The founder and chairman of Satyam details the philosophy that has underpinned the company’s rapid ascent through the ranks of the world’s top IT services providers.
In 1991 Satyam Computer Services set up “Little India” in a town of about 45,000 people in the heart of the US Midwest. This foothold was about as far removed as possible from Satyam’s headquarters in Hyderabad, India, but it was the home of the four-year-old company’s first Fortune 500 client. From a rented house across from the customer’s software-development center, ten Satyam engineers field-tested the benefits of global IT offshoring by pretending they were in India. They worked nights to simulate the time difference and for six months never met their customers across the street in person, communicating only through a dedicated satellite link. “In the end, the team performed better from Little India than they had while working on site,” Satyam’s founder and chairman, Ramalinga Raju, says today. “It was a great success.”
Now Raju is engaged in another test: fine-tuning a business model designed to deliver uniform client experiences while keeping everyone in the company focused on the same objectives, despite phenomenal growth. For a stable company such an initiative would be difficult enough, but Satyam’s revenues have grown at a compound annual rate of more than 50 percent over the past decade. And the pace can’t let up if the company hopes to achieve its aspiration of becoming one of the top providers of consulting, IT, and business-process-outsourcing services in the world by 2010.1
Raju says the development of an innovative business model early on played a vital role in the company’s success. Among other benefits, the framework helped sustain an entrepreneurial spirit, distributed leadership roles throughout the organization, and created an environment focused on “delighting” stakeholders.
Founded 20 years ago with an investment of less than $100,000, Satyam has grown to rank fourth among India’s IT services companies. With clients in 55 countries, including 163 Fortune 500 companies in the United States and elsewhere, Satyam’s revenues reached $1.45 billion last year, with a workforce of around 40,000 and a market capitalization of more than $8 billion. Over the next year the company expects revenues to increase to roughly $1.9 billion, as the staff grows to more than 55,000.
Raju recently met with McKinsey’s Prashant Gandhi and Joydeep Sengupta in his home in Hyderabad to discuss his business model—dubbed the “SatyamWay”—which he hopes will provide solid footing for the company as it continues its double-digit growth.
The Quarterly: What made you start thinking about a new business model for Satyam?
Ramalinga Raju: My educational background is not in technology but in commerce and business administration. Before I explored the IT sector, I dabbled for about a decade in manufacturing, construction, infrastructure, agriculture, and imports and exports, among other businesses. So in the initial years, when my brother, a few colleagues, and I evaluated opportunities in the emerging knowledge industry, we looked at things from a different perspective. Still, we saw more commonalities than differences among all these sectors. For example, all the support services such as human resources, finance, and administration were the same. Also, the essential nature of projects was similar across industries.
However, the knowledge industry operates in a dynamic environment and, in our view, it required a more refined and sophisticated business model to suit the times and the industry. For example, in the knowledge industry there is a greater coupling between strategy, operations, and stakeholder intimacy than demanded by traditional industries. To bring this all into focus, we came up with our “TDC” model, which stands for “thinking,” representing strategy and innovation; “doing,” operational excellence; and “communicating,” connecting intimately with stakeholders.
It’s not rocket science, but when you look at a company like ours, you see that traditionally most of the thinking and communicating is done at the top, and most of the doing at the bottom. In the SatyamWay we expect leaders throughout our organization and at all levels to strike a balance among these three value-creating tasks.
The Quarterly: What are some of the other differences you identified?
Ramalinga Raju: We also recognized that traditional hierarchical models will not be effective in a knowledge industry. Rather than focusing the whole business on delivering value in one way, as you might see in a textile mill, at Satyam value was being delivered in many different ways, depending on the services our clients needed. To cater to these differences, we created an organizational design that distributed leadership more uniformly. Ownership of results shifted to leaders who were closest to the relevant stakeholders, which could be their colleagues, investors, clients, or even society generally. The rest of the organization supported these leaders from behind the scenes, helping to create a “One-Satyam” experience for the stakeholder. This design also sought to bring the correct balance between building the right soft assets that have lasting value and delivering reliable results for stakeholders.
I am glad to report that we have done consistently well on all fronts. From the perspective of our associates, we were rated as the second-best employer across industries in a survey by Hewitt India and the Economic Times. From an investor’s viewpoint, $1,000 in 1992, when we went public, would have yielded $1 million by 2007. We enjoy one of the highest levels of customer satisfaction in the industry. On top of all this, we are consistently rated as one of the most socially responsible organizations in the country. Overall, our effort and investment in the business model has paid rich dividends.
The Quarterly: What is the most distinctive aspect of the business model that you have adopted?
Ramalinga Raju: The recognition that value creation follows a similar structure irrespective of industry, type of function, or level within an organization. For that matter, philanthropic undertakings also reflect the same value-creating structure. In that sense it is analogous to fractals in science and mathematics. Not to get too esoteric; fractals are self-replicating constructs that become increasingly small, like the sections of a seashell or the buds in a stalk of broccoli. While they are similar, they are not necessarily identical. You can look at a business in the same way and try to find a pattern for value creation, an essential DNA that repeats itself in every area and at every level.
So we started looking for the smallest reasonable construct in our business that repeats itself. This construct had to deliver value to someone—a client, an internal customer, some other stakeholder—but it also had to be large enough to stand alone. In theory you can take the idea of fractals to the extreme, but in business if this construct gets too small, it consumes more organizational resources to manage than would be justified by the value it creates.
In our model, we brought it down to what we call the full life cycle business. The formal definition is a group that takes full responsibility for creating value from a certain set of activities. This could be, for example, relationship management with a particular client or campus recruitment. The essential way these businesses operate, their DNA, is the same. Simply stated, whatever the nature of the activity, our model tries to balance maintaining the precepts of the TDC model, creating assets that deliver consistent results and contribute to future value, and satisfying stakeholder interests.
Altogether we’ve recognized about 2,000 full life cycle businesses, each similar to one another in the way they create value.
The Quarterly: Doesn’t such a large number of full life cycle businesses fragment the organization?
Ramalinga Raju: No, on the contrary, it unifies things for the benefit of each stakeholder. We manage different kinds of activities—relationships; business development; projects and programs; support systems; and building technological, industrial and functional competencies, to name a few. Each full life cycle business has a leader, and the principle behind distributed leadership is to empower leaders at every stakeholder touch point. At that “moment of truth,” the leader is the center of the universe. Delivering the One-Satyam experience by aligning the organization to delight the customer, whether internal or external, becomes the prevailing operating principle. Then, in addition, a formal system of metrics acts as the glue holding it all together.
Let me give you an example. Our organization has 40,000 people today and at the end of the fiscal year we’ll probably have more than 55,000. Many of the people we bring in will be straight out of college. Human resources are broken down into three elements: attraction, retention, and management. Attraction is all about recruitment: you recruit on campus, within the industry, outside the industry, and so forth. Each of these components becomes a business. Campus recruitment becomes a business. In fact, campus recruitment from management schools becomes a separate business in comparison with campus recruitment from technology schools. Each of these businesses has its own set of benchmarks to match or exceed and stakeholders to delight.
Also, these businesses may be pulled together at an integrated full life cycle business level for a common goal. It’s much like a movie producer bringing together the director, the actors, the screenwriters, the caterers, the marketers, et cetera, for a film and then releasing them once the project is completed. This allows us to assemble and reassemble as needed. It also creates a strong platform for performance management and leadership development—critical areas when you are growing as fast as we are.
The Quarterly: What has the impact been on performance management?
Ramalinga Raju: Since these businesses are expected to add value in a very specific way, we can disaggregate our central mission, which is to become one of the top IT services companies in the world by the year 2010, in a way relevant to each business. We call our mission our “North Star,” and each full life cycle business has its own North Star that relates directly to our overall mission. For instance, about 30 percent of our IT services revenue comes from the banking, financial-services, and insurance industries. So we look at what we have to do within these industries that is consistent with our mission. Then at the next level we have to determine what has to happen with customer relationships, what has to happen with our service offerings to the industry, whether we need to form alliances to bring in outside expertise. As a part of our effort to minimize risks in these industries, for example, we could set a North Star that says “x” percent of our business in the sector must come from Europe. This keeps each business moving in the same direction and also prevents them from evolving into individual fiefdoms that may have conflicting priorities.
Along with defining what needs to be done, these separate North Stars also guide us in setting individual metrics, which are then used to drive and measure performance. For example, if the goal is to improve profitability on an ERP2 project, metrics for individual full life cycle businesses on the team could include increasing the percentage of team members with ERP certification from, say, 60 percent to 90 percent or increasing first-time-right numbers for ERP support from 96 percent to 99.9 percent.
The Quarterly: You also mentioned leadership?
Ramalinga Raju: We consider ourselves in the business of building leaders. The most effective way of realizing our goals and objectives is to grow leaders faster than the competition. Taking a non-India-centric view in attracting leaders from all over the globe and growing existing leaders through focused leadership-development programs is paramount to our success. The Satyam School of Leadership is dedicated to this effort.
Our operational model naturally lends itself to creating leadership opportunities within the organization. In our distributed leadership model, we have ample opportunities for individuals to develop and showcase their leadership skills. Finding and assigning leaders to each of these businesses was initially a challenge, especially when you realize that we need a 25 percent buffer at any time to accommodate growth and attrition.
Also, in 2005 we created an analytical engine called the Real Time Leadership Centre, which works with individual business leaders to identify goals and the metrics needed to track progress toward these goals. The center also works with leaders to develop the knowledge and skills needed for success—for instance, by training them in management tools and sharing best practices that have worked elsewhere in the organization. And it also tracks the metrics, offering business leaders a dashboard to monitor how they are progressing. Essentially, it makes the language of metrics our first language.
The Quarterly: Satyam has indeed developed a language of its own around this model—North Stars, full life cycle businesses, and other terms we haven’t even mentioned. Why is this necessary?
Ramalinga Raju: When we were a small company associates could talk to each other on a daily basis. Our beliefs were extensively discussed. Course correction was dynamic. Today we have grown to an enormous size, and growth continues to be staggering. Each day I meet with more associates who are new to me than associates I already know.
In this environment cultural integrity and consistent solution delivery are possible only if we have a reliable platform and a common language. Constant refinement of the SatyamWay and relentless dissemination of its principles has to be a focused effort. If our most recently recruited class of associates—not the ones who have been with us for years—can articulate our philosophy, we have succeeded in our effort.
Also, one of the biggest challenges you face when trying to change an organization is instilling a belief slightly before it becomes a credible reality. That “slightly before” is not huge, but every change process has to go through a hockey stick: you dip in belief substantially before the process starts to become credible within the organization. You have to be reminded about it enough times through a common language so that when it comes back to becoming credible within the organization, it takes on a new meaning. Whether it is “deep dives” in consulting language or “How are your 6 Ps doing?” in Satyam terminology,3 it gives you a sense of how your businesses are managed.
The Quarterly: Did the effort initially meet with a certain amount of cynicism?
Ramalinga Raju: Rather than cynicism, I would refer to the doubts in the initial years as apprehension. As the company attained a certain size, almost everyone recognized the desirability of the new business model, although the pace of adaptation was very different through the organization. But for change management of this magnitude to succeed, you have to be consistent. You must keep asking the right questions until enough parts of the organization actually show results. You must share success stories and adopt best practices within the company.
In a book we give employees detailing the SatyamWay, it discusses one client case where we’ve been working with the model for the past decade. It’s gone from being one of our most complex accounts to being one of our most profitable accounts. This change has freed up time for managers to do strategic thinking rather than fight fires. Influencing and connecting with the ecosystem better and enhancing the leadership-development effort have yielded gratifying results. When such examples become reality in the rest of the organization, the language starts to take on a new meaning. But if you try to deal with the initial apprehension through authoritative approaches, it’s not going to work. So you just let it ride. You keep asking the same questions, repeating the same terminology, and being consistent until enough parts of the organization realize the value and start to follow.
The Quarterly: What’s the future of the SatyamWay?
Ramalinga Raju: It goes without saying that this is a continuous journey. The SatyamWay is not a static model but a dynamic one. It requires ongoing course correction. Over the past 20 years we had to reinvent ourselves half a dozen times. Each phase of the evolution was dramatically different, but at the same time enduring. As we experienced these changes, the SatyamWay guided the organization in transitioning from one phase to another without rocking the boat off balance. As much as it has been an influencer of change, the SatyamWay was also influenced by the changes in the organization and the market place. I see no reason to expect this to change as we embark upon our next stage of growth.