Merger time: Cognizant's N. Lakshmi Narayanan promises more M&As

Acquisitions have proved the Achilles Heel of several Indian software firms. True, Wipro has ingested four firms in as many years with no signs of dyspepsia yet, but the same cannot be said of other software companies. Silverline Technologies, Pentasoft and SSI have all been burnt by acquisitions and even Polaris has found the M&A road bumpy. Teaneck, New Jersey- and Chennai-based Cognizant Technology Solutions recently made the headlines when its founder and CEO, Kumar Mahadeva, hung up his boots. Media interest in the company peaked when it emerged that he had sold a couple of million shares (worth $60 million, Rs 276 crore) in the past two to three years-surely, something must be wrong if the chairman quits and cashes out, went prevailing logic-but waned soon after when it emerged that:

1. Mahadeva was still 'invested' in the company, to use investor lingo, and 2. Cognizant was in no imminent danger of going under. Indeed, for the three months ended December 31, 2003, the company's revenues were $108.2 million (Rs 497.7 crore), 61 per cent higher than the corresponding figure for 2002, and net profit was up 94 per cent to $17.7 million (Rs 81.4 crore). This story isn't about Cognizant's business model or Mahadeva's moves; enough has been written about both. What it is about, is Cognizant's appetite for acquisitions. "There will be more," says N. Lakshmi Narayanan, President and ceo. "We are keen on augmenting our capabilities in the ERP space and are on the lookout for good buys of companies with SAP and PeopleSoft capabilities." "With respect to BPO, we are open to a minority investment in a good company or an outright acquisition." And what it is about, is Cognizant's ability to manage them. And rest easy, we'll try and spare you the hr mumbo-jumbo that usually goes with such writing.

All About Idlis

In June 2002, Cognizant acquired part of UnitedHealthcare Ireland Limited. The company wanted a beach-head in Ireland to serve local customers and the UHCI facility, with around 70 software pros, which was essentially an Ireland-based offshore software development facility, fitted in very well with its plans. Being the first acquisition, this also defined the 'tuck in' strategy of the company: small, ergo manageable, and inexpensive companies (the rule of thumb: a company is worth less than its annual revenues). Then, there's the synergy thing. "We would acquire (a company) to strengthen domain capabilities, fill in the gaps in our solution-offerings, or increase our geographic spread," explains John Ravaret, Vice President (Corporate Development) and the man in charge of M&A at Cognizant. So, how do the UHCI and Silverline acquisitions fit in? They add to Cognizant's domain expertise and increase its geographical reach. aces? Domain expertise in Customer Relationship Management. And Infopulse? Banking and financial services products.

Given our promise not to mouth the usual platitudes about integration being the key to a successful acquisition, we'd like to skip a few details. Suffice it to say, as Gordon Coburn, Cognizant's Executive Vice President and CFO, does, that "people tend to leave after an acquisition". The problem is far more significant in small acquisitions such as the ones effected by Cognizant. That's where the idlis kicked in.

Cognizant gave some employees of UHCI an opportunity to visit India and work in its Chennai facility. One employee went native: he frequented the famed Karpagambal Mess near the equally famous Kapaleeshwarar temple in the city; escaped on weekend breaks to Kerala and other less-touristy destinations in the southern part of the country; even visited a few villages. When he went back, he carried with him tales of Karpagambal's to-die-for tiffin, and other reminiscences of India and the Cognizant office.

The company didn't miss any of the other tricks in the book (or out of it): it ensured that the employees of the UHCI facility, since renamed Cognizant Technology Solutions Ireland Limited, realised that they were the company's effective strategic headquarters in terms of serving the European market; and in keeping with its policy of maintaining uniform process certifications across centres, it decided to obtain a CMMI Level 5 certification for the Ireland facility. "We had to challenge (the employees of the Irish operations) to make them feel valued," says R. Chandrasekaran, Executive Vice President and Managing Director.

The Mess Effect: Karpagambal had a role to play in Cognizant's successful integration strategy

That accent of detailing runs through Cognizant's other acquisitions. The Silverline acquisition happened at the behest of American Express, a common customer. American Express liked the work being done for it by Silverline, but was aware that the company was in the midst of financial turmoil. It wanted Cognizant to take over the team (and the business): CTS did it, and within a matter of hours paid employees arrears owed them for a few months. Still, the Silverline and aces deals had to be easy for Cognizant. Most employees of the former were (and are) Indian and aces is based in the US where Cognizant has a presence and is a name of sorts. It is only when the cultural context is completely different-like it was for UHCI-that the company needs to sell itself, its way of functioning, and India.

Infopulse, Cognizant's latest acquisition, for instance, works with Romanian and Ukrainian offshore development centres. And if idlis did the trick with UHCI, Kancheepuram silks did it with Infopulse. Jan-Niek de Groot, one of its co-founders, spent some time in January this year in India. Jan has agreed to stay on with Cognizant, he says, because of "its values". Like other tourists, he did the rounds of the temple circuit in the south and shopped for Kancheepuram silks. And the number of women in software, and their dress, typically the salwar kameez (a long tunic on top of baggy or tight pajamas) impressed him. "I am particularly charmed by the salwar," he says. "They make the wearers look dignified and are colourful without being distrac-ting; I plan to introduce this among our women employees in Amsterdam." So much for integration!

The Age of Irrationality
With the return of good times, IT companies have gone back to their bad old hiring ways.

One would expect Gautam Sinha to be a happy man. The 33-year-old alum of Jamshedpur's famed XLRI runs a Bangalore-based hr consulting firm, TVA Infotech, and this year, he hopes to help companies hire 2,000 it-pros, around 3 per cent of the 60,000 to 70,000 who will be hired by the sector as a whole.

If he isn't, blame it on the experience of one of TVA's employees who approached a software engineer at one of the city's lesser-known companies with an offer to move to a MNC. The engineer, who had some three years experience, was open to the idea but mentioned a salary that was over 200 per cent higher than his present one. Worse, he brandished two offer letters, one from an Indian it heavyweight, the other from a telco, both showing numbers that were 150 per cent higher than his existing salary.

The minute Sinha heard the story, he knew the nightmare was back. "For the first time since 2000, candidates have started coming to meetings with us with multiple letters of offer in hand," says Sinha. "I hope the irrational exuberance of the late 1990s doesn't return." Alas, for Sinha, it looks like it has.

For those who spent the run-up to the millennium in a Tibetan lamasery cut off from the outside world a la Hugh Conway, the late 1990s and 2000 saw Indian it services companies and the MNCs in the business based in the country at their destructive best.

Zooming demand for talent forced these companies to jettison whatever science existed in their hr policies. The result: salaries soared and code jocks, project managers and the like began to think that they could demand the sky and get it.

When it spending slowed down in the US, the dominant market for Indian it services, several hr execs heaved a sigh of relief. And they spoke of a better morrow when chastened it pros would no longer expect 100 per cent jumps in salaries when they moved jobs and when companies would hire rationally.

"Times are bad," went one refrain, "but this is a learning experience for us." "Software engineers are becoming far more rational in their expectations," went another. Only, at the first sign that the good times are back, the industry has gone back to its bad old ways.

Or has it? No, says Ajit Issac, CEO, PeopleOne Consulting, an hr consultancy. "There are substantial differences from the earlier boom," he says. "The current boom will benefit mainly those with experience rather than those who are entering the industry. And both companies and employees have learnt lessons from the previous boom and are more mature in what they demand of each other." However, Issac is among the minority that thinks so.

Meet Chandra Kumar, a technical manager who used to work for Knowledge Systems, a small it firm. The first thing that strikes you is the width of the smile on his face. Clearly, this man is buoyant. And he isn't even employed.

That's right: Kumar quit his job at Knowledge Systems with no job offer in hand. And he has no regrets. "I have two offers on hand but I am also negotiating with two others, including an MNC," he says. "The company that provides me the maximum growth and compensation will obviously be my choice."

There are others like Kumar, employees in a hurry to make good after three years in the wilderness when they worked on whatever their organisation asked them to, and accepted 5 per cent increments without even a murmur of dissent. They had nowhere to go and knew it (as did their companies).

If there's some good news for hr executives it is that sign-on bonuses still seem some distance away. But the demand-supply dynamics will ensure they don't stay that way for long. "For the first time in three years, demand exceeds supply," says Sinha. "Several technology areas like ERP (Enterprise Resource Planning) and CRM (Customer Relationship Management), which had gone out of fashion, are back with a bang. Several professionals had moved out of these areas, so there is a shortage and salaries are high."

The companies that will bear the biggest brunt of the boom are the smaller ones. Anand Sudarshan, CEO, Netkraft, one such company, says, "A majority of smaller companies will have to fight hard to retain their top notch talent." He is quick to add a rider about Netkraft being different because of its superior people management policies but explains that in general, "a combination of money, nature of work and growth opportunities" will motivate employees of smaller organisations to move on.

Sanjay Vinayak Urs, Managing Director, Plakon Consulting, believes that even Indian it heavies such as Infosys and Wipro will need to guard their flanks. "MNC it giants such as Accenture, IBM Global Services, Oracle, EDs and Honeywell are on a hiring spree," he says. "The target is clearly employees of organisations such as Wipro, Infosys, and TCS." That could only serve to increase the wage bills of these companies and take employee expectations to an unsustainable level.

Still, if they had to choose between hard times and employees with bloated egos, hr heads would opt for the latter any day.

-Venkatesha Babu