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May - 2007 - issue > Cover Story
The-Red-White-&-Blue-niche
Pradeep Shankar
Monday, November 3, 2008
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Hardly did the designers of Hexaware’s logo—a red, white and blue combination, knew it would reveal something of the company’s business. Atul Nishar, the Chairman, who touts Hexaware as “an American company as much as it is Indian,” gets a stir of this every morning as he looks at this red, white and blue—symbolic colors of the American Flag!

Hexaware is a remarkable story of a company that has believed in focusing on a few things and getting them right. That takes a lot of foresight and courage. And Hexaware’s founder and Chairman Atul Nishar has clearly demonstrated what it means to be sharply focused.

The strategy has worked. In all of the areas that Hexaware focuses on, it is better positioned than its competitors and beats competition from any of the Indian IT service providers. The company saw itself positioned in Gartner`s Magic Quadrant for Offshore Application Services 2006 as well as Gartner`s Magic Quadrant for North American ERP Service Providers, 2006. This speaks of the business process understanding, industry knowledge, technical skills, and project and program management skills that Hexaware possesses.

17 years since founding, Hexaware’s mantra hasn’t changed: focus on the niche segments, build a world class team of domain experts and deliver the best. What has changed is the size: close to 6000 employees globally, 12th largest exporter of software service and 151 clients. In the last calendar year, the company clocked revenues of $187.22 million with a profit of $27.44 million. The first quarter for 2007 was marked by significant strong order book and a robust client acquisition—both being the highest reported in any quarter. Revenue from operations stood at $60.11 million and profit at $8.02 million.

“Hexaware’s highly focused strategy makes it an effective competitor in the global market,” says Mark F Dzialga, Managing Director of General Atlantic. Last year, GA invested $68 million for a 15 percent stake in Hexaware. “GA is a long term investor that looks to provide capital and strategic expertise to companies in high growth markets with strong management teams,” says Dzialga.

The company has recently restructured along verticals and horizontals with an aim to define and achieve revenue and profitability targets domain-wise. Analysts say that these are appropriate building blocks for scaling up progressively.

While the company scales up, the element of focusing on specific domains continues. Nishar is cautious in choosing which battle he has to fight. He has a knack of identifying under-served markets. He figures out which businesses in which markets are highly scalable. When learned about a particular space and its growth potential, he invests and pools in all resources to attack the space. For instance he has been quick to sense the growing demand for third-party testing services. It was obvious to harvest existing skill sets within the company around testing.

Testing times
There is a growing interest among American corporations in procuring testing services from external services firms. They want to ensure that IT systems and applications deployed meet their specified IT and business needs. This has created an opportunity for vendors with strong technical skills and methodologies, to provide third-party validation.

However, lack of scale in automated testing and test management skills was curtailing Hexaware from winning deals in the testing arena. Building expertise internally would easily take more than a year. It only meant Hexaware would not be able to cash in on the current opportunity.

Nishar and his team wouldn’t let go such an opportunity so easily. In order to strengthen its footprint in testing services the team decided to take the inorganic route. Last year, the company invested $34.3 million to acquire FocusFrame Inc, a U.S-based firm specializing in automated testing of ERP and custom applications. Along with the acquisition came the near shore benefit. FocusFrame had a consultant base of 75 engineers at its Mexico center. Hexaware is now planning to scale up the Mexico center with additional 200 people and designate it as its sixth full fledged global delivery center.

“With this acquisition, Hexaware is now in a position to offer a complete lifecycle of Testing Services. We will be able to achieve more than $100 million revenue from this practice by 2009,” proclaims Nishar. Signs of achieving this target are already there. In the last quarter alone, the company added eight new clients in testing.

Attacking the Niche
When Hexaware entered the U.S. market, it was obvious for the company to establish its footprint in the Banking and Financial Services vertical—the vertical’s IT spending is much more than any other vertical. But the marketplace was crowded. So Hexaware looked at addressing niche segments within the vertical. It saw that globalization and advanced telecommunications has increased all-round vulnerability. The proliferation of instruments, emergence of complex financial products and the multiplicity of investment outlets have led to an increase in the levels of risk both to the investment houses and the consumer. Fund managers need cutting edge technology solutions to enable decision support. Hexaware invested building competencies to attack the asset management industry, which manages over $17 trillion assets globally.

Today the company boasts of several long term relationships like those with Alliance Capital. What helped Hexaware firm its relations with clients in this segment was the partnership it entered into with Eagle Investment Systems, a Boston-based company which had prominent share in the asset management industry in the U.S. Hexaware services Eagle’s PACE and STAR products. “We are the largest Indian vendor servicing Eagle’s technologies. As a result we have at least seven large deals in this segment,” notes Rusi Brij, Vice Chairman and CEO.

Hexaware’s strategy has been quite successful. Identify a niche segment. Then build relationship with large vendors addressing the segment. And then after, expand the partnership to build solutions around those products to the clients.

Early on in the game, it inked a deal with PeopleSoft. Today, PeopleSoft has been the cornerstone of Hexaware’s success. “We are proud to be the only company in the world to be organizationally investing in a separate and distinct PeopleSoft business unit,” says P K Sridharan, Executive Director and Chief Mentor, adding, “Hexaware has a rich history of building competencies around PeopleSoft.”

Started in 1997, the Hexaware Peoplesoft Practice has successfully completed over 500 projects today. With a team size of over 800 professionals, it has the largest Peoplesoft practice in the industry. With deep process and domain expertise, its practice provides the entire spectrum of Peoplesoft services that span myriad offerings. Specifically, Hexaware has acquired tremendous amount of functional skills in HR and Payroll domain over the last decade.

The partnership with PeopleSoft was so strong that the company selected Hexaware to do wide range of product engineering services for it. PeopleSoft India Services Center was set up by Hexaware under a Build-Operate-Transfer (BoT) contract. Within just two years, the center grew to 800 employees.

But the rosy times ended when the company went through a turbulent phase after PeopleSoft (its client) was acquired by Oracle. The PeopleSoft center was transferred to Oracle; taking along with it a section of employees. As almost 14 percent of Hexaware’s revenue came from this center, the clouds of apprehension only got thicker in the Hexaware community.

Despite the tough challenge ahead, Nishar was not disconcerted. He recalls, “We suffered loss both monetarily and emotionally, but in business one has to move on, build on one’s forte and it was an opportunity for us to further demonstrate our ability.”

Nishar claims that it was his committed team, which worked day in and day out to generate the business from other quarters, during those months. Within six months, Oracle committed that it would support PeopleSoft customer installations till 2013. And the next quarter witnessed Hexaware’s strong win-rate in the PeopleSoft space to reinforce its position as one of its top vendors.

However, the lurking threat of PeopleSoft’s expiry date had always cautioned Hexaware troupes to be on guard; forcing them to develop deep competencies in other niches. Through years of PeopleSoft practice, especially in the implementation of HR and financial modules, Hexaware had acquired tremendous amount of functional skills in HR and Payroll domain. The next logical step was to expand its capabilities by investing in Orcale and SAP product sets, thereby tapping into new set of clients. Along with PeopleSoft, Hexaware has expertise in other enterprise applications such as SAP, Oracle Applications, Microsoft Axapta, JDE and Siebel.

Brij explains that many vendors have looked at providing BPO service in the HR space. While Hexaware does have a play in the BPO space, it looked at much larger opportunity. “There is much larger IT component in the HR. Not many vendors across the world have seen HRIT as a focus area,” explain Brij. Hexaware saw this as an opportunity. It rolled out new service offerings in the areas of payroll application, HR application outsourcing, enterprise learning management, portal implementation/integration and HR analytics.

Many of its customers in the financial vertical bought into Hexaware’s story of integrated HR services, which includes HR Consulting, HR IT, and HR BPO services. “Going forward, HR is going to be our strongest story.” exclaims Brij.

Flying High
Another such niche is the airline industry, which has always been among the early adopters of technology in its need to improve accessibility, ease of use, and safety for passengers while offering competitive fares. None of the Indian vendors saw this as a focus area, until Hexaware recognized the opportunity early on in 1997 and invested to build competencies.

That year, it landed its first airline client—Air Canada. Since then nothing has stopped Hexaware to emerge as the harbinger in providing Airline IT solutions. Hexaware began developing and maintaining core solutions for airlines. Today it has gamut of service offerings in this space. The company has worked with more than 20 airlines across the world. What’s interesting is that 8 of the top 10 global airliners are its clients.

Unlike train or a bus transportation system, airline is not a very easy business to understand. In order to provide solutions in this space, one needs to understand the business very well. “Over the years, we have invested a lot to build expertise in this space,” says Brij.

Almost every airline in the U.S already has long term contracts with larger services players like IBM, Unisys or EDS. One of Hexaware’s strategies has been to partner with system integrators like IBM and Unisys who have built specific platforms for this vertical. For instance, Hexaware has built one of the richest pools of specialized skills in transportation technologies: TPF, ALCS, TIP, USAS and MAPPER. The company has more than 200 airline specialists who are working on projects that require specific airline technology expertise. “We probably have the largest specialist base in India for USAS and TPF technologies,” states Sridharan.

It is this differentiating factor that compels clients to enter into long term relationship with Hexaware. For instance, Hexaware has a five year long relationship with Lufthansa. In 2002, Lufthansa Systems signed a 40-month deal with Hexaware for cargo systems and another five-year deal relating to a customer relationship management system. Again in 2004, Lufthansa signed a three-year contract, under which Hexaware develops applications that are at the core of passenger reservations and check-in systems. It also provides maintenance services for check-in, inventory and ticketing applications.

Going ahead, the biggest IT challenge for the airline industry would be to reduce costs while maintaining profit. A recent survey by SITA (Société Internationale Télécommunique Aéronautique) indicates the sun setting on legacy systems; simplifying procedures, e-ticketing, e-commerce and self service would be the way forward.

Take for example, ticketing. A cost of the conventional paper ticket is typically $8 while an electronic ticket costs between $1 and $2. The economies arising from the adoption of electronic ticketing have led to the rapid growth of its use. Electronic ticketing now accounts for 38 percent of tickets sold worldwide and the International Air Transport Association wants the 265 airlines under its wing to achieve 100 percent paperless ticketing within the next two years. This will save three-billion-dollars annually. Wider use of new electronic technologies for self service check-in, luggage handling and freight could offer even more cost savings in the years to come.

Hexaware is well positioned to cash-in on this emerging opportunity. Over the years, it has developed some of the innovative solutions including electronic ticketing for passengers and open portal services for cargo operations. “Since we work with several of the airlines across the world, we have a clear understanding of the direction in which the industry is headed. This gives us lead time to develop innovative solution ahead of the competition,” says Sridharan.

Relationship Matters
It was in 1997 that Hexaware got its biggest breakthrough. It landed its first major deal—a million dollar plus project on Y2K—from Equitable Insurance, a part of the AXA Group. Incidentally AXA continues to be Hexaware’s important client till date. A decade long relationship signifies the importance Hexaware gives to client relationship.

“For us relationship has a broader meaning. It is not just having a rapport or friendship with a client. It is strengthening the trust and exceeding client expectation on an ongoing basis,” says Nishar. Every employee of Hexaware understands that what matters most is the client relationship. “For us client relationship is more important than meeting bottom-line or top line revenue targets,” says Nishar.

When one analyzes Hexaware’s client relationships, there is no one common pattern. Some of the relationships have grown through expanded service portfolio, some through expanded geographies and many through client referrals. Nishar further adds, “In a number of situations, Hexaware started with one service offering and expanded to multiple offerings. In several cases, clients have helped the company build new practices, innovate and improve service footprint.”

By ‘following the client’, Hexaware has grown in relationship by the client identifying opportunities in their global organization. There are two examples where Hexaware has moved from one country relation to dealing with the client company in 6 different countries.

Hexaware organizes C-Summit (customer summit) annually to strengthen the existing relationships with clients. Last year, the company dolled out a whopping $500,000 to organize a C-Summit in Phoneix, Arizona. Close to 100 customers from across the world attended this three-day event. The company had brought in speakers like management guru Tom Peters, Forrester Research founder and CEO George Colony, and Dilbert cartoon strip creator Scott Adams and rounded it all off with a golf tournament.

For Hexaware, such summits have been an effective marketing tool, which has paid for itself many times over. “At the C-Summit, the clients are able to meet the entire management team of Hexaware at the same time. They can talk to each other about the industry trends and also about what Hexaware delivers. Positive feedback from one client to the other helps in cross selling. Business follows when clients trust us,” says Nishar.

Looking at Hexaware’s account books, one can see it has a repeat business of 85 to 90 percent. That speaks of what it means by ‘client relationship.’ “We help or customers achieve their desired business goals by following their cue and offering them innovative options—onsite, nearshore, offshore and hybrids,” says Brij.

Fun@Work
The company is also opening doors for new talent, as it plans to double its headcount in the next two years. Hexaware is getting ready to inaugurate its Chennai Campus—one of the largest Green Campuses in India—in the third quarter of 2007. Built over 27 acres, the campus boasts of state-of-the-art facilities and when fully complete will house upto 11,000 employees. In the pipeline are two more campuses—one in Pune and the other in Navi Mumbai.

Currently, with close to 6000 people, Hexaware claims to be a highly ‘people-centric’ organization. Fun@Work is what gives lot of space to the employees in terms of responsibility, roles and flexibility at work. Sridharan elaborates, “Fun means giving the best projects to our employees, working with some of the most reputed Fortune 500 clients and in creating a healthy exuberant atmosphere in office.”

A significant amount is invested in ‘Hexavarsity’, the in-house institution for mentoring, continuous learning, skill enhancement and cross-cultural communications, for techies to work in a global milieu.

Deependra Chumble, Chief People Officer says, “Clarity of role and open communication are the key two areas we emphasize. We have hired a team of counselors who explain to the employee his/her roles and expectations from the company, alongside their career growth.”
From ‘Hexacare’, a program for counseling techies, to a concierge desk, the company has invested in a host of areas such as medical, dietetics and physical fitness of employees by roping in specialists. Sridharan feels only when the employee feels a sense of belonging to the company does he/she feel for its growth. “At Hexaware, we have created an environment to make them feel at home,” he comments. No Wonder, Hexaware is ranked as one of the Best Employers by several agencies in India.

The Road Ahead
For a company which garners 70 percent of its revenues from North America, whose CEO is based in the U.S. overlooking the operations of a dozen offices there and a solid 14 percent of its workforce residing in the U.S., Nishar would like to believe Hexaware is as much an American as it is an Indian company.

The company is at an inflection point today. Going forward it sees a major growth. “The goal now for us,” he says, “is to become billion dollar company.” For a $200 million company, growing at an average rate of 40 percent, it is a grand goal. “It is not about arithmetic,” emphasizes Nishar. “The confidence that we can achieve this goal comes from where we stand today.”

“Our foundation is strong. Hexaware is a scalable model in terms of management, competence, delivery, infrastructure and the processes. With more than 50 of the Fortune500 companies, who have large IT budgets as our clientele, there is nothing that stops us from achieving the goal,” says the confident Nishar, who has a clear vision for the company for next five years.

Even when the company hits the billion dollar mark, Hexaware will still remain a specialist. Nishar says, “We will be multi-niche company providing superior value to our clients as well as to our employees.”



ATUL NISHAR
He is a self-made man. Pragmatic. Good Listener. Humble entrepreneur. Highly focused. Willing to take risk. That’s Atul Nishar.

He founded Hexaware in 1990 which has grown into a multi-million dollar global software services and solutions corporation. He knew if a second-tier IT Services Company had to survive he had ‘position’ the company. He focused on few areas and built deep domain expertise which helped differentiate themselves in the marketplace. This strategy worked pretty well. Hexaware got above average growth compared to other second-tier Indian IT service players.

Since the beginning of the company, Nishar has remained a promoter and chairman. Though he himself is highly committed and knowledgeable about the industry, he has preferred to work with a professional CEO. “Atul has cracked a fine balance in his ability to work with professionals. He places a lot of weight on advice and council of professionals. He knows when to step back and let them run the show. This speaks about his nature of being a good listener and essentially a humble entrepreneur,” says Leo Puri, Managing Director of Warburg Pincus, who has known Nishar for over a decade.

What strikes Puri is Nishar’s pragmatic nature. “He has been fairly clinical and objective in his assessment of where the opportunities are and in his ability to access those opportunities. He knows what to focus on and systematically disposes other interests. That makes him pragmatic,” says Puri.
As an active and known figure of the Indian IT industry, Nishar has been associated with NASSCOM (National Association of Software and Service Companies, the apex body of software and service companies in India) for several years in various capacities and was its Chairman for Year 2000. He continues to be on the Executive Council of NASSCOM. He is also a Charter Member of The Indus Enterpreneurs (TiE). He is also the Regional President, Western India Council for the Indo American Chamber of Commerce.

A commerce and law graduate from the Mumbai University as well as a qualified Chartered Accountant, Nishar began his career practicing accountancy. While advising businessmen on improving their business strategies, he soon realized that it was more fun and challenging to practice what he preached.

Nishar founded Aptech Limited in 1985 and continued to be the Chairman till 2003, when the promoter's stake was divested. By the time he exited, Aptech had grown into a leading global IT Training company spread across 52 countries. He put in all his efforts to make Aptech highly successful and then exited to focus on what is his today’s passion—software.

Nishar has demonstrated that you don’t need to be a computer engineer to run successful Global IT companies.




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Reader's comments(1)
1:good article
Posted by: - 15th Jun 2007
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