After 11 years of fast-paced growth in the high-end IT services space, Krishnakumar Natarajan, chief executive officer, MindTree Consulting and his colleagues are chalking out their strategy to reach the U.S. $1 billion mark by 2014
Krishnakumar Natarajan, chief executive and managing director, MindTree Limited (MindTree) has seen it all in his career spanning 27 years in the Indian IT industry. Since co-founding MindTree in 1999, he has donned several responsibilities, from human resource development and roping in additional co-founders to sales and business development in unknown markets. He has lived and worked in four continents and led MindTree’s expansion into four major markets including U.S., Europe, Australia and the Middle East. Natarajan countered the dotcom bubble and the lull in the business world after the 9/11 attacks with interesting strategies that ensured MindTree’s long-term goals were intact. In April 2006, just seven years after it was founded, MindTree reached U.S. $100 million in revenues, the fastest by any Indian IT Company.
When ‘The Smart CEO’ caught up with Natarajan at MindTree’s Bengaluru headquarters in Global Village, he was still raring to go. He is now spearheading MindTree’s ‘Mission 2014’, that of becoming a global leader in IT and R&D (research and development) services, and reaching revenues of U.S. $1 billion by 2014 from U.S. $272 million in fiscal 2010.
The company’s strategy is largely focused on going after innovative service areas. Over the years, in companies like Wipro and Infosys Technologies, revenue growth has been linearly proportional to the number of people they could hire. But, going forward, Natarajan says, “Especially for R&D and product engineering services, growth is going to come from innovative solutions and value-creation for clients.”
Geographical expansion, especially in markets like India and Asia Pacific, is also part of the plan.
The focus area
When Natarajan took over as CEO and MD in March 2009, there were several top-management level organisational changes at MindTree. They created five strategic business divisions; keeping in mind the goal of reaching the U.S. $1 billion mark. The five businesses, viz. IT services, product engineering services, infrastructure management, independent testing and knowledge services, each had independent CEOs. Each of these CEOs had to expand into newer geographies and add expertise in specific areas, quite similar to the strategy adopted by larger companies like Tata Consultancy Services (TCS).
Traditionally, MindTree’s focus has been on the higher-end of the IT industry, where it acted as problem solvers for chief information officers (CIOs) and heads of technology departments. Experts worked together to come up with optimal technology solutions to business problems – anything from helping a client with increasing sales and revenue to reining in costs through efficient processes. MindTree’s service areas, right from day one, were formulated keeping this segment in mind. Today, 80 per cent of MindTree’s revenues are from IT services, while the rest come from product engineering and research services.
MindTree’s fiscal 2009-2010 revenues stand at U.S. $272 million with a profit-after-tax of U.S. $45.1 million. They currently serve over 258 active customers, including 40 global fortune 500 companies. In terms of geography, 62 per cent of their revenues come from North America, 23 per cent from Europe, and 5 per cent from India and the remaining from Asia Pacific. Natarajan says, “This mix is further going to change. We will definitely see a lot of growth from Asia Pacific. Markets like Middle East and Australia are certainly growing.”
MindTree is also keenly focusing on the Indian market. They recently got a high-visibility UID (Unique Identification Number) project from the government of India to build the initial architecture and software platform for Nandan Nilekani’s team. When queried about profit margins in the Indian market, Natarajan says, “Today in India, people are willing to pay for services. At a net margin level, with sales and marketing costs much lower than other markets, India is comparable to other geographies.”
Banking on expertise
MindTree’s primary strategy during a sales pitch is centered on showcasing their deep-expertise in a particular service area. Natarajan says, “We believe that we can gain entry into a client through expertise. Once we prove ourselves, the customer is willing to experiment. For example, in the area of trade promotions management, out of the top ten consumer goods companies in the world, eight of them work with us.” MindTree’s clients include some of the world’s largest companies such as Kraft Foods, Johnson & Johnson, Hindustan Unilever, Volvo and Sony.
In the manufacturing sector, their expertise is in building applications for consumer product companies and automotive companies. In banking, financial services and insurance verticals (BFSI); they have targeted the mid-size banks and asset management firms. Recently, MindTree clinched a project from The Carlyle Group, one of the world’s largest private equity firms, to manage their infrastructure and global data centers. Natarajan is convinced that this approach of building deep-expertise in a particular field will help them forge relationships with new clients.
Innovating on business models
Natarajan believes that the IT services space is now ready to tap into newer revenue models. He says, “A few years from now, the complexity of the business is going to be very different. We are going to see a portfolio of transaction-driven services, intellectual property (IP) services and even ready-to-brand (RTB) products.”
MindTree has already made the early push for these newer business models. Through their acquisition of Kyocera Wireless, MindTree now has the ability to build RTB mobile handsets, which clients can buy, brand and sell. “Building IP and licensing it out to others is a model we are going to hear more about. Today, MindTree is the second largest licensing company for Bluetooth technology,” adds Natarajan. They also recently launched RTB video surveillance solutions that will help OEMs and system integrators launch their own brand of products in this category.
The transaction-pricing model is gaining popularity as well. Recently, TCS got a passport project from the government of India, where they get paid on a per-passport basis. “I definitely see this model evolving further. It provides value to both the customer and the service provider,” adds Natarajan. With most government departments looking to computerise and several public-private partnerships being planned across India, the pay-per-transaction model is sure to become more popular.
A few years from now the complexity of the business is going to be very different. We’re going to see a portfolio of transaction-driven services, intellectual property services and even ready-to-brand products
MindTree is also focused on building solution-accelerators, which essentially are 70 per cent complete IT solutions that can be customised for individual clients, instead of building solutions from scratch. Whether it is transaction-based models or IP-driven services, it is clear that the IT solutions industry is going through a transition. Clients expect cost-effective value-generating solutions and companies like MindTree are focused on efficiently delivering this value through newer and interesting delivery models.
Expanding capabilities through acquisitions
“Our acquisitions are primarily driven by newer areas of business we want to enter,” says Natarajan. Recently, MindTree acquired a remote infrastructure management (RIM) company, 7Strata, purely because they had built an innovative platform to scale up RIM services. Today, RIM-services are people intensive. 7Strata’s platform gives them the ability to scale more efficiently.
A closer look at MindTree’s acquisitions reveals that MindTree is clearly focused on the five strategic business units. It acquired Aztecsoft, a company that was focused on outsourced product development and testing, to enhance their presence in the software product space. The management team from the acquired companies usually joined MindTree, to lead continued expansion in the areas they specialised in.
Natarajan also adds that even when they acquire a company, efforts are taken to help them understand MindTree’s value system. “Ensuring we have a diverse organisation that is still connected is of utmost importance,” he adds.
“From IP-driven services to solution accelerators, in addition to traditional IT services, each of our business units are thoroughly focused towards reaching our goal,” says Natarajan. There is one more thing. MindTree is working towards creating leadership opportunities for people who can take on more responsibilities and deliver innovative solutions to client problems. “Preparing leadership to foster innovation is on the top of our minds,” he sums up.
With differentiated strategies in place and an experienced leadership team, MindTree is well positioned to reach the U.S. $1 billion mark. But, that could very well be just the beginning of a whole new era, where innovation-focused IT companies will thrive and play a key role in developing India further.