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Nadar's Endgame From products to business process outsourcing and through organic growth and acquisitions, CEO Shiv Nadar has a three-year blueprint to make HCL Technologies India's pre-eminent software company. An inside look at Nadar's ambitious strategy. By R. Sukumar & Vinod Mahanta
So, it isn't altogether surprising that Nadar lapses into aggro-speak from time to time. Like HCL T's billing rates ''being far ahead of the rest, whichever way you look at it'', of the company continuing to grow, ''not just organically, but through acquisitions'' and of its product-strategy ''going towards an endgame''. For a company that set off on a software services quest in the mid-1990s when TCS, Wipro, and Infosys were, literally, setting code-arrays on fire, being the first of its ilk to make a sizeable acquisition should feel good. The controlling stake HCL T has acquired in Deutsche Software is more than a trophy or a passport to Deutsche Bank's $2-billion annual-spend on software services. The acquisition and the alliance are manifestations of Nadar's three-year gameplan for HCL T. They are the beginning of the endgame that helps HCL T steal a march over companies that were already entrenched by the time it decided to enter the software services business. And this is where it all begins. If all goes well, three years into play (this time, 2004), the company would have entered the product space, leveraging its association in the technology services area with global product heavy-weights like Cisco and NCR. It would have grown its integrated solutions business in industry sectors like banking and financial services, travel, retail, telecom, healthcare, and retail and be the ''world leader'' in at least one of them. It would have built up practices in areas like networking, security, storage, B2B, B2C, ERP (Enterprise Resource Planning) consulting, and CRM (Customer Relationship Management). And it would have hedged its bets by having a presence in the Business Process Outsourcing (BPO) domain-if the it-enabled space for business processes boomed HCL T would have benefited from it, and if it hadn't, well, it would at least have tried. How The Strategy Pans Out HCL T's hardware heritage and its relationship with product companies in the technology services area do make Nadar's claim about software products believable. Is the company's assertion about its expertise in tech services for real? A Bangalore-based it-pro who's worked for one of HCL T's principal rivals thinks so: ''HCL Technologies has a strong play in the telecom and tech segment. I used to run into them mostly while competing for telecom engagements.'' Nadar won't go into the details but says that the company will have some products out by 2004. Products is a marketing-intensive business, but that shouldn't faze the company. In 2000-01, its sales and general administrative spend, as a proportion of sales stood at 19 per cent as compared to Infosys' 7.11 per cent and Wipro's 6.7 per cent.
But products, and the company's foray into the area of BPO with eServe, a wholly-owned subsidiary that is trying its hand in the it-enabled business are ancillary to Nadar's strategy. Central to it are the company's efforts to establish a global presence in the enterprise practices and it solutions space. There's no arguing the relevance of these two strands. Infotech research firm IDC expects the enterprise practices business to be valued at $4 billion by 2003; and the Big Five (consulting firms) are important players in this area. HCL T expects its subsidiary HCL Comnet to address the networking piece of this pie. Comnet fancies its chances as a MSP (Management Service Provider), a company that helps other companies manage their networks optimally. ''The margins are higher,'' says Vineet Nayar, Executive Vice President, HCL Technologies, and the CEO of HCL Comnet, ''but it is an emerging area and the market has to accept it.'' But HCL T needs to grow its presence in most other services that constitute the enterprise practices business, and in all that do the it solutions one. It is here that acquisitions like that of a 51 per cent stake in Deutsche Software for Rs 120 crore ($25 million) will help. ''The company has made a significant move into the financial services domain with this acquisition,'' admits Bhavin Shah, Head (Asian Technology Research), CSFB. And a 51:49 joint venture with Computech, HCL Enterprise Solution Inc-HCL T invested a mere Rs 13.9 crore in the deal-will help HCL T's cause. Computech, a consulting firm that offers enterprise application solutions had $30 million of revenues in 2000 and boasted names like Motorola, MCI, Arthur Andersen, PWC, sap, and i2 Technologies. ''It is an ideal time to acquire companies,'' says Sujay Chohan, Managing Director, AMC, Gartner's research arm in India, ''but it should be done with the purpose of acquiring capability and expertise in the area of product development and branding/marketing skills.'' ''The management has obviously paid handsomely for the 'right of refusal', which is hard to quantify,'' points out a report issued by Jardine Fleming India Securities referring to the fact that HCL Technologies will have the first right to all business 'offshored' by Deutsche Bank to India for the next seven years. "This is a very costly way to acquire customers," remarks Wipro Vice Chairman Vivek Paul. 1 2 |
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If there's a
predatory tinge to Shiv Nadar's otherwise cultured intonation, it is only
to be expected. The company he heads, HCL Technologies (HCL T), has just
acquired a 51 per cent stake in Deutsche Bank-subsidiary Deutsche Software
and forged an alliance with Chicago-based ERP implementation consultancy
Computech Corporation. And his last holiday was an African safari. The
soft-spoken 56-year-old is uncharacteristically loquacious about the trip
and peppers his description of a hunt involving a herd of gazelle, a
cheetah, and a pride of lions with terms like 'value chain' and 'only the
paranoid survive'.
