CMC shapes up to face competition

It is perhaps a case study on how private organisations can enhance efficiencies and boost productivity of a government organisation. Two years after software giant Tata Consultancy Services (TCS) acquired a majority stake in state-controlled CMC, the results are showing —CMC’s international revenues and operating margins are looking up. Srikanth R P has the details

CMC carries out research projects only in areas that can benefit or enhance the capabilities the company has in various verticals, says R Ramanan

For a company predominantly focused on the domestic market, CMC achieved a turnaround with revenues from international markets registering a growth of 55 percent for the fiscal year ended March 2003 compared to the previous fiscal. Further, operating margins of the company improved from 7.8 percent to 9.8 percent over the previous period. Keeping these results in mind, analysts believe that the TCS’s handholding is finally paying off for CMC as it gets more aggressive in tapping international markets.

Working CMC into shape

CMC had a strategic business unit (SBU)-focused approach with each SBU concentrating only on its domain, with no cross integration. Today, TCS has appointed industry heads in areas like banking, financial services, transport and mining, spread across different SBUs. This has given rise to more opportunities for CMC. For instance, if the system integration SBU wins a contract for networking at a bank, the concerned industry practice head will also look at opportunities for the education division. At the same time, this approach has allowed the company to leverage domain expertise across different verticals.

This approach has been extended to CMC’s R&D efforts. Explains Ramanan, COO, CMC, "We have restructured our R&D efforts to focus only on core areas. Also, we carry out only those research projects that can benefit or enhance the capabilities we have in various verticals. Now the focus would be on how to leverage the efforts of the R&D department and integrate it with the concerned vertical. For example, we have good expertise in the fingerprinting domain. We will be now looking at integrating this expertise with our different products in different sectors that would have a natural need for this expertise, such as banking, insurance or transportation." CMC has also implemented a performance-based pay structure, which has seen an increase in productivity and improvement in operating margins. CMC is also bringing in the ‘Tata Business Excellence Model’ which primarily helps in installing processes to help Tata group companies achieve defined targets in a structured manner.

International presence

While CMC has always had a dominant presence in the domestic market, the company has hardly tapped its potential in the international market. For instance, CMC has expertise in government sectors like ports, cargo and railways. The focus now is to tap international markets with these products. The company has already won significant contracts like the railway automation system for Syrian Railways and an integrated marine container handling system for a large US-based
customer.

CMC is also looking at concentrating on its core strengths abroad to avoid overlap of its operations with TCS. For instance, at the global level, CMC is positioning its strengths in products, system integration and infrastructure management to combine its strengths with TCS, which has strengths in application management. The strategy is paying off with revenues from the international business registering a growth rate of 55 percent. Other traditional segments like customer service, system integration and Indonet have also shown good signs of growth. As CMC has developed most products catering to the Indian domestic market, Ramanan feels that there is good market potential for CMC’s products in developing countries in Asia and Africa. The only sector that has been hit badly has been the education and training segment, which registered a negative growth rate of 49.5 percent as compared to the previous year. To counter this, CMC plans to offer new courses in the areas of security and ITES.

Conclusion

In summary, while the growth has not been spectacular, the direction in which the company is moving is encouraging. This can be seen in the improvement in operating margins and growth in international business. With a strong domestic presence and a more aggressive play in the international market, CMC’s case is surely an encouraging sign for disinvestment.