Krishnakumar Natarajan, popularly known as K.K., is MindTree's CEO and Managing Director. All along, he has been the company's star salesman, quick to notice changing industry dynamics. In this interview with BT, he explains the new normal facing the IT industry and how MindTree is preparing for it.
Given the economic climate in the US and Europe, what challenges do Indian IT services companies, particularly mid-sized ones like MindTree, face?
Organisations need to have a strategy to scale the next glass ceiling-grow beyond $500 million. Five to seven years back, the major need was to reduce cost in the customer's system. The Fortune 500 companies have done it. About 90 per cent of them use some form of offshoring. Customers today no longer want cost efficiencies. They are talking of a business problem and who has the domain to solve the problem. Expertise-driven is becoming far more important. In the first 15 years, the IT industry was an order taking sector. In the next 10 years, the industry will grow in mid-teen figures from 30 to 40 per cent growth rates seen earlier.
How has MindTree's strategy evolved with this changing need?
It has driven us to completely rethink how we are structured. We started in 1999 as a focused Internet solutions company with backend in India. It gave us a differential positioning. But within 18 months, the e-commerce bust happened. So we lost 50 per cent of our customers. We then started providing additional IT services. We also started product engineering services. All this took us to the next phase of growth. But we were not domain focused. We were into seven different businesses. Customers, at times, were confused as to who they should talk to. So we simplified the organisation. We now have two market facing organisations - IT services and product engineering services. Second, we placed some bets on high growth service lines such as independent testing, infrastructure management and data analytics services.
Then we said we cannot be everything to everybody. So we decided to drop a few customers. In IT services now, we are focusing on manufacturing and within manufacturing, we chose CPG [consumer packaged goods] and automotive. We are not in discreet and process manufacturing, not in industrial machinery. Besides manufacturing, we are in travel and transportation and banking financial services and insurance (BFSI) verticals. We are not targeting the big banks. We think the next stage of growth will come from the mid-sized financial institutions. They have never done offshoring but there is a need to be cost competitive. Within insurance, rather than going after life companies, we go after property and casualty insurance companies. In the sectors we chose, there is no dominant leader. There is equal opportunity, so that if we build expertise we can be among the top three players in each of our chosen segments.
BFSI has been the Indian IT industry's biggest cash cow. How can you hope to scale beyond $500 million when you have a lesser focus on BFSI?
It was a conscious choice. Our logic was that the services business is driven by expertise and relationships. If you look at the bounce back of all the multinational companies in the services business, they went through a period when they were losing business because they did not understand the offshoring story well. Now that they have matured and have the relationships, they are becoming equally viable competition to the larger Indian players. Relationships being important, you could count a handful of say 20 large institutions in banking and financial services which are doing 80 per cent of the spending. Ten years back, we were a much smaller organisation and financial institutions tend to treat size as a risk. So at some point we said, is it really value for the effort we spend? We missed the Y2K (opportunity). We started in 1999 but by then most of that work had happened. That is when relationships started happening for the Indian IT industry. So we said we are really going to be focused on the underserved verticals - manufacturing and travel and transportation.
Can you define what you mean by expertise?
In each of the identified areas, we want to be among the top service providers in the world. We need three to five years to reach that expertise level. To claim we are experts in CPG, for example, our goal is to identify core processes within that industry and become experts in those. In CPG, we already have some of the best experts in the area of trade promotion management. We have built software as a service offering in trade promotion, which is a business platform. Typically, consumer product companies spend 10 to 15 per cent of their revenues on trade promotion. Specific events get delivered through distributors and retailers. There may be an incentive claim system. There is a lot of transactional load involved, outside the core business. Today, organisations do all of that themselves and all of it can be outsourced. This is an underserved market.
Apart from investing in expertise, MindTree has been investing in high-profile external hires. Tell us about the company's current organisational structure and whether the way the company approaches customers is changing.
We have a disciplined approach to acquiring the customer. We have invested in building a large deal team where there are seven to eight high profile hires. The team was formed earlier this year. This team focuses on anything above $25 million of total contract value. The funnel for large deals is now getting bigger. We are getting calls we wouldn't have earlier. There is now an organisational confidence that if we have the capability, we can compete with the big boys. Recently, we lost a $70 million five-year process re-engineering deal - we wouldn't have been called to such deals earlier. We lost it to an incumbent vendor who is a multinational. We were a very close second. We gave people a run for their money. We are obsessively focused on getting it right. In terms of the organisational structure, first, our focus was to get the account mining in place which involved inducting external talent. There is a single point for the customer. There is a strong account management practice in place as well.