`Polaris guidance based on sales process study': Arun Jain

Krishnan Thiagarajan

Bharat Kumar

CHENNAI, Nov. 29

WHEN announcing its latest quarterly results, Polaris Software Labs said that it hoped to end this fiscal with topline revenues between Rs 300 - 320 crore, meaning that over 50 per cent of the revenues is expected in the second half. Business Line caught up Mr Arun Jain, Chairman and Managing Director, to see how life for Polaris is after the changes in the software business scenario. Excerpts from the interview:

Is the management guidance you offered for 2001-02 based on existing order backlog or order visibility in future? How much of business do you have in the pipeline?

The thought process (for the management guidance) was based on some deals we are looking at. Those will start only in next quarter, though we signed it this quarter. Secondly, in all short-term projects we have grown, SBU (Strategic Business Unit) by SBU except those in the US. We have replaced that business with more stable business. After investing in product business, we have maintained our margins.

The biggest challenge has been converting on-site people to offshore employees -- for one on-site to offshore conversion, you require a four-people replacement.

How about billing rates?

It is currently $19.9 per man-hour. It has increased from $16 in 1999.

Are bigger companies undercutting to get business? We hear that projects are obtained by offering offshore services at $12 and $7, sometimes even free of cost. Do you see further pressure?

Pressure will be there any way. If competition brings down the price, others will have to follow suit. For us, the offshore rate is $3,200 per man-month. As to undercutting, everyone quotes at all rates. We only hear companies saying ``average'' rate. No company sticks to a single rate. Bigger companies do sign deals at $2,500. It's a volume game. The margins you make for the relationship is important. Pressure has been there since March. Since June, it has become more pronounced.

The optimism the industry shows in offshore outsourcing opportunities is not being reflected either in ``order visibility'' or in the communication we get from Indian software companies. Why is it so?

Probably because there is so much uncertainty. As to guidance, we don't want to give guidance and revise it. Earlier, Indian companies didn't have good sales processes. Polaris didn't begin with a good sales process. Rudimentary processes were there. But there was no systematic way of approaching clients, understanding potential customers, moving to creating awareness for him, building credibility and identifying opportunities for him. We grew in spite of it because the market was booming.

Fortunately, we realised it early enough in February-March this year and I took a personal interest in creating these processes. In September, we did an eighty-people workshop - only on the sales process mechanism. Now, customers are referred to as P1.1, 1.2 or 1.3. Everyone talks the same language about the customer. Earlier it was warm/hot, etc kind of reference. We couldn't predict anything. So we did not know what stage of the customer lifecycle we were at, but now we have a much clearer idea.

As a CEO, if I don't have a thermometer reading of temperature, I will not be able to project anything. Now, everything is in our records -- who has met who and where.

How many customers are in P4 stage is a question I can confidently answer now. P4 is a stage where proposal has been given and discussions are on. P4.3 is where the proposal has been accepted and only the question of price remains, and so on. You will be surprised that a Rs 250-crore company didn't have such systems. Ideally it should have been there. It doesn't happen that way. But in the market, such a high demand-supply gap was there that the mediocre could perform. But in a tough situation, you need to be better than mediocre. In six months, we moved away from being mediocre.

We target customers, know who else is approaching them, what strategies we need to get orders. We were trying to shoot in the dark earlier. Our current confidence stems from the fact that we know what we want and how far we are from getting it.

Does Polaris seriously fear snowballing of cases such as General Reinsurance, which opted out as a customer due to the slowdown?

No. We have replaced those clients by growth in certain sectors or clients -- ERP and NEC business have grown. These make up for the unsteady ones.

Are you comfortable with the 70:30 ratio between BFSI (Banking, Financial Services and Insurance) and other verticals? The other verticals are likely to have shorter business cycles. By concentrating 30 per cent of your revenues on other verticals, will it affect the stability plank on which you are trying to base your business on?

To my mind, it (other verticals) will help speed us up. The number of companies offering services has thinned down in that area. In ERP for instance, I am looking at wherever applications have been sold. No one is available to service them. ERP systems have to help users for the next 10-15 years. That space is open. Business is growing at a significant pace here.

The retail automation market space has been rather empty. Is it because of poor buyer interest? What has been your experience with Polaris Retail Infotech as a separate subsidiary?

No products are currently working in that space. We ourselves thought of it differently and learnt it the hard way. We thought we could build a product and make money. We gave projections of Rs 100-200 cr. We had to eat our words after going to market. My realisation was that the market has evolved. The retail market was never defined with processes. Every retailer has his own processes. A lot of customisation is required. Whatever margin you make is consumed in customisation efforts. So no product company in the world has succeeded in the retail market.

We decided to use component technology. If there are no standard processes, we didn't want to build a product, but only a framework. We keep it 60-70 per cent ready. So our development cost goes down dramatically. If it would have earlier cost me Rs 5-8 crore to create a new product, it now costs me Rs 1-1.5 crore.

For revenue streams from the retail business, what milestones have you set for yourself?

We will not give margin promises. When the products we have currently invested in give us revenues, we will invest in something else. Some margin improvement will come in, but no promises can be made. We have to stay in the game for 10-20 years. We are happy with 20 per cent margins. We don't want 35-40 per cent. If we are able to create value that way, it's good but if we don't, we don't want to have undue pressure not to invest where we should invest. Pressures to keep giving high margins can kill a company. Sometimes, thanks to such pressures, CEOs stop investing in good areas. This is harakiri in technology-based companies.

You had spoken of subsidiaries in Hong Kong and Japan. Any progress on that front?

Both subsidiaries should take full shape this quarter.

Pic.: Mr Arun Jain, Chairman and Managing Director, Polaris Software.