'Verticalization helped growth'

Having remained long under the shadows of the big 5 of the Indian IT services
players, Patni has been gradually coming into its own, especially after becoming
public about two years back. The pursuance of an aggressive vertical-focused
strategy has started paying dividends, with Patni not only spreading its
offerings across more domains but also managing to reduce its dependence on GE.
In an interview with Rajneesh De of Dataquest, the company's US-based CEO
Narendra Patni talked about how these strategic initiatives are proving
beneficial for the company.

The year 2004-05 was a good year for Patni. How would you sum up the year
in terms of the significant achievements and the reasons for them?

We set upon 2004-05 with a clear set of action plans-to have a proper
verticalization strategy in place, reduce the GE dependence, have a more
proportional revenue distribution across geographies, rationalize the
onsite-offshore mix and enhance the scope of client relationship by means of new
offerings like BPO and IT consulting. It was important that starts were made in
all these areas; perhaps that best explains our success, though, obviously,
successful results were obtained in different areas in varying measures.

Narendra Patni, CEO, Patni Computer Systems

Not only did the company grow by around 30%, we also witnessed improvement on
all significant matrices. The GE dependence came down to 31%; the non Top 10
client contribution grew by 69%; the non application development and maintenance
business grew by 54%; and even non-US business grew by 42% as we increased our
million-dollar customers from 26 to 46.

Patni has been touting this strategy of vertical focus for quite some time
now. What does this strategy entail and how has it been helping you achieve some
of your successes?

For us, the strategy addresses twin issues-firstly, it means adding new
verticals to our portfolio, and secondly, it also means adding new offerings
within existing verticals so that we have end-to-end solutions in a particular
domain. For example, the acquisition of the US-based Cymbal Corporation for $68
mn gave us a foothold into the growing telecom sector; it brought 14 new telecom
clients including blue-chips like SDC, Virgin Mobile, Yahoo, Sprint Canada, 3,
Cable & Wireless, AT&T and Avaya into our fold. With most of these deals
already generating more than $1 mn in revenues, we managed to add 20 more
million-dollar customers to our kitty during the year. Not to mention, the
wonderful cross-selling opportunities offered by these new additions to our
existing offerings.

Verticalization also helped us increase our service offerings-BPO, IT
consulting and infrastructure management were identified as new service lines,
especially for the insurance and telecom verticals. The earlier acquisition of
Reference helped us beef up our insurance expertise. We have bagged large
contracts encompassing all modes of service deliverables with clients like
Guardian Life Insurance and Genworth Financial. We also identified key strategic
moves necessary to grow individual service lines: some of these included more
nearshore operations for telecom, moving into more IT consulting at nearshore
centers and creating a front-end for embedded systems business in Japan.
Alliances with Milliman and InteQ have also enabled us to expand our service
offerings.

Like most IT services companies of India, GE has played a big role in
Patni's growth. But recently you have been trying to reduce your GE
dependence. How has the verticalization strategy been helping in this endeavor?

Verticalization has helped us have new customers in virgin verticals; plus the
cross-selling opportunities helped us increase contract sizes with existing
clients, thereby naturally reducing GE dependence. Though this 13-year old
relation crossed the $100 mn mark this year, the dependence had come down to 31%
only. This is expected to come down by another 10 points in 2005-06. The IT
budgets of GE have not increased significantly in the last two years. They have
optimized their IT strategy as best as they can. By and large, GE's growth has
been reasonably flat. Even then I would like to clarify that GE is still a
profitable customer. It has been a long relationship and still has a lot of
referral value.

The reduction in GE dependence has also helped us achieve a more proportional
geographic spread-businesses from Europe and Japan contributing 42% of the
total revenues.

While the verticalization strategy gains are visible now, what is your
roadmap for growth in end-to-end offerings across verticals, and how is the
company internally restructuring to address this?

Third-party outsourcing, be it offshore or nearshore, essentially has
evolved into a pyramidal paradigm. At the bottom layer will be business
processes, followed by IT services-these are areas where most players are
getting involved today. Though we were earlier only in IT services, now we have
moved into BPO too as this helps in de-risking. The layer above is IT consulting-an
area where Patni is gradually attempting to move into. This would involve
infrastructure and facilities management too, and barring the Top 3, like Infy,
TCS or Wipro, no Indian player has been able to break the glass ceiling here. At
the top of the pyramid is strategic consulting-which is still totally virgin
for Indian companies and, globally, only IBM or Accenture have broken in
specific cases.

We have undergone some internal restructuring. Not only to address our
verticalization strategy and end-to-end offerings, but also to adopt innovative
practices and induct industry experts to shape our business strategy and
futuristic vision.