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Jerry Greenberg, Co-Founder,
Sapient
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"I don't think
we're becoming more like the Big Five or like Accenture. They're
going to try and become more like us" |
It
preceded the internet wave, rode it when it came, and now that it
has crashed, Sapient is trying hard to effect a course correction.
Revenues are down from a 2000-high of $503 million, profits have
turned into losses, and the stock is wallowing at $1.80. Still,
the IT consulting company Jerry Greenberg co-founded with Stuart
Moore in 1991, is betting big on India. In fact, as Greenberg recently
explained to BT's R.
Sukumar and R. Sridharan, India
may well hold the key to Sapient's turnaround. Excerpts from an
exclusive interview:
These must be difficult times for companies
like Sapient. Your topline has been on a slide since 2000, and stock
is at the bottom.
The last nine months have been a lot better
if you put it in context of the last two years, when revenues dropped
significantly. If you look at the last nine months, the revenues
have been quite stable. The collapse of the US economy was one issue.
But there's also a different issue-that IT services on a global
basis was going to take a different form than it had in the 90s.
We looked at that in 2000 and said that the next year or so is going
to be very challenging. So we said let's make the investments in
changing our model so that when things get better, we'll be in a
much better position.
But in changing the model isn't Sapient
becoming the kind of IT consulting company it set out to replace
in 1991?
No. Because when we started in 1991, we weren't
doing internet stuff. Our view is that there is an opportunity for
a company or companies to provide significantly more business value
through advanced technology. So when we started client server, we
ended up doing a lot of internet work. For us, the technologies
will come and go. Tomorrow it will be web services. The next day
it will be something else. There's always some new technology that
people look at. So we look at our differentiation-fixed price, heavy
focus on what we call adoption management, and having an integrated
global delivery model. There's a handful of things that distinguishes
us from the Big Five or Accenture than we were in the past. But
we compete for clients. And many times we don't win too. But I don't
think we're becoming more like the Big Five or like Accenture. In
fact, I think they're going to become more like us. They have to.
They can't continue to operate with 80,000 people mostly in the
Western countries. I'd rather be where we're sitting.
If you look at the large Indian companies
like Infosys and Wipro, they are trying to build a presence in the
US and Europe while you're doing the reverse. So, in effect, these
companies are trying to become part-American and you're trying to
become part-Indian. How easy has this transition been?
It hasn't been easy. But, by any objective measure,
we're much further along than they are. Any of them-talk about Infosys
or Wipro. I mean Wipro is doing an acquisition of American Management
Systems' utilities practice for $26 million, 90 people. What's Wipro?
13,000 people? So they got 90, and we're 1,500 people with 600 in
Delhi. So we feel that we're there in terms of what you just said.
But it's true we've gone one direction and they're trying to go
the other. They're just starting. Our company is built on getting
very complex initiatives done for clients on a fixed timeline basis
with very high degree of scrutiny from our clients. And in the last
three years, we've moved 40 per cent of our people, six to 10 thousand
miles away from where our clients are. It's a highly risky strategy,
but it's one that has worked.
"Our bet is that
companies that put together a very powerful mixed model will
take share from ones that stay all Indian or Chinese or Russian" |
If things look so great from where you're
sitting, why hasn't anybody bought you over yet? Your stock is at
$1.80.
Those are two different questions. Let's be
clear. I feel very good about our position. However, the economies
aren't co-operating. So we're not out there saying, 'Hey, we're
going to go great guns.' We're not. We're saying 'Look. We've stabilised
our revenues, we've made significant investments in India, and we're
still investing'. But the current prospects for growth and strong
profitability have a lot to do with the economy and nobody feels
real good about the economy anywhere in the world right now. The
other question-why hasn't anybody acquired us. It's really why they
haven't bought our shares. Stuart (Moore, Co-founder) and I control
the company and we've been public for seven years. You never know
whether or not you might entertain an acquisition situation. You
can't say you'd never do it. But that's not on the top of our priority
list.
Coming back to the market, you have the
big companies like IBM, the Indian companies that are trying to
become part-American, and you're coming back here. So how is the
market going to be carved up among these three groups?
It's going to be interesting to see what models
really emerge. One theory is that everybody's going to go to a mixed
model. That's a lot of change. Just do the math. We are 40 per cent
based in Delhi now. If a company has a 100,000 employees-and a few
of them do-when they get up to that model, either they've got to
hire 40,000 people and lay off 40,000 people, or they've got to
grow to get to that percentage. Our bet is that companies that put
together a very powerful mixed model will take share over the ones
that either stay Indian or Chinese or Russian, or the ones that
try to stay all Western. I don't think many people are going to
try to stay on the poles. I think most people are going to try and
move to the middle.
There's also another interesting trend of
customers consolidating vendors. If they go to a company for one
thing, they'd like it to do everything for them, including contact
centre, call centre, and IT-enabled services, and which is why large
Indian companies have gone out and bought call centre operations.
Do you have such plans?
Two things here. On the question, no. We have
no plans to buy call centres or to enter the business process outsourcing
space in India. I think the trend is actually for more best-of-breed
outsourcing than all one-stop outsourcing. Procter & Gamble
was looking at massive outsourcing-pushing everything out and saying,
'No. One company will manage our infrastructure. One company will
do our applications product, one company will do our applications
management, and one company will do our call centre'. So it seems
as if it's going more to a best-of-breed rather than a one-stop.
"We have $180 million
in cash. We've got the cash to do acquisitions but that is not
our focus right now" |
When you first started in India, you did
look at acquisitions. You were trying to acquire a company in India.
Are you still looking? Because if you ignore the first tier companies
and look at the second tier companies, there are some that have
pretty strong fundamentals there.
The second and third-tier companies are not
doing very well because even some of the first tier companies aren't
doing as well as they might expect. Infosys is doing quite fine
but some others aren't. We did look for (an acquisition) when we
came into this market. We'll continue to evaluate. You know an acquisition
in India for us will probably have to stem from thinking of new
things like BPO. Now, I said we're not looking at a call centre
opportunity but if we did want to go into it, acquisition would
make sense. It wouldn't make sense for us to start from scratch.
You know when we came into this market, we looked at a lot of companies
here but there wasn't much talk about acquisition. We just chose
not to go down that line.
You've lost that leverage now. You don't
have a stock that you can trade. You don't have the cash flow...
We do have the cash. We have $180 million in
cash. We've got the cash to do acquisitions but that's not the focus.
We've done five acquisitions in our history and they're very distracting.
A company like Sapient with a presence on
the ground in the West, in the US, you must have certainly attracted
the attention of let's say an Infosys or a Wipro as a logical acquisition
target. Would you have talked to any of these companies?
I think they're running very good companies
and doing a nice job in the markets concerned. But if you look at
it strategically, you would think, 'Yeah, it would make sense for
these guys to look at us'. They've stated their intentions several
times that they're going to look. But they probably would have looked
at a lot of internet-focused companies and a lot of them went out
of business. I don't know where their intentions would be now, but
we've done so much of the work that I think we'd be of less interest
from their viewpoint because we have an India strategy. As I said
before, in acquisitions, never say never. But it's not something
that's on top of our minds.
Your strategy going forward is going to
be increasingly India-focused. You're going to really need the kind
of numbers that an Infosys has or a Wipro has-10,000-plus. Are you
really going to ramp up?
In terms of numbers, I don't necessarily see
the need for 10,000 people. If you look at our business today and
compare that to an Infosys or a Wipro, we don't compete a heck of
a lot. We're going to run into them. The vast majority of their
business is either applications, maintenance, and most of that is
on a legacy system, where we don't have expertise. We're helping
clients evaluate their it strategies, development blueprints, helping
them focus on the projects to implement and then going and doing
the implementation work for those projects. So, from a skill perspective,
we don't necessarily see the need to scale up that drastically.
But if you offer maintenance work, then
you also get some revenue stability.
(Maintenance) is 8 per cent of our revenues
now, double from 12 months ago. We're not happy that it's 8 per
cent. We wanted it higher. We said over the next year that we'd
like to see it at 15-plus per cent. It provides revenue stability,
as you just said. It also provides continuous client engagement
opportunity. One of the things, I've mentioned a couple of times
and which is part of our business since the beginning is doing work
on a fixed-price-fixed-timeline basis. McKinsey and NASSCOM have
been saying that Indian companies would need to move to a fixed-price
model. Infosys announced in their results that 37 per cent of their
revenues is fixed-price. Our business is 80-90 per cent fixed price.
I mean when we commit to clients, we've got a method, a process
and a risk management approach that allows us to say to clients:
'In six months, here's what you're going to get, here's what it's
going to cost'. The Indian companies here have stated that they
want to do more fixed-price work and they will do more fixed-price
work. But that's hard.
But you still have more people here doing
support work than you have anywhere else in the world.
Yes, we have more people here doing support
work. Here, the project work outnumbers the support work 4:1. So,
in India, 4:1 is the project work for us. We'd like to get that
closer to 1:1 over time but right now, it's 4:1.
How critical is India for the turnaround
you are working on?
It's essential. We started in India three years
ago and we said, 'We're going to try this.' We had agreements with
the Government of Ireland to do Ireland back in 1996. We've been
looking at this for a long time. We kept saying it's not going to
work, not for the kind of projects that we do. We finally felt that
the collaboration tools were there, that the distribution techniques
were there, so we started in 2000. The number of assignments that
we would not win today if we did not have our GDD (Global Distributed
Delivery) approach is many. Some people would ask: 'Is this just
a temporary strategy for a downtime?' Absolutely not. We would expect
increased focus here in an expanding economy. We would rather we
hire more people here than in other parts of the world.
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