Tech Mahindra's takeover of deeply troubled Indian IT services company Satyam could see a renewed push into the Australian and New Zealand markets.
Tech Mahindra is already a major partner of Telecom's in New Zealand while Satyam has numerous customers in Australia, offering an easy bridgehead into both countries for the revived entity, Mahindra Satyam.
Telecom Retail is currently rebuilding its CRM and billing systems with Tech Mahindra providing most of the services around the project. Early this year when the Satyam scandal broke out and created a sensation in the corporate world, the future seemed bleak for the software company.
While the company's clients were not sure if they would continue to buy its services, Satyam's employees were certainly without any hope.
"They believed, and for very good reasons, that Satyam as a company would cease to exist," said Vineet Nayyar, executive vice chairman of Mahindra Satyam and Tech Mahindra (Tech M). But "they showed incredible resilience during a period when everything was so uncertain," he said, addressing a group of journalists in Singapore on 3 July.
"They (Satyam's employees) were still at sea and the boat had sunk," Nayyar said. "Suddenly they saw a lifeline which came and which ensured that the company they knew, the company they were proud of, would continue to exist and possibly flourish."
That lifeline was Tech Mahindra that took the ownership of the scandal-hit company.
Lifeline for Satyam
To recap, Satyam was plunged into a crisis in January after its founder B. Ramalinga Raju revealed that the company's revenue and profits had been over-stated for several years. The new government-appointed board decided to sell a majority stake in the company to a strategic investor, and Tech Mahindra was selected in a bid in April this year.
Tech Mahindra, with current revenues of about US$1 billion, is a leading technology provider in the telecom sector. It is a joint venture between British Telecom and the Mahindra Group, the latter a major Indian conglomerate with interests in automobiles, technology, real estate, and finance.
Under the new dispensation, the company has been rebranded as Mahindra Satyam. A new management team has been announced, that includes C. P. Gurnani as the chief executive officer (CEO) of Mahindra Satyam.
"We have a fair amount of business and growth in the telecom sector," said Nayyar, providing the rationale behind Tech Mahindra's takeover of Satyam. "We were unexposed to other sectors. What the marriage between Satyam and Tech M does is that it brings Tech M's deep knowledge in telecoms and aligns it with the verticals in Satyam, such as banking, retail, supply chain management, etc. They (Satyam) have a fair amount of enterprise competency. Essentially, this merger brings various competencies together and you become clearly one of the major technology players out of India."
Changes after the takeover
One of the major aspects of the company's reorganisation is that the company has been divided into 11 business groups, said Nayyar. "Each group is comprehensive, with its own business and delivery arm. And both of them are aligned towards exactly the same goals. It will be good for customers and from the overall accountability perspective."
Even though Mahindra Satyam and Tech Mahindra will work closely, they will not merge as yet.
"We are keeping these two companies separate for the time being," he said. "They will have their own management. They will have their own employees. Each company will work independently till it merges... It (the merger) will happen one or two years down the road."
The new management is also looking to rationalise Satyam's infrastructure and staff strength. "There may be places where Satyam has excess infrastructure, where Tech Mahindra will move in but as a sub-lessee, not as a part of the same office," said Nayyar.
He gave the example of their Singapore office (in Changi Business Park) which will house both Satyam and Tech Mahindra offices but as separate entities.
"Clearly, there is a lot of synergy between Tech M and Satyam which we will be continuously using," he said. "They will be cross-selling their respective capabilities to each other's clients."
A flawed governance model was old Satyam's Achilles' heel. The new management has given due attention to this aspect in the reorganisation process.
"Essentially, the governance model (that) we have (has been) reorganised with certain objectives," said Nayyar. "One, responsibility and accountability have been brought together. Two, we have tried to make sure that diverse interests are converged and their incentives are aligned. Normally, earlier, the sales and the delivery groups were two different parts of the company. Quite often, their incentives were never aligned. We have aligned them together.
"Next thing we have done is we have made sure that cost becomes transparent. That every business unit knows what its costs are. And knows and focuses on the cost of each project and its profitability. This was not that clear earlier.
"Lastly, as an element of governance which has been brought in, what we have made sure is that through the appointment of accountants and consultants, there is a system which cannot be fiddled with. Ever. And we will have a chief risk officer who will report to the board and will really be looking at overall issues of ethics and governance."
Plans for the region
Asia has always been important for Satyam's business. The new owners will continue to support and augment their presence in the Asia Pacific. According to Mahindra Satyam, it has about 3,000 employees in the region. In Singapore alone, it has more than 400 employees. The region's revenue contribution to the company's total revenues is estimated to be 10-15 per cent.
"Asia is very important for us, for Satyam," said Nayyar. "...Singapore more than anything else. Singapore is Satyam's international headquarters in Southeast and Asia Pacific. It will continue to remain the same."
We feel bullish about the way forward, said the company's Asia-Pacific managing director Rohit Gandhi. The company's focus will be on growing the business in the region, by selling additional services to existing clients and scouting for new customers, he said.
According to Gandhi, the company plans to roll out infrastructure services as well as BPO (business process outsourcing) services in Australia and New Zealand (ANZ).
Key message for Asian customers
When asked what's the new message that the new management of Satyam wants to give to its Asia-Pacific customers, Nayyar said: "The message is that Satyam as a technology company was replete with talent, was very high in customer satisfaction, was growing very rapidly in Asia and if there was one perceivable flaw, it was governance, which we believe was limited to very few people who are now being exculpated from the system.
"What the addition of the word Mahindra (as in Mahindra Satyam) is, what it brings to the table, is governance. Because Mahindra has been known for the quality of its governance and its ethical practices for a long, long time. So what you see in Mahindra Satyam is the confluence of the capabilities and skills and depth of knowledge of Satyam which is now under an umbrella of governance which will adhere to the highest ethical standards."
Government handled the crisis very well
Now that the worst is over and they have put their past behind, how does the new management look back at the government's handling of the crisis? Nayyar heaped fulsome praise on the Indian government. "The regulators handled the crisis with incredible competence," he said, answering this question. "Unbelievable!"
He being a former Indian civil servant, Nayyar should know.
"I, for one, never thought that any government, much less government of India (Singapore, I can understand, has a very efficient government)...I didn't think there is an example (like this). Look at Enron. Look at WorldCom. What happened to them? And there was no bailout (in Satyam's case). Not a penny was spent by the government."
All is well that ends well.
With a new brand name (which retains the old brand name, Satyam, as part of it) and a new management team, under the umbrella of a new governance model, the software company's new owners feel gungho about their future.
That's good news for Satyam's customers.