Advertisment

‘If Processes are OK, Profits will Come...’

author-image
DQI Bureau
New Update

This man and his company have seen it all. Straight out of MIT in the US

where he studied management, Naren was struck by cost advantages that could be

leveraged out of India. So in the early seventies he started a scientific

typesetting unit in Mumbai. While working in Forrester Consulting where he used

his background in electrical engineering to support research in microprocessors,

he searched for contracts keeping the unit alive–probably the origin of today’s

IT-enabled services and outsourcing. The next obvious step after that was

software development, which Naren and brother Ashok Patni started with server

vendor Data General. As a natural extension of this relationship, PCS Industries

emerged focussing on hardware sales. The late nineties saw a clear separation of

these lines of business. Naren now spends much of his time building process

competency across Patni. According to him that’s the way to reduce a customer’s

IT spending, year on year. His role model: General Electric’s Jack Welch,

since he keeps quoting him. Arun Shankar met him after the dust had

settled from General Atlantic’s mega investment to take a macro view of where

three decades of grit had got him

Advertisment
"We

are in business to iron out customer peaks and troughs"
Naren

K Patni, Chairman and CEO, Patni Computers

l Your

company has metamorphosed many times since the seventies...



If your vision can last you five years, it’s good enough. You can’t

have a vision that lasts forever. In 1969 our vision was to capture the data

conversion market; in 1977 to capture the computer market in India; in 1982 to

start manufacturing hardware in India; and then from 1987 it has changed to

software development.

l Is

being an old-timer aan advantage over newer companies in software services?



When you are an old player in the industry you acquire a lot of

baggage that you have to shed. The thinking is the same, but the genealogy of

companies is different. Infosys is one of our offshoots. All the seven directors

used to work with us.

Advertisment

l Your

revenue performance has picked up only in the last two-three years...



We were not keeping up with the industry average and accountability

was getting diluted. Software services were growing slowly because it was not

really the focus at that time. We brought in McKinsey for both these reasons in

1998. They recommended an SBU structure and we separated the two companies.

l How

has the organization changed because of the recommendation to restructure along

SBUs?



The SBU structure is very demanding but rewarding. It is harder to

control because it is a matrix structure, but it is easier to scale once you

have the rules in place. Previously whenever I would promote someone, somebody

else would get demoted. With SBU’s you create parallel paths to CEO.

l Have

changing technologies also influenced your vision and business model?



Its all software, you really jump from one technology curve to the

other. It used to take longer to sell India. That all changed in 1989, when

General Electric legitimized Indian software industry. After that it became

easy. But selling has changed. Three years ago you sold commodity service on

pure cost arbitrage. Now the lead-in has to be through a vertical.

Advertisment

l On

the right technologies and skills to focus on...



Most of our initiatives grow out of customer needs. If a customer

wants us to do their work we will do it. The guiding principle for the company

is customer satisfaction

l Your

revenues have grown unusually when the rest of the industry and leading players

are hit...



We didn’t re-deploy resources for the dotcoms. That is the reason

we are not having problems like others. Another reason–we are in business to

iron out customer peaks and troughs. If I keep my ship tight I cant take his

peaks and valleys. So I have to keep my under-utilization of people high. When

companies proudly publish utilization factors of 90%, it is a dangerous signal

to me, since some customer somewhere will be disappointed. If our utilization

goes above 65%, alarm bells start ringing. Managers have to hire more before

they can book more.

l On

core competence and the business model...



"To take the cost out of the customer." If you ask anybody

in the company why are we in business that is the answer you will get. It is our

value proposition for the next five years. But it’s easier said than done

since cost curves keep changing, with parameters like onsite-offshore, with

China-without China and so on.

Advertisment

l On

keeping the cost advantage sustainable...



Once the initial cost arbitrage is over it is only the maturity of

processes that keeps you assured. If you work on time and material then a person

would demand more salary every year. Since people have aspirations, their cost

goes up. Through processes you have to replace a senior employee by junior ones.

You flatten the pyramid and take the cost out of the customer, replacing people

with mature processes.

l On

the USPs for new and old customers?



Unless I can give 30% savings it is not possible to break into a new

customer. After that it is at least 5% year-on-year improvements. GE Chairman

Jack Welch once told me, you should be able to reduce 5-7% of the customer’s

cost every year.

l Controversy

about China’s future capability in delivery of software services...



China would do what India is doing and India should be doing what

Ireland is doing now–the next higher levels of productivity. If China doesn’t

come up with English speaking capability, the value proposition remains in

India. If it does we expand into China.

Advertisment

l Can

India use the lower cost base of China?



It’s hard to use China for a west facing delivery role. It is

essentially a Japan facing one. If we get strong support from General Electric

for example, we will set up a China centre for delivery to Japan. Once that

builds up we will try to make it west facing. That will be the ultimate victory!

l On

delivery into the Chinese domestic market...



We are not interested in their domestic software market. It’s a

very shady market.

l After

General Atlantic’s recent $100-million investment, analysts and deal advisors

are looking at your company quite closely...



The market is divided into top-end and mid-end and we are right at

the cusp. That is why we are liked–we present an interesting play for

investors. If we successfully cross into the top-end then the pay-offs are very

high for everybody.

Advertisment

l Considering

that the company is privately held, how do you interact with your board?



The board of directors is the congress. Myself, and the corporate

centre are the White House. Should the BPO division become a separate

subsidiary? Those are the kinds of answers I expect the board to give.

l You

also have a representative from both General Atlantic and GE on the board...
|



General Atlantic has the breadth from 300 companies in their portfolio and
General Electric has the depth from 10,000-20,000 people in its business.

Arun Shankar is a

contributor to Dataquest

Advertisment