Business Daily from THE HINDU group of publications
Monday, May 07, 2007
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Business Daily from THE HINDU group of publications Monday, May 07, 2007 ePaper |
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Interview Info-Tech - Software
The contract sizes have shrunk to $100 million plus. And they will average $100 million a year eventually.
What is your view on large deals and how they can help the growth of Satyam and the industry? A large deal has three components to it. For us, it has to have $10 million in revenue annually. It has to yield twice the value of what clients pay us and it has to be in excess of $50 million total. What happens in large deals is one, the focus on talent band. The average band level when you start a deal is fairly high. Then it goes up further before it starts to plummet. The question is when it will happen over the deal tenure of say, five years on average. This can be as high as 18 months, but when you get good at it, it would come down to six months. We have one deal where 18 months is a reality today. Most other deals have already come down to the six-month levels. Six to nine months will happen. It may not all become six months. The reason for the three-month window is that for a lot of clients, while purchasing and IT departments have committed to the deal, some business functions are reticent. In these deals, for the time you are on the large deal, you are creating a brand new pool of project managers and program managers. $10 million a year is a huge deal. We will make much better money on these deals. There will be those `investment' deals, not exceeding one or two deals. In a large deal structured over a 5-7 year period, what kind of billing rates do you envisage and what are the risks involved in project structuring and execution? The contract sizes have shrunk to $100 million plus. And they will average $100 million a year eventually. Second, the client is going to reduce risk by not going to 10 vendors but to three. There's a change in risk perception. So life continues to exist on two perspectives, what happens if there is a change in the management. A genuine change in the environment of operations and the economic risks that the client is faced with. The mitigating factor in all this is that the client is seeing an upside on the bottomline. What is the flip side to bagging these contracts... Very low risks. All of us have invested in those deals. All of us have invested time and so on. There will be a specific deal where you make low profits or just break even. Those are one-off, i.e. investment stage. There are two things one must consider. One, is the ability to reuse code and two, is the ability to manage operating costs. Look at how good we have become in managing cost in the last few years. We will learn how to do this really well.
KT and KBK
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