Sunday, July 7, 2013

The Rise and Fall of Satyam

In an interview with Business Standard published a year ago, Vineet Nayyar, Chairman, Mahindra Satyam (now Tec h Mahindra) says that for him,Ramalinga Raju is a ‘Tragic Hero’ who plotted his downfall step by step and while people commit crime out of greed, Raju did it ‘out of pride’.”


He is spot on. To understand this, one must go back in to the mid-nineties when the company was so small that it ranked a lowly No. 14 in DataQuest’s ranking of Indian IT companies. When I joined Satyam in 1996 I was shocked that the company treated its Annual Report so light-heartedly that it printed copies on cheap news print with lot of typos.


The wisest decision that Satyam took was in going all out for the Y2K bonanza. This is where TCS, Infosys and Satyam benefited but Wipro and HCL lost out because they looked down on that business. We added marquee names, particularly in the US Healthcare and Insurance business that allowed the company to ramp up rapidly. In addition, the GE business, though of low margin, added value to the brand. By 2000 we were on a roll and risen up the rankings. The mood in the company was upbeat. Even after Y2K, the company did succeed in holding back some of the clients for more value added services.


However, the organization structure did not really allow for high growth. Satyam was like a loosely put-together federation. We had the core management with several Strategic Business Units (SBU) and a few subsidiaries. Some of the senior managers had joined the company from larger companies when Raju was still finding his feet. They tended to throw their weight around particularly at the monthly Executive Council meetings. In fact, at some of the EC meetings I attended it was embarrassing to watch the Chairman of the company being harangued by a few of the SBU heads. Raju used to accept this with some equanimity as he needed these managers more than they needed him. However, it was also true that some of them were conveniently using the Satyam name and money to further their own ambitions.


Some of the SBUs were also city centric with the result the heads were like czars zealously guarding their fiefdom. In fact, a popular tale was that one SBU head would not allow staff from any other city to come to his office without prior permission from him. Whenever I had a press release published in the media the same SBU head used to regularly crack a joke that I was hired to keep the Satyam stock price up. In fact, even the corporate HR department could not implement a lot of its plans as the SBUs and subsidiaries recruited their own HR heads. In theory they reported to the corporate HR but in practice the local HR person listened only to the SBU head.


However, in the flush of the Y2K bonanza a lot of these issues were swept under the carpet. But, even then a lot of business opportunities were lost because of internecine issues. In 1997 the techies at one SBU had developed an internet-based product called SearchPad that was well ahead of its time and a great product. SearchPad combined artificial intelligence and pattern recognition concepts to provide a personalized information filtering system. Imagine, at that time Google was not even a gleam in the eye.

Unfortunately, ego hassles between the SBU head and the head of Satyam’s sales & marketing prevented the company from putting all its might behind the product launch. Eventually, a junior person in the SBU, who was still wet behind the ears, was entrusted with the global sales. The product bombed. A real pity as I was involved in holding an intra-company competition for the product name and also for the global media release. My firm view is that Indian IT companies do not have the resources nor the bandwidth to market consumer technology products on a global scale. Satyam would have earned millions of dollars if it had sold the technology to a multinational IT company instead of trying to market it on its own.


The subsidiaries were a drain on the resources as the investment in setting them up was pretty high but the income generated was nothing to write home about. In fact, at one stage Financial Institutions and major investors were pushing for these subsidiaries to be sold, closed down or merged with the parent company as it was affecting the valuation of Satyam. Eventually this was done but it was too late.


One subsidiary that has an interesting story was Satyam Infoway. This case also revealed the visionary element that lurked somewhere in Raju. In the early nineties, Raju was convinced that people, wherever in the world they were located, looking for information on any subject should be able to call one telephone number and get that information. To this end he set up a small office in Secunderabad and hired a retired librarian with a PhD (Raju had great regard for people with doctorates and hired several of them later) whose job was to gather information. By 1995 the Internet Age was in the nascent stage, but Raju recognizing the potential hired a senior professional to relook at the whole business. Thus, Sify was evolved and created an internet revolution in India. Unfortunately, the subsidiary had to be sold much later because of pressure from major institutional investors.


But the saddest case was one about a product called VisionCompass, a web enabled EPM tool developed by Satyam. The product helped an organization put in place a measurement system that tracked and monitored its performance. It was considered far superior to the then popular Balanced Scorecard. This was a product developed from Raju’s obsession with the idea that performances at all levels across any organization could be measured in numbers. The idea was okay but he drove the technical development team crazy for almost two years. He would keep changing the brief at every monthly progress meeting. This resulted in a huge cost overrun. Finally, even a subsidiary was set up in the US with a highly paid American CEO. The first thing he did was change the look and feel of the product. This resulted in more delays. Eventually, the product bit the dust. Financial Institutions forced Raju to close the subsidiary. Overall the company spent over $100 million on VisionCompass but the income from it was zilch.


Post Y2K, the business environment had changed and IT companies had to look at more value added services to retain clients or bid for new ones. Ideally, Satyam should have exploited the situation to keep up its pace of growth. Unfortunately, some of the management changes that Raju made did not really produce the results expected by him.


Raju always felt that to sell in global markets a company needed to hire locals at a senior level. In 1998 Raju hired an American as the global head of sales and marketing. He was highly experienced and a go-getter. Unfortunately, the system brought him down. Culturally, the senior managers based in India could not (or would not) adjust to his style of working. Some of the SBUs wanted to sell directly to prospective customers instead of going through the US based sales & marketing department. This caused a lot of confusion. Three years later the sales head left the company. Another cultural shock for India based executives was the US designation of ‘Director’. Actually, that designation referred to nothing more than a Manager in Indian terms. However, whenever someone in the US was given the designation of Director it raised a red flag here and caused a lot of heartburn.


Another senior management recruitment that caused a lot of angst was that of a person who was brought in as Executive Vice President, the highest designation after Raju and his brother Rama Raju. In Raju’s true style he did not want this designation to be made public, but obviously that was not possible. He was later made the COO which again was not made public. This issue caused me some amount of embarrassment. After the ADR listing on NYSE in 2001 I released to the press a group photograph of the senior management taken on Wall Street. Below the photograph was mentioned the names and designation of the people. This manager had given me his business card that clearly mentioned his designation as COO. At 5 am in New Jersey, where I was visiting after the listing, I was woken up by a call from Raju asking me how that had happened. I was puzzled as I did not understand what he was referring to.

Finally, he told me about the issue. Apparently all the business heads in India were up in arms when they came to know that this particular executive had been secretly given the designation of COO. They came to know about this only after seeing the photograph published in the Indian dailies. This person was an egoist. He once told me that at all Satyam functions he should be given the front row seat next to the Rajus. He was later elevated to the Board of Satyam and had to leave the country in a hurry when the scam broke.


More or less this was the stage when Satyam’s growth slowed down.



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