 "Anand Deshpande")
Mid-cap IT services and solutions firm Persistent Systems second performance was not spectacular as Chairman and MD Anand Deshpande puts it. But he also points out that the cyclical nature of business is because they are changing their business model to deal with the transition the industry is facing. In an interview with Shivani Shinde Nadhe he talks about how the company is changing its business model, performance for the next six months and impact of automation. Edited excerpts:
The Q2 seems slow, IP led revenues have been flat and so is services. How do you see the next two quarters and how is your shift to IP led business panning out ?
This is an in-line quarter performance, nothing spectacular. Going ahead we have said that for the next six months we expect market to continue to be under pressure, especially for the T&M (time and material) business segment, as the effort required per job is going down. We knew that this is not a Persistent only issue, but an industry wide phenomenon and because we knew this would happen we had found out other ways to ensure that our revenues were not dependent on effort-based services. With that in mind we have been systematically building out our portfolio for revenues to come from other non-effort based work like intellectual property (IP), and digital.
This is an in-line quarter performance, nothing spectacular. Going ahead we have said that for the next six months we expect market to continue to be under pressure, especially for the T&M (time and material) business segment, as the effort required per job is going down. We knew that this is not a Persistent only issue, but an industry wide phenomenon and because we knew this would happen we had found out other ways to ensure that our revenues were not dependent on effort-based services. With that in mind we have been systematically building out our portfolio for revenues to come from other non-effort based work like intellectual property (IP), and digital.
When you move to another billing model which is not effort-based there is a cyclical impact that comes into play. Hence, we would like people to look at us on a year-on-year basis than on sequential basis, especially when it comes to our business with IBM.
How do you see FY17 ending for you ?
The next quarter will depend on how our IP revenue pans out. We should have a reasonable Q3. The last quarter (Q4) will depend on our digital work and the new projects we have taken with customers on this. Some areas that are looking good is traction in healthcare with Salesforce or identity security segment we are working with Oracle. They are creating the pull for Q4 of this financial year.
But as I said you should look at us on YoY basis. Most of the IT industry for many years have been extremely predictable on a quarter on quarter basis with a clearly defined relation between headcount and revenue growth. Because you know how many people you have and how many you can bill and hence the calculation is easy, very spreadsheet driven. But unfortunately the market has changed, thankfully we too have changed. It's very hard to extrapolate headcount and what is happening.
How is Persistent's digital business playing out ?
We have spelt out what digital play will mean for us and how we would want to sell it. We had the evidence of the same when we attended last quarter Salesforce conference and the Oracle conference in September. We had some of our new digital offering being described there. Digital for us is a platform and architecture that allows you to create agility in business by building things incrementally and iteratively. For us digital will cover three verticals-healthcare, financial services and industrial IoT. We are making good headway into this.
By when do you think this cyclical nature of the business will go away ?
By when do you think this cyclical nature of the business will go away ?
They are stable, it's just that when your revenue billing is not on QoQ basis or T&M basis. When you are doing T&M business its easy, as you can foresee the effort required to do a work, but when you are selling IP licences its different and makes business predictability on a QoQ basis difficult.
You spoke about a move away from T&M revenues. The industry is trying to also make a transition to a new business model. How difficult is this change for the industry and for Persistent ?
If you look at our services mix, which is around 7 per cent of that some is coming from digital and others. Digital is 15.2 per cent of our business and we have very specific definition of digital and we are not selling it on T&M basis. More digital growth would mean less susceptibility to headcount growth business model. Most of traditional T&M business is about 46.6 per cent and has gone down 1.5 per cent on sequential basis.
And instead of saying we are moving away from T&M, we are trying to create non-T&M related revenue lines. One of it is IP and next is digital. Where we are not going on outcome deal but they are still not T&M effort.
How difficult is it to make this transition ?
It is very difficult. It is very hard to change something that you have been working with for a long time. We have been under this transition for the last two years. It has been hard work for us especially when you are expected to optimise on qoq basis. As a lot of decision making in the new business take more time and its difficult to manage. The next 2-3 years the transition shift will be there. Those who are willing to bite the bullet and say I am going to make this transition despite what people many say on QoQ performance will eventually end up in the right spot. Work is not going away there is lot of transition happening, new skills are required and there is a whole lot of internal changes need to be made. We have also undergone internal changes and struggled to make them, it is part of the reasons why we have not moved faster than I would have loved to.
People are hard to move, the people you need to sell IP related business/product, is different from the way you sell a T&M business. In the latter a culture sets in where they expect to be told what would be the next thing to be done, people forget to think.
When you are into IP you have to tell the customer on what is to be done. How do you make sure the right kind of questions are being asked ?
When you are into IP you have to tell the customer on what is to be done. How do you make sure the right kind of questions are being asked ?
You should look at how Persistent worked a three years back and look at our mix of employees, geographical distribution and effort on sales is very different. You may not notice these changes on QoQ basis, but there are lot of IP projects not done by offshore teams anymore. We have lot of people in other geographies who knew how to do this and now they are driving them.
How do you think the automation wave to impact the industry ?
People are making too much of automation aspect of automation. Reality is, lot of work is getting out of the system because of the next generation technologies that are coming in and making it easier to build products. It's like you using a tractor instead of bullock-cart. Second, our view of what IT industry is, needs to change. IT industry created jobs and they will shift from IT to e-commerce, product and engineering firms, technology firms. More importantly, we have a serious problem in our country about jobs and job growth. We are fooling ourselves by not calling out this a serious issue.
