The Tree after a storm

The Bangalore-based IT services firm MindTree passed through some turbulent times when its Chairman and a key co-founder Ashok Soota quit in March 2011. Vice-Chairman Subroto Bagchi, in an interview to Business Line , says the “turbulence” has receded, there are challenges ahead, and Team MindTree is geared to meet these in a spirit of “self-confidence” and humility.

Excerpts:

MindTree has gone through some turbulent times in the recent past with Ashok Soota's exit. Have things settled down?

It has been tough, but the turbulence is now receding. It is in times like these that you realise the rites of passage.

The Indian IT industry is estimated at $70-80 billion this year; McKinsey and Nasscom predict it will grow to $270-280 billion. We, with our run rate of $90 million a quarter, are still a small company but get counted among the top 12 IT service providers in the country. The question, therefore, is: if the industry is going to grow three-fold where are the actors? So frankly, rather than acrimony, the more good companies, the better.

What are your present challenges?

Many, but I'll spell out three-four. One, we need to move from being a culture-led organisation to an expertise-led organisation. Efficiency… solid expertise… is what touches you, culture is what brings you back for more. For the next 10 years, MindTree will have to be expertise-led but not give up on core values that form its culture.

To build such a company, you cannot be everything to everybody, or horizontal… or an inch deep and a mile wide. Our challenge is to become a mile deep and an inch wide in the chosen areas, which is not easy, and requires giving up certain things.

Such as?

We gave up the phone business and it nearly drove the organisation to the brink. To the outside world it is all about being or not being in the phone business. But imagine the internal churn, the leadership intrigues that would have taken place! And we also said we will not focus on energy or be yet another me-too healthcare company. And, just because yet another nice looking M&A opportunity comes, which helps improve your topline, you don't go after that.

So what is your core activity now?

Good you raised this question. Last year, the reply would have been that we are in seven businesses and the eighth was the phone business. When you call these ‘seven growth engines' it confuses the hell out of people. Now we say we're in two businesses — IT services and product engineering; 60 per cent of our revenue comes from IT services and 40 per cent from product engineering services. In the IT services, we have deep sectoral focus — travel and transportation, banking and financial services, manufacturing, retail. Today, when we talk to a Procter and Gamble or Silicon Valley Bank they don't talk to us about the number of people but about co-creation, the next new area we could explore together, etc. So the quality of dialogue is changing. On the product engineering side, we are again sectorally focused and, going forward, we will build sharper focus.

Coming back to your original question, beyond being expertise-led, our second challenge will be to deliver profits comparable to the best. Our top-line growth has been best-in-class; last year we clocked in $330 million, which is a 20 per cent growth over previous year. This year too we should grow at the same level as the best companies. Our current run rate is $90 million a quarter, but our profitability is not the best-in-class.

Why? What has impacted profitability?

A few things but the real reason is the distractions we had.

In the last one year?

I wouldn't say just one year; these things don't happen so dramatically. It has happened over the last three years; and the moment you are distracted, your eyes are off the ball because the top management has only 24 hours a day. We are all human and how many things will you chase?

Human beings are simian; every company — yours included — is an animal pack. Our styles are deeply anthropological and deeply genetic. What the three, four or five people at the top are obsessed with, you don't even have to communicate. The whole company gets the message.

Sometimes much more than what the top guys want!

Absolutely! So what happens is that people know our priorities. Now when people, through meta-intelligence, pick up the priorities, by the time you realise that it's a wrong priority, it is too late already. So the challenge before KK (Krishnakumar Natarajan, the CEO) and all of us in the team is to bring profitability back on track. There is nothing fundamentally wrong with the business. If you rein in attrition, tell the customer ‘give me better rates because I am delivering better value,' demand higher utilisation, focus on reusability, seek more of fixed-price contracts and improve the bulge-mix, all these improve profitability.

Have you started hiring?

Yes. We will add 2,250 people this year and 80 per cent of all hires will be from campuses.

How does it all compare with previous years?

It's a radical change. And it's not only about hiring, but also about current leadership. It is engaging a lot of our attention. We have signed up with a leading consultant to undertake a leadership audit and benchmark ourselves with others inside and outside the IT industry. MindTree is 12 years old, and in some sense it has been a long time.

When I say we will be expertise-led and focus on profitability, we have to shed many leadership attributes that brought us up to here; but will not take us to the next 10 years. So there has to be an inevitable leadership transformation. And it is unrealistic to think that when we make that transition we can take everybody across the chasm.

Why; how does it work?

There will be people who will keep the faith, some will try to cross the chasm in two steps and then there will be people who will not want to cross at all. Managing the cross-over will be a challenge and these are not things that you learn in MBA classes.

Any time-frame for crossing this chasm?

The next 18 months will be very crucial. The foundation of MindTree Version 1 that saw us through for the first 12 years was laid in the first 18 months; that included how we reacted to external events such as 9/11, the economic slowdown in the first half of the last decade. These adversities determined the character, resilience, flexibility and ability of the company to not lose heart and faith in the event of a huge adversity. A lot of corporate character is about adversity. The foundation for MindTree Version 2 would be laid in the course of the next eighteen months.

The reason I peg the time at a maximum of 18 months for MindTree Version 2 is that we owe something to our investors. It is always very easy to walk out. Some people have encashed their money, some haven't. It is very easy to say, ‘here is my spoil and I'm a free man now'. But it is important to remember that retail investors have bought the share at Rs 425 at the IPO time and we have to stay here and build value for them.

Finally, we need to look at the brand. We are under-invested in the brand. People who know us know us well but most people don't know us. The brand is an animal; it is like keeping a cow. You can't occasionally feed the cow. In some ways the brand is like a baby that never grew up. You can't take your eye off your brand.

What is the mood within the top leadership of the company right now? Are you geared for the challenges ahead?

No parting is pleasant; if a relationship is important to you, has been important for 10, 20, 30 years, you suddenly can't come with a façade that it didn't matter. We had to come to terms and deal with that. The larger issue is to ask ourselves: ‘Are we wedded to a cause?' If yes, what is that cause? MindTree registered a 20 per cent growth, and grew to $330 million in a year when all this was going on. So the business did not skip a heartbeat.

Given that perspective, the customer faith is abiding, and the overall business environment is such that there is work to be done out there. We built outstanding applications, such as the Aadhar (UID), and we got the project against Accenture and IBM. We also signed up large deals with major American and European customers in the year of the chasm. So, I would say there is both self-confidence and humility.

> rasheeda@thehindu.co.in

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