Customer is today looking at an end solution, not a point product’

IBM employs more than 40,000 by far the highest among the global IT giants. Shanker Annaswamy, IBM India’s managing director talks to ET on its India strategy.

The IBM chairman had announced $6 billion FDI last year. How is that going?

After the chairman’s (Sam Palmisano) announcement, we explained that the milestones are really about bringing investment into India both from global strategic point of view and also from domestic point of view. We talked about bringing in a very high end system and technology lab, which will bring in tremendous capabilities of our mainframe and other servers and storages into the country. Customers can bring their technical team to network with ours. That has been completed. It is a high-technology high-investment lab.

We also talked about a research centre purely focusing on telecom. India gave us a great model through the Bharti relationship. That business model is again unique for doing telecom research. How do you do a call for two cents, or less than two cents, and yet make money was a big revelation. It is not just about pricing. It is also about how you bring an on-demand solution to this kind of a dynamic market.

Those are the stuff we are looking at. The next milestone was the high-performance-on-demand solutions lab (Hi-pods). This is the lab where really high-performance solutions are brought in and the customers can network through the lab with the entire technical team across the world. Then they can leverage that.

This lab is again in Bangalore. We have recently opened in Delhi another lab called the industry solutions lab. That is largely to address the domestic market. When we looked at the domestic market we felt we should go more and more towards a solutions approach. We are great in point products like servers and storage and stuff like that. But no longer is the customer buying a point product. He is looking at an end solution. So how do you, for example, demonstrate solutions in banking or future solutions in retail?

Are you not edging into what was earlier called strategic consulting?

Indeed, such strategic projects cannot be run without the consulting knowledge. We offer end-to-end capability. Our consultancy group is one of the largest in the world. And I don’t see any division between global capability and domestic resources. For Bharti we pulled out resources from our world-wide network, to come and help me. Our global knowledge is available for every customer, including in India.

What is different from strategic consultancy is that the client owns the customer. If my telecom client comes and says I want to go from two million to six million in a couple of years, I am not going to question him. They come to us with challenges regarding speed, costs and productivity enhancement. Or, for instance, fundamental shifts like pre-paid to post-paid.

Each business processes can be broken into components. You have experts in each one of the components in IBM corporation. These guys have the ability to take out those components, make it much more productive, much more efficient and fit it back. This kind of component business modelling, where we have industry experts and technology experts, can be applied to high volume businesses like telecom or retail.

How do you assess the domestic demand for your services?

In the domestic market we are looking at telecom, banking, BPO, infrastructure solution, retail and government. We are building up solutions for the Delhi airport, which we won against tough competition. Real estate is another example in the infrastructure category. We are looking at retail where we have core competency. In banking, apart from core banking, we are looking at payment systems. We are also looking at branch productivity, Basel II. We announced a core banking deal with Canara Bank a few years ago. There is a huge opportunity in the government. We won the CBDT infrastructure deal, which is going well.

Very interesting things are happening in e-governance. More than 15 state governments are working on e-governance projects. The challenge is to expand them, make them scalable. If there is a treasury or land record work we have done, how can we replicate it? Then there is the SME segment. I think India’s big growth will come from the SMEs and unless we enable them we would be missing out on a big opportunity. That is why we recently launched with ICICI the SME tool kit. There is micro-financing. We are working with the Jan Lakhmi group. IBM can contribute in each of these to make a difference through the globally integrated enterprise framework.

The domestic market is in a robust growth phase. Companies aspire to be not only competitive in India but globally. Banking is thinking like that, automobile components are looking at it. In steel, we have seen what our industry is capable of. Everyone has seen IBM’s model and what it can do. It gives them a facility to firstly park their problems and challenges related to running IT organisation. Second, it makes the organisation nimble.

Why are the Indian software majors not as excited about the domestic market?

I would not like to comment on other companies, but there could be a difference of priorities. IBM is almost a hundred-year-old company. It has presence across the world. Each market is important for us, particularly growing markets. Emerging economies like India, China, Brazil and Russia are specific focus of the top management. But we do see competition in the domestic market. It is not as if this is an easy ride for us. What is important is that there are big contracts available in India as well, provided you have a value proposition. That value proposition cannot be built overnight.

Our relationship with Bharti has gone way beyond the initial contract. This is largely because the entire team came together: research lab, software lab, business solution came together and the clear message was ‘make this a successful project’. This is because the industry is watching. People were saying through 2004, 2005, 2006 where is your next big contract. When Nasscom announced the award for Bharti and IBM they said we chose this initiative because it made a direct impact to the bottom line of the business. May be the domestic companies are at a different end of the spectrum. May be they are not at the high end. We can go right up to strategic outsourcing.

When you talk about strategic outsourcing, what is it that you are offering?

We call it strategic outsourcing because it is strategic from the point of view of the customer. It is not simple outsourcing like cleaning or canteen. It is directly linked to the business and making the business viable and that is why it is called strategic outsourcing. Gone are the times when people wanted to do everything on their own.

Look at Bharti. After signing the first deal, again a sizeable deal was signed for service delivery platform. Then they announced a deal with IBM Daksh. If they did not see value, they would not have done these. They are as tough a customer as any. Idea cellular, after singing a 800 million deal, recently announced an interactive voice recording deal, sizeable again by any standards. Then there are smaller deals coming like DLF or the Delhi airport.

IBM is the most visible MNC challenger to the famous Indian challenge pioneered by TCS, Infy and Wipro. Are you satisfied with the way things have gone?

From whatever we have publicly stated, we are extremely happy with India and its model. It is a key component of the globally integrated enterprise model. In the business model of IBM, emerging economies contribute to a sizeable portion of the growth. If the IBM corporation is looking at 6%-7% growth, they look at contribution from emerging markets as a certain portion, which would be high. What really impresses the corporation is the rate of growth. We declared recently that we grew in Q2 45%, which is faster than the market and therefore gaining share. And our strategic outsourcing we grew almost 150%. And, large and small put together, we announced eight deals in the first half of the year.

The kind of scale-up you have had in India, has there been a similar experience anywhere else and what are the challenges of that?

I don’t think we have grown at that pace anywhere else. In 1995, we were approximately 400 people; 2000 about 4,000 people; 2005 about 40,000 people. We could not have recruited, trained and continued unless you had a phenomenal process. Our strength is the underlying processes, discipline, systems, and cultural values.