CP Gurnani is a man in a hurry. It is nearly impossible to catch up with him. He’s either in Delhi, where his home is; or in Hyderabad, at the headquarters of Mahindra Satyam, known till not too long ago as Satyam Computer Services; or in Pune where Tech Mahindra (TechM), the flagship IT outsourcing company of the Mahindra group is based; or in Mumbai where the auto to software conglomerate is headquartered.
When Gurnani isn’t in any of these cities, he’s likely to be on a flight headed overseas to meet clients. Gurnani, a former head of TechM’s global operations, took over as CEO of Mahindra Satyam in June 2009. That’s two months after the Mahindras won the race to acquire the beleaguered IT services firm for a little under Rs 2,000 crore.
The sale was triggered after founder B Ramalinga Raju confessed in early 2009 to fudging the books of the then fourth largest software exporter. So if Mahindra Satyam, like Gurnani, is in hurry, you know why: the market value of the company, which in better times stood at over Rs 12,000 crore, crashed to Rs 2,700 crore after Raju confessed to the scam. Today that figure is a more respectable Rs 8,300 crore, but Mahindra Satyam still has a long way to go.
GROWTH PHASE
With its books in order and two major lawsuits settled – a class action suit slapped by US shareholders and a lawsuit by Upaid Systems – the company now has its agenda cut out: to go after large projects and win back customers. The management is also banking on a merger with TechM to get the full benefits of the acquisition.
“The lawsuits were at the back of clients’ minds. Some of them were demands for $1-1.5 billion and, if we couldn’t pay, we would have had to declare insolvency,” says Vineet Nayyar, the company’s 72-year-old chairman and strategy lynchpin.
Areport by technology research firm IDC flatteringly describes Mahindra Satyam’s journey as the Rise of the Phoenix, but Nayyar, Gurnani and the A team know it’s still early days yet as the company steps up the pace. “We see it (the journey to recovery) as three phases: resurrection, rejuvenation and getting back into growth. Now we are in the growth phase,” says Gurnani.
“There is a sense of speed, relentless hunger and pressure on all to perform, which wasn’t there earlier,” adds AS Murty, CTO, describing the mood in Mahindra Satyam.ASM, as the soft-spoken CTO is known, was briefly the CEO when the government took control of the company after Raju stepped down.
He and T Hari, chief marketing and people officer, are two old Satyam hands Gurnani retained in the core team. Rakesh Soni, COO, and Atul Kunwar, global head of sales, came in from TechM. Vijayanand Vadrevu, chief strategy officer, joined from Wipro in 2009.
Manish Malhotra, who is chief vertical solutions officer, re-joined Satyam from Patni Computer a few months ago. The good news for Mahindra Satyam is that many employees are now willing to come back. Sriram Papani, who spent 13 years in Satyam and who started the enterprise business services practice, re-joined in February as head of that practice. Some 750 people who left the company have returned, says Hari.
In the past two years, the company has recruited over 10 senior executives mostly in client-facing and senior sales roles to fill the gaps created when several leaders quit after the new management took over. One big hurdle was ensuring the fusion of the old with the new.
As an insider puts it: “There were two tsunamis. The first happened because of the scam and the second because of the cultural divide.” A senior executive at a southern IT services firm explains the Mahindras may have been a bit hard on the old guard.
“They alienated many senior leaders with their approach when they took over. These leaders carried a lot of credibility with customers. The culture in companies in the South is softer and you need to respect it,” he says. Perhaps the larger goals ensured the team worked as one. “In fiscal 2010, the focus was on keeping existing customers. A year later the focus, while still on keeping customers, was on adding new ones, says Vadrevu. “Now it is time to kick-start the US growth engine.”
FIRING ON ALL FOURS
The best indicator of Mahindra Satyam getting its act together lies in the numbers. Over the past five quarters, sales have climbed, operating margins have pushed ahead into double-digit territory and the company is in the black (see On the Mend). Growth in revenues has been achieved by hanging on to existing contracts and squeezing out incremental business from existing customers.
The top brass relied on Operation Win Room, a war-room initiative of sorts, to win orders in the range of $5 million. This helped keep the cash registers busy at a time when Mahindra Satyam lacked the bandwidth to chase larger deals, of $25 million and more.
For Satyam’s recovery to continue playing out in the near term, the manufacturing segment has to fire. Manufacturing clients contribute about 30% of Satyam’s revenues, making it the most important segment. Similarly, in terms of service lines, EBS, which has historically been Satyam’s strength, is its soundest bet bringing in about 42% of revenues.
“EBS is a still a differentiator for us,” says Papani. Engineering services has also been a strong area. “Because stickiness in this service line is high, it saw the least customer attrition,” says Karthikeyan Natarajan, who heads engineering services for Satyam.
“Today Mahindra Satyam is perceived by customers as re-energised, and gaining in a competitive market. They are reclaiming some lost customers,” says Jan Erik Aase, principal analyst, Forrester Research. Some 10 customers have returned so far. Vadrevu says it is unrealistic to expect a dramatic comeback because many projects have already moved to competition, and Satyam cannot win them back unless there are fresh tenders.
“There is no hurdle that prevents them from getting back to industry growth rates. A key will be to attract those large deals,” says Pankaj Kapoor, an equity analyst with Standard Chartered who tracks the company. “They will need to bring back customer confidence in order to bag deals worth $50-100 million,” he adds.
To win more and bigger deals, the company took the help of consulting firm Bain to build a model to evaluate the full business potential of key customers. Initially Satyam did this exercise for its top 50 customers but it now plans to extend it to its top 100 customers. The top team has also begun work on correcting a rather skewed organisational mix. At most IT services firms, junior employees constitute two-fifths or more of the total work force.
At Mahindra Satyam, just one-fifth are at the lower levels. Consequently, its manpower costs are much higher – 75% of revenues as against 56% for Infosys, wrote Standard Chartered’s Kapoor and his colleague Apoorva Oza in a recent report. The company is now trying to fix that. Soni says the exercise will take another year to complete. Industry rivals, however, point out that young IT workers are still reluctant to join up with Mahindra Satyam.
“Satyam is still struggling and they have not yet come out of all the legal tangles. Till all the legal issues are sorted, it will be hard for them to attract employees at junior levels,” said a top level IT industry executive, requesting anonymity.
Soni also reckons that Mahindra Satyam can increase revenues by 50% with only a marginal increase in SG&A (selling, general and administrative) costs. And having a crack senior team also has its advantages. According to Hari, there is sufficient leadership bandwidth for the company to grow revenues by 20-30%. The company has multiple leadership teams that power it across different levels.
At the very top is the management council consisting of seven CXOs directly reporting into the CEO. One level below and more broad-based is the leadership council consisting of 60-65 leaders such as sales and delivery heads, who meet once a month. The management council meetings happen every Monday no matter which part of the world the executives are in.
In the early days of the crisis, these meetings played a crucial role in speeding up decision-making instead of using e-mails, say officials. Then there is a shadow board and a global leadership cadre (GLC). “Experience versus experimentation is what shadow board and GLC are about,” says Hari.
The shadow board is given mandates from time to time; one of its recent mandates was to come up with ways to reduce attrition. The GLC is usually deployed in high impact roles or those requiring unconventional thinking; it is currently working on generating $100 million revenue ideas.
THE WAY FORWARD
Slowdown or no slowdown, Gurnani is going after business in the US and Europe as these markets are too large to ignore. “We are talking about temporary setbacks,” he says. The US is the world’s largest IT market and contributes nearly 70% of revenues for most of Satyam’s peers compared with only half for Satyam. Similarly financial services, which is the largest spender on IT, has slipped from being the second largest contributor to Satyam’s revenues to just about 18%.
For most peers, financial services clients contribute about 40% to the top line. To get to scale in this segment, Satyam plans to invest in building platforms in areas such as finance and accounting and claims management, and then go after larger services projects. It will also consider acquisitions and joint ventures to come up to speed in financial services, healthcare and retail.
“We are looking at approximately $300 million for acquisitions. And we’re a zero-debt company. Nobody says I can’t leverage it,” says Gurnani. Opportunities in BPO and in Latin America are also on the radar. Analysts point out that Mahindra Satyam needs to be more aggressive in going to market – invest more in branding and in reaching out to clients with its new identity as well as in clientfacing activities.
One sourcing advisor, requesting not to be named, says a few clients are still confused about its association with the scam. “In a way that perception was not completely changed by advertising, marketing and branding. Look at what Accenture did and how quickly they moved out of the association with Tiger Woods,” says Sridhar Vedala of QS Advisory, a sourcing advisory firm.
“They have managed a huge exodus but they can do better. They need to strengthen client management – not just sales,” adds Sudin Apte, principal analyst and CEO of Offshore Insights, a technology research firm. Apte is bullish on enterprise mobility, one of the areas Mahindra Satyam is investing in with a long-term horizon.
Other emerging technologies being focused on include cloud computing, software-as-a-service, green computing, and smart grid (or digitisation of the electricity grid).
ONE PLUS ONE
To build solutions for enterprise mobility, Mahindra Satyam will work closely with Tech Mahindra, which is focused on software for telecom clients. The initiative is part of what it terms ‘M-cube’, which aims to leverage strengths of all Mahindra group companies, including auto & farm equipment flagship Mahindra & Mahindra (M&M).
Under this initiative, Satyam has clinched a win with a South African firm to design and manufacture boat engines – Satyam will design the engines and M&M will make them.
“In the longer term, customers are looking for fewer suppliers but are seeking those that can be strategic partners and can differentiate themselves. With Mahindra Satyam, TechM and M&M, they are well-positioned to provide a combination of IT, communication, engineering and BPO services,” says Apte.
Eventually Mahindra Satyam wants to merge with TechM. This has been the stated intention ever since the Mahindra group acquired Satyam. “There are a lot of cross-selling possibilities. For example, all of Satyam’s enterprise solutions can be sold to the big telcos, and TechM can do all the networking that Satyam’s enterprise clients require… One plus one can make three,” says Nayyar.
Some Satyam shareholders are opposing the merger because they feel valuations can improve further, and Nayyar is trying to reassure them that it will be done by a third party.
“There are synergies that we want to capture in terms of marketing, selling and in terms of cost management. A lot of overlap can be reduced in premises, security, finance, facilities management,” says Nayyar. The plan is to take the merger proposal to the boards of both companies by November and to shareholders by March.
Going by this, the two companies should be a single entity with revenues of about $3 billion by 2012-13. The two have already started working closely as a precursor to the merger. The first task of Sanjay Seth, a Wipro veteran, who was hired by Satyam in April, was to come up with an integrated marketing plan for both entities. A few key people have also been identified to provide leadership across both entities.
Sujit Bakshi leads the BPO business and Atanu Sarkar heads legal across both companies. Both are from TechM. From Satyam, Hari spearheads marketing across both companies, Papani the enterprise business services, and GS Raju testing services.
“If there is anything this management has proved, it is the ability to take something small and scale it up,” says Nayyar. When he and Gurnani joined TechM, it was still Mahindra British Telecom and at about $ 120 million in revenues. Business from its key customer, British Telecom, was only about $90 million compared to $450 million today.
“The same company is now going to be $ 3 billion. I don’t believe there is any other company with this kind of track record,” says Nayyar. A former bureaucrat turned IT head honcho, Nayyar was prevailed upon to stay at least till 2013 by M&M group VC & MD Anand Mahindra.
Nayyar now hopes to see the merger through before bidding goodbye. “I will then be able to leave the ship with some sense of satisfaction,” he says.
Source:http://economictimes.indiatimes.com/opinion/special-report/rescaling-satyam-few-milestones-achieved-in-long-journey-back-to-recovery-and-respect/articleshow/10163834.cms?curpg=1
