In the last four years ago, Mindtree, a Bengaluru-based mid-tier IT consulting company, decided to drop certain business segments and let go over 130 customers. It decided to specialise in four key sectors where it has good capability to target ‘must win’ customers and beat competition. The gamble paid off, said Krishnakumar Natarajan, Managing Director and CEO.
“If the four-year CAGR is taken as a metric, we are No.1 across all IT listed companies. In four years, the company’s stock delivered 400 per cent returns,” he said.
What was the trigger for the rejig in January 2011?
We were then at the lowest level and had to take a call by saying how to come up from the lowest point because we can’t go down any further. We felt there was a good chance of becoming multi-segment specialist in areas where we have the right capability. From focussing on eight or nine segments, we reduced it to four – retail and consumer products, travel and hospitality, hi-tech (work with cloud) and BFSI with primary focus on insurance. We dropped medical electronics, public sector, healthcare, oil and gas. We looked at what our capabilities and felt we had a better chance of success because it was driven by the fundamental premise that we need to be specialist in the focus areas to beat competition.
What about customers?
Revenue from the dropped customers was moderate. Rather than addressing a large number of customers we decided to focus on a few with capability to spend and drop those who are not strategic to us. In terms of acquiring new clients, we picked up those who have the potential to spend and went after must win accounts.
What was the outcome?
When we started the change in 2011, we had 336 customers but that dropped to less than 200 as on March 31, 2015. We exited through mutual consent. We kept acquiring two or three new customers in our focus area every quarter.
What could have been the incremental revenue loss from these customers?
It impacted us 5-6 per cent annually. But the good part is that since we are focussing on a few customers, our client metrics improved.
In the last quarter, there were two customers in hi-tech and insurance giving us $50 million each.
For a company of our size [revenue last year was $584 million], it is rare to find a $50-million customer. We have six clients giving revenue of about $20 million each, 73 clients giving over $1 million each. The strategy worked well to penetrate deeper into accounts and get better returns.
How?
The top ten customers in 2011 gave us 36 per cent of business but now it is 46 per cent. Similarly, contribution from top 30 clients was 60-63 per cent but increased to 71 per cent. If we take the four-year CAGR, we are the No. 1 across all IT listed companies. Our growth rate was 15.6 per cent while others had much less than that.
Similarly, in four years, the company’s stock delivered 400 per cent returns. This too was the best among the listed companies.
What if you had not done the change in 2011?
We would have been marginalised as we would have not delivered the expertise that customers wanted.
What was the change in April this year all about?
We saw that the big growth driver in the next five years will be digital technology, which will become an important strategy for clients dealing with consumers.
Digital technology will be a $200-billion opportunity by 2020 while it is one tenth of it now. We formed the digital transformation group encompassing all the elements of social, cloud, mobility and analytics so that they are able to give a single solution to customers in the context of business.
But, your competitors are also betting on digital technology?
When we used to bid for large mainframe outsourcing deals, clients used to say TCS has 50,000 people, Wipro has 10,000 while you have 1,000. Then why are you competing.
However, in the digital space, we can talk more about customer references, scale and capability than anybody else. In fact, in the first quarter, the digital transformation group grew 12 per cent quarter-on-quarter whereas overall the company grew at 4.2 per cent in constant currency.
How about competition from specialist start-ups in digital technology?
Some of the creative agencies are trying to do digital technology work. Here, if the customer wants a creative work, the smaller companies will win the deals with their unique skills.
We decided to work together with small creative companies and go together to clients for such deals.
We also work with seven or eight small companies in areas like analytic and specific tool driven in the digital space.
Why not acquire the start-ups if it is critical?
We did acquire two small companies with whom we had partnered in many deals. One was in the trade promotion analytic and the other was in SAP-HANA space.
What was recent senior management reshuffling all about?
In April, we had 42 of our senior mangers changing roles. We have put a lot of effort on leadership development. This has been a part of what we started in 2010. We created nearly 40 new managers to take on new responsibilities. We now have a CFO who is 40 years old. While there were scepticism on this rejig, we demonstrated that it was effective in the first quarter. If we don't have a leadership development, then we won't have a cadre ready.