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Mid-scale IT firms bank on specialisation

Some software companies, after being around for 25 years, feel they have failed to grow as they should have, reports Venkatesh Ganesh.

business Updated: May 08, 2007 20:50 IST

In the booming world of software companies, small may not be beautiful -- unless you happen to have a niche. And some companies, after being around for 25 years, are getting into a mid-life crisis because somehow, somewhere, they failed to grow as they should have. They are now learning the virtues of specialisation.

These are the so-called Tier-II companies that rank well behind leaders like Tata Consultancy Services, Infosys and Wipro in sales.

Mastek recently completed 25 years of existence in the Indian IT sector. However, in its twenty five years of existence, the company has faced a lot of challenges from attaining the right scale, staff attrition and plain old lack of direction and strategy.

Mastek is not alone in this. Patni Computer Systems, another veteran in the Indian IT sector, whose early engineers went on to lay the foundation of Infosys, is in the same boat. Consider that Infosys after 25 years was a billion dollar company. As on June last year, Mastek's revenues were Rs 688 crore -- well under $200 million.

Similarly, Patni has revenues of about Rs 2,856 crore ($700 million) after 29 years and that was only Rs 1164 crore in 2003, which was its 25th year.

However, companies like Hexaware, which specialise in enterprise resource planning (ERP), and Aztecsoft, which is making a big deal out of software testing and Microsoft technologies, could show some panache.

When many of the small and medium IT companies were privately held, profit was all that mattered. Now, investors are looking for growth and large customers seek comfort in the scale of partnership.

"Why should an investor look at a company that despite having an early-mover advantage, still does not have much of a differentiated strategy," says an analyst at a Mumbai-based brokerage.

"The older tier II software companies were a mirror image of the bigger ones and offered nothing different," says the CEO of a tier II Bangalore-based company. He adds that when companies abroad place request for proposals (RFPs), the size of the company and a complete service offering are prerequisites these days.

"With the size comes juicier outsourcing deals," says IT analyst Harit Shah of Angel Broking.

Companies like Mastek, having learnt the hard way, are trying to change gears.

Recently, Sudahakar Ram, one of the founders of Mastek, took over as the new chairman and managing director in place of Ashank Desai and with him has decided to adopt a new strategy.

"Our renewed focus is on the insurance vertical, since we now have domain expertise there," says Ram. Similarly, Patni also restructured operations and appointed Mrinal Sattawala as the chief operating officer. "We are now aggressively focusing on the insurance and embedded solutions vertical," said Deepak Khosla, vice-president, marketing at Patni.