deal architect

Mahindras and Satyam

Tech Mahindra has won the auction to get a controlling stake in Satyam.

The Mahindras are a respected Indian business house but when it comes to services I have always felt they have too many fragmented – and smallish - units. They have Bristlecone, a supply chain and SAP services acquisition from a  few years ago; Logisoft focused on dealer management; vertical services embedded in their finance, farm equipment and automotive divisions,  a horizontal “Special Services group” which does risk management and other strategy work, and now the Tech unit a joint venture with BT, will own the stake in Satyam.

With Satyam shareholder lawsuits, customer and employee defection they will have their hands full – but if the new-found Satyam scale forces them to rationalize their services a bit, it will be a pleasant payback the market is not crediting in their acquisition decision.

Satyam: "Like riding a tiger not knowing how to get off"

Shockwaves have roiled Satyam for the last few weeks, but the big one just hit.

Chairman Ramalinga Raju resigned after saying the company falsified earnings and assets. The filing with the Bombay Stock Exchange is here.

"The gap in the Balance Sheet has arisen purely on account of inflated profits over a period of last several years ...What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years....Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a take-over, thereby exposing the gap....The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas’ investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam’s problem was solved, it was hoped that Maytas’ payments can be delayed. But that was not to be. What followed in the last several days is common knowledge."

Appears riding the tiger turned out to be a fatal adventure...

The Curious Case of World Bank and Satyam

The rumors have been floating for weeks that Satyam was in trouble at the World Bank. Supposedly, it was related to security breaches.

But now the World Bank in an official clarification says it was for "providing improper benefits to Bank staff and for failing to maintain documentation to support fees charged for its subcontractors."

In return, Satyam says it is evaluating "all possible options" related to the " inappropriateness" of the World Bank statement.

Lots of questions: What really happened? Why did the Bank wait 3 months to issue that statement? Did it need to make a public statement at all (contracts get terminated all the time, but rarely are there official disclosures related to them)? Was it obligated to do so after Satyam's recent board fiasco? Will regulators jump in and review Satyam practices?

I can see why Satyam would want to cut this off - as we have seen with Siemens over last few years any regulatory review of "influencing procurement processes" can be a debilitating process.

But it sounded like the perfect hedge

Opposites average out - correct?

Courtesy of Krishna Mony, I see that Maytas is the mirror opposite of Satyam.Perfect for diversification - you would think.

But investors hated plans for the Indian outsourcing firm, Satyam to spend $ 1.6 billion to merge with affiliated construction companies called Maytas.

Update: Brian Sommer provides a broader perspective including a lawsuit in Texas against Satyam

Oklahoma is OK

I had a chance to catch up with Armando Viteri, CEO of neubloc (one of the sponsors of the New Florence blog). Neubloc provides outsourced R&D and IP development services to tech vendors.

Business grew 150% last year. Not shabby - helped by the fact they expanded from Poland to Latin America with centers in Argentina and Ecuador.  

And one in Oklahoma City.

3 years ago, jetlagged in Bangalore,  a CIO asked me why I could not find him reasonably priced, "rural sourcing" vendors in the US. Now I have a vendor he could consider.  With a growing footprint in other global villages.

Hungarian Hospitality

EPAM, one of the largest outsourcers in Eastern Europe, was poised to go public a few months ago. Instead, they have raised $ 50 million in private equity. I have enjoyed their hospitality in Budapest a few times (though one of the attractive things about the firm is their staff is diversified across Belarus, Ukraine and Russia.)

In other news, Steve Ballmer enjoyed a different kind of Hungarian hospitality. Zoli, an alum of Corvinus U where the incident occurred, naturally has coverage.

Forrester on SAP Services firms

A reader shared with me this Forrester analysis of 16 firms with large SAP practices.

Not many major surprises in the choice of vendors they evaluated ((In SAP services evaluations I have been involved with over the last few years, I have seen proposals from all the firms in the survey other than Neoris) , though I would have included EDS and an East European player like EPAM. I would also have evaluated SAP's own (and fragmented) consulting resources since they play a role in just about every project. But, not surprised to see Accenture and IBM lead globally, and Satyam and Wipro from the Indian firms.

Four things I would have weighted more heavily in my ratings:

a) More of a focus on support and maintenance, and by extension BPO. This is a mature market and most deals I see now are post-implementation, SLA based deals which have an upgrade or implementation project component. From that lifecycle perspective firms like TCS, and the specialist Intelligroup would do stronger.

b) More of a focus on verticals. The survey focus is much more on functional components - ERP, HCM etc, whereas most implementations I see have a significant vertical emphasis, and often implementation of SAP's unique industry extensions. From that perspective, Infosys and Cognizant would do better in selected verticals.

c) Focus on upgrades. The hottest "project" in the SAP ecosystem in moving customers to ERP 6.0. It has been a slow slog for SAP to convince its customer base to move, and many are doing lateral upgrades taking minimal advantage of the services oriented features SAP offers in the version. But if that is what the market wants, SAP and its partners should be offering lots more vanilla upgrades at fixed price offerings. Many of the firms in the survey turn their noses on such small projects, but is the most immediate need in the customer base.

d) Lot more overall emphasis on economics. The 16 firms claim to have 80,000 SAP consultants and have done over 4,000 projects in just the last year (and in my estimation over 50,000 projects in the last decade). Most also have significant offshore capabilities.

This is one mature market and yet SAP and its partners still want to attach a "premium" label to these services as I wrote in The SAP Egosystem. With the report aimed at "Sourcing and Vendor Management professionals", I feel Forrester should be debunking that myth and probing rate cards, inflation rates, implementation productivity (shocking how little productivity firms are willing to share even while bragging of thousands of SAP projects in their bag) and continuous improvement on multi-year deals a lot more.

Look who else is going after consumer eyeballs!

Satyam, the large Indian vendor, is going to sponsor FIFA. Smart move as IBM, Accenture, others have found in past: Enterprise buyers are also sports fans.

"Rama Raju, co-founder and chief executive, says the World Cup gets a better audience than the Olympics and could be particularly powerful in building awareness in Europe, which accounts for around 23 per cent of Satyam's revenues."

Go on, Satyam. Be a tiger!

Let's just give everyone title of VP

So, Prabhat who wrote a guest column on his "second generation" outsourcing firm, sends me a note that Nasscom has recognized his firm, Anantara, as one of its most innovative. And I go - good for them. I hope some of the elusive Indian software (not services) firms also show up on the Nasscom list.

The list is 100 long and every major Indian outsourcer is on the list. And a vendor like AdventNet which makes the Zoho set of SaaS tools does not deserve to be?

Sounds like promotion day at the bank. 80% of employees are now Vice-Presidents, er Innovators...

Take advantage of the bounty!

I was reading Brown-Wilson's list of 50 Leading Outsourcing vendors and it hit me how much choice buyers do have when it comes to IT and BP Outsourcing. A quick tally of outsourcing transactions I have been involved in the last 3 years showed my clients had in their "long lists" 26 of the vendors in the Brown-Wilson list, and probably another 50 which do not show there.

If you are a CIO looking for IT infrastructure services, if you are a CFO looking for F&A BPO services, if you are a ISV CTO looking for product engineering services in India, or in E. Europe - each vertical, geography, service line has so many large and boutique providers.

Of course, you can have analysis paralysis. I presented to one client a long list and analysis on 30 vendors and someone in the audience asked "who else should we looking at?"

I cannot wait for similar market fragmentation as we move to SaaS in the software market and disruptive players in telecoms and hardware services in the cloud. As I wrote - often players from out of left field.

Vive le difference!