Online Extra: India Takes Tech to a Higher Level
When India's MindTree Consulting went public on the Bombay Stock Exchange on Mar. 7, it was a remarkable event. Not only did the stock soar more than 50% on the first day of trading in spite of major uncertainties in global equity markets, but it marked an important milestone for India: MindTree is the first Indian venture-backed tech company to go public.
Even more important, the company's debut may mark a turning point for the Indian tech-services industry. The industry was originally a supplier of cheap software programming talent for Western companies, but has focused in recent years on providing higher-value services, such as technology consulting. MindTree was conceived from the ground up to be consultative.
"I saw that we could create a new kind of company," says Ashok Soota, MindTree's chief executive officer, in an interview conducted three months before the IPO. "It was a hybrid of high-value consulting and low-cost offshoring. I believe this is where the whole industry is heading." For each client, the company puts together a team of engineers and consultants who collaborate with one another on an engagement from start to finish.
TOO NEW FOR TALK
While MindTree is still a small player compared to the Indian giants, it's growing rapidly. Revenues nearly doubled last fiscal year (ended March, 2006) to $101 million, and profits tripled, to $12 million. The company now has more than 4,000 employees worldwide, about 12% of them outside India. Its customers include top global brands such as Cisco (CSCO ), Johnson & Johnson (JNJ ), and Volvo (VOLV ).
Because it just went public, no independent equity analysts have yet written reports about it or rated the stock, and they're not permitted to speak publicly about it until 40 days after the IPO. Today, the stock is trading at about $18, double its original price.
CEO Soota is one of 10 founders who started the company in Bangalore in 1999. Soota is a veteran of Wipro (WIT ), where he ran the tech business for 15 years. The other founders came from Wipro, Lucent (LU ), and Cambridge Technology Partners, a U.S. tech-consulting boutique. Lucent was the first customer.
VOLUNTARY PAY CUTS
MindTree got out of the gate quickly, signing up many dot-com companies as customers. But the good times were not to last. It raised over $23 million and had staffed up to 500 people when the September 11 attacks came and put a damper on tech spending. Corporations cut back on transformational projects and focused on maintenance and cost-cutting—which was better for the more traditional Indian services companies. "It was a very difficult time," says Chief Operating Officer Subroto Bagchi.
The company's executives voluntarily took 25% salary cuts, and the rest of the staff saw their paychecks cut by 10%. But while a bunch of boutique U.S. consulting companies failed, MindTree survived because of its strength in India. In fact, it avoided firing people. That people-friendly approach is essential to the way the company operates. The company refers to its employees as "MindTree minds," and all of them are eligible to get stock options.
The company's work spaces are designed to encourage collaboration. The founders believe that when you have more than seven people on a team, there's a loss of intimacy and effectiveness. So it organizes in teams of seven who sit in clusters. Seven of those clusters make up a "village," and each of those groups of 49 people share a common "ideation" space, which is supposed to be like the shady area that's often at the center of an Indian village.
It also has an unusual knowledge-management system, called Open Mind, which encourages sharing of information. It's something like an open-source development structure—but contained within MindTree rather than open to contributions from volunteers worldwide. If an employee has an idea for a new software offering, they write it up and post it in the Open Mind online program. Other people who are interested can sign on and help out with the project.
The key employee at MindTree is the "business analyst." These are the consultants who work directly with clients and help them come up with new business processes and technologies to solve their problems or help them take advantage of new opportunities. "They provide a very interesting mix of solutions development in India and front-end business support and consulting," says Sam Sahana, chief information officer at the International Air Transport Assn. in Geneva, Switzerland.
Sahana hired MindTree consultants to help him restructure the IT department. With their help, he decided to outsource a lot of the association's IT work and to set up a preferred-provider program of services companies that he would work with. And, ultimately, he chose MindTree as one of his preferred providers.
Going forward, consulting will become even more important for MindTree. It hasn't gone the route of hiring a lot of high-priced U.S. and European consultants. Instead, it's trying to develop this expertise from within. One piece of this effort is the company's business-analyst "community," where veteran consultants mentor newcomers. Vishweshwer Mangalapalli, a MindTree program director in Bangalore who was one of the original business analysts on the IATA account, says he now engages young consultants in role-playing games to strengthen their communications skills, and walks them through the life-cycle of a client engagement.
Will MindTree ever grow up to be one of India's outsourcing giants? That seems unlikely. The large companies are designed to scale rapidly and handle huge volumes of work. That's not MindTree. But given the direction the industry is headed, its combination of skills and services will likely be in demand. CEO Soota's biggest concern in late 2006 was that the company's IPO might be too successful for its own good. "You don't want to go out at a peak," he said. "You want to give an upside to your new investors."
By Steve Hamm