The Hindu Business Line : Doing IT differently

LATE last month, MindTree Consulting completed six years as a standalone venture, created by a team of 10 co-founders led by Ashok Soota simultaneously in the US and India.

Spearheaded by a global management team that came together from companies as diverse as Wipro Technologies, Cambridge Technology Partners, Lucent Technologies and KPMG, MindTree's genetic composition continues to be an enviable one. And it has positioned itself quite distinctly from the rest of its peers.

What makes a mid-sized company such as MindTree tick in an environment where biggies are set to grow bigger?

We caught up with the top management to glean some insights into elements that have helped MindTree grow through fairly turbulent times... and where it is headed from here.

As we did a little bit of digging for the story on this unlisted company, a key element jumped at us. In financial year 2005, MindTree ended the year with a revenue base of $55 million, clocking a growth rate of 90 per cent. Nothing unusual, as other mid-sized companies have notched such fabulous growth rates in the FY 2005.

But what is perhaps unusual is that the company expects to sustain this growth rate in the current fiscal and touch a revenue base of $100 million, admittedly on a smaller revenue base. This growth rate sounds good, considering the turbulent times that some of its mid-sized peers are passing through.

As Ashok Soota, Chairman and Managing Director, says, "We are running at somewhere between two to three times the industry growth rate. You might either say we are bucking the trend or say that since we are a smaller company we are growing faster than most. In a sense, it is a little bit of both. Our internal projections show that we are budgeted for $95 million and our pipeline remains quite strong."

Subroto Bagchi, Chief Operating Officer, adds that $100 million will be a significant milestone to reach in six years because two years were not available to them literally. "As Ashok keeps on saying, the rug was pulled from under our feet even before we learnt to walk. In 2000, we were just a year old, when the meltdown happened. First it started with e-business slowdown, then September 11 took place, followed by the Indo-Pak standoff, and then SARS happened and nobody visited India for three to four months. So, it was one thing after another."

From the start, MindTree has evolved with a hybrid mindset - in its business model, composition of its managerial team, drilled right down to its financial assistance. For instance, its 10 co-founders came from three different national origins. MindTree employs a hybrid business model that focusses on IT services (headed by N. Krishnakumar) and R&D services (by S. Janakiraman). While this business combination has been quite common among large Indian IT companies, it is somewhat rare among mid-sized companies. And the company also raised venture capital, partly from India and the US. MindTree secured about $9.5 million in the first round of funding in 1999 from the US-based Walden International and India-based Global Technology Ventures and about $14 million from Capital Group, Los Angeles, in the second round in 2001.

As MindTree gets ready to reach the $100-million milestone, we attempted to seek answers to some key questions on why the company can be considered "the emerging face of India's mid-sized segment."

Key focus areas

From the very beginning, Bagchi says, MindTree realised that it had to be a `different' company. He comes up with a telling example of Swedish auto giant, Volvo, for IT Services. When it came to India three years ago in the aftermath of the IT slowdown, it decided to work with a mid-sized or potential mid-sized company. Under normal circumstances, a company of Volvo's size would not even touch a company of MindTree's size. It was just 500 people at that time. However, he adds that Volvo said something very interesting. They said, "to begin with, we do not want to work with the top three or four companies." The reason articulated by them was that "we do not want to be the 400th customer of a large, but competent entity."

The entire team at MindTree, according to Bagchi, did a deep analysis of that statement and found that companies such as Volvo were probably starved of four attributes - access, attention, agility and attitude in responding to their requirements. Not that these attributes were missing with large companies, it is just that some companies choose to work with smaller entities because clients think it can work to their advantage, he adds.

Just as positioning and relationships have worked in IT services, Janakiraman, President & CEO, R&D Services says, "the focus of this division is on creating value for the customer through add-on features, which could be done either by MindTree Research or MindTree Engineering."

Incidentally, these services help bring down cost and offer a better and faster go-to-market strategy for their technology-based clients. MindTree proposes to cap R&D contribution to one-third of its overall revenues.

MindTree Research is a proactive investment looking at the market and identifying technology trends and then going ahead and building technologies that can be licensed to the customers. But Janakiraman is quick to add that MindTree is "not a product company. We are very conscious that what we develop should add value to the customer rather than compete with them. Take the Bluetooth interface developed by us. For a cell-phone company, it is an essential but complementary add on feature, because their focus is on GSM, CDMA and other wireless technology issues."

... ... how to build differentiators

In the same breath, Bagchi is the first to admit that any positional statement or focus area is not permanently available to them. Soota goes on to add that in the mid-cap space, different companies will end with different kinds of differentiators. "Clearly, there is still a scale differentiator, where large companies will play a role. But some people will take the approach of a niche market and focus on them. Taking the MindTree example, we will expand our services. But when it comes to Internet consulting and Internet-related applications, we see ourselves among the top few. Or in Bluetooth or Industrial Automation, we see ourselves far ahead of the product realisation space. In the end, this will become one means of getting your differentiation."

Carrying this line of argument, Bagchi asserts that MindTree is working constantly in at least half a dozen different areas to improve competitive advantage. First is, of course, sharpening the consulting capabilities that they have demonstrated to their clients in the IT Services business that ranges from Burger King to Emirates and Cendant.

Second is to develop an IP (Intellectual Property) road-map for the R&D services business. As Janakiraman adds, "being in the IP business, by itself it is profitable for us, but it also helps us in learning technology ahead of time. We do not have to wait for the customer to give us the learning. And ultimately, IPs provide us a foot in the door of our customer."

Third is to work on the tools, frameworks and knowledge management that will help their clients become more effective. Citing a couple of examples, Bagchi says that the company advised Emirates, one of their largest clients in West Asia, on how to make their internal IT organisation process compliant. Or MindTree has developed frameworks that can be reused by Volvo's different businesses so that the client can move away from the traditional `time and materials' pricing of contracts. Finally, MindTree will do everything to carefully nurture its brand in India and take it overseas. In Bagchi's view, "nothing about the brand is an afterthought. It has been meticulously thought through."

What MindTree will not do?

For a mid-sized company, what it will not do is probably as important as what it will. According to Bagchi, MindTree will not do "absolutely lower end work, which does not make domain or strategic sense. We will not engage with product companies who we do not think inherently have a very strong story. We have consciously stayed away from BOT (Build, Operate Transfer) model kind of engagement or from infrastructure management, for a company of our size."

In his inimitable style, he calls this the `Maya' that is waiting to waylay you. "At some stage, it will come in the form of BPO. At some stage it will be in the form of BOT deals. Sometimes it will come in the form of `come and buy my business.' Each has its own consequences. XYZ is opening shop in four different continents. Run and catch up with them. All these factors come in the way which has nothing to do with environment."

And why IPO is in the offing

MindTree is gearing up for an initial public offering (IPO) in the next 12-18 months.

Confirming that an IPO is in the making, Soota says, "We told our VCs that we will go public after we touch $100 million.

Assuming we touched it this year, logically from next year onwards, depending on the market conditions, we could consider an IPO. But that will depend on a whole variety of factors. We could do it next year or the year after that. But from next year, we say, we are looking at the right time and circumstance to do it."

But asked specifically if there are any compulsions for an IPO, he says, "First, it is logical to say that we must give an exit route to our investors. And there is a need to offer employees cash on their stock options.

The listing creates its own pressures, but it also gives you visibility and pressure in terms of building predictability is a good thing, up to a point. At a certain stage, it is a very good discipline to have in any case."

Picture by G.R.N. Somashekar

maverick@thehindu.co.in

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Life cycle of a captive BPO

The buzz is louder

Doing IT differently

Sootaspeak

The Web's a call away

RAM-induced problem

Removing virus program

Drive allocation

Ready for the opportunity

Fencing out trouble

Monitoring Net traffic

Quiz

Create work and then sell it to someone else

Cartoon