Business Today

Head in the cloud

N. Madhavan        Print Edition: March 4, 2012

Executive Summary: Ramco Systems, one of India's largest pure-play IT products companies, has been burning cash for years, because of global competition and plain old bad luck. But the company, piloted by CEO P.R. Venketrama Raja, kept investing in R&D. Can it finally make it big?

The year 1997 was memorable for Ramco Systems. The launch of its first full-fledged enterprise resource planning (ERP) product, called Marshal 3.0, was only part of the reason. The other part was getting Microsoft founder Bill Gates to launch it during a visit to India. It was a coup of sorts, as Gates rarely launched other companies' products, and his involvement was interpreted by the market as a vote for the quality of Marshal 3.0. Initial sales were brisk.

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The company, it appeared, was finally heading somewhere. Ramco Systems was set up in 1992 as the research and development (R&D) division of Ramco Industries. Hived off as a separate company in 1999, Ramco Systems was a dream come true for P.R. Venketrama Raja, whose family owns the Chennai-based Ramco Group, a maker of cement and textile products.

THE PROBLEM
Despite good products, Ramco Systems has not been able to make it big

THE SHORTCOMING
Lack of product differentiation in a market dominated by well established global players

THE CHALLENGE
Continue investing in R&D to develop technologies to take on the competition

THE CATALYST
Rapid change in technology, and the rise of mobile phones, tablets and cloud computing

THE STRATEGY
Offer products that can leverage modern technologies and reach an untapped market

"I wanted to create a great intellectual propertybased Indian company, with outstanding products in the enterprise solutions space for the world market," says Raja, Ramco Systems's Vice Chairman, Managing Director and CEO. His vision was not just ambitious, but bold, considering the environment in India then was hostile for any IT products company. Besides, the enterprise solutions market was (and still is) dominated by giants such as SAP, Oracle and Microsoft, who between themselves controlled nearly 80 per cent of the global business.

Ramco Systems began product development in 1993, and soon realised the enormity of the challenge. A large enterprise-class product required the work of thousands of people over several years, considering the amount of detail that varied from one industry to another. But its eagerness to enter the market led to the launch of the first version of Marshal in 1994, just a year into its development. "We were in for a rude shock," says Kamesh Ramamoorthy, the company's Chief Operating Officer. "With little experience in product implementation - especially abroad - Marshal did not live up to customer expectations."

Between 1994 and 1997, with hardly any billings, Ramco Systems spent more than Rs100 crore, employed over 1,000 people, and designed Marshal 3.0

The product did not fare well in India, either. Ramco Systems then refined the product and brought out new versions, but the market remained indifferent. "At that point, most entrepreneurs would have backed out, but not Raja," says Ramamoorthy. Between 1994 and 1997, with hardly any billings, Ramco Systems spent more than Rs 100 crore, employed over 1,000 people, and designed Marshal 3.0. "The product Bill Gates launched was world-class and could take on the best of the competition," says Raja.

But his company had no time to rest on its laurels. The increasing use of Internet meant the future belonged to browser-based products, and new languages such as Java were emerging. "Marshal 3.0 was designed on client server architecture, and developed entirely on a Microsoft platform," says Shyamala Jayaraman, Senior Vice President, R&D, Ramco Systems. "Changes in technology gave the new product at best a two-year market window."

That was not enough time to recover the money spent on the product. As if that was not bad enough, Y2K fears turned the market cold. "Most companies across the world postponed large-scale IT investments and focused on making their systems Y2Kcompliant," says Ramamoorthy.

By 1998, Ramco Systems's stakeholders were worried about years of losses and no major revenues. Private equity investors, financial institutions, banks and employees began to question whether the company should continue as a pure-play product company or jump on the booming Y2K and software services bandwagon. Raja says: "I was faced with this stark reality. I had to give up my vision or think of a way to overcome the serious disparity in strength and resources in order to compete."

Success in aviation solutions and the ERP product's inability to grab a big market share taught Ramco to differentiate its products

His association with management guru C.K. Prahalad came to the rescue. Prahalad prescribed disruptive thinking. Raja began by identifying the typical challenges that small companies faced in the ERP business, where products were complex and required thousands of manyears of work. Marshal 3.0, for instance, had 23 modules and 25 million lines of code. To adapt to rapid technological change, all that code would have to be completely rewritten. "While large ERP companies can employ thousands of people and spend billions of dollars to keep pace with these changes, smaller companies like us have to think differently," says Raja.

So, Ramco Systems built VirtualWorks, a platform that automated software development. "It lets us develop products that are technology-agnostic, easily adaptable and rapidly scalable with less manpower," says Jayaraman. In other words, VirtualWorks not only levelled the playing field for Ramco Systems but also gave it the technological edge.

In 2002, Ramco Systems launched its web-based ERP product, built using VirtualWorks. Around the same time, it also released a niche product called Ramco Aviation Solutions. Today, Ramco is the market leader in the helicopter segment, and among the top three in commercial airlines and in the maintenance, repair and overhaul business. "Ramco Aviation Solutions accounts for 25 per cent of the company's revenues and enjoys a premium in certain markets over SAP and Oracle products," says Thamizha Nambi M.M., the company's Senior Vice President, Business Consulting Group and Aviation Solutions.

But the Web-architected ERP product did not do as well as expected. Most big companies had invested millions of dollars in a SAP or Oracle solution and saw little reason to shift to Ramco's product. Besides, there was a preference for multinational players. Even new customers went with SAP or Oracle, because these companies had a huge ecosystem of consultants, product implementers, and training institutes. Ramco Systems had no such ecosystem to propel demand.

The success of Ramco Aviation Solutions and the failure of the ERP product to grab a large share of the market taught Ramco Systems a valuable lesson. "We learnt that the company can succeed against big players by avoiding a monolithic approach, and instead adopting product differentiation," says Ramamoorthy. In 2004, the company launched Ramco DecisionWorks, a business intelligence platform which aids management-level decision making. A few more years of losses ensued, but the company survived thanks to the support of group companies such as Ramco Industries and Madras Cements.

The rise of cloud computing has helped Ramco Systems in its quest for differentiation. In 2008, the company used VirtualWorks to launch a pathbreaking product, Ramco On-Demand ERP (RODE). "We married technology and necessity to offer a unique ERP product that taps an all-new market - small and medium-sized companies," says Raja.

RODE, a pay-per-use solution, helps such businesses become efficient by using ERP without having to invest heavily in hardware, software licences and engineers to maintain everything. There are more than 300 RODE clients nationwide. "We are currently clocking 40 orders per quarter," says Raja. According to data from IT research company Gartner, 30 per cent of the 83,000 small and medium businesses in India want to adopt cloud-based ERP. The international market is larger. Gartner estimates that at least 55 per cent of companies worldwide will move to some form of cloud application by 2015/16. Ramco Systems plans to take RODE global in April.

Raja says the company is on the verge of reaping the benefits of its R&D focus. Until 2010/11, Ramco Systems had invested Rs 350 crore in R&D. Raja says he hopes RODE will catapult the company's financials to a new level (the turnover for 2010/11 was Rs 204 crore and net profit, Rs 2.31 crore). He is emboldened by the fact that big ERP players have a minuscule presence in the cloud. Ramco, then, has a headstart in this multi-billion dollar market globally. Will the lack of a strong ecosystem hurt RODE? Will global ERP majors edge out Ramco Systems in the cloud, too? Or can the company finally make it big?

 
Sunil Padmanabh, Research Director, Gartner
Ramco needs to have a strong business orientation and its product suite should refl ect global trends in enterprise solutions: Sunil Padmanabh
GO-TO-MARKET STRATEGY

Ramco has mostly focused on mid-market enterprises and relied on the strength of the product. Simplicity of use and pricing have been their key go-to-market strategies. They have played the India localisation card well, though the breadth and depth of domain expertise has not been impressive compared to larger rivals such as SAP and Oracle. Also, Ramco has lacked a strong partner ecosystem, which is key to its growth strategies in terms of selling, branding and delivery of its ERP solutions. The end result is that the product suite has not captured the mindshare of large enterprises in India or attracted global enterprises.

It lacked an aggressive go-to-market strategy, and clients viewed it as a poor cousin of SAP/Oracle. As regards RODE’s success, it is directly proportional to its strong ecosystem that includes consulting, training, data migration services and hybrid deployment models. They need to bundle their services in order to provide a complete software as a service experience.

Post recession, Ramco has the edge in the on-demand ERP market as an early mover, but newer competition is emerging with large vendors such as Oracle and SAP providing comprehensive solutions with seamless integration between ERP, CRM and HCM, better pricing models and deployment options. Ramco needs to focus on a strong partner ecosystem, devise an aggressive marketing strategy and continue to invest in its product suite to keep pace with technology trends. In order to enhance their branding globally, they need to refocus their partner strategy and work with leading system integrators, which could give them renewed impetus. But execution is critical. They need to have a strong business orientation and their product suite should reflect global trends in enterprise solutions.

Sunil Padmanabh is Research Director, Gartner


Bharat Goenka, Founder, Tally Solutions
The Indian pyramid amazingly flat, and every time you drop notch for eligibility, the addressable market mushrooms: Bharat Goenka
SELLING IN INDIA IS TOUGH

There is little doubt that Ramco has attempted to tread a path which few Indian companies have. India has been, and will be for some time, an underserved market. It has been more lucrative for companies to tap into and service global markets. Selling in India has been difficult for anyone, Indian or foreign. So, while the potential of India continues to attract attention, it has never really become manifest.

The top of the pyramid in India has typically been served to the same level as its global counterparts, largely because of its access to resources. In the past couple of decades, therefore, this has been the target market, and Ramco has naturally picked it up. What is intriguing is scoping out the size of the market. The Indian pyramid is amazingly flat, and every time you drop a notch for eligibility (for example, by turnover, or number of people, or any other parameter), the addressable market mushrooms.

Considering their stated market to be below the top of the pyramid, I would have looked for a much larger chunk, and developed my strategies around it. While foreign markets will continue to be attractive, they do not need to come at the expense of the massive Indian one.

Since I am not privy to the underlying financial plans, it is entirely possible that the cost/revenue ratios for foreign customers are far too attractive to be ignored, and therefore, there will be a natural shift to move the focus of their top-quality resources to chase it. As long as they are working backwards from their internal definition of success, things should be good. It is always difficult to either agree or disagree from the outside, as assumptions will not be the same. We (at Tally) have had far greater faith in India as a market than most of our counterparts, and this tends to colour my statements somewhat.

Bharat Goenka, Founder, Tally Solutions


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