MARCH 2, 2003
 Cover Story
 Editorial
 Features
 Trends
 At Work
 Personal Finance
 Managing
 Case Game
 Back of the Book
 Columns
 Careers
 People

Q&A: Kunio Sebata
The President and CEO of the $3.8-billion Hitachi Home and Life Solutions Inc tells BT Online about what it's like to operate independently in India, the company's past relationship with the Lalbhai Group in the air-conditioner market, its faith in joint ventures and its current plans for India.


Q&A: Eran Gartner
As Vice President (Operations), Bombardier Transportation, Eran Gartner, outlines what would make his company such a hot pick to build Bangalore's mass transit system. It isn't just about creating a network and vanishing, he claims, it's also about transferring modern technology to the local operations.

More Net Specials
Business Today,  February 16, 2003
 
 
Jerry Greenberg, Co-Founder, Sapient
"When Things Get Better, We'll Be In A Much Better Position"
 
Jerry Greenberg, Co-Founder, Sapient

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 and , 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.

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.

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.

Other Story Links...
INVESTMENT MARKETING ROUND TABLE ECONOMY
ENTERTAINMENT AT WORK  
 

    HOME | EDITORIAL | COVER STORY | FEATURES | TRENDS | AT WORK | PERSONAL FINANCE
MANAGING | CASE GAME | BOOKS | COLUMN | JOBS TODAY | PEOPLE


 
   

Partners: BESTEMPLOYERSINDIA

INDIA TODAY | INDIA TODAY PLUS | SMART INC
ARCHIVESCARE TODAY | MUSIC TODAY | ART TODAY | SYNDICATIONS TODAY