distinction with senior leadership

between people who moved up the ranks and people who joined at a later stage. So one former employee explained that when experienced consultants worked with new managers, or vice versa, crack started to appear. It basically short-circuited the entire system. And as a result, many people in leadership positions began to leave. Now, once the COVID boom started slowing down, Bain was in trouble because there was less work coming in

and the little they were getting was becoming difficult to execute. They had to do something and they realised the only workaround was to let people go. More and more employees started getting negative reviews and at Bain if you get two negative reviews you are asked to leave.

But here's the thing. Up until recently, Bain was known for letting people float through the performance reviews because they needed to retain as many people as possible. But that's just not happening anymore. In fact, one employee said managers were even encouraged to give out more negative reviews in 2023. So clearly, times are tough. In fact, it's so bad that three employees hinted that the recent layoffs didn't have to do with performance at all.

But beyond the overhiring problem, Bain also has an over-dependency problem. More on that in the next segment. Another big factor that contributed to Bain's current situation was the dwindling fortunes of American private equity giant Tiger Global. Remember, like I mentioned earlier in this episode, around half of the firm's India business comes from private equity. And in 2022, Tiger Global alone accounted for more than half of its private equity business. So it was Bain's top client.

In fact, around 60 to 70% of consultants with Bain's private equity group, division were working on Tiger Global's cases. And the great thing was a bunch of Tiger's portfolio companies were also turning to Bain for general consulting services. Now, unfortunately, since 2022, things just haven't been playing out too well for Tiger Global. It's been seeing some pretty dramatic losses, and as the situation worsened, Tiger Global and its portfolio companies ended their association with Bain. Now, this was bad, because up until then, all Almost 40% of Bain India's total business came from Tiger Global and its clients. So obviously, the private equity group started missing targets.

Now, the silver lining was that the group managed to compensate for the loss from other clients. But this led to massive shifts in other parts of the company. A former employee explained this to Abhirami with an example. They said, while Tiger mostly dealt with fintech and e-commerce companies, funds like Blackstone had expertise in areas like pharma. So there was some restructuring that had to be done to accommodate that. I'm sure you can tell by now that Bain is stuck between a rock and a hard place. And it's desperately trying to turn things around.

Stay tuned. The June layoffs may have come as a shock. But it may not be all bad news for Bain. It may even stand to gain something. You see, for starters, the company will pay severance to the employees. employees are laid off, but it won't have to pay their bonuses this year. It can also take on employees that they need at the moment at lower costs, while trimming down on those that they seem to have mishired.

Another silver lining? Well, Bain is free to take unprecedented bets. For instance, the company is further venturing into consulting for public sector undertakings and Maharatna companies. These are companies that are state-owned, but because they perform really well, they are awarded a certain amount of autonomy. Now, this is a big switch-up in Bain's strategy because until now, it's been cautious with government consultancy.

This may be partly because of its experiences in other territories. Like in South Africa, for instance, it was banned from consulting for the government for three whole years. But it's going to take some time for it to turn things around. And until then, it has bigger problems. Because its bigger competitors like BCG have been, ramping up their private equity practice. A Bain employee familiar with the matter said Bcg has actively been undercutting Bain's

private equity growth practice. So for instance, where Bain previously took four to five weeks for a project, Bcg now quotes just three weeks. So Bain has its work cut out for it and a really long way to go. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras.

Head to the Ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippo's, produced by me Snigda Sharma and edited by Rajiv Sien.