Read the case given below and answer the questions given at the end.
CASE STUDY - II
THE STORY OF A START?UP
March 2000, Dotcom days. CEOs are chucking their jobs in hordes to become entrepreneurs. So much so that such CEO-toentrepreneur stories are hardly news' anymore. Yet... a handful of journalists huddle together in a small room at the Oberoi in Delhi for an early morning press conference. The story is the same: A company's CEO quits his cushy job to start his own outfit; venture capitalists back him; some prominent names on the Board; high hopes; tall projections.
But the tale kept to the script. Over the next three years, Raman Roy, that CEO, was to become an icon in India's business process outsourcing (BPO) industry and his start-up, Spectramind, a classic example of successful entrepreneurship. Roy, 45, a chartered accountant, is widely regarded as the pioneer and guru of the IT Enabled Services (ITES) business out of India, having played a pivotal role in proving that India could be a good location for remote processing and has successfully delivered servicing solutions from India.
Today, Spectramind has over 10,000 employees, seven facilities in four cities, 17 global customers ^aittUs an integral part of software major Wipro Technologies. Revenues in the quarter ended September 2003 stoodat Rs 92.7 crore, a growth of 22 per cent over the previous quarter. Profit margins were in the range of 20 per cent, despite cutthroat competition. All the goals that Roy and his team had set for Spectramind at the outset wer exceeded well ahead of deadline. Surely, you cant write a story better than that.
The success of Spectramind - now Wipro Spectramind - partly due to the stupendous growth of India's BPO industry. As more and more global companies want to cut costs, they take to outsourcing and turn to India. Having established call centres for Amex and GE, Roy knew this was coming. He had the early-mover advantage, solid funding from VCs - Chrysalis and HDFC put in $7.5 million in the first round - and the expertise required to run the business.
Roy started with a 980-seat facility at Delhi's Okhla Industrial Estate. "We had only 20-odd people when we got out first customer/' he recalls. Gradually, the facility got filled up, and then it suddenly spilt over. "It was the third customer who made a significant impact on our operations," Raman says.
As Spectramind was finding its feet in the nascent BPO sector, something else was happening in the big brother software industry. The crash of dotcoms and the economic slowdown in the US hit India‘s software firms badly. When business began to get squeezed, these companies were forced to look at other revenue streams. BPO was a natural choice, although there were hardly any similarities between the two businesses, except that both a call centre agent and a software engineer had a computer on their desks.
It was then that Wipro Technologies found Spectramind. In October 2001, Wipro announced it was investing $ 10 million in Spectramind for a 24 per cent stake. "Some ofWipros clients were asking for BPO services. They also saw a huge market opportunity," says an investment banker who was involved in the deal. The GE background of Roy, practices such as Six Sigma and the overall work culture of Spectramind endeared the company to Wipro. "GE is one company that Premji admires. Raman was the most experienced in the industry and there were no cultural issues," he points out. Subsequently, in July 2002, Wipro bought out other investors and made Spectramind a wholly-owned subsidiary by spending another $83 million, making it the largest deal in India's BPO industry till date. Industry buzz has it that the investors, Chrysalis and HDFC, got 8-10 times the money they had ihvested in Spectramind. Roy and other employees, who held about 20 per cent of Spectramind, also made a pile of cash in the deal:
So Roy was back in the role of an employee from that of an entrepreneur, in the company he had founded. He was later made the Chairman and Managing Director of Wipro Spectramind, reporting directly to Vivek Paul, Vice-Chairman and CEO. Perceptible change in Roy now is that he is wary about forecasts. "We are part of an NYSE-listed company. So I can‘t make any forward-looking statements," he would tell you. But his enthusiasm and passion for the sector and Spectramind is still intact. "We have created the company of our dreams," he says.
Becoming Wipro Spectramind from Spectramind has done a world of difference to the company. Compared to rivals such as Daksh and EXL, Spectramind can leverage well on its parentage of Wipro and its deep pockets. "They would boast of being owned by acompany with $8-10 billion market cap, with the result that most Fortune 500 companies treat them as an equal," says an industry source. "On other occasions, we have seen them offering to buy out the entire operations set-up or technology group for large Fortune 500 companies and show Wipro s balance sheet strengths to back up their assertion," he says Wipro has built deep relationships with large European and US companies, for whose BPO requirements Spectramind can easily feature as a natural choice of vendor. "The leads given by Wipro today immensely benefit Spectramind," sources say.
Wipro benefits from a steady stream of revenues from the BPO business. "At 9,000—10,000 people, even the revenue impact from Spectramind will soon start being significant in Wipro s consolidated revenue numbers," says Arjun Saxena of Inductis, a US-based management consultancy. The acquisition has also given Wipro a head start over Infosys, Satyam, HCL and others, whose choice to grow the BPO business organically means they have achieved barely a tenth of the scale Wipro has been able to achieve though Spectramind.
Wipro‘s BPO arm provides as many as 60 different processes to its 17 clients, with services ranging from resetting passwords to offering counselling over the phone to processing e-mails. "Some of our processes last just minutes, while some others may take about three hours," Roy says. Spectramind provides services to clients in six geographies across industries such as financial services, information technology, insurance, travel and hospitality and retail, among others.
The "scale in turn provides a chance to leverage economies, provide better growth opportunities to staffers and attain a certain critical mass that is important for bagging large deals," Saxena says. The present seat utilisation at Spectramind is 1.8 times and efforts are on to increase it further.
A strong management team is a key differentiating factor at Spectramind. Most officials who started out with Roy have stayed put. "The one thing that has always been impressive and very fruitful while looking of management talent," an industry official, who is involved in outsourcing deals, says about Spectramind. While other companies such as EXL and Daksh also have impressive entrepreneurs at the helm, Spectramind can showcase a complete team of professionals in various areas such as operations, quality, HR and business development. Apart from Roy, the other key officials at Spectramind are Sanjay Joshi, Vice-Chairman, who is in charge of sales and marketing, Devashish Ghosh, Chief Operating Officer both Ghosh and Joshi came from Wipro), Raj Dutta, Chief Financial Officer; S Varadarajan, Vice-President (Talent Engagement and Development) and Nilanjana Paul, VicePresident, New Business Development.
This team has also been able to cope with the problems caused by rapid growth. "We have the Management width and depth to handle such issues," exults Roy. For this purpose, Spectramind has created strategic business units, which are run as independent companies by Vice-Presidents. However; the parentage of Wipro should come in handy here too, as the company is used to over 40 per cent growth for the past so many years. Wipro‘s top brass has also given Spectramind operational decision making freedom so far, letting the company retain its entrepreneurial midset. It remains to be seen, however, whether such freedom will continue to exist in the future as well. As the company grows larger, more bureaucracy could influence its managerial structure. Some time ago, an industry expert said that one significant shortcoming of Spectramind was the inadequate management attention to smaller accounts. "At its current size, small accounts, of say 100 agents, are largely inconsequential to Spectramind. As a result, we often hear market buzz around poor servicing to these accounts or diversion of managerial talent to larger accounts," he had said then. In mid-December, Lehman Brothers, a US based investment banker, pulled out technical helpdesk work from Spectramind, apparently because of lack of quality in service. Only 26 people were working on this project. Also, Spectramind stopped working on the human Genomics project, which it once used to highlight as an example of high end, complex work the company is capable of delivering. Here too, only a small team was involved. But as long as large deals flow in, there may not be reasons for worry.
Another area of concern for the company is the lack of an international footprint. But Spectramind is understood to be on the lookout for setting up operations overseas and an announcement in this regard is in the offing.
Who knows, another three years from now, it may be a completely different story.
QUESTIONS
1. Why has the crash of dotcoms and the economic slowdown in the US hit India's software firms badly ?
2. How can Wipro help in leveraging Daksh and EXL?
3. Can Wipro fulfil the BPO requirements for Spectramind, which can feature as a natural choice of a vendor?
