IT HELPED BEING THE OUTSIDER. At the Nasscom Leadership Summit in February 2008, Anand Mahindra told a roomful of techies that he found himself wondering what a conclave of IT wizards expected from a “predominantly right-brained character” like him. “You certainly haven’t called me here to deliver a sermon on technology. And I wouldn’t even risk doing that with Nandan [Nilekani, then Infosys co-chairman] and Kiran [Karnik, Nasscom’s former president] sharing the dais,” he said. Strictly speaking, he wasn’t an outsider, but then he wasn’t a tech industry insider either. He was the chairman of Tech Mahindra, then a Rs 3,800 crore IT outsourcing company, but in the nearly three decades he had been with the Mahindra Group founded by his grandfather and granduncle, he had spent nearly all his time building the automobile and tractor businesses.

After more self-deprecatory wit (had he asked one of his IT colleagues to write the speech, it would have been “incomprehensible” to him, he said), Mahindra put forth his assessment of Indian IT. He said the industry was fixated on the things that had made it famous, and needed to reinvent itself. “If we simply keep knocking on the doors of clients with our traditional offshoring options, we’ll meet the fate of hearing-aid salespersons: Our best customers won’t hear the doorbell,” he said, digging beneath the industry’s sheen.

Come 2013, Indian IT will witness one of its biggest mergers yet: that of Tech Mahindra and Mahindra Satyam (still listed as Satyam Computer). At nearly $2.5 billion (Rs 13,652.5 crore), the merged entity will be among the top 10 IT firms. At 87,000 employees, it’ll have the biggest headcount within the Mahindra empire, much like Tata Consultancy Services inside the Tata group. Ever since Mahindra picked up Satyam Computer Services in 2009 in a sell-off orchestrated by, among others, Karnik after its founder-chairman, B. Ramalinga Raju, confessed to fraud, the merger was a given. The new entity will upset the structure of the industry and there are many questions about how it will behave. Mahindra’s Nasscom speech is a good place to start looking for answers.

Back then, Mahindra spelt out an industry weakness: “There are still many IT companies in India who define success as ‘we want to be one of the top 10 Indian IT companies’. Why not, for example, ‘We want to be the world’s No. 1 banking back-office solutions provider’?” It was a question about identity—and a fascinating one for Mahindra today. In 25 years, Tech Mahindra has distinguished itself as an IT specialist in telecom and network services. Must this be diluted after merging with Mahindra Satyam, which sells IT services to manufacturing and engineering clients? Then there are questions around innovation, a topic Mahindra thinks deeply about. Indian IT hasn’t been known to be very innovative. How far will the merged Mahindra entity push the needle on that?

The contours of this corporation, or rather, the rationale behind the merger, size, employees, legacies, clients, locations, margins, etc. are all public. But its strategic direction—an outcome of how the senior management thinks, its shared past, the people it hires, the companies it buys—isn’t. A Mumbai-based analyst, who didn’t wish to be named, says, “It is also not clear if the telecom-focussed Tech Mahindra leadership has the wherewithal to manage the new industries that Satyam serves.” An obvious corollary: Should they, and if so, how? All of Tech Mahindra’s revenues come from telecom.

Mahindra isn’t thinking up answers alone. By his side are Tech Mahindra vice chairman and Mahindra Satyam chairman Vineet Nayyar, CEO Chander Prakash Gurnani, and IT sector president Ulhas N. Yargop.

Vineet Nayyar, 73, began his career as an Indian Administrative Service officer, held senior positions in the public sector and the World Bank, and entered IT in 1996 when he joined Shiv Nadar’s HCL Technologies. He rose to vice chairman, and oversaw a joint venture with the U.S.-based Perot Systems: HCL Perot. Gurnani, a founding member of HCL Perot, eventually became chief operating officer there. Nayyar and Gurnani joined Tech Mahindra in 2005 after Nadar exited HCL Perot. Over time, nearly 400 executives left HCL Perot to join Tech Mahindra.

Yargop, 58, took a different route. A Harvard Business School alumnus like Mahindra, he returned from the U.S. in 1992 and joined the Mahindras. He then led the Mahindra Ford joint venture and, since 1999, has overseen the IT business, particularly managing the relationship with BT (British Telecom). (Tech Mahindra was formed in 1986 as a captive tech back office for BT, which took a 40% stake in it, progressively down to 9% now.) After Nayyar and Gurnani joined, he became more hands off, and participates more at the board level. For the Mahindras, a federation predominantly in automotive, farm equipment, steel, and construction, Yargop has been the enduring link to the new-economy IT business. Internally he is often described as “the eyes and ears of Anand Mahindra in IT”.

WE WILL  (Clockwise from top) Amitava Roy, Sujitha Karnad, and L. Ravichandran of Tech Mahindra, with Mahindra Satyam’s Karthikeyan Natarajan, whose engineering services will lead growth in the merged entity.
WE WILL  (Clockwise from top) Amitava Roy, Sujitha Karnad, and L. Ravichandran of Tech Mahindra, with Mahindra Satyam’s Karthikeyan Natarajan, whose engineering services will lead growth in the merged entity.

So, as the merger plays out, Yargop will be vital to the strategic direction of the company as he understands M&M’s DNA the best. “We bounce almost all issues off him for a group-level perspective,” says Nayyar.

Nayyar’s role will be crucial in handling Mahindra Satyam’s legal discourses and liabilities, as well as overseeing operations and financial management of the integration. He saved Mahindra Satyam Rs 600 crore in the past two years through early termination of long-term leases signed by its previous promoters in India and abroad.

That frees up the energetic Gurnani (he travels around 300 days a year) to grow the business. Those who know him say he is comfortable in his own skin, and aware of his limitations (operations and building processes), and strengths (fantastic with employees and customers). At a management committee meeting in October, one of his sales heads mentioned that a leading competitor had appointed an industry veteran to service its top 30 clients. Rather than fret over those clients, Gurnani quipped: “Tell me who their next 30 clients are.”

The Bangalore-headquartered competitor, he observed, was locking up critical resources on the first 30 clients, and paying less attention to the next bunch. While his marketing team came back with the list of prospects he had asked for, human resources swung into action to beef up hiring of managerial and consulting talent to win those customers.

It’s a curious assemblage, if only because there will be four heavy-hitters (including the owner) to oversee the birth and early years of one new company. Those who think Mahindra would be content with just providing advice, better think again. The head of a Bangalore-based IT sourcing advisory says Mahindra has been the best antidote to Satyam’s fraud-ridden reputation. “Post Satyam, Anand had to spring into action,” says Yargop. “He did a lot of customer meetings, engaging with employees and stakeholders of M-Sat [Mahindra Satyam]. Apart from the business, it has brought a lot of goodwill to the group, which is why it is dear to Anand’s heart.” Ordinarily, this would have led to a power struggle, but Mahindra is genuinely good at working in a collaborative manner.

Take the talk around innovation. Mahindra believes that Indian IT has yet to make breakthrough technologies (at the Nasscom speech he’d asked if the sector was “truly innovative”). “Anand strongly believes in innovation that is based on attractive product design and embeds cutting-edge technology,” says Vijay Govindarajan, professor at Tuck School and an influence on Mahindra’s thinking on innovation. Nayyar maintains a different opinion. “We must not mistake innovation for invention,” he says, citing Austrian economist Joseph Schumpeter on innovation (“new combinations” of new or existing knowledge that can be commercialised).

“Look at the globe—innovators are different, those who make money are different,” Nayyar says, referring to European companies innovating (audio and CD technologies) while the South Koreans and Japanese make money out of them.

THE INTEGRATION HAS had its shocks. In August 2010, Sanjay Kalra, an executive who had grown in Nayyar’s HCL team since 1997, quit as Tech Mahindra’s CEO after nearly six years in the company. Kalra was also the architect of the growth in the BT business. Insiders attribute his exit to the toll that the senior management restructuring took on him in the post-Satyam days. In April 2009, Gurnani was assigned Mahindra Satyam and Kalra was given Tech Mahindra. Nayyar quickly moved five top managers from Tech Mahindra to Mahindra Satyam, including chief operating officer Rakesh Soni. That stabilised Satyam but increased demands on Kalra. This coincided with cracks in the relationship with BT, which was dealing with liquidity woes in troubled Europe. By then a 28% shareholder, BT contributed to 50% of Tech Mahindra revenues.

Meanwhile, Gurnani and Nayyar were turning around Mahindra Satyam, which was in the public eye. Insiders say the dice were loaded in Gurnani’s favour to become CEO of the combined businesses. Kalra eventually quit, and Nayyar took executive charge at Tech Mahindra.

By 2011, the boards and top management figured roles needed refinement. Nayyar was getting pulled into out-of-court settlements and compliances with the U.S. Securities and Exchange Commission because of Mahindra Satyam, and he needed to be freed up. So in 2012, with the merger just a year away, Gurnani was given charge of both outfits. He was flanked by three old HCL hands: Rakesh Soni and Sujit Bakshi, and Amitava Roy, who joined Tech Mahindra as chief operating officer. Roy, until then with Bangalore-based Symphony Services, was once at HCL Technologies and would often compete for deals with Gurnani (HCL Perot). Soni was in charge of optimising costs at Mahindra Satyam, Bakshi managed BPO services, and Roy took over Tech Mahindra operations.

In effect, it’s an HCL old boys’ club that’s steering the merger. During integration, promoters have to cope with two teams which don’t know each other and protect their turf. “It is easier for us because we have the same set of people running both companies,” says Yargop.

Bakshi says he began integrating operations and processes “from day one”. Since then, he has hired over 2,000 people and acquired vCustomer and Hutchison Global Services. “We have done all this without relocating employees.” Between Mahindra Satyam and Tech Mahindra, the BPO business has more than 28,000 people. Hari T., Mahindra Satyam’s chief people officer, says around 1,000 engineers move between the two companies every quarter, depending on project requirements.

The harder part will be building the rest of the team. In January 2009, when Satyam founder Raju was arrested after admitting to fraud, there was a massive exodus. In 2009 and 2010, attrition rates were at 40% (peers clock employee attrition at 11% to 15%). From over 40,000 employees in 2008, headcount fell to around 25,000. By September, it had climbed back to 36,787. Only two of the 13 Satyam executives reporting to Raju have survived: Hari and chief technology officer A.S. Murty. Three managers who quit have returned as senior vice presidents.

There’s a lot of thought going into filling up the critical cadre of vice presidents, senior vice presidents, etc., who manage and grow accounts. Mahindra Satyam didn’t fill every opening in the aftermath of the scam—it’s waiting to see positions that will stay vacant after the merger. But the interviews have begun. Senior executives, who have witnessed, say, Wipro’s, Cognizant’s, or Infosys’s journey from $3 billion to $6 billion, are being interviewed. A typical question asked is “for such growth [at Tech Mahindra], what would they do differently”, says Sujitha Karnad, HR head of Tech Mahindra’s IT services. It helps in building a cadre that can identify what works and what doesn’t. “If they didn’t have the power to influence decisions, would they have wanted more control? As a bystander, what did you learn about initiative and risk-taking? That is what we probe,” she adds.

There’s an emphasis on tempering HCL’s style with the Mahindra way. Nadar liked creating a contest to build leaders. He would get managers to challenge the existing view of a business with an overriding sentiment of ‘may the best man win’. The person who won would expand his role, while the man who didn’t would inevitably start something new in HCL. Nadar won either way and kept discovering new entrepreneurial-minded executives.

Mahindra wants managers who can build consensus. During board discussions he talks about building “a cool organisation”, where teams function like social network communities and promote the idea of evolving together.

MISSION TOMORROW (From left)  Pankaj Chandra, Ashutosh Mishra, Ujjwal Prakash, and Chaitanya Potukuchi are on a fast track at Mahindra Satyam because of the Global Leadership Cadre. 
MISSION TOMORROW (From left)  Pankaj Chandra, Ashutosh Mishra, Ujjwal Prakash, and Chaitanya Potukuchi are on a fast track at Mahindra Satyam because of the Global Leadership Cadre. 

IT IS HARD TO MISS THE Mahindra way in IT on three counts. One, the emphasis on specialisation: telecom services. Two, hunger for acquisition (see timeline). Or as Mahindra said in his Nasscom speech a year before buying Satyam: “By acquiring the strengths and skill sets you need, you will regroup your profile and create a new entity.” Three, the relationships with global partners. Tech Mahindra gained process and industry knowledge from BT, not very different from how M&M learned from Detroit-headquartered Ford in the ’90s.

“In everything the Mahindra group does, we are specialists in something,” Yargop says. “The rationale is to be No.1 in that specialisation.” Utility vehicles (UVs) are a sharper bet than automobiles; tractors than agricultural products; and holiday resorts (Club Mahindra) instead of star hotels and lodges. Mahindra isn’t obsessed with this idea, but he has seen its value in the early stages of a business. In 2008, M&M backed out of the bid for Jaguar and Land Rover brands because it wanted only Land Rover. Until then, Mahindra Auto had indigenously designed and made just one SUV, the Scorpio. From 2009, it released the Xylo, XUV 500 and, most recently, Quanto for different target markets. In 2010, it acquired South Korea’s Ssangyong Motor Company for premier customers. With its SUV pedigree established, Mahindra Automotive is bidding for Aston Martin, an iconic car brand, even as multinationals bring in more affordable SUVs into India. The Mahindras’ entry into cars could be its biggest statement yet.

Will something similar play out in IT? That’s not easy to answer. A former Forrester Research analyst in Minneapolis, the U.S., says that for an IT firm to be a specialist means taking a couple of industries, and developing expertise in them. “After the 2008 global downturn, when clients had to decide which vendor to drop, it was an easy decision: the generalists.”

Nayyar says: “We wanted to be 1 mile wide, but 10 mile deep.” By 2007 though, he realised the vulnerability of telecom. While Tech Mahindra revenues grew over 40% to $935 million in FY08, it flattened thereafter, taking the company another two years to clock a billion dollars in annual revenue. The telecom industry itself faced challenges in the recession-hit developed market, while Tech Mahindra depended on BT as the top client contributing over 45% to its business.

Even today, while it has the largest share of BT’s IT spends, competitors such as Bangalore-headquartered Infosys have found openings in BT. Tech Mahindra, meanwhile, has bagged other clients—network equipment players such as Nokia Siemens Networks and Alcatel Lucent, and telecom operators AT&T, Deutsche Telekom, and KPN.

Though the markets did not like the extreme focus, Nayyar persisted with telecom. “Today, whether a telco needs solutions in network, IT, or mobility, Tech Mahindra can run the complete back office,” says Gurnani. The question is: What will be ‘core’ in the merged company, given Mahindra Satyam’s presence in multiple industries. “Instead of dissipating our focus, we will pick two areas, and be No. 1 in those businesses,” says Nayyar. “We will do in engineering services, for example, what we have done in telecom with Tech Mahindra.”

Mahindra Satyam’s clients are Fortune 500 manufacturing companies in auto, aerospace, industrial equipment, and metals and mining. In FY12 they accounted for 35% of revenue. Besides engineering services, there’s enterprise business solutions (EBS) too.
With engineering services, IT players innovate and design processes for manufacturing clients to make them more efficient. For example, they build solutions to streamline product development for an automaker, or prototyping to reduce the cycle time for an aerospace company. On the EBS front, Mahindra Satyam partners with software developers SAP, Oracle, or Microsoft to implement projects in client companies. This has traditionally contributed to over 45% of Mahindra Satyam revenue. It has built a strong consulting layer to help clients before and after implementation.

Based on the revenue share of Mahindra Satyam and Tech Mahindra in 2011-12, the merged entity will see 40% to 45% revenue from telecom and 18% to 20% from manufacturing. “The focus on engineering and manufacturing ties in what we do as a group,” says Nayyar. “There are only two IT companies—the Tatas and us—who have that kind of spread.”

So, a typical Gurnani pitch focusses on how Mahindra Satyam manages IT projects at M&M’s auto plant. “It highlights our industry expertise in manufacturing IT and supply chain, which are global issues today,” he says. For example, Mahindra Satyam and Mahindra Aerospace (aircraft design and manufacturing) are in advanced discussion with a global aerospace manufacturer for designing its parts—Mahindra Satyam will work on the component design, while Mahindra Aerospace will be responsible for manufacturing it. These days Gurnani’s favourite buzz-phrase is “art to part”, meaning from design to manufacturing.

Media and entertainment, and financial services will contribute another 12% each in the merged entity. The rest will come from newer industries such as retail, logistics, and health care. Analysts are happy that the new company will have diverse revenue streams, but surprised at telecom leading the way. After all, banking, financial services, and insurance (BFSI) typically contribute 35% to 40% revenue of the top firms, serving as a bulwark, particularly in a hard market.

Nayyar admits it’s been a tough choice and that IT budgets are highest in BFSI. “But again, can I beat TCS in BFSI? I don’t want to be an also-ran in one industry, when I am leading in others,” he says. But given M&M’s penchant for buyouts, don’t be surprised if it picks up a BFSI specialist.

In 2011, Tech Mahindra also began injecting the telecom serum into Mahindra Satyam’s business opportunities. Of the latter’s 215 large clients, almost 100 are across manufacturing, media and entertainment, health care, financial services, and retail industries. Tech Mahindra has begun mining these accounts in four key areas—analytics (to quantify business trends), cloud solutions (to store data and apps for media clients), mobility because its clients in retail or financial services have employees and customers who use tablets and phones regularly. And fourth, Mahindra Satyam clients may also want to get more out of secure networks, which Tech Mahindra has traditionally managed.

RENAISSANCE MEN (From left)  Manish Mehta, A.S. Murty, V. Srinivasa Rao, and Hari T. survived the most trying times at Satyam, after founder Ramalinga Raju’s arrest, to tell the tale and lead a resurgence.
RENAISSANCE MEN (From left)  Manish Mehta, A.S. Murty, V. Srinivasa Rao, and Hari T. survived the most trying times at Satyam, after founder Ramalinga Raju’s arrest, to tell the tale and lead a resurgence.

This strategy is known as ‘NMACS’ (networks, mobility, analytics, cloud, and security). It harnesses Mahindra Satyam’s clients and Tech Mahindra’s expertise in deploying IT and network systems for telecom carriers and equipment makers. NMACS, as a technology capability (as opposed to being an industry specialisation like telecom), will contribute 18% to 20% of revenue by 2015. That year the Mahindras’ targeted annual IT revenue is $5 billion. “Simply put, the idea is to cross-sell and up-sell the telecom expertise across industries,” says Manish Mehta, global head of Mahindra Satyam’s verticals. This has already begun.

THERE IS A LESS obvious quality of the Mahindra way. In its automotive business, you might call it “frugal engineering”. It is essentially about cost management. This has been the strongest thrust the Mahindras as promoters have made in the Satyam business after seven years of Raju reporting inflated revenues and profitability. Nayyar recalls, “When we acquired it, there was no fiscal discipline. In a company where income was inflated, any project delivery or implementation was made to look like it contributed to the overall 30% to 32% of reported operating margins. My big issue was how to change this culture of resources being seen as free goods.”

In the past, where a task required two people, five software professionals were thrown in. The message Nayyar and COO Rakesh Soni sent out to employees: Each of you may be a technologist or project manager, but more important, you are a businessperson. “Just because you are doing the project doesn’t mean a thing to me if I have lost 30% to do it,” Nayyar says. This is a classic Mahindra method (more apparent at the R&D centres of its SUV business) of optimising performance and enhancing quality.

In effect, the age of affluence was replaced by a culture of reason and prudence. Where Raju’s Satyam hired a Mercedes-Benz or BMW to receive clients, the company now uses its own Scorpio, Xylo, or Verito. Earlier, events were held in large hotels at Rs 10 lakh to Rs 15 lakh; this year’s Diwali party for employees in Hyderabad hosted 2,000 people on its campus. “I don’t think employees knew that we were not making money,” says Hari. “For us, 2009 to 2012 was a revelation—we weren’t making any money—and today, we think a lot more about why we are deploying a certain resource and how to use the resource better.”

Almost everything today is done at one-tenth the cost. At least, that is the mindset before action, and a reason for Satyam’s improved profits. After two years of losses and a 15% operating margin in September 2011 quarter, the corresponding figures have been 22% and 21% in the June and September quarters this year.

A lot of this has to do with the credibility and corporate governance that the Mahindras restored in the past three years. And the Street has taken note. Tech Mahindra had raised debt to infuse cash in Satyam, says Ankita Somani, research analyst at Angel Broking in Mumbai. “Post merger, Tech Mahindra will become cash positive because its debt is actually cash in Mahindra Satyam. The management is also looking at other industries apart from telecom.” It is why in recent months, stock brokerage firms have upgraded the stock among its mid-sized peers.

When Nayyar heard Mahindra’s much-lauded Nasscom address, he loved it. But he warned him that “the speech would come back to haunt him”. Mahindra could afford to sound the outsider in early 2008. Now he is at the epicentre of Indian IT.

Mahindra signed off at the Nasscom Leadership Summit with these words: “My father thought the world would be the same; my children, however, wake up every day thinking the world will be different. Let’s begin emulating our children. Time to wake up and make the world different.” Now he’ll have to make it happen.

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