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Blue Star explores emerging verticals for growth
After achieving tremendous success in the air-conditioning
and refrigeration business, the Blue Star group is now all set to
replicate its success story in the information technology arena.
Christened Blue Star Infotech, the group’s software arm is exploring
new business avenues to foster growth in a market dominated by the
likes of TCS, Infosys and Wipro. Stanley Glancy and Srikanth R P
report
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| The potential for GRD was huge
as the international market for R&D in IT is worth around $200
billion with the US being one of the largest markets for such
services, says Parmod Bhalla |
The Blue Star group, a 58-year old company
that has traditionally been in the business of air conditioning
and refrigeration, formed the international software division (ISD)
of the Blue Star group in 1983.
The division was formed to cater to the
group’s in-house needs. In the 70s the group became distributors
for Hewlett-Packard (HP), selling everything from instrumentation
to other technology products. The relationship with HP saw the division
progressing from rendering support to Blue Star’s in-house divisions
to developing tools for HP, servicing HP’s internal systems and
also working for HP’s clients. The vastness of HP’s business saw
Blue Star gaining expertise in various areas. Simultaneously, the
division started getting into product development for other companies
in the Blue Star group. At this juncture, the Blue Star management
decided to use its expertise to cater to clients other than HP as
well. Incidentally, HP even today contributes to almost 35 percent
of the company’s business.
Though the newly formed division was bringing
in good business, there was no proper structure in place. The business
was divided across three lines—global research and development (GRD),
business applications and practice (BAP) and the consulting services
practice (CSP). In the mid-90s when India had just begun to witness
an IT boom, Blue Star’s ISD lost out due to the lack of a proper
marketing set-up. A move was then initiated to form a separate company
with clearly defined lines of business and a robust marketing structure.
But it was only towards the end of the second millennium that this
move achieved fruition. Year 2000 saw the formation of Blue Star
Infotech (BSI). And since then the company has not looked back.
Elaborates Parmod Bhalla, BSI’s managing
director and the man behind the company’s new avtaar, “The company
was not market savvy and was dependent on the business brought in
by old relationships and promoters. Lack of knowledge of the market
had resulted in a weak structure. There was no quality to differentiate
us from competition. Also, the company’s business was drawn on a
horizontal line based on the HP system, which was hindering growth.”
The first item on Bhalla’s list of priorities was to structure the
newly formed company along vertical lines. This was in keeping with
his belief that vertical specialisation was an urgent prerequisite
for survival in today’s cut-throat competition. The first year saw
the company expanding its lines of business to include banking,
financial services, securities and insurance (BFSI) and a systems
integration practice (SIP). The agenda was to focus on these key
areas of business and gain expertise so as to provide competitive
solutions.
GRD
The global research and development (GRD)
services division of BSI had a strong history of dealing with technology
verticals. The company realised that this line of business held
huge potential, and so decided to make this one of the key focus
areas. BSI had an added advantage in terms of the vast experience
that it had gained over the years in working with product companies
through various stages of its product life cycle. Says Bhalla, “The
potential for this business was huge as the international market
for R&D in IT is worth around $200 billion with the US being
one of the largest markets for such services.”
To facilitate a stronger focus BSI created
two segments within GRD, namely, the system integration group (SIG)
and the software products team. SIG is mainly concerned with hardware
product development. BSI works with system suppliers to develop
embedded or application software required to run the unit and integrate
with other products. Areas of competence include medical imaging,
wireless messaging, telecom infrastructure, industrial automation
and consumer electronics. The software products team on the other
hand collaborates with independent software vendors (ISVs), who
develop software products for the end-user
market.
The GRD strategy is to help a client’s
R&D team in its product development efforts and end-of-life
cycle support. BSI has, according to Bhalla, enabled many product
companies to convert product concepts into working applications.
GRD helps the customer in not only bringing out new products to
market but also with the maintenance and support for existing products
and installations. Towards this end, GRD has set up several competency
centres that act as virtual extensions of customers’ product development
teams. The idea behind this is to help customers in reducing time-to-market
and the cost of developing new products. In fact BSI enabled a US-based
Fortune 500 company to achieve 80 percent cost savings by migrating
its DOS-based application to Windows using Autodesk’s Actrix product.
BSI has structured a collaborative development
framework, which supports multiparty co-ordination between the customer,
third-party vendors and BSI. While the customer is expected to contribute
domain and functional knowledge, BSI brings in the technical and
quasi-technical skills and processes to the team. The group has
several years of experience, having built products for customers
on client server, as well as n-tier architecture in both the Microsoft
and Java environments.
To provide added value to customers BSI
has formed a dedicated technology group. The function of the group
is to keep itself abreast of all the latest technologies that have
hit the market and build domain capabilities in specialised technology
areas such as real-time embedded systems, telecom, networking and
wireless technologies. GRD also provides the customer with product
testing lab services. Here the client can, in conjunction with GRD,
conduct studies and tests on enhancing product features and keeping
them up-to-date with the growing needs of customers.
The slowdown in the US adversely affected
the GRD line of business. BSI saw GRD revenues fall by almost 16
percent in 2001-02 to Rs 21.7 crore. The divisions—networking, embedded
application and the systems integration segments are being de-merged
and spun into a new system integration practice line of business.
But, the division will continue delivering solutions in collaboration
with BSI’s other lines of business.
BAP
The Business applications practices (BAP)
division was created for networking the internal systems of HP.
The company then leveraged this expertise to offer similar services
to other organisations. The division is now responsible for offering
support services to a customer’s legacy business applications, offering
customers retention of knowledge related to their custom applications
and legacy platforms, 24x7 support, and Web-enabling expertise.
The benefit for the client, according to Bhalla, would be optimisation
of their IT investments at a low cost.
The other segments within BAP include remote
application support (RAS), business tools development (BTD) and
life cycle enablement (LCE). BTD addresses the business process
automation requirements of a department or function within an organisation.
The segment looks at an end-to-end solution, right from analysing
the client’s requirements to design, implementation and support.
Most legacy business applications require a high degree of customisation.
BAP develops these business tools to meet the exact business requirements
of a client. Currently, the division is capable of developing applications
on legacy platforms, to client/server and even on n-tier solutions.
The LCE is BSI’s proprietary methodology,
which lays out a clear strategy for helping customers decide on
the future of their legacy applications. This enables the customer
to increase the lifecycle of their existing systems. Also, once
the future of the system has been worked out the customer can then
take the requisite measures to seamlessly move into a new environment.
Other than this, BSI also runs an HP 3000
competency centre in Bangalore. The centre delivers remote application
support (RAS) and migration services for HP’s customers worldwide.
The centre supports the accounting, distribution order and customer
management applications of more than 165 HP offices spread across
the globe.
According to Bhalla, BAP registered a 96
percent increase in revenues, to Rs 27.4 crore in 2001-02. The division
is currently contributing to more than 47 percent of BSI’s revenues
as compared to 34 percent in 2000-01. BSI sees a huge growth opportunity
in this segment, especially with the discontinuation of HP’s HP-3000
series. Customers currently working on these machines would need
to migrate their existing applications and data to newer platforms.
BSI has equipped itself to handle this work smoothly as and when
the need arises. BSI has also signed a five-year $9 million application
outsourcing contract with Microwarehouse to handle the migration
work.
Consulting
Consulting is another key vertical that
BSI is currently focusing on. The division was an offshoot from
BSI’s experience as a global consulting partner for BaaN’s ERP suite
of products. Also, the company had developed domain expertise in
myriad verticals like heavy engineering, process, automotive, electrical
sector etc. This enabled the company to understand customer requirements
and rapidly implement a solution to meet them. Explains Bhalla,
“Our practices are more on the lines of a consulting company. Also,
consulting is a way of opening doors to new business areas. Even
the margins are much higher as customers tend to pay a premium for
consulting services. Hence, we have been concentrating on consulting
in a big way.”
The company is currently looking at consolidating
its consulting practice. Towards this end, it has added two horizontal
practices, namely, consulting practices and creative practices.
While the consulting practices segment will concentrate on e-commerce,
ERP implementations, etc, creative practices will look at enhancing
the look and feel of the clients’ Web portal. Says Bhalla, “With
the Internet emerging as a key aspect of future business, more and
more organisations are looking at enhancing the look and feel of
their portals. We decided to carve out a separate segment within
BAP to cater to the demands of existing customers for an improved
website.” BSI has also tied up with Microsoft Navision to offer
customers an enlarged portfolio of services.
Currently, the consulting line of business
accounts for close to 21 percent of BSI’s business, contributing
more than Rs 12.9 crore in 2001-02. With demand for consulting services
increasing in both India as well as in the Middle East, Blue Star
expects this segment to take off in a big manner in the coming year.
Also, the tie-up with Microsoft Navision is expected to enable the
company to penetrate newer markets, which will serve to further
accelerate growth for this division.
BFSI
The banking, financial services, securities
and insurance (BFSI) vertical is the latest addition to BSI’s growing
list of vertical business lines. This vertical has basically been
set up to help companies in the BFSI space to leverage existing
investments made in technology and derive optimum value. Helping
the client achieve this is BSI’s team of techno-functional experts,
with expertise in various domains like Web enablement, solution
migration and integration, data conversion, data warehousing and
business intelligence solutions.
To strengthen its domain expertise in this
vertical, BSI entered into a joint venture with the Arab Malaysian
Group, a diversified financial services group in Malaysia. The joint
venture resulted in the formation of BSI Malaysia, which is a 51
percent subsidiary of BSI India. The new company enabled BSI to
penetrate newer markets. The company has also entered into various
partnerships for providing customised solutions in the areas of
retail credit scoring and risk management.
The BFSI division has deployed customised
solutions for banks and financial institutions in India, Malaysia,
UK and USA. The division has also developed a Web-based system,
which is designed to centralise legal recovery functions, to automate
debt recovery processing for banks.
Emerging verticals
Other than the key verticals already described
BSI is also looking at emerging verticals within retail and health,
which haven’t been tapped as yet. For instance, within retail BSI
is exploring the potential of catalogue management. According to
Bhalla, there are not too many catalogue management vendors in the
country. Also, with Health Insurance Portability and Accountability
Act (HIPAA) initiatives in place the company is now looking at unexplored
areas within healthcare. The company is currently following the
strategy of developing intellectual property in this area.
Strategy
BSI launched an extensive partner programme
last year. The objective was to not only extend its reach across
markets but also enlarge its portfolio in terms of domain expertise.
The company plans to continue with this strategy to expand its avenues.
BSI has also partnered with Iris Logic,
comprising a group of senior sales and technical professionals and
domain experts. The partnership has already resulted in huge benefits
for the company, including 7-8 new clients, which is expected to
double over the coming months.
Another strategy that the company is betting
on is its partnership with various business associates, especially
in areas where the company does not have a direct presence. BSI
has signed up with local business associates in Austria and Germany
to provide a one-stop shop for customers.
Other than this, the company is opening
offices in newer geographies. Other than the subsidiary in Malaysia,
the company has also forayed into the European market. Currently,
the company has subsidiaries in the US and UK, and is also looking
at Japan and the rest of Europe as potential markets. Elaborates
Bhalla, “Almost every major European company has a presence in India.
Even if we get hold of a small percentage of that base it can significantly
add to the company’s coffers.” Currently, European business contributes
close to 30 percent of the company’s revenues.
Future
BSI is looking at various ways and means
to keep existing customers happy. Towards this end, the company
has achieved a high standard of quality across its products and
services. The Seepz development centres had achieved the SEI-CMM
level 4 in 2001 and are looking at achieving SEI-CMMI by end-2003.
The company is also focusing on developing BSI Malaysia as its development
centre outside India.
This year BSI plans to focus on consolidating
its presence in the technology sector as well as in emerging verticals
like healthcare. As the company doesn’t have HIPAA experts it has
tied-up with several HIPAA freelancers to provide that face to the
customer.
The company is also in talks with various
service providers to chalk out a growth strategy. Within consulting,
BSI plans to develop its practice with other consulting vendors.
As Bhalla says, the roadmap is to grow through organic as well as
inorganic means. Organic in terms of direct sales and growth through
partners, and inorganically by setting up a call centre and through
acquisitions.
- BSI was formed by spinning off the international software
division of Blue Star.
- The company employs more than 450 professionals globally.
- BSI’s global centres are in Silicon Valley and New
Jersey in the US and in Toronto, London, Helsinki and Kuala
Lumpur.
- The company’s Mumbai operations have been assessed
at SEI CMM Level 4.
- The entire company has an ISO 9000 certification.
- The company has alliances with global leaders like HP,
Juniper Networks, BaaN, SAP, Sun and Microsoft.
- In 2001-02, the company reported consolidated revenues
of Rs 64.1 crore and a net profit of Rs 12.7 crore.
- The company has successfully completed over 200 IT projects
since inception.
- BSI has five lines of business—GRD (research), BAP
(business applications), CSP (consulting), BFSI (banking
and finance) and SIP (systems integration).
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