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
|
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.
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.
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.
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.
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.
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