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“Cost-effective does not mean cheap. It means value for money.” - Views on News from Equitymaster
 
 
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  • Mar 4, 2004

    “Cost-effective does not mean cheap. It means value for money.”

    Mr. Shashank Patkar is the chief financial controller at Geometric Software Solutions. He began his career as a management trainee with Godrej & Boyce in 1986. In addition to being a mechanical engineer, Mr. Patkar also has a Masters in Management Studies, with specialization in marketing. He has a total work experience of 17 years, has been responsible for establishing Geometric's development center at Pune, and has contributed significantly to the growth of Geometric in terms of business, manpower and infrastructure.

    In an interview with Equitymaster, Mr. Patkar talks about the global technology industry with specific reference to the PLM segment, Geometric’s competencies and his vision for the company.

    EQTM : How is the environment like when we talk about the global technology industry? What about the industries you cater to viz., engineering, auto, etc. when we consider the fact that industrial growth in the country seems to have picked up?

    Mr. Patkar: We are in the Product Lifecycle Management (PLM) space. Now, PLM is right from design to managing design to work collaboration design and to manufacturing. Here, software tools are provided to enable engineers to come out with new designs. It does not matter whether it is automotive, aerospace, machine tools, or white goods. You require some CAD (computer-aided design) tool for designing these products, with some PDM tool to manage versions of various products or record modifications for future use. And then you require collaboration tools for working concurrently, or working from different locations on the same design. At a very broad level, you can say CAD/CAM (computer-aided manufacturing) plus PDM (product data management) plus collaboration is equal to PLM.

    Now if you see, traditionally, in the 80’s and 90’s, people invested a lot in improving profitability through cost control. And that is where the ERP (enterprise resource planning) boom came in. ERP is typically implemented to streamline your processes, making sure that enterprise-wide operations are efficiently handled. Now, if you see PLM, if one were to use an analogy, it is an ERP of the design department. Like ERP is a control tool, PLM is a growth tool. There is a limit to which you can improve profitability by controlling costs. Finally you have to start improving the topline to improve profitability. And to improve topline, you have to come out with new products, innovations, new variants, new localizations for different markets and new versions of a same product. You require PLM tools for the same.

    I feel that the industry players, now, and even in tough economic conditions, have to invest in coming out with newer products. And that is how barriers to competition would be created. We feel that, in the years to come, there will be a lot of investments in PLM in the market. As far as our addressable market is concerned, we do not have any domestic revenue. Almost all of our revenues come from exports. And even if we have some rupee revenue, it is for partners who operate in the exports space.

    EQTM : Geometric practices a unique (for IT industry) business model of working through partners. How is the alignment across partnerships done? What are the pros and cons of doing business this way?

    Mr. Patkar: First of all, there are a few aspects that are helping us. We are in a very niche market. We are not broad-based that we do everything under the sun in IT. Not saying that it is bad, but everybody cannot do it. So, we have decided that we will be in a niche called PLM. Now, there are two kinds of customers in the PLM space. There are people who create PLM tools, i.e., the software OEMs (original equipment manufacturers). For them, we are working direct. Then there are people who implement PLM, and who require a lot of implementation services, customization, modifications, migration or engineering services. They are our end-customers, like automotive and industrial clients. We are tapping these industrial clients through our partners.

    Now, there are some specialized system integrators (SI) in the PLM space. Or they are IT SI who have a special focus on PLM. These are our target audience as partners. We have two types of partners. One, we have global players, like EDS, IBM Global, HP and Wipro. Basically, our engagement with them is very broadly on the resource augmentation level. We are not involved in most of the pre-sale activities. They close the projects and then we are involved. Now, things are changing in the sense that in some of the projects, because of our specialization, these guys have started involving us in the pre-sale stage. That is very good as it gives us visibility.

    Then there are partners who although are specialized SI but are regional. We have some of this kind in Germany, some in Japan, in Sweden and in the US. They are catering to one large customer. Like Softlab is catering to BMW, Volvo IT is catering to Volvo, and so on. In addition to other IT services, they also have a very special focus towards PLM. And through them, we are serving these clients. In most of these cases, we are involved in the pre-sales activity. So, we are jointly going to the end customer. There is complete transparency, as the customer knows, right from the proposal stage, that it is a joint-bid. In fact, customers are happy that their local partners have an India partner, because they get benefits on the pricing front. Customers are also happy because of our very strong OEM relationships. We can bring not just PLM domain expertise but also tool activities because we also develop tools for OEMs. So, it is a win-win situation for all three parties – the end customer, for Geometric as well as the partner.

    Now coming to pros and cons, one disadvantage of working this way is that partners mean low or poor visibility. Today, our business is around 75:25, i.e., around 75% from OEMs and product technologies and 25% from business partners. We can say that for the 75% part, we have excellent visibility. In the remaining 25%, you can say half from global partners and half from the smaller ones. Now, with smaller ones, we have fairly OK visibility, as we are involved in most of the proposals. But what is our objective is to take this partnership model to a level where the partners start setting up ODCs (offshore development centres) at Geometric. We have OEM ODCs, and now we would have partner ODCs.

    EQTM : Could you elaborate on the PLM space where Geometric is operating in? What is the size of the global PLM market and what is the growth? What are the factors driving growth in the PLM space? Who are the key user industries (present and prospective) of PLM solutions?

    Mr. Patkar: As for the PLM market, one is the OEM market that is around US$ 7-8 bn in size, growing single digit, around 6%-10% every years. This year it should grow by around 8%-9%. Other is the services market that is of a size of around US$ 37 bn to which you can add another US$ 7-8 bn of engineering services, which people now consider a part of the PLM market. This is the addressable market.

    Now, the growth in the PLM market is led by people using new tools for improving productivity or coming out with new product models and there are efforts going on for improving efficiency by integrating various PLM tools. So, here comes the services part. If people have to succeed in today’s competitive market, they have to come out with newer models and this means that they have to implement PLM solution.

    EQTM : What is Geometric’s strategy to become the most cost-effective PLM service solutions provider in the world?

    Mr. Patkar: Now, when I say ‘most cost-effective,’ it does not mean ‘cheap.’ It means value for money. And there are two aspects to it. What we are trying to convey to customers is, one, we are focused. We understand all aspects of PLM. We are telling people that when they come to us, we have the experience of working on various PLM tools. It is like having a working experience of SAP, Peoplesoft, BAAN, and integrating with other systems and so on. Here, PLM itself has CAD, PDM and collaboration.

    Secondly, we are saying that we are also acquiring process knowledge in terms of domains in automotive processes. So, when people want some outsourcing to be done in PLM, we are the best in providing value in terms of our relationship with OEMs, our understanding of various systems, and our ability to understand your total requirements. So, it is end-to-end. More than that, because of our knowledge of various systems, we provide solutions looking into the side effects, looking into what the customer wants to do, giving them some warning signals.

    Let us look at a case in point. Volvo IT came to India around 3 years back for outsourcing their IT requirements. They finalised Mindtree. They waited for one year and their offshoring experience was very good with Mindtree. Then they came one year later to sign a partner only for PLM. They distinguished that all their IT requirements would be catered to by one vendor keeping PLM for some other vendor. And they chose on us as their PLM vendor.

    EQTM : In the short-term, Engineering Services (ES) was stipulated to concentrate on building domain expertise in the aero and auto domains. How has been the progress? What are your long-term plans for the same?

    Mr. Patkar: I would say that there are already established players in the market, like Infotech Enterprises, Plexion, Satyam, Infosys and TCS, who provide engineering services. Now, our approach has been two-fold. Firstly, we have existing partners who are not in engineering services. So, ES is an offering that we are making them so that they can improve their topline by adding ES to their offering and outsource that work from Geometric. Then we are also looking for some exclusive partners in ES. On the delivery side, we have, over the past couple of quarters, put in efforts to set up delivery organisations because this is very high-domain dependent skill set. So, we have leads in auto side, in tooling side, we have a head of delivery who is coming with a ten year experience in managing engineering services. Then we have a business unit head who has flair of delivery and marketing in ES. So, one is delivery side and the other is go-to-market side.

    With these partners, we have already started with migration projects, tooling projects and detailing projects. These are the areas where we have already begun work. And I would say that is how we will progress. Initially, we would be involved in more detailing, migration and tooling jobs that could easily be offshored and help us in proving our domain expertise. And maybe in year two we will take up some independent total jobs and do complete tool design, and in year three we will start doing component design.

    EQTM : Talking about the services segment, how much rate pressure would a company like Geometric face going forward? The work that Geometric does for these companies, does it form a large part of the cost for the company?

    Mr. Patkar: We have not experienced much pressure in billing rates even in the difficult times over the last two years. I do not remember any of our partners coming and asking for reduction in prices. Although there was no increase, but there was no reduction as well. As regards the billing rates, for OEMs the rates are lower but there is a very high level of predictability. With the business partners, the rates are higher for industrial clients. For some software OEMs where we have established the ODCs, the work that we do does form a large part of their costs. And for partners, it is just picking up.

    EQTM : The company has very high levels of attrition (around 20% on an annualised basis). What are the reasons for the same? How is the company aiming to tackle this?

    Mr. Patkar: There were some issues related to growth, some policies, and performance evaluation systems. Some of the things have been corrected. Definitely the other thing is that there is a tremendous pressure in the market from MNCs and others. We have to face that. But we strongly believe that salary is not the main driver here. There are small irritants and people are unhappy and they take a decision and start looking out. We have to put real efforts in seeing that people like working at Geometric.

    EQTM : There was recent news that EDS is selling its PLM division globally. Now since EDS contributes to around 15%-20% of the company’s revenues, what would be the impact on Geometric? Also, considering that EDS has its Indian PLM premises in Geometric’s Pune facility, would the workflow be hampered until the uncertainty goes away?

    Mr. Patkar: You have to first understand a bit of history. It was first UGS (Unigraphics Solutions) PLM that was a separate company. And there was another company called SDRC. UGS was loosely connected to EDS in the sense that EDS held most of the shares. But UGS PLM was a separate company worth US$ 1 bn. SDRC was also of the same size. They (UGS and SDRC) decided to merge. This was three years back. And then they merged in EDS, as a division. But soon they realised that EDS was a service-focused company. And for product-focus, you require a different mindset. You cannot look at quarter numbers and cut the R&D manpower just because the quarter was bad. For products, you have to have a long-term view. So, what they are doing now is spinning off that product portion that was anyway separate in terms of the way people were operating.

    So, I do not think that anything is going to happen to their product brands, like Teamcentre. I feel their India outsourcing will continue. In fact, they (UGS PLM) have their own set-up in India, in Geometric’s Pune premises. So, when they expand, they would do so through direct hiring and with Geometric. Their brands are so powerful that they cannot afford to kill the same. And when there is no threat to brands, the development would continue.

    EQTM : What is your long-term vision for Geometric? Where is Geometric’s long-term growth likely to come from?

    Mr. Patkar: For the long-term, we have said that by March 2007, we have to cross this US$ 100 m mark. It is not a guidance, but it is our target. We have to graduate to that size company. What that means is that we will have to reach to almost a 2,500 people company. Today we maintain that that is our target. What that means is almost 50%-plus growth for the next three years, which we are confident to achieve. At present, there are enough challenges in the PLM space. We have to first succeed in engineering services. We need to take our partnership model to a new height. And, of course, we should keep on serving OEMs.

    EQTM : Could you share with us the personalities and books that have influenced you the most?

    Mr. Patkar: Built To Last and Good To Great (both by Jim Collins) are the two books that have influenced me the most. Another book that I like is The Seven Habits of Highly Effective People (by Stephen Covey). As for people, in my childhood, I was much influenced by Mr. S. L. Kirloskar, for the way he set up the whole of empire in the engineering industry. Then I have a lot of respect for the Godrej family, both business-wise and for their contribution to the society. Then, of course, I have lot of respect for Manu (Parpia) for his leadership skills. I have been working with him for about 17 years now.

    EQTM : What takes up your time apart from your work?

    Mr. Patkar: I take a lot of interest in cooking and gardening. If I had not been in this business, I would have been a farmer. I really like this new agriculture technology. I do not understand why nobody is talking about agriculture technology. There is so much scope in India regarding agriculture technology. Then, I like to drive long-distance. But that is when I find time apart from work!

     

     

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