GIANTS RANK 6: Satyam Group: Shedding Weight

When Ramalinga Raju finished his B.Com in 1975, he had no specific plans in
mind for the future. He came from a wealthy agricultural family and because the
family could afford it and he was interested, he went to Ohio to get an MBA. He
returned home when his grandfather died and took over the family business which,
by then, consisted of agriculture and construction.

Toward the late eighties, Raju got interested in IT and started a company–"more",
he says, "as a hobby than anything else". "We didn’t see it as
a major commercial activity to begin with," he adds. "But very
quickly, we realized the high potential in this area."

Thus began the Satyam story. One of the big things working in his favor,
according to Raju, was the fact that he wasn’t dependent on the commercial
success of the company. He could take risks, do things unconventionally, and
still get along just fine in life.

He did. Satyam was one of the first Indian companies–if not the first–to
experiment with outsourcing in 1991. The client–John Deere & Co–was
extremely apprehensive about the whole idea of outsourcing to begin with, as
were the US authorities. So Satyam ran the gauntlet of various government
agencies for permission and clearances, hired a building on the outskirts of
Molin (Illionois) where JD & Co was located, called it ‘Little India’,
put up a 64-Kbps connection between the two buildings, and forbade its 50-odd
engineers from ever physically going to the client’s premises. It was an
unusual beginning–but it worked.

SNAPSHOTS SCS bought Sify’s SW business in January for $7 mn, preparing for the Sify selloff By year-end, with Sify, et al, likely sold off or merged, the group would be SCS–and a new ITeS co SCS is focused completely on verticals, with B&F and manufactu-ring its main revenue earners

From a hobby to a Rs 1,890 crore group in 2001-2002 has been a long and
interesting haul. Even though last year was tough for the group, the flagship
company–Satyam Computer Services–was among the few Top 20 exporters to
manage a healthy 42% growth despite the downturn. But the group’s story last
year was not so much about numbers–it was the organization that shaped up
well. Slowdowns are times of stocktaking, and Raju utilized the slower pace of
business to shed a lot of the weight that the group had gained over the past few
years.

Time to consolidate

A few years ago, Satyam floated a spree of subsidiaries. Some were mere
marketing outfits like Satyam Japan, Satyam Asia (based out of Singapore), and
Satyam Europe (based out of Basington, on the outskirts of London). Some others
were involved in smaller, piecemeal work–Dr Millenium for Y2K-related work
alone was a prime example. By last year, most of these subsidiaries had either
lost their relevance or were no longer viable.

The biggest of these, of course, was Satyam Infoway. Sify started as an EDI
(electronic data interchange) company in 1995, but quickly went through a change
of identity when it realized that setting up markets on the Net was not yet a
good business model. Sify transformed itself into an Internet service provider
and was looking set for great things when in 1999, it became the first Indian
Internet company to be listed on the Nasdaq.

Since then, however, Sify has at best had mixed fortunes. Though the company
grew 27% last year to Rs 158 crore, it also went through a big scare at the US
bourses when it’s stock fell steeply and the company came close to being
delisted. That and a growing divergence of focus between Satyam Computer
Services and Sify finally led to Ramalinga Raju’s announcement during the year
of selling the subsidiary off to a strategic buyer.

CONSISTENT CLIMB: Forget the slowing growth rate. In the slowdown year, Satyam’s growth rate was amongst the highest

According to K Thiagarajan, director and senior V-P (corporate planning),
"Sify really belongs in the telecom space, not the services space. This
decision makes sense for both companies." In preparation to that, Satyam
Computer Services bought over Sify’s software business this January for $6.9
million.

Other minor subsidiaries have also either been shut down, or are in the
process of being shut down. Dr Millennium no longer exists and Vision Labs makes
only some book profits, and even that should be shut and gone by the end of the
year.

Meanwhile, marketing subsidiaries have been brought back into the fold of
Satyam Computer Services and their operations transferred back. These
subsidiaries were essentially brand-building exercises. As was Ramalinga Raju’s
decision to base himself in the US for the last one-and-a-half years. The
company’s premise is that it now has enough branding in target markets to
manage with only business development presence in different geographies, instead
of full-fledged subsidiaries. On the same premise, Ramalinga Raju also returned
to Hyderabad to run the company from there.

By the end of the ongoing year, Satyam is likely to have formally closed all
its previous satellite companies, but the subsidiaries’ saga is not over yet.
In 1999, SCS had collaborated with Carnegie Mellon University to evolve quality
standards for business process outsourcing companies called ‘eSCM’. Given
that and the fact that IT-enabled services remained the one bounding sector last
year, Satyam announced the setting up of an as yet unnamed ITeS company, to be
headed by Satyam old-timer and former vice-president (corporate communications)
SVL Narayan. No further details are available yet.

Going forward, Satyam is likely to be putting a lot of effort into its
operations in China–launched last year–and fill the gaps in its domain
expertise. The big concern, however, will be some serious relationship
management and a certain degree of a brand makeover. Last year, Infosys
Technologies made the transition from being almost completely branded around
Narayana NR Murthy, to now being centered around the company’s core business.
Satyam has still to take that jump entirely–an imperative for a company in its
league.

Team DQ

*Giants Rank 5 is Infosys Technologies, but being a single company, it is not
featured in the Top 5 Groups