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TURNAROUND Digital Boots Up Its Growth Engine CEO Som Mittal is trying to build DEIL into a software powerhouse. It's still early days but the numbers suggest he may just do it. By Dilip Maitra
Mittal, in hindsight, seems to have made the right call. Three months after he decided to take on the top job at the new and much smaller DEIL-the hardware business, which accounted for 70 per cent of the company's 1998-99 turnover of Rs 253 crore, was merged with Compaq India- Compaq's new CEO, Mike Capellas, announced that (software) services would be one of the critical elements of the turnaround he was scripting for the company. Today, Mittal's mandate is to make DEIL a Rs 500-crore company by the year 2003. The numbers seem to indicate that he is on course to do so: its sales for the nine-month period ended March, 2000, were Rs 71 crore, 30 per cent more (on an annualised basis) than the previous year's number; and in the first half of this year (April-September, 2000), DEIL's turnover has zoomed to Rs 76 crore and its profits to Rs 19.2 crore. The estimates for the year? Rs 170 crore in sales and Rs 45 crore in net profits. Exults Mittal: ''We are doing better than we thought. I am sure we will be able to meet the Rs 500-crore turnover target by 2003.'' Agrees Jasmina Barfiwala, an analyst with Equitymaster.com: ''According to our projections, in the next two years the company should be able to achieve a turnover in the range of Rs 4 billion (Rs 400 crore). But if the current growth rate continues then it could achieve its target of Rs 5 billion (Rs 500 crore).'' Building An Organisation The departure of key DEC executives is perceived to be one of the reasons why Compaq couldn't leverage its (DEC's) expertise in the software services area. Mittal's primary concern, therefore, was people: by July, 1999, he had managed to build a core team of 13 executives from larger and more diversified companies. His objective? To hire people with enough experience in their own areas to hit the ground running. Thus, Datta Subrahmanya, who heads DEIL's telecom (software) business, has worked with the likes of Bell Labs; and C.S. Murali, the head of the platforms and middleware business, with TCS and Tata IBM. Says Mittal: ''When you have people with the relevant experience, you can get going from the day one.'' At the same time, DEIL has also focused on organisation and market-building. In the last 10 months, it has set up offices in 12 locations in the US, Europe, and South-East Asia and has started working with channel partners-a hitherto untested concept in the software business-in Korea, Japan, Netherlands, and the US. Explains Ashish Basu, Head (Marketing), DEIL: ''Since channel partners are well entrenched in the markets in which they operate, you can build businesses much faster if you go through them.'' Early this year, DEIL acquired a 40,000 square feet development centre in Bangalore and is in the process of building another 1,03,000 square feet centre in the city. Expectedly, the company's workforce has grown from 280 at the beginning of 1999 to 878 (September, 2000). The Compaq Connection If you are under the impression that Compaq is a pure-play hardware vendor, perish the thought: the company's services business is worth a cool $4 billion a year. Today, 89 per cent of DEIL's revenues come from the work it does for Compaq and its clients. At one level, this leads to predictability of earnings and lowers business risk. At another, Compaq's born-again emphasis on services bodes well for DEIL. Indeed, the company can achieve its ambitious year 2003 target simply by increasing the volume of work it does for Compaq. In an effort to spur growth, however, DEIL has set itself an internal target of growing its non-Compaq business to 50 per cent of the total in five years. Today, it has 20 customers other than Compaq and offers a range of services from telecom solutions and middleware to e-applications and e-infrastructure. Says Subroto Bagchi, Vice-Chairman and Chief Operating Officer of Mindtree Consulting: ''Som has built up a fine team of competent people at Digital. I don't think they will have any problem in getting businesses outside Compaq.'' Still, some of the services on DEIL's menu bear a close resemblance to the areas Capellas wants Compaq to focus on as a foil to its hardware offerings. And DEIL could well discover that leveraging its relationship with its foster parent is the easiest climb up to its targeted turnover. |
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In May,
1999, when he was 47, life began afresh for Som Mittal. Post Compaq
Computer Corp's global acquisition of Digital Equipment Corporation (DEC)
in May, 1998, Mittal-he was then head of Digital Equipment India Ltd (DEIL)-was
put in charge of the Indian operations of both firms. In the May of the
following year, though, he was given a choice: stay on as the head of
Compaq India, or oversee the prospects of a new DEIL focused exclusively
on software. Computer servers were DEC's main revenue-artery, but the
company did have a significant software business which analysts were later
quick to term the one bright spot in an acquisition that left Compaq with
a severe case of dyspepsia.