Tag: roadmap

Will Satyam’s Itch “TWITCH” the “WITCH”? | Sherpas in Blue Shirts

In September 2008, Satyam, then the sixth largest India-based IT services company, received the coveted “Golden Peacock Global Award for Excellence in Corporate Governance” award. Then, just four short months after this recognition, one of the biggest cases of fraud in the Indian IT service industry came to light, with the firm’s Chairman B. Ramalinga Raju admitting to financial fraud to the tune of ~US$1.5 billion.

The industry was shaken. The company’s stock and fortunes crashed.

Satyam’s much-needed rescue support came from the Indian government and the new Satyam Board, which consisted of numerous stalwarts from the Indian industry. This provided the required handholding to avoid a complete collapse, protect the interest of its employees and clients, and uphold the image of the Indian IT industry. Consequently, a sense of stability was achieved in April 2009 when Tech Mahindra won the bid to acquire a majority stake in Satyam (which was later renamed to Mahindra Satyam).

Since then, the company went through struggles, twists and turns, and finally reached a steady stage under the Mahindra umbrella. Following is an analysis of company’s financials and its stock price movement during its turbulent times and through its last financial year:

Satyam blog exhibit 1

The formal merger of Mahindra Satyam with Tech Mahindra in June 2013 made “Satyam” brand history. The combined entity, retaining the name Tech Mahindra, regained ground to again become the sixth largest Indian IT-based service provider, intensifying competition for the industry-wide known WITCH (Wipro, Infosys, TCS, Cognizant, and HCL) group, and turning it into the TWITCH group (with Tech Mahindra being the new addition!). This turn of events strengthens Everest Group’s hypothesis about the possible formation of new groups in the industry (for details, refer to our blog “The Changing Pecking Order and Emerging Irrelevance of the WITCH Group Term”

The new Tech Mahindra, with US$2.7 billion revenue, has laid down an ambitious roadmap to be achieved by 2015, where each digit of this year denotes a meaning:

2015

The aspiration

The realism

2015

Reach US$5 billion revenue by 2015

  • The growth rates in the current economic environment are likely to vary in the range of 5-15 percent. Thus, a target of US$5 billion in revenue, implying a CAGR of 36 percent, is unlikely to be achieved without an inorganic route
  • Tech Mahindra is backed by Mahindra Group which has acquisitions in its DNA; therefore, a possible buyout cannot be ruled out

2015

Zero differential between its bottom line and the EBITDA of the fastest growing rival

  • While this is good to appease the stock markets, it appears to conflict with the company’s growth aspiration. An organization chasing huge top line growth should not be constrained with profitability targets in the short term as it must invest in its business

2015

Being number one as the best employer and amongst the best-known companies for corporate social responsibility

  • The company can become the best employer when its employees are happy. This ties back to the type and amount of work and talent available in the company, and is thus intricately linked to its growth
  • With the Tech Mahindra Foundation – the company’s dedicated CSR arm – we expect it to achieve some level of success in its corporate social responsibility initiatives

2015

Five focus areas – telecom; manufacturing; mobility analytics, cloud security and banking; network services; and banking, financial services and insurance

  • Tech Mahindra needs to leverage its telecom legacy to differentiate itself from other India-based service providers. It should also exploit the vast potential in telecom cloud delivery models
  • All service providers are focusing on the mobility, analytics, and the cloud stack. Tech Mahindra needs to figure out how will it stand out and differentiate vis-à-vis the competition. It may also want to look at industries, such as healthcare, that are going through significant transformation and creating opportunities for the service providers
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Do you believe that Tech Mahindra has the mettle to reshape the contours of the India-based technology provider landscape?

Indian “Strategic” Outsourcing Deals: Can the elephants dance when the music changes? | Sherpas in Blue Shirts

Time and again, we come across press releases from India’s biggest corporate houses announcing deals with large providers that are labeled “strategic” or “total outsourcing” partnerships. The hallmark of a typical strategic deal is a long-duration sole-source partnership with one large provider for infrastructure and/or applications. The provider is then made responsible for evolving a medium- to long- term technology roadmap for the buyer, and managing the execution of the roadmap through itself or other vendors.

Some of these partnerships are truly “strategic,” wherein providers genuinely share risks and rewards of the implementation, while many others are simply monikers for large, long-duration asset heavy deals with straightforward delivery objectives. Yet both cases seem to go counter to the trends in the mature sourcing markets, where buyers have long since abandoned such heavy-duty contracts.

There seems to be an interesting pattern among these buyers. They are typically telecoms or financial services companies that are trying to gain a foothold in newly deregulated or traditionally underserved markets with suddenly lowered entry barriers. These were large markets for basic, standardized products and services with low margins, where only a few would ultimately survive. In their race to be the “kings of the hill,” companies could afford to be customer-agnostic, as long as they got their basic services and sales models right. There are two important technology implications for companies in this phase:

  1. With heavy investments into sales and marketing, they start looking to other departments such as IT for investment avoidance. There is a tendency to put in place a leaner internal IT group, which is not equipped to handle a large set of provider relationships. Further, under budgetary pressures, they tend to view ideas on outsourced asset ownership and control more favorably.
  2. Facing haphazard and chaotic growth, management typically struggles to match capacity with demand. They increasingly look for partners that can bring predictability to their operations, with plug and play set-ups at service levels that are just about acceptable to end users.

Large IT providers that hear these management challenges when pitching are in a position to strike these large long-duration deals. And with well-structured contracts, the partnership may actually work very well…for at least the initial few years.

Problems in these deals start to manifest when companies are faced with two inflection point challenges:

Inflection in strategy: Sooner or later, slowing industry growth will bring the companies to re-evaluate their businesses. As already seen in the Indian telecoms industry, intense competition causes price points to steeply fall close to marginal costs, and companies then begin to shift their focus from chasing growth to profitability. This is the point at which companies typically start to pay attention to their customers and try strategies for differentiation – either through price skimming for value-added services or by offering adjacent products and services. This may involve following their profitable customers across their lifecycle at non-traditional touch points to fulfill unmet needs. At the other end, consumerization of technology will offer disruptive opportunities to reach customers and offer commoditized services at throwaway prices with minimal service costs.

To execute these strategies, companies will find they need to play in an ecosystem of alliances with partners requiring seamless transition of customer data to facilitate these decisions. Additionally, as they move towards customer-centric models, they will find a need to revisit their one-size-fits-all standard service models for technology and process infrastructure.

Inflection in technology: Buyers in strategic IT deals also implicitly assume that a seasoned IT partner will automatically bring cutting-edge innovative solutions as technology evolves. There are three important behavioral reasons for challenging this assumption:

  1. First, when there is a disruption in the underlying technology itself, it often arrives loaded with a lot of skepticism and lack of perceived commercial value right until the point it disrupts. Incumbent providers (with no better ability than buyers to foresee the end states) are likely to under-estimate comparative benefits of these disruptions in their assessments.
  2. Second, even in cases where the end states are clear, IT partners may suffer from conflicts of interest that prevent them from evaluating competing organizations or technologies for innovative solutions.
  3. Third, in the specific context of the account, the provider account organization tends to get settled into a well-oiled machine. With rising costs, it is motivated to scale down its “strategic thinking” on the account, and push more and more work under the factory mode.

No matter how “strategic” the relationship, IT partners often tend to advise or shape outcomes that are directionally well-guided by their contract clauses. When the buyer is grappling with strategic or technological inflection points that have not been foreseen at the time of contract inking, the partner is likely to default to choices that are limited by its own publicly held worldviews, capabilities and vested interests. While the choices may not necessarily be wrong, they do not benefit from a cross-pollination of ideas and approaches that the buyer would have had access to in a more open relationship. As Indian consumer markets and technologies rapidly develop, buyers may find this limitation increasingly unacceptable.

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