“LOOK AT THE SIZE OF THE VERTICALS,” Anand Sudarshan, chief executive officer of the Bangalore based NetKraft Pvt. Ltd. invites softly. We are talking about why NetKraft, a provider of outsourced software development, systems integration and application maintenance services decided to concentrate only on the healthcare informatics and retail and distribution verticals, rather than follow the well-charted success path of many other established Indian IT services companies.

Sudarshan estimates the healthcare industry in the U.S. alone to be worth around 13-14% of the U.S. Gross Domestic Product. This is backed up by figures published recently by the Centers for Medicare and Medicaid Services. The agency said in January that the U.S. health market reached $1.42 trillion in 2002.

“The industry is large enough to sustain not one but multiple players,” Sudarshan says magnanimously. “Provided they have the right focus,” he can’t resist adding a caveat. Infact, ‘focus’ is a word you will hear a lot while speaking to Sudarshan. Hearing him speak, it would appear that “focus” was the panacea to all of Netkraft’s problems.

Get Your Focus Right
But NetKraft wasn’t always this focused. Infact the company had a few hits and misses before it finally morphed into a niche player with a business model that worked. Founded in 1998 by Atul Jalan and Prashanth Prakash, the company was a late entrant into the IT services outsourcing arena. Before long, the founders realized that the horizontal model was not suited to their vision. They envisioned a company that would be a leader in one, probably two verticals. What followed was a massive reinvention program through which, the company hoped to realign their business goals and business model based on their core competencies.

As it turned out, most of the company’s clients were in the retail and distribution and healthcare verticals. “We had developed expertise in these two verticals more by default than by design. Then we set about studying the market, learning what it takes to be the primary technology provider in that market,” says Sudarshan.

The company re-designated its employees, in the words of the management “to provide more focus and pre-defined job roles.” Sudarshan, co-founder of the Microland Group and ex-CEO of PlanetAsia was brought in to head a new management team. Prakash moved aside as chief strategy officer while Jalan took on the mantle of Managing Director Europe. Infact, the company did everything it had to do, to change its brand image. One of these changes was to establish itself in defined market segments.

“Once the team was setup and we took stock of our achievements, we realized that market realities had changed. No longer was cost arbitrage a primary factor. To succeed, we needed to develop deep practice competencies,” says Sudarshan.

And NetKraft is well on its way. The company might not boast the track record of an Infosys yet, but what they lack in client rosters, the company makes up for in pedigree. With highly respected venture capitalists like CDC Capital Partners and Jumpstartup holding as much as 65% stake, Sudarshan is banking on their vision to take the company forward.

In fiscal year 2002, the company recorded a growth rate of over 100% over the previous year. And the company is banking on its expertise in the healthcare and retail and distribution services domains to attain its targeted 60% growth rate for fiscal 2003.

Banking On Healthcare
Market research firm Gartner predicts that by 2007, 60% of health care organizations (HCOs) in the U.S. will outsource more than half of their information technology operations. That represents a healthcare informatics market opportunity of some $40 billion to $60 billion by 2004, more than enough, as Sudarshan suggests, to warrant an exclusive focus on this vertical alone.

Says Suresh Gunasekaran, principal analyst at Gartner, “Quite simply, as IT penetrates all departments and business functions of the enterprise, it does not make sense...to manage all assets and resources internally.” Despite being probably the largest single vertical, few Indian companies have approached the healthcare segment with the sort of methodical intent that saw them approaching the BPO industry. As a result, companies in India are loosing out on revenue that they are best placed to derive.

“The deciding factor for many HCOs is not the savings but the sort of value ad that a company can generate. Traditionally, healthcare providers (doctors, hospitals and clinics) around the world have been molded in the “welfare” format. Healthcare organizations have for long held out on the temptation to become more like businesses, with the result that outsourcing was not a generally accepted idea. The only way to change this is by proving the value addition that we can generate,” says Sudarshan.

Sudarshan illustrates this with an example. “When I approach a company, he knows that to me he is customer number 1 and not customer number 215. Our domain focus takes care of that. And while working with technology companies, we may start of in product development or integration and then, the customer decides to migrate the entire process. Thus we end up doing end-to-end work. This is the sort of value addition that potential clients are looking at.”

“One major drawback as far as Indian companies are concerned is that many do not have a long term strategy when in comes to investing in building domain knowledge. You cannot expect return on investment on domain knowledge overnight,” says an analyst with an independent healthcare certification body. But this, NetKraft is prepared to do.

Within the healthcare segment, the company predominantly focuses on the provider segment that includes hospitals and other primary healthcare providers. NetKraft builds and implements transaction systems, which could be broadly classified under the hospital management system umbrella. A second category of NetKraft applications falls under the integration umbrella. This could be data integration, point-to-point or generic framework driven. It could be solutions with workflow information on top of it. The third area relates to working with technology companies that are focused on healthcare.

Retail And Distribution
For the past 5 months since he was brought in to head the startup’s management team in Sudarshan has been jetting around the world exhorting potential clients to consider the company’s technology focus before deciding on who to outsource to.

Sudarshan contends that the maturity of the industry makes it imperative for a company such as NetKraft to do its homework thoroughly. “Vendor evaluation in this industry is at a whole new scale here,” he says. “In this industry consolidation has begun to occur. Many of our existing and potential clients are large multi format businesses and most of them have explored with technologies enough to be fairly mature about what they want.”

NetKraft’s strategy with the Retail and Distribution vertical is the same as for healthcare. Bank on their domain focus to deliver sustainable relationships with clients. NetKraft’s Retail business clients include top retail companies as well as the medium and small sized players. The majority of the work lies in enterprise solutions where they provide the whole gamut of services ranging from supply hubs, manufacturing systems and, lifecycle extension solutions across the enterprise domain. At the other end of the spectrum are their business intelligence, data warehousing solutions and in store systems.

So what does NetKraft bring to the table that many other companies don’t? Sudarshan reckons that their technology driven approach makes all the difference. “Typically for many large IT services companies, their significant value addition comes out of their horizontal perspective, which ensures transactional automation efficiency. With NetKraft, clients derive actual measurable value add that results out of a unique Understand, Innovate, Enable process that results from our domain specificity.” Add to that a quality management system based on Carnegie Mellon’s Software Engineering Institute’s Capability Maturity Model and the NetKraft business model seems fairly robust.

Hygiene Factors
Talk about NetKraft’s SEI CMM Level 4 certification and Sudarshan will tell you that those are just “hygiene factors.” And Sudarshan chooses to downplay their actual effect in convincing customers to outsource in a particular company. “We have come to a stage where the cost-value proposition, offshore outsourcing and SEI CMM and other certifications are not key differentiators any more. These are what clients expect of their outsourcing partners anyway. What they want is something over and above these.”

Not being as rigid as a products company, which would tend to have processes built into whatever has gone into the product, nor being purely horizontal skill driven like services companies, NetKraft, with their undeniable focus imparts a ‘best of both worlds’ mix. The key for NetKraft’s future growth will be its ability (or inability) to marry their solutions to the vastly different requirements of the two industries.