Clients are worried Indian IT is not innovating enough: Ganesh Ayyar

With direct business from its biggest client HP on a decline,
IT company MphasiS says it is ready for the challenge.
Ganesh Ayyar, its chief executive officer, says though MphasiS is not capable of chasing super-large deals, all efforts are being made to improve business proposition in areas where it has good presence. He spoke to Suparna Goswami Bhattacharya about the company’s plans and the industry outlook.
Excerpts from the interview:

With the macroeconomic conditions looking gloomy, what are your expectations for the sector as a whole?
A combination of factors is changing the landscape. The current economic climate has resulted in the traditional view of demand going through a compression period. At the same time, I believe there is enough demand to fuel reasonable growth for the industry. This would require all the players to move towards a higher level of specialisation, so that a higher level of business proposition can be offered. Also, one requires greater levels of flexibility so that a new business model can be offered. Overall, I do not hold a negative view on demand.

Can you elaborate on what exactly you mean by traditional fields?
If you are just focused on discretionary spend, then you will be under pressure as CEOs are concerned about demand patterns in their business. So yes, demand is going to be choppy in the traditional space. Hence, a company needs to know its area of specialisation. It should have a clear business model in place and should continue to innovate.

What signals are you getting from your clients?
The signal I am getting from clients is that their discretionary budget is going to be under pressure. Also, many of them might go for vendor consolidation, they want higher value proposition in business. They are concerned that Indian IT industry as a whole is not innovating enough and still relying heavily on labour arbitrage as the single-biggest value proposition.

What according to you needs to be done?
You need to choose segments where you want to play. You cannot be everything to everybody, as it is difficult to innovate if you try to be one. To go beyond labour arbitrage, you need to have your own IP or an ecosystem that surrounds the IP method. Also, I think you need to have a business model which is flexible enough to have an outcome-based approach. This overtime will break the barrier between BPO and applications.

You have said you are focused on growing your non-HP business. However, the deal sizes remain small. Is this a concern for you?
To be honest, I am more focused on profitability. The only way you can drive it up is by knowing what you are good at, and doing it well. This will drive up the satisfaction rating. Client satisfaction is the most important asset one can have during downturn, because when they do vendor consolidation, they will not take out companies they are happy with. I am not worried about large deals or small deals. If you ask me whether we are capable of doing large deals, I will say yes we are very much capable. But to be honest, I don’t think I am capable of doing super-large deals. As a company we have not done it. It is broadly my mindset as well. I will be very conscious of doing a deal which is more than $500 million in size.

Which are the verticals you are focused on?
As a company we are focused on banking capital market and insurance. All the disproportionate investment is going into these two verticals. We do have capability in healthcare, telecom, logistics and manufacturing. But we are not putting disproportionate investments in these verticals. Customer facing technology is and has always been our strength.
You had said no further pricing cuts from HP will be accepted. However, this would also mean a decline in volumes...
When a decision on pricing cuts is made, it is done keeping in mind the interest of MphasiS shareholders. If I am offering pricing cuts and in return getting a volume commitment, which allows me to spend my fixed cost over a bigger piece of revenue thereby improving my profitability, then I would go for it. If I feel my pricing is competitive, then I will make a decision of not offering pricing cuts. This holds true for every customer including HP. Yes, the volume of business HP gives us is huge, so I have to take that into consideration. But the fact remains that HP’s business to us has declined of late. People may think it is because I did not offer pricing cuts, but obviously there are other factors involved as well. At no point in time will I offer rate cuts just because it’s HP. And yes, no rate reduction was given in 2011 by us.

Growth in your direct business has been offset by decline in HP business. Hence, the overall growth was muted…
My primary focus for 2012 is to grow my direct business. We have invested 15 months in building partnership outside enterprise solutions within HP. We expect it to be a fairly fast growing business for us as I feel the enterprise solutions business with HP is going to remain under pressure for us.

Non-enterprise side of HP business is gaining traction. How do you plan to drive this growth further?
Our goal is to double the non-enterprise part of the business this year. It is currently in the $40 million range, we want to get it to $80-100 million by end of this year. It will be driven by successfully concluding the deals. We have the right services, supply chain, etc in place.

How does hiring look at MphasiS?
We are going to take a measured approach. I will not hire people for the sake of keeping them on the bench. Our headcount numbers have started coming down as we want to keep our utilisation rates high.