This issue of confluence features an interview with Mr. Anand Sudarshan, CEO of Netkraft Private Limited. Netkraft is a Bangalore based software services company and have made a mark by focussing on the Retail and Health care industries. We thank Mr. Anand Sudarshan for his valuable insights.

1. When India started providing IT services, companies approached the market with the philosophy of being “anything for anybody. Today, more companies are talking about focus and targeted marketing. Does this indicate a maturity in the supply chain, or is this more a market compulsion (driven by the need to somehow differentiate yourself)?
   
   In some respects, it is a combination of both. Let’s look at the market in three distinct phases. First, when the concept of offshoring was new to the international market (particularly the US market), business could be acquired only through responding to the needs of the prospective customer, which inevitably meant Indian companies did whatever the customers asked for. In addition, several Indian companies employed a go-to-market strategy by allying themselves with large technology providers, particularly in the US – which again meant that that skills provision had to be along the lines of what their technology partners (who had the client relationships) demanded. Second, as offshoring began to mature and Indian companies started riding waves (Unix, ERP, Y2K, the Internet boom), demand was far in excess of supply – and horizontal growth was the natural outcome. Three, as the market corrected itself rather spectacularly in 2001 / 2002, the demand-supply relationship reversed itself; which naturally meant companies had to start differentiating themselves to be able to get and hold on to business. In parallel, technology waves (which came one after the other, with practically no gap in-between) subsided, and a more mature market outlook emerged – thus giving companies time to settle down and work on a more rational basis. Net result – segment focus, targeted marketing, high attention to customer retention, and more mature & sophisticated marketing & selling strategies. 

2. Given that midsized companies need to necessarily adopt a focused strategy for growth and success, what are all the factors that an IT service provider needs to bear in mind to achieve this?

Mid-sized companies have, in some senses, the maximum opportunity and the highest level of pressure. Let me explain – clearly there is a consolidation that is on in the IT services marketplace. Customers are rationalizing their vendor relationships, and limiting such relationships to a few, naturally gravitating to larger players. Most mid-size companies had built their successes at the time when market demand was high, which essentially meant relatively low investment in sales & marketing – and today when they are faced with a much more competitive market scenario, the lack of sales & marketing is hurting them. There is the natural consolidation pressure amidst services companies (more visible in the US market) as mid-size companies are striving to match the advantages of larger players by matching them for scale.

At the same time, mid-sized companies have the best opportunity as well.It is clear that one critical element of future success for solutions & services companies is going to be achieved through their domain competence. And creating such a domain competence in organizations is not a mere matter of tweaking marketing brochures and Powerpoint files, or presenting the profile of their delivery assets differently. Right from the manner in which business has to be acquired, through internal management & metrics, through processes, it is a set of deep & significant changes that need to be implemented. Larger companies, with their wildly successful ‘factory’ model of offshore delivery, are likely to find it very difficult to effect these changes easily & quickly – it is simply not in their DNA and constitute too radical a change. Hence the mid-size companies have a wonderful opportunity – they are smaller, their hunger to survive and succeed is greater, and hence much more nimble & agile, the essential ingredients for accepting & implementing change.

Some of the critical success factors mid-size companies need to bear in mind, in my view, are –

(a) careful selection of their focus areas – they have to be market-facing, rather than internal;

(b) conviction in these areas, and the ability to be patient & stick to these areas;

(c) enormous focus on execution – this is really the critical factor #1;

(d) being prepared to make deep-changes in the way they conduct their business – oftentimes this will be one of the biggest hurdles to overcome;

(e) pick and choose their markets & prospective customers, and spend enough & more monies on sales & marketing capabilities – the days companies won business through exhibiting availability of people with technical skills is over;

(f) avoid the ‘cloning’ temptation – a lot of IT service companies have grown through quick & simple cloning of the large companies (this worked when the market demand was higher, not likely to work today); and

(g) watching their financials most carefully – funding is going to continue to be tough, and the longer companies are able to fund their growth through internal accruals, the more valuable they are likely to become.  

3. Take Netkraft for instance, you are now focused on the retail and healthcare spaces. What made you decide on these two verticals? Can you elaborate on how you arrived at the decision?

Netkraft is perhaps one of the first Indian mid-size companies to take the domain route – we are focused on the Retail & Distribution, and healthcare & Life Sciences sectors, and are building capabilities bottom-up for these two domains. We have been focused on retail (particularly in Europe) as a sales segment the last 2 years – as our client traction grew in this segment, it was a natural progression to its choice as one of the two domains to focus on. Same is the situation with Healthcare, except that our client traction is primarily from the US . Retail and Healthcare are both very large industries by themselves – retail is trillion dollar plus in the US & Europe, and Healthcare is a trillion dollars in size just in the US . The technology spending in both segments, therefore, is large enough to matter. Finally, we from our experience and our conversations with the two industries, we realized there are a lot of opportunities for a company like ours to work on value-addition to their business processes through technology. Each of the three is sufficient a reason – together they made a compelling argument.  

4. We have heard varying accounts of user companies preferring to work with larger companies and also heard of companies preferring to work with focused players. In your experience, have you come across these situations and do you see any pattern there? When do customers prefer the scale players and when do they want to work with focused players? 

As the market matures, you have both situations – there are companies that prefer to work with larger entities, and there are companies that prefer focused companies as their technology vendor-partners. In larger user organizations, we are also finding the co-existence of both – larger service vendors to meet the larger outsourcing needs, while focused players to work with them on specific areas of business value-add. There is truly no specific pattern that exists. It is also a function of the needs of the client-side sponsor with whom your conversations are progressing. 12 months plus ago onwards, with the markets suddenly taking a tumble southwards, the instinctive response from companies was to compete on price; larger companies competed even for sub-100 K USD projects. However, today there is a better understanding all around that each company has to leverage its strengths in a given situation, which is leading to more mature competitive dynamics.  

5. India Inc. is just starting to invest in IT systems and modernize their processes. Which industries will be the major spenders in IT and do you see any opportunity for Netkraft in India ?

India Inc needs to invest considerably more in Information Technology than what it has been used to thus far! IT has clearly become a base essential to compete in world-class markets and create world-class work environments. India Inc has also traditionally been wary of investing on software & applications – while this has changed quite a bit in recent times (particularly with the large investments in ERP packages), fact of the matter is the Indian company investment in software & services, is a smaller ratio as compared to hardware, when you pit them against global corporations. 

As regards the two domains we focus on, both are, in many ways, emerging industries in India . There is clearly a lot of attention to the retail sector, as well as to the corporatization & professionlization of the healthcare sector – and both could eventually lead to higher IT investments. We are watching the market carefully, and certainly hope to have an opportunity to address the needs with our capabilities.
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