Nucleus targets total solutions provider status

Having survived a split in the management team and the disappointing sales of its first product, Nucleus has got its act together with a renewed focus on product development, fulfilling customer requirements, tapping existing clients and expanding aggressively to tap major software markets. Punita Jasrotia Phukan tracks the company’s progress

The reason for Nucleus’s success has been a change in its marketing strategies, adopting a more go-to-market approach, increased focus on building customer relations and a steady investment in product development activities, says Vishnu R Dusad

Banking software is one of the most competitive verticals in the software sector. With banks vying with each other for the customer’s attention, the mantra is to offer faster, yet simpler, innovative and smart banking solutions. Taking advantage of this growing opportunity, Nucleus Software Exports (NSEL), a provider of integrated software products for banks and financial institutions, has been steadily gaining ground and increasing its market presence.

Transforming itself from a services company to a product company, Nucleus Software Exports has seen it all—split among promoters, mismanagement of finances and crash of its share price. However, the company is now among the Top Five Indian software product companies. The past three years have seen the company register a compounded annual growth rate (CAGR) of 87 percent, which is substantially higher than the rate of growth of the Indian software services industry. Today, the company has a suite of 15 products catering to different banking and financial requirements. Last year, the company’s revenues stood at Rs 88.82 crore, registering a growth of 45 percent over the previous year’s revenues of Rs 61.11 crore.

Company officials say that it is the vision of offering next-generation banking solutions, expertise gained over the years, and pricing advantage, which have helped them sail past difficult times and achieve this level of success.

Traditionally a services company, Nucleus Software Workshop (its earlier name) was established in 1986 by three technocrats—Yogesh Andlay, Vishnu R Dusad and Arun Jain (of Polaris fame). The company’s first customer was Citibank, which remained its only customer till 1994. This was because of Nucleus’s exclusive tie-up with Citibank to offer solutions for their retail banking services business. However, in 1989, the company also started servicing Citibank’s international operations and changed its name to Nucleus Software Exports (NSEL). Starting with just two modules—time deposit and advances against financial deposits—it went on to set up Citibank’s first online ATM, the first auto loan service, the credit card business and many more services. It has also turned out to be one of the longest and the most profitable relationships for Nucleus.

1992 saw a split among the promoters of the company. While Arun Jain moved to Chennai and started his own venture (Polaris), Dusad shifted to Singapore to expand the company’s overseas operations. Though the company maintained its exclusive relationship with Citibank till 1993-1994, the increasing demand coming from the South East Asian region for services work saw Nucleus looking at newer clients.

Buoyed by the response coming in from Indian as well as foreign clients, the company decided to start its own product development. To fund this activity it floated an initial public offering to raise money from the markets. While the IPO was successful, problems cropped up once the company decided to get into product development.

Challenges

According to Vishnu Dusad, managing director of Nucleus Software Exports, the trouble started in the first product development itself, which was for the non-banking financial companies (NBFCs). The company was demoralised with the crash of the NBFC market in India. However, it decided to look for an alternative market, like Indonesia, which at that time seemed promising. But, before they could tap this market, the South East-Asian economic crisis during mid-1997 put paid to their initiatives. And the share price, which was Rs 50, came tumbling down to a mere Rs 9.

While most companies were registering a 100 percent growth, NSEL revenues were moving southwards. "This was one of the worst phases for both our company and the employees with many investors pulling out," says Dusad. But with the prestigious World Bank order for Central Bank of Mongolia, the company bounced back and other projects followed.

However, one thing that the company lacked was a concentrated effort to tap the right customers and adopting the go-to-market approach. During 1995-96, it was the top management, which was involved in the marketing and business development activities and it was more of a reference business. There was hardly a trace of proactive selling. All this created a roadblock for the company in its efforts to increase its market share or number of customers. This is when Nucleus decided to get an independent marketing team and adapt a go-to-market strategy and make their presence felt.

Achievements

According to Vishnu Dusad, the past year has been phenomenal for the overall growth of Nucleus. Not only did the company register a CAGR of 87 percent during this phase, but it has also expanded its geographical presence to countries like Hong Kong and Australia. Out of its 110 product implementations, 40 happened in the last financial year. In addition, the company also achieved the SEI-CMM level 5 certification, setting a roadmap for future process improvement.

In addition, the company has also earned many laurels and awards. Last year, Nucleus’s flagship product FinnOne was rated the number three Indian banking software solution by International Banking Systems, UK. In addition, the Deloitte Touche Tohmatsu Asia Pacific Technology Fast 500 report has ranked Nucleus amongst the Top 100 fastest growing and most dynamic technology companies in Asia. Nucleus was ranked number 75 in the APAC region and number two in India, second to i-flex.

In terms of business relationships, the company established marketing alliances with Fujitsu Siemens Computers and IBM to deliver comprehensive solutions and services to the financial services industry.

According to Dusad, "The annual revenue growth of 45 percent has been achieved despite the challenging economic and geopolitical environment in which we continue to operate." Morever the company has emerged as a full solutions provider, increasingly competing and winning against large global companies. The reason for this success has been the change in the marketing strategies, adopting a more go-to-market approach, increased focus on building customer relations and a steady investment in product development activities.

Moving towards becoming a total solutions provider

Moving away from targeting only the foreign banks, the company is now looking at the private and the government banks. In addition, the company is also making its presence felt in the manufacturing and transportation industries.

Presently, the company has a customer base of 60 companies across the globe. There has also been a tremendous increase in its product base, which has grown from zero levels to constituting a 35 percent share of the company’s business. Going by their future plans, NSEL is expecting 55 percent of their business to come from product revenues (this also accounts for sales of licenses or services around the product). According to Dusad, this is a big leap as margins in products are also quite high.

The company is also in the process of transforming itself into a total solutions provider to the global banking and financial services segment. Presently offering solutions for corporate and retail banking sectors, Nucleus is slowly moving towards high-end solutions in third party product distribution, which includes bonds, government securities, insurance and mutual funds. Further it also wants to provide universal banking solutions, namely, portfolio and wealth management.

Product focus: the future revenue driver for Nucleus

In terms of future growth areas, Nucleus plans to increase its emphasis on product development, with new strategies formed to tap the existing customer base. Since 2001, the company has planned to invest approximately $2 million in product-related Intellectual Property (IPR). The last one year has seen Nucleus making significant investments in products like Loan Originating System (LOS), ccAPS, Fraud, Cash@Will and CBS. "This is testimony to Nucleus’s focus on building a strong IPR and its commitment to become a competitive, product-focused company," says Dusad.

With considerable emphasis on product development, there are a number of new launches planned by Nucleus for this fiscal. In the next three months, the company is planning to come up with a new version of Loan Originating Systems (LOS) specifically for the US market. This version will enable the bank to handle million plus loans and do the whole activity (of processing, accepting or rejecting) online within 24 hours. In addition, the company is also working on Parcel 2 requirement, an international banking standard, which will become mandatory in the next 2-3 years.

The company is also working in the areas of fraud management (for credit cards and ATMs), futuristic solutions in cash management, enhancing offerings related to loans and payment infrastructure of different banks.

The idea is to take the existing product on a wider scale. For this, Nucleus is working on a common solution, which can be implemented across multiple locations. This will help the company in increasing its productivity by 40 percent. In addition, the company is also encouraging the concept of reusability, so that it is advantageous both to the company as well as to the client.

Future plans

Says Dusad, the future market strategy is to penetrate deeper (by establishing stronger relations with the client), globalisation and broad basing its business in various geographies by creating adequate infrastructure and continued product focus.

For the first time, the company is also looking seriously at formulating a strategy to tap the SME segment, which till now has not been a key priority. In addition, the company wants to penetrate deeper in the high-end market, which it feels it has not been able to do for many years. "Take the case of GM Acceptance Corporation. Presently, we have our product running in five countries. However, they have a presence in 40 countries and that’s the kind of opportunity, which we would like to tap," says Dusad. In addition, Nucleus would also increase its focus on the public sector banks, which are increasingly adopting IT solutions.

To strengthen customer relations, the company plans to roll out an account management programme by the end this year. For this, the company has appointed Prakash Pai, who is presently looking after US operations. "Till sometime back, we used to talk about our own perspective with customers and it was limited to that particular solution," he says. This would change into a concentrated effort by the sales, delivery and account management teams, who will look into a customer’s requirement and then come up with a customer-centric solution.

In terms of expanding its geographical base, the company is looking at signing up 5-6 customers each in Japan and Singapore by the end of FY 2003. In addition, it also plans to establish a subsidiary in Dubai, which will cater to its Middle East customers. While the company has a presence in London (part of its European operations), it is looking at appointing 3-4 distributors in different European countries.

To expand its infrastructure, Nucleus is setting up a corporate headquarters, with a strength of 2,000 people. This would be done in three phases. Presently the company has close to 700 people of whom 500 are engineers.