The future for our industry will be autonomy computing: Jeya Kumar

At a time when IT services firms in India are adopting newer ways to deliver service to clients, Jeya Kumar, chief executive officer of Patni Computers, is betting on the traditional ways. In a conversation with DNA, he discusses how Patni will differentiate in itself from others. Excerpts:

How is business?
Good. I think everybody feels that we can see the sun. It is brighter. Last year, it was behind the clouds

You joined when the sun was just setting on the global economic scenario…
Yeah, I joined February 1, 2009, right at the time of crisis.

What was going on in your mind  and among the employees when you joined Patni?
I think me coming into Patni was a major change for the company. Naren founded the company and scaled it up for over 30 years.

This is the first time that somebody is coming from outside. This is the oldest independent IT service company. Naren has done a fantastic job in bringing the company to where it is. Personally, for me, it was fulfilling for it was right at the bottom and so it could only go up. It meant more upside.

I think it is also the most pioneering company. We did not loose a single customer during those years. We did cut down on tail accounts, which were small new clients.

When you joined, there was talk about the promoters looking to exit. Investor confidence was also low. But things have changed in these last one and half years…
There were no skeletons in this company. Employees here have stayed for over 20 years. That’s a huge asset. What was needed was a clear vision. The culture had to be a winning culture. We focused on three things. One was to increase coverage, two to align our portfolio and three to drive our operating levers.

Organisational culture is actually a shadow of its leaders. Patni has always been a shy company. What we decided was that we have a great story here and there is nothing to be shy about. This is perhaps the only company that had external auditors when it
was private. We internally got our act together. I don’t believe in the pendulum culture — in good times, have one culture and in bad, another.

So we took out a lot of costs. We took out about $30 million. We cut down the bench. We brought down non-performers by 10%. We went tight on capital expenditure. Travel last year saw $7 million of savings. We institutionalised it. These will be for good times and bad times. It was painful for a company where staff reduction was not the norm.

Will this be pendulum culture too?
No, this is the right model and will remain forever, even if we grow at 200%. Last year we hardly gave salary hikes - just 6-7% and only to the top 25%. We did that in July last year. That was one exception. Now we won’t hold back salary increases.

So salary hikes will be better in good times?
It depends on general growth. It will be productivity-led, henceforth. We are building a dynamic scorecard which will be ready by September. So top executives will be paid based on their quarterly performance. It will be aligned with company performance.

Shades of pendulum culture here?
No, it’s about cutting costs. There will be no unnecessary costs. The unit of measure does not change in a dynamic scorecard. Externally, we are ramping up communication. We have able to deliver to investors and media.

You said you cut down on small accounts, but those accounts kept the revenues moving for most IT firms…
These are new accounts which start with small amounts like $100,000 to $150,000 a month of sorts. So we thought to focus more on the existing business, both in terms of depth and width.

Some IT firms are now adopting new engagement models by taking up costs on behalf of clients. Are you looking at it?
I don’t think that is a right approach. It may have been started by some of the big foreign players, but look at their margins - they’re not sustainable. The traditional model of outsourcing is going to remain for a long time. See, the differentiation between global and Indian players is getting blurred now, in the sense that global players were primarily outsourcing vendors.

What the Indian players were doing was outsourcing and offshoring. But now all have moved to the offshore model. So differentiation is much lesser. But if you decide to move to a more asset-based outsourcing model, then I am not sure. Look at the European outsourcing companies. Look at their margins, they are much lower.

So fiddling with the traditional outsourcing model won’t work?
No. I don’t know whether it will take five years, 10 years or 15 years for this to happen. I think the answer is we need to be innovation-led. The rest of the world is looking at how do we do more work with less people. We are the only country perhaps, other than China, which is looking into how we can do more work with more people. Ultimately, you have to sell to your customers.

But the industry is moving away through non-linear means such as cloud computing and pay-as-you-go. Even Patni is doing that…
No, not really. I need to further automate my delivery. I have to make sure that the routine work I do is automated. Today, even if you look at a single vendor and ask, how many applications do you have to manage in a business? It will take a week to know because there are so many applications a business manages.

What you are saying is ‘What you do, I don’t care, just deliver me this’. To me that, is long time away. We studied the model in terms of software as a service (SaaS). Will every thing happen through SaaS? Probably not, because if you look at companies when they implement any kind of enterprise application, bulk of their cost comes from consulting and customisation.

The bigger the company, more is the customisation. Now having spend these hundreds of millions of dollars in customisation, will the business throw it away and go for vanilla applications? It won’t happen. Every ERP implementation you see, customers will spend more money in customising. The differentiation will be on the experience you provide to customers. It’s all about a complete utility model, but this will take a long time.

Not sometime soon?
Not in my lifetime. I hope to live for a while. It will happen, but the question is at what rate and how fast.

Today you have competition coming from unexpected quarters such as Google or Amazon, which makes it necessary to change the delivery model. Just the way camera makers Canon and Sony face competition from Nokia…
If you look at Nokia, it was first a rope company, then they moved to paper and thought paper and communication has a link, so ultimately, to communication. So if you study innovation, it happens only once, perhaps the only exception being Apple.

Innovation will happen. I believe the future for our industry will be autonomy computing. I don’t know when it will happen, maybe 15 years, but not from India. I think it will happen from some small country. It will be self-healing systems in software as well. For instance, when there is heavy load, you might have to change your settings of the system. So, things like adaptive computing are the way for the future.

One company in the US I know of — IP Soft — is doing something like this. They invest 60-80% of their profit in engineering and R&D. They are privately held, so there is no pressure. Which Indian company will do that? Innovation always happens in a company which has no risk of today. Big businesses of today are always worried about this quarter, this month, stock price and all.

So then in Patni, we won’t see much innovation?
We are small enough, but we will innovate.

I see…
No, no, I am telling you that’s a challenge that we have. Something that we recognise upfront. And what we have done is to internally ask for people who want to take engineering as a path. We have identified about 100 employees who we are putting through assessment tests to find out whether they doing this for a promotion or to make a difference to the company. And we are taking some of our best billable guys and putting them into non-billable roles.

That can’t be good for you…
Why? See, investing in my future is more important than just seeing my cash flows. So how can that be bad?

You are taking off your best billable guys...
Best is a question of how many best I can produce. It’s not like these 100 people go and there won’t be any other best 100. I will get the next 100 people who might be 75%, so I will invest in them and they would be best in time. Solving for this month, this quarter, is good for the investor, but investing in future is important for the long term.

What percentage of profit does Patni put into such approaches?
I don’t want to run this like CSR (corporate social responsibility) thing by saying that 1% of profit goes into it. I think investing in future is extremely important. So of those 100 people, a
few will do engineering things and the excess will go to the customer-end and advise them.

That’s more like consulting?
No, that’s advisory, and it’s for free. It’s not billable, it’s pure investment. So they will ask customers, ‘Where do you want to go?’ Suppose the customer says, ‘In 3 years, I want to consolidate 15 applications into one’. So I am willing to invest, whether it is consulting skills, domain skills or solution skills, to come and tell the customer that I can do it and do it for free. I will also do customisation. No hidden agenda.

Is it an effort to ensure the customer stays with you?
It is more supplier loyalty. Look, gone are the days when you ask whether your customer is paying in time. Now you ask whether your customer is going to survive. If you want to be a player, then help your customer survive and do help them transform themselves. These are the two areas we are investing. I am very clear in my mind that the future of our industry is going to be innovation-led and not people-led.

Innovation needs to be a verb and not a noun. It’s not hiring somebody with a designation of chief innovation officer signing innovation alliances and nothing really comes out to solve for industry or customers.

So it’s not to do with number of IPs you have…
You can’t put a sticker on my drawer which says chief innovation officer and all I do is to run projects for the company and don’t produce innovation. For 40 years, when you don’t do work for your customers that is billable, you are in the bench. Now, we are saying ‘What you are doing is good but I do not want to bill you because I need your skills to build the company of the future’.

Are these things to do with time & material and fixed-price mode of engagements?
Our fixed-price business has gone up from 36% to 42%. So fixed-price gives us an opportunity to track our operating levers. If you innovate there, if you find less people to do your work versus flattening your pyramid to do the work, the choice is clear. See, today, we make money on fixed price by hiring more freshers than laterals. So my approach is having fewer people, period. Not cheaper resources, but fewer people. That’s the way the industry will go.

So increasingly you will hire less…
I think the industry will hire less. More than hiring less, it will be non-linear growth. It is not about one person earning one dollar, it will be how can one person earn 10 dollars?

All IT services players approach business the same way and offer almost the same things. How do you differentiate?
I think the engagement model, number and depth of domain expertise, rate of innovation will be some of the factors of differentiation among Indian IT service players, going forward.