A1 technologies should pursue two strategies. It should retain its existing customers. And it should pursue customers beyond the SME segment.

CUSTOMER RETENTION: The existing customers of A1 are reducing their investments in systems integration which is A1's core activity. An obvious way out for A1 is to increase its portfolio of products and services. The important issue here is that these should address specific needs of each customer.

Thanks to years of association with its customers, A1 has a clear edge over its competitors. It understands their requirements much better. It is an edge that A1 should now use to advantage. One way is to move towards a consultative approach with the customer. Only projects that provide business value should be pursued.

Smaller projects-with timeframes not exceeding three months-have the advantage of increasing customer confidence since the deliverables are visible early on. Having benefited from these investments, customers will continue to invest in subsequent projects.

It is important, in this regard, for A1 to invest in improving its processes and people. Retaining its people and training them on the consultative approach to selling as well as superior project management will help A1 deliver quality projects.

CUSTOMER ACQUISITION: The focus on the small and medium enterprises (SME) segment might have served A1 well in the past. In fact, it did enable it pre-empt competition from the biggies. But now that software majors are invading its territory, A1 should play the same game. It should now invade the segment it has thus far stayed away from, large enterprises. The fact that large customers are also reducing their it spend should be an opportunity for A1 to approach them with fresh value propositions. There are two factors which should work in A1's favour here. A1 has a successful track record in servicing clients in the SME segment.

Their referrals should convince any large enterprise of the delivery capability of A1. More important, since its original rates are lower than the rates at which software majors bill their larger customers, these-even in the undiluted form-would be attractive to a larger customer. What is more, A1 will also be able to retain its margins since it does not have to cut its rates drastically, as it has to do for its SME clientele.

The slowdown will prevail for some more time. Hence, a short-term approach is unlikely to work. There are, at any rate, no quick-fix solutions. A long-term view is the only way to deal with the problem. The approach should be such that it helps A1 seize fresh business opportunities once the downturn ends. There are two growth avenues that A1 should pursue as part of a long-term strategy.

First, the b2b platform business should be strengthened. It is true that with the failure of dotcoms, the demand for technology necessary to build dotcoms has declined. But in contrast, traditional businesses will increasingly use the internet for enhancing the efficiency, productivity, margins of their brick and mortar businesses.

Thus, the demand for technologies and skills which are necessary for building b2b applications will remain unaffected. This is a window of opportunity that A1 should examine seriously.

Second, the company should strengthen its ability to deliver offshore should be strengthened. There is already a major shift in the software industry to offshore projects. This will only gather momentum. Clients will increasingly look for software houses with a record of executing projects offshore. A1 Technologies should start planning in this direction.

In addition, there are a few other options that A1 should consider.

• Look for new markets like Europe, Asia-Pacific, even within India so that its dependency on a single market (the US in this case) will be reduced.

• Focus on the latest technologies like XML, CORBA, EJB, and Web Services for building e-commerce applications for collaborative computing and b2b environments.

• Focus on high-end System Integration for b2b environments using emerging technologies and tools like EAI, and b2b Integration products for Internet based on XML and Web Services.

• Focus on highly competitive verticals like banking, finance, manufacturing, telecommunication, transportation, and logistics. A1 should build domain expertise in some of these growth areas-either through training or skills-acquisition.

• Move up the value chain. A1 should move from time and material based contracts to fixed-cost turnkey projects. It should also offer products for niche markets-instead of the traditional high volume low margin products-where the organisation can leverage technical strengths.

• Increase the rate of capacity utilisation of the manpower. The under-utilised staff could be put on assignments aimed at strengthening the organisation from within-like putting quality systems in place or evolving better business practices.

• Strike alliances to improve the value of offerings to various customers, which in turn will help bring repeat business.

• Build expertise to execute projects offshore which, for most clients, is a low-cost alternative to onsite services.

The decline in revenues is the most immediate problem that A1 should address. Given the changing demands of customers and the changing profile of competition, a change in positioning is also imperative at A1. But that can only be a medium-term exercise. The short-term focus should be on improving the cash flows. The fact that nearly 40 per cent of A1's engineers are on the bench, that its billing rates are being cut, and its margins are narrowing together impose considerable pressure on working capital management.

Evidently, the only way in which you can resolve the issue is by enhancing revenues and cutting costs. Since acquiring new customers is time consuming-and time is clearly not on A1's side-generating new streams of revenue from existing customers is the only option before the company.

Dham should review the company's track record with its customers over the years and zero in on specific applications expertise that have, in the past, demonstrated clear evidence of value addition to the customer. All repeat assignments, for example, are prime candidates in this regard. They become good arguments to persuade the customer to stick with A1. The idea of conducting seminars and workshops is good since it generates quick revenues; and without any investment. That is important. Products no doubt generate revenue but I would be wary of getting into the product mode, particularly at this stage, because a product is a cash consumer. A1 cannot afford to fritter away cash resources on projects that pay off only on a long haul. Remember, it takes two to three years for a product to gain market acceptance and start contributing to profits. A1 is in no position to pursue such alternatives.

While customer retention is an option that A1 must pursue with vigour, it is also important not to cut billing rates to such an extent that they become the new benchmark. The price cuts should be done in moderation, not desperation. A1 should stand its ground by focussing on non-price differentiators like service quality, reliability, speed, and promptness of response. These are as important to a customer as price and should become the selling points for A1.

Simultaneously, Dham should review the internal cost structure. Travelling costs are a major item for a company like A1. As would be allowances for overseas travel. Expenses on facilities to employees-the freebies-should be pruned. All discretionary expenses should be cut down drastically. Removal of deadwood in the company-not in terms of laying off benched employees but eliminating pockets of inefficiency at various levels-should become a priority.

In the medium-term, Dham should take steps to build systems and processes aimed at improving operational efficiencies. ISO and CMM are good investments in this regard. In the long-term, A1 should move into new markets and acquire new customers. This requires not only a look at existing competencies and identifying ways of strengthening them, but also acquiring skills in new domains.

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