Zensar and the art of innovation

Troubled times can either destroy a company or bring out the best. In the case of Rs 232-crore Pune-based Zensar Technologies, bad times have brought out the best as the company has managed to buck the slowdown and is now poised to leapfrog into the big league. Srikanth R P tells you how Zensar transformed itself from a duckling to a swan using innovative practices

The years 2001 and 2002 were the worst years till date for the Indian software services industry. While top companies like Wipro and Infosys suffered a steep decline in billing rates, mid-sized companies like Zensar Technologies too were hit hard, thanks to a predominantly onsite model. But rather than lying low and waiting for business to pick up, Zensar utilised this opportunity to take a hard look at performance and to restructure itself.

Ganesh Natarajan, Zensar’s deputy chairman and CEO says that the firm has changed its image from that of a low-cost service provider to a value-added service provider with a focus on some key domains, backed by specialised practice groups

Says Ganesh Natarajan, deputy chairman and CEO, “We had to change our image from that of a low-cost service provider to a value-added service provider. Additionally, we decided to focus only on large and growing verticals like retail, finance, manufacturing, telecom, banking and insurance. We also re-configured the company and created specialised and focused practice groups such as packaged services, custom solutions, offshore development, consulting and infrastructure and BPO services.”

This focused approach is paying dividends and the financial results are perhaps the best proof. For the year ended March 2003, Zensar posted a 23 percent growth in revenues but a phenomenal 149 percent growth in operating profits. More importantly, the company managed to offset the imbalance of the heavy onsite component in financial revenues through a rapid increase in the offshore component. For the year 2002-03, the offshore component of overall turnover increased to 32 percent, the highest in Zensar’s history. This is significant when you consider that by the third quarter of 2001-02, the onsite component of the company’s turnover had climbed up to 82 percent. Additionally, manpower utilisation rebounded from a low of 52 percent to 73 percent.

The positive signals are flowing into the second quarter too. For the quarter ended September 2003, the company reported a modest 11 percent increase in revenue but a huge 92 percent growth in net profits. Offshore business grew to 38 percent of revenues, up from 29 percent in the corresponding quarter of the previous year. That the company expects more growth to come can be seen in the number of employees added during the last quarter. For the record, Zensar added 191 employees, which is the highest ever quarterly addition. But despite the addition, the manpower utilisation rate stood at 74 percent. The strategy of focusing on the bottom line rather than the top line has paid off as even though the top line has reported modest growth the growth in profits has been nothing short of awesome.

Strategy

The impressive growth in bottom line has been achieved through a variety of factors. Besides the focus on convincing customers to move to the offshore model, Zensar knew that it had to create unique innovative practices to penetrate a market dominated by the Big Five players of the Indian IT industry. After brainstorming with its thousand odd employees, two unique methodologies that could give Zensar a competitive edge over other companies were identified.

The two innovative methodologies identified were ‘Solution Blueprint’ and ‘80:20 ERP implementation’—both processes designed to decrease project time and increase profitability.

Solution Blueprint is a unique framework developed by Zensar that automates software development life cycle processes like design, code generation and testing. Zensar has been using this framework with telling effect in many migration projects—project development time has been cut down by half in most cases. Besides cutting down project development time, Zensar is also receiving a lot of attention from product development players who are keen on using the same framework to cut down on product development time.

As most contracts signed today are multi-year contracts, Zensar gains as it can cut down project development time, increasing profitability by using the solution blueprint approach. Zensar sees a huge opportunity in migration projects as many organisations still have legacy systems built using COBOL. The success of this framework can be seen from the fact that most recent migration projects have been done using Solution Blueprint.

Another innovation from the Zensar stable is the ‘80:20 ERP implementation approach’. Unlike the traditional methods of ERP implementation, where most functional requirements are analysed onsite, the 80:20 methodology uses the reverse approach. Almost 80 percent of ERP implementation work is done offshore while 20 percent is done onsite.

The project begins with setting up of connectivity between the client and the offshore team. The onsite team gathers requirements and fills in the set-up template. The offshore team analyses the problems and comes up with the best business processes for the client, including detailed documentation on what the new system will look like. The offshore team can even test the viability of their recommendations through the established connectivity.

This approach was put in place around four months ago and both clients and Zensar are seeing the benefits. Due to the time difference, the India-based offshore team can work during the day and provide their analysis of business processes. This means that when the onsite consultants sleep the Indian offshore team is busy analysing requirements. By the time the onsite consultants reach the client’s office, a detailed report is ready for them. This approach has not only cut down on delivery time but also saves a lot of money since most work is now done offshore. Zensar has already bagged a couple of clients thanks to this model and moreover, has witnessed at least a 25 percent reduction in project implementation time.

As Zensar derives a significant portion of its business from providing product implementation services and migration services, Solution Blueprint and 80:20 ERP implementation should have a positive impact on Zensar’s bottom line in the coming years.

The zing is back

The major contracts bagged by Zensar in the last few months include a seven-year contract from a major European utility company, and analysts estimate it to be worth close to $25 million. In the same quarter, Zensar won a huge Oracle applications migration and design project from one of the world’s largest gaming companies—this deal too is said to be in the range of $3 million, and to be executed within a year. Even the new kid on the block, Zensar’s BPO venture, made an impressive start when a major accounting firm in the US signed a contract for 300 seats. In summary, the company added eight new customers for the last quarter. The order book too is brimming over—analysts estimate Zensar’s order book at close to $80 million, spread over three years.

Besides the vertical focus, the company has been concentrating only on a few niche areas within large domains. For example, within the banking domain the company will focus only on segments like investment banking, wealth management, risk management and treasury operations, leaving out areas like retail banking.

Says L Subramanyan, head, Strategy and Marketing, Zensar Technologies, “As a strategy we decided to play only in select verticals where the opportunities were huge but the threshold to entry too was high.” This strategy has paid off as most recent wins have come against some of the very best in the global space.

The company is also witnessing a huge amount of activity in the quality consulting space. Recently, Zensar’s JV with Hong Kong-based Asia Logistics Technologies won two contracts in the quality consulting area. Analysts expect the company to win more contracts in quality consulting as most Chinese companies are keen on putting processes in place to get assessed for the SEI-CMM model. Another key growth area for Zensar is the increasing amount of business coming from its top five offshore development centre (ODC) clients, namely Cisco, Fujitsu, Transco, Sprint and P&O Nedlloyd. Besides the top five ODC clients, Zensar has bagged a couple of contracts for setting up ODCs in the last quarter.

Conclusion

The restructuring of the company into vertical businesses aided by the engine of innovation has steered Zensar in the right direction. With a new lean and focused approach, Zensar Technologies surely seems to have discovered a new zen for growth.

srikanth@expresscomputeronline.com

Growth drivers

Innovative methodologies like Solution Blueprint and 80:20 ERP implementation methodology will boost bottom line. Quality consulting, knowledge management (KM) and BPO could turn out to be the new growth drivers for the company in the months to come.