Strategies adopted by Zensar Technologies to become a billion dollar enterprise in four years?
In the last six months alone, the company has sealed three deals of over $5 million and is planning to set up a separate team to focus on deals of this size.
A few months ago, Zensar Technologies won the Porter Prize for the best strategy process in the IT & Communications sector — the first time the prize, named after strategy über-guru Michael Porter was held outside Japan in India.
For the RPG Group firm, it was just further validation of its efforts to ensure that it was indeed relevant in a crowded sector.
The Porter prize was awarded to the company for ‘creating a competitive advantage by aligning its strategy to customer centricity and continuous innovation’ and vicechairman & CEO Ganesh Natrajan says that the company’s focus has been on innovation since inception.
“When we started in 2001, we were a brand new software company with no reason to exist. We had to have a different point of view if we were to be taken seriously and do something different from our more established peers. We wanted to be a company clients would come to if they wanted to challenge the way they did software development,” he says. The focus seems to be paying off.
Zensar closed last year with revenues of $372 million and has been growing at a steady pace despite a not too conducive business environment. Now it has set its sights higher, on that magical billion dollar mark. “We have the potential to continue to grow at 20% over the next few years, but we still need that additional capability to grow 10% and make those large deals happen,” says Natarajan.
While bigticket acquisitions may or may not happen, Zensar has been working at fine tuning its internal processes over the last few years to try and hit $1billion in revenue by 2016-17. “Our existing team will continue to grow at about 20%, but this will bring in that incremental push. About another $100 million will be through acquisitions, but the rest will be organic growth with people exceeding their own capabilities,” he says.
In the last six months alone, the company has sealed three deals of over $5 million and is planning to set up a separate team to focus on deals of this size. In 2010, Zensar acquired the US-headquartered Akibia which gave it a solid presence in the rapidly growing infrastructure management segment.
This is an important area for the company as the practice has been growing at about 60% and contributes about a third of the company’s revenues. This will be an important part of its quest to hit the billion dollar figure, along with manufacturing and retail which currently comprise 50% of revenues.
One thing that works to its advantage is that the contribution of the financial sector is relatively lower. Healthcare is also fast emerging as an important segment. Dipen Shah, Sr-VP, private client group research, Kotak Securities says, “Their strategy is pretty well laid out.
The company has indicated the areas in which it plans to grow. This is a strategy that can definitely take them much higher provided it is executed properly.” The biggest change has been in organisation structure, moving from being services led to a vertical led one.
“Earlier, the customer expectations were around technology and as that started changing, they wanted us to understand their business and how changes like social media and mobility affect them and suggest what’s best for them.
Verticalisation enables us to focus on this and fit the gap between technical changes and domain requirements,” To ensure that it gets all the strategic inputs possible, the company has a three dimensional view towards strategy formation —top down, bottom up and outside in. The top down view is what the industry is doing and finding its niche and innovating in it.
The bottom up comes through the vision communities where new ideas come from. Vision communities are employee centered strategy building exercises which have resulted in the recent thrust on mobility applications and mobile appstore solutions.
The final aspect is getting the customer’s perspective on what their future needs will be, and to that end the company holds an annual meet where it brings in its global partners for a two day session to brainstorm about where they see their respective industries heading. The recently set up Product Lifecycle Management (PLM) practice, launching traceability solutions for manufacturing and the move towards providing its insurance clients Policy Administration Systems (PAS) were all a result of a need voiced by clients.
However, not everyone is convinced about the practicality of this target. A few equity analysts who spoke on the condition on anonymity said that given the company’s current rate of growth, a billion dollars is out of reach, but if one were to discount that by about 20%, it was achievable.
“With the leveraging capabilities in the infrastructure management, focus on SMB sector and new verticals, Zensar is expected to grow at CAGR of 30%, which would take its sales turnover to about Rs 5,000 cr by 2016,” says Vijay Dave, senior analyst- retail desk, Sunidhi Securities & Finance.
This would fall short of the projected target by a few hundred crore, subject of course, to exchange rates. Kotak’s Shah points out that the biggest challenge for the company is to manage the challenges of scaling up from its current size.
“Managing the employee base and increasing the management bandwidth to cater to this kind of growth will be important. The company will need to develop competencies in the areas that it wants to focus on and move up the value chain. In areas like cloud, social media and mobility, it will have to build scale and start to distinguish itself given the intensity of the competition,” he says.
Zensar too is aware of the challenges that lie ahead, with employees being a critical one. The company has put in place a number of initiatives that ensure employee engagement remains high, and the company’s attrition levels are lower than industry standards.
The company has recently started holding a Tech Fest internally where various groups within the organisation come together and talk about some of their new initiatives which have helped them gain a competitive advantage. Some of these are picked up by other units of the business.
For instance, a knowledge management tool built for Cisco is now being rolled out to other clients. Another successful insurance innovation is being implemented internally within Zensar. Steps like this ensure that the company as a whole benefits from the competitive advantage its specific units may have. What seems to be working in Zensar’s favour is that it continues to acquire clients and stickiness is fairly high.
Natarajan is pragmatic enough to agree that they may or may not make this self-imposed deadline. With a number of external influencing factors which could swing either way, any target can seem like a long stretch. However, he remains confident that even if the billion dollar mark may take a little longer to reach, Zensar will emerge a holistically better organisation in the process.