Satyam Struggles to Keep Customers

Amid board upheaval and possible management change, India's fourth-largest software company woos top customers to prevent defections

Senior executives at Satyam Computer Services are working overtime to ensure that top customers do not jump ship to rival tech firms, as the company tries to counter increased risks of customer defections amid concerns over corporate governance issues and a potential change in management.

Corporate governance at India's fourth biggest software company firm came under sharp focus last month after Satyam announced and later withdrew plans to acquire two firms run by founder Ramalinga Raju's family for $1.6 billion. The decision was slammed by investors and has led to a major upheaval in the company's board with four independent directors standing down.

Some analysts have raised questions about the company's commitment to software and industry experts say outsourcing contracts worth anywhere between $350 million and $500 million are up for renewal by Satyam customers this year.

"We are explaining to customers that what is in the realm of investors is different from the business side, where people and process remain unchanged," said a top Satyam official who requested anonymity. "We are telling them that things at the board level will settle down soon, hopefully by next week."

Satyam's board is meeting on January 10 to discuss a new structure, apart from considering other strategic options to enhance shareholder value and address issues arising from a dilution of the promoter's stake.

Industry research firms say several Satyam rivals are seeing new business opportunities during the Satyam crisis. "Peers like TCS, Infosys, and Cognizant are gearing up to take advantage of Satyam's misstep . Shared accounts will use this to take share and consolidate spending," Forrester analysts Stephanie Moore, Sudin Apte, and John C McCarthy said in a report. Concerns have also been raised in some quarters whether the crisis that has enveloped the company could see key employees quit Satyam.

"People like us who are involved with the delivery side of the business are being asked questions about whether we are leaving Satyam," admitted another Satyam official who manages project delivery for Satyam's key customers, also requesting anonymity. "We have told them that there is no need to worry about contracts and that we are here to stay," he added.

In order to ensure that customers, especially those planning to renew the contracts this year, do not walk away and outsource projects to a rival company, Satyam is stressing its project delivery credentials. With over half of its revenues coming from SAP-based enterprise services, Satyam has been serving companies such as Caterpillar deploy and manage their enterprise resource planning (ERP) systems.

Top company executives are exploring meetings with key decision-makers at customers as part of a 'meet and greet' campaign . "We are making sure that customers are not going to other vendors by communicating more frequently with them, apart from seeking more one-to-one meetings," the second Satyam official added.

Customers such as Applied Materials—which awarded a $200 million five-year contract last year to Satyam for managing the semiconductor firm's software application and maintenance work—have expressed concerns over the recent events. "Applied Materials has approached Satyam for reworking the outsourcing agreement," said a person familiar with the developments. While, the company is not exploring any immediate termination of the contract, an overall restructuring of the agreement is being worked out, the person added.

Satyam officials however, maintained that Applied Materials continues to be a satisfied customer despite developments over past few weeks. "We recently celebrated seven years of engagement with Applied Materials, and they have not indicated any change in our relationship," said one of the three Satyam officials ET spoke with last week.

Before it's here, it's on the Bloomberg Terminal.