5 – Moody Blues

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PRESIDENT: MUKESH AGHI

The sky just turned a hue of gray above the Golden Enclave headquarters of Indian
Big Blue. With a modest growth of 13 percent and a slowing down of the domestic hardware
business, Tata-IBM has turned in a performance which will not make its CEO Dr Mukesh Aghi
a very happy man. The general slowdown of the economy has put a speedbreaker on the
aspirations of this company, which had once publicly announced its intentions of reaching
a revenue target of $ 1 billion by 2001. By all odds, this date may have to be shifted by
another year, or even two, if the market conditions do not improve.

Not that there was anything particularly wrong with the
company’s strategy. What went wrong was the calculation of its customers’
ability to invest. When the credit squeeze happened, most of Tata-IBM’s customers,
the larger
tataibm2.jpg (12389 bytes)enterprises of the Indian corporate world, were the first to feel the impact (as
was the case for other hardware vendors). And the first repercussion of the squeeze was
pulling back of IT, especially hardware investments.

The preoccupation with the corporates seemed to be
extending the life of the box rather than add new boxes, by extending the application
cover of the already available hardware. As a result, most customers were willing to
discuss solutions (read software solutions) and if some additional hardware had to be
bought for that purpose, so it was.

S T R A T
E G Y

  • To offer customers solutions rather than boxes.
  • To front-end the consulting business with the focus on
    solutions.
  • To ramp up in the PC and mobile computing business.
  • To evangelize and sell Notes as a platform for the
    enterprise.

T A C T I C S

  • Move S/390 into the high-end spectrum by bundling
    solutions in telecom and manufacturing segments.
  • Push-start AS/400 again, gain marketshare in the
    medium-range enterprise server environment.
  • Continue the RS/6000 push, primarily into the workstation
    arena and in the Unix server market.
  • Create a coherent PC strategy by playing on price.

O B J E C T I V E S

  • Be the preferred solutions partner in chosen industry
    verticals like banking, manufacturing, travel, distribution etc.
  • Supercharge RS/6000 as the Unix server in the Unix
    markets.
  • Build volumes on PCs–quickly! (50K in 1998-99?).
  • Sell over 10,000 notebooks in 1998-99.

P E R F O R M A N C E  H I G H L I G
H T S

  • PC numbers dip slightly.
  • Aptivas fail to make impact.
  • Notebooks lead the market.
  • S/390 surges, again.
  • Services grow by 87 percent.
  • Maintenance revenues up by 80 percent.

PRODUCTS AND SERVICES:
Systems, Software, Packaged, Training, Networking, Maintenance
* FINANCIAL COLLABORATION: 50:50 JV
between IBM World Trade Corp. and Tata Industries Ltd
* START-UP YEAR: 1992 * EMPLOYEES: 1852 * ADDRESS: TISL Tower, Golden Enclave, Airport Road, Bangalore
560017
* TEL: 5267117,
5269299, 5262355
* FAX:
5268553

Some of the trends that are visible stand
testimony to this shift of emphasis from systems to solutions. For one, the value of
upgrades that IBM sold last year was a healthy percentage of the total system sales.
Secondly, the value of revenue from services category has been leaping up for Tata-IBM in
the last three years. From a modest Rs 25.9 crore in 1995-96, it shot up to Rs 104.92
crore in 1996-97. Last year, the revenues rose to Rs 196.13 crore. As a result, the share
of systems revenue in the overall revenue of Rs 553 crore came down to 72 percent of the
total. Third, and possibly the one indicator of the fact that IBM India may be rebounding
next year, is the completeness of the coverage of industry segments that the
‘solutions’ mantra envelopes. Between manufacturing and banking segments, the
company reported revenues of close to 42 percent of the total revenue. Add to this the
not-insignificant presence in travel, distribution and telecom and you see the
‘solutions’ focus of the company placed comfortable.

Not that there are no issues. The PC gameplan of
Tata-IBM will have to come under the microscope. The company sold fewer PC desktops than
it sold the previous year, in a year when the PC numbers actually went up by 31 percent.
Somewhere down the line, there seems to be an incongruence between the needs of the market
and the marketing strategy of the company. On the face of it, the PC strategy of the
company is in tandem with the overall company focus of selling solutions. However, in case
of the PC market, despite 1997-98 being a tough year, PCs shipped in volumes. The PC
market which works on prices and volumes probably paid scant attention to the solutions
end of the proposition that IBM put forth. As a consequence, IBM’s marketshare dipped
marginally and is currently at 4 percent.

Another reason for the PC debacle of IBM in India was
its inability to prise open the home and the home office markets last year. While Compaq
and HCL invested significant amount of time and money in talking to the homes, IBM, with
its Aptiva range, was probably priced out by the high-voltage acts of its competitors.

In fact, if there was one clear winner in the
company’s product portfolio, it was S/390. The company doubled the number of
mainframes (17 for Rs 50 crore) that it sold in the previous year. In effect, IBM seems to
be capitalizing on the rebounding high-end server market. The company is targeting the
system at two different markets. The first, and probably the biggest currently, is the
software houses themselves. Among them, the Y2K solution developers constitute a good
market for the product, as the bulk of the Y2K bug sits on IBM platforms, due to sheer
numbers sold in the past. The second market where IBM is targeting S/390 is the telecom
segment, where high-end servers are needed for large volume processing. As the telecom
markets unfold in the country, S/390 would gain an advantage that would be truly enviable.

While ThinkPads have retained their top slot, IBM would
do well to rethink its notebook strategy, as it will continue to be hounded
tataibm3.jpg (21605 bytes)by competitors like Compaq, Acer, and
Toshiba in the current year, especially as these companies are planning to unleash a price
war.

This year will be critical for Tata-IBM. While the
company is on a good wicket, it will be an acid test for it to push the server business
onto a faster growth track. Another challenge will be to play the PC market to the tunes
of numbers rather than sing the solutions mantra. Most important—and everybody is
sitting on the edge for this one—will be the company’s reaction to a combined
onslaught of Digital and Compaq. Like we said earlier, the clouds over Golden Enclave will
have to be made to turn blue.

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