His demeanour doesn’t reveal it but Jeya Kumar’s face is awash with half-smiles. He’s been thinking dangerous thoughts. Patni Computers’ CEO wants his company to miss its date with pre-destination, which is to remain a respectable but a small company. He wants to unleash the creative energy of his employees, when they might be happily curling their toes in their comfort zone. He thinks he can start an innovation fire within the company. What’s wrong with the man? IT outsourcing itself is a huge innovation. Now is the time for doing — basically intelligent execution — and not come up with high-flying theories of creative destruction.
Well, somebody stop him in that case! “What I have learnt during my career is that if you do the same thing over and over again, don’t expect a different outcome,” says Jeya Kumar. He is an Australian citizen but has a South East Asian lilt to his diction. He’s been with the erstwhile Sun Microsystems (now a part of Oracle) and has lead Mphasis (now a part of EDS). He is the guy whom the Patni board hired in February 2009 after a two-year search.
Kumar couldn’t have picked a more challenging time to join. The IT outsourcing market was weak and almost all companies were struggling. But Patni has done well for itself. A stock market recovery helped the firm’s share price double from the time Kumar came on board (it outperformed BSEIT and BSE TECk indices by a long shot). Patni basically got its house in order. It revamped its senior management. They improved the execution. Nothing very spectacular, but needed nonetheless in a company that seemed to have lost its competitive fire a couple of years ago.
For most part of the last three years, Patni has been racked by the news of a feud between the chairman Narendra Patni and his brother and non-executive director Gajendra Patni. According to company insiders, while the promoters’ sniping occupied management bandwidth, its competitors like Cognizant and HCL forged ahead. Both are three-four times larger than Patni today. Over the last year, the new management team under Kumar has been busy fixing the company.
The markets have taken a good view of the operational clean-up at the company but now they are going to look at growth in the company’s revenues and profits. Kumar himself has often spoken about a target: Revenues of $1.5 billion in December 2013. Given that Patni’s current revenues are $750 million, the target is a stretch that would do the venerable yogacharya B.K.S. Iyengar proud. However challenging the target ($1.5 billion by 2013 — doubling the company in three years) might look, Kumar knows there is no other option. “In this business if you don’t grow bigger you grow smaller, faster” he says.
He is right. There are scores of companies like Mastek and Sonata that are as old as Infosys and HCL but could not become big in size and were ultimately out of the competition with the big firms. The IT services business is tyrannical because the small firm has very few opportunities to leapfrog the bigwigs. In the last 10 years only Cognizant has posed any challenge and Patni is no Cognizant. No wonder then that the board is right behind Kumar to come up with some initiatives that can prevent Patni from going into a downward spiral.
So here is Kumar’s dangerous idea to speed up the journey towards the stretch target. It is a chance to become an “entrepreneur” inside the company (see graphic). All, but the top 50 people inside the company, can pitch ideas for services that Patni doesn’t offer currently. Every year the company will pick two ideas to support. To create the same risk — reward structure of entrepreneurial environment, the employee whose idea gets selected will have to forego his variable pay for a period of 18 months. This is the time in which the idea will have to be brought to market. The “Patni-preneur” will have the freedom to pick his team. He can, for instance, make an “offer” to an ace solution architect working in another division and bring him on board. If the solution architect accepts the offer, he too foregoes his variable pay, for the time that the project is brought to market.
Once the idea is accepted, key members of the senior team will act as mentors and offer active support to the team that is executing the idea,” says Jeya Kumar. The entire variable compensation withheld will be repaid once the service is launched within 18 months or earlier. The employee is also eligible for promotion to the appropriate level based on the role-based organisation model that the company is implementing in December 2010.The upside for the “Patni-preneur” can be as high as 20 percent of the revenues generated from the service line that he/she has created. The person will also get to run that business till it reaches a size where it may be needed to be integrated into another service line or a division. “It is quite possible that the employee who creates a successful service line may end up earning more than the CEO. CEOs should be comfortable with that. I am,” says Kumar.
Actually it makes business sense as well. If Patni were to buy a $30 million business, it would need to pay at least $40 million for it. Through this programme the company has to pay only 20 percent of the value of the business. Ajay Chamania, executive vice president and global head, Product Engineering Services, who is sitting right across Kumar, has soft eyes but they light up. Kumar steals a look at Chamania. “Ajay has led such an entrepreneurial group inside Patni and he will be a great mentor. He might also lose some people from his team to the very group he may mentor,” says Kumar with a chuckle. Chamania is smiling but very nervously.
Why do such disruptive things? It may be simpler to use some of that $450 million on Patni’s balance sheet to make an acquisition and boost the revenues. Indian IT companies have never done large acquisitions. There are far too many challenges in people integration. It is another matter that large targets that can fit into an Indian company culture are far and few between. So if Patni has to get close to the $1.5 billion mark by December 2013 then here is one way to think it through. Kumar says that two-thirds will come through internal growth and one-third through acquisitions. Now Patni’s main business will probably clock in $800 million this December and suppose it grows at industry growth rate of 15 percent per annum, it will become approximately $1.2 billion by 2013. Factor in about $100 million worth of acquisitions, small not big, as Patni has already spent around $100 million over the last seven years on four acquisitions. Now that leaves it around $200 million short of the target. If one factors in a shortfall of about 5 percent — a respectable shortfall — then what Patni and Kumar need is about $125 million of totally new business. To start with, this is all that he wants — 10 percent revenue contribution through this initiative in three years.Infographics: Sameer Pawar
“If we can get about $125 million through five totally new service ideas then this programme would be considered successful,” says Kumar. It is also important because almost all the top Indian IT companies have added one service line to edge ahead. Wipro used the technology outsourcing vertical to add crucial millions to its topline. TCS used its heft to add large acquisitions like Pearl to grow even bigger. HCL has used infrastructure management services to compete. The problem is that all these services become quickly commoditised. So companies need to keep coming up with new ideas. This is another area where the Patni-preneur programme will help. It will get the company to constantly look for new ideas that can make money. And here is the thing about such ideas. They do not always come from the top management.
“Most organisations that are considered innovative by their peers, be it Apple or 3M, realise that you cannot have a centrally managed ideas process. A successful product touches many different functions within a company,” says Doreen Lorenzo, President and COO, Frog Design. Frog Design is a product design hothouse. Over the last 30 years it has designed many successful products for companies such as HP, GE and Microsoft. Frog Design also helps companies change the way they work to foster a culture of innovation.
Most Indian IT companies are making innovation the key item on their agenda. Wipro, under the office of its chief strategy officer, K.R. Lakshminarayana, has an innovation programme where promising ideas inside the company receive direct funding from his office. This programme has funded almost 35 projects. But what sets the Patni programme apart is its open design.
Infographics: Sameer Pawar
Normally, a company would either keep a cut off in terms of experience or just get the “new business development” cell to look at it. “Very often in companies high-achievers do get a chance to manage P&L but they rarely get a chance to manage the balance sheet; creation of assets for the long-term. A good in-house innovation programme can provide that opportunity,” says Sudip Nandy, CEO, Aricent, an IP-licensing software company.
The open design of the Patni programme also helps in another way. Very often a person working as a programme manager may have an idea but it may get filtered out by the division head because a) it may not be core to what the division is doing and b) because it may not generate revenues immediately. Now no such barriers exist. “We consider the new innovation initiative more as an incubator with the ability to capture nascent ideas that could solve customer’s problems. For example, something like the incubator cell at the Indian Institute of Technology, Mumbai,” says Satish Joshi, executive vice president and global head, Technology & Innovation, Patni.
If an open innovation system traps all potential ideas, it also has an important function. It should be able to bring down the curtains on something that is not working. Entrepreneurs are passionate but they also know how to accept failure and move on. “If you have to fail, then fail fast,” says Lorenzo. Lorenzo’s point is that the entrepreneur should be able to validate the concept quickly enough to know if a commercial potential exists. This aspect too has been taken care of through the 18-month window that the programme offers. “This allows people to recover, learn what went wrong and move on to other exciting ideas. Failure of a project is one thing but Patni will have to be really careful with the emotional costs of failure for an individual. In corporate culture to fail at a task — not meeting a sales target or delaying the handover of a project — can itself dent people’s confidence. To fail and go back to a regular assignment can have serious morale consequences. Joshi, who has been with Patni for the last 27 years, says, “Not everything we incubate may succeed in the long run. Therefore it is important that we build a strong mentoring and counselling programme to ensure that even those whose ideas do not succeed are encouraged to try again.”
The big question is will the employees inside Patni pick up the gauntlet and think of themselves as more than just employees? Actually, they probably will. That entrepreneurial fabric may not be sizeable but it does exist in the company. Ajay Chamania heads just this sort of an outfit. Seven years ago he started the product engineering services (PES) group. It is pretty similar to the technology outsourcing operations inside Wipro. In the first year, PES earned $3 million. It will in all probability clock $150 million this year. It is probably the fastest growth any service line inside Patni has ever had. PES helps a large data storage company retrieve data faster. It has added wireless capability to a pacemaker company such that the patient’s heart condition can be managed in real time by a device at his home, which can be checked by a doctor electronically from a remote location.
What I like about PES is that they have managed to combine technology learning from many assignments to create something new,” says Kumar. For instance, images, especially medical images (CT scan), need to be stored such that no information is lost. Now using their experience in data storage, PES is working on ways to store large amounts of data in such a way that it can be retrieved very quickly through cloud computing.
The seed of entrepreneurship exists, however sporadically, inside the company and to that extent this programme can really help. Having said that, there will be temptation from some quarters to sell this and also see this programme as nothing more than a fast track advancement programme. This would be a mistake. Successful entrepreneurship may result in a fast track career but fast trackers are not necessarily entrepreneurs. Kumar is confident that this won’t be the case. “Most reactions in the employee focus groups that we have done so far tell us that people who are interested in this aren’t really in it for the job title but fulfilling career aspirations. We also need to create an ecosystem that fosters support for innovators — it’s never about good people and great minds; innovation is also environmental,” he says. Perfect start, one would think, for a challenging programme.
(This story appears in the 10 September, 2010 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)