July - 2008 - issue > Cover Story
Virtusa Platform Driven Service Strategy
Pradeep Shankar
Monday, June 30, 2008
Virtusa CEO Kris Canekeratne has reason to feel good. His fundamental belief that software development practices could and should embrace the same efficiencies achieved by mature industries, such as automotive and manufacturing, is coming true.

Egregious inefficiencies, cost overruns and implementation delays in the software world seem to have no real solution. Canekeratne’s search for the answer led him to look at the traditional manufacturing industry, which implements what is called 'platforming' to achieve reduced field defect rates and increased efficiencies. Virtusa is pioneering the effort to apply platforming to software development.

Founded in 1996, the Massachusetts-based Virtusa [NASDAQ: VRTU] set out to find innovative ways to help software product companies succeed in competitive, fast-moving markets. In its initial years, the company solely focused on outsourced product development (OPD), helping independent software vendors in product management, product engineering, quality assurance and support. Virtusa continues to play a key role in delivering product releases for leading software companies around the world.

By 2002 Virtusa's top management started getting restless with the limited size and potential of the OPD market. The company figured it could sustain only 25 percent growth, which in hindsight is quite accurate when one looks at the growth numbers of other OPD players. "You cannot build a billion dollar company on OPD alone, because you cannot aggregate enough clients to get that kind of revenue," notes Santanu Paul, Senior Vice President and Head of Global Delivery Operations. Moreover, the OPD companies are at the mercy of economic downturns and of the high failure rates of software start-ups. "We wanted to diversify and not be at the mercy of one industry that has such strong dependencies," says Paul. Virtusa top management's appetite to expand the business quickly led to a focus on the Global 2000 IT services market over and beyond its traditional OPD market.

It paid off. The company has averaged 46 percent compound annual growth for the last five years, while the industry is growing around 35 percent. For the full fiscal year ending March 31st, 2008, revenue was $165.2 million and operating profit was $19.4 million. In August 2007 the company made its debut on NASDAQ and raised capital over $50 million. With delivery centers in Hyderabad, Chennai and Colombo, the company provides IT services to BFSI, Telecommunications and Media & Information industries.

The Vanilla Flavour
Stepping into the enterprise IT world, Virtusa knew offering application development, maintenance, testing, technical support and system integration services at a lower cost was a me-too story. It is the same market in which the large companies like Infosys, Satyam, TCS and Wipro have their play with greater scale. With so many big players, a large bank or a telecom company would need a special reason to outsource to a smaller player like Virtusa. It was obvious to Virtusa's management that the existing players were simply riding the momentum and had no real differentiation.

In its lookout for a defensible niche, Virtusa decided to leverage its deep software engineering capability that was already benefiting ISVs, and build a powerful methodology to offer IT services and consulting to Global 2000 enterprises. This approach, aptly named 'platforming,' is specifically crafted to rationalize and consolidate technology assets into common platforms that are leveraged across business lines to consolidate existing applications and build new ones more efficiently.

Let's say in a large retail bank there are 600 people managing six different applications. If the bank decides to outsource this work, service providers are often seen pitching in saying, "We will transition this work to an offshore location like India and execute the same work at half the cost," Paul claims. Until recently, there was no desire or need for service providers to actually innovate and optimize those processes. Their business model rests on moving people around based on financial engineering, not software engineering. "They are replicating the mess for less," he quips.

Virtusa's model is just the opposite. The engineers at Virtusa bring a consulting mindset to analyze, reengineer and rationalize existing applications. In case of the bank under discussion, let's say, such a rationalizing approach leads to a reduction in number of applications required to run the business from six to two, and only 200 people to manage instead of 600, a dramatic change. "Our approach has always been that there is no need to sustain a mess—rather, you can simplify and rationalize it," says Paul.

Virtusa's platforming approach to IT solutions earns it the chance to solve some of its clients' hardest, most complex problems. Taking over an entire collection of siloed applications and simplifying their complexity through platforming is itself a daunting and challenging task. And that's exactly what keeps Virtusans (employees) excited. "We are surrounded by engineers who are really passionate about using technology to simplify complex IT configurations. That gives me a kick," says Thyagaraju Korugundla, Associate Director – Technology, at Virtusa’s Hyderabad office. He adds, "Unlike other Indian IT service firms, where people are treated like resources, here at Virtusa people are treated like capital—worthy of investment. That makes a big difference to our careers." His counterpart in Colombo, Thushera Kawdawatta, agrees, "Such an environment is very conducive for innovation and advancement. You can really grow your career here."

Platforming: The Real Transformation
What Virtusa sells is a vision of applying product development principles to enterprise IT—application strategy, development, maintenance and testing—to bring about transformation in the enterprise. Virtusa's philosophy is not about building applications in silos. Its goal is to develop applications that flex with the ever-changing needs of the business. For this, Virtusans put on a product manager's hat and generalize the problem at hand to reach a broader, general solution. They identify the commonality among the client's existing assets and build a technology framework around them. Such rationalization helps in building new applications, which now can be built on top of this framework, rather than as a silo.

For example, a retail bank may decide to build a world-class mobile banking application in order to enable its customers to pay their bills with a cell phone. By using a platforming approach, all that one has to do for this is essentially customize or repurpose the retail banking framework, and plug in the mobile application. Tomorrow, if the bank decides to build an application for commercial lending and borrowing, it can be quickly built on this rationalized platform. "When we are in the process of rationalizing customer environments, we anticipate a wide range of variations that may arise as the business grows and the market changes. By using service-oriented architecture (SOA) concepts and other related engineering concepts, like business process management (BPM), we ensure that flexibility is built in, and that inherently provides agility to the overall platform," says Dev Worah, Director of Technology, who operates from Virtusa’s Boston office. "An agile IT platform makes for an agile business." That's the key to Virtusa’s next-generation IT services strategy.

By applying these platforming techniques, Virtusa compresses the development cycles for new applications and for enhancements to existing ones, leading to faster time-to-results. This increased speed-to-market allows its clients to rapidly offer more products and services to their customers. Moreover, these clients are now much more flexible than ever before. They can react quickly to external fluctuations. Launching a new application is less onerous for them. Also, since platforming techniques are being applied, there is a conscious effort to minimize defects right from stage one of development. Thus, the quality of applications is far superior, as fewer defects arise in the field.

Virtusa's platforming strategy is apt for large corporations. Because of historical reasons like mergers & acquisitions, today's enterprise IT estate consists of legacy systems alongside new technology. For example, the CIO of a large telecom company, which may have hundreds of billing systems, must think like the CTO of a product company if he is to cut costs and improve quality and agility. It is not rocket science to see that 90 percent of the billing systems have common functionality. The choice before the CIO is whether to continue managing silo applications or build a billing platform, which performs all common billing tasks in one module, with specific custom modules atop the core platform. By rationalizing, standardizing and reducing technology waste, the CIO can impact the enterprise bottom line and enhance the organization's agility, and therefore, its competitive advantage.

Virtusa’s platforming pitch to clients seems to be resonating well. “We are increasingly seeing ourselves winning orders from large players,” notes Paul. Recently, a leading global financial services firm narrowed its large list of global vendors to just four strategic partners; while three of them are large IT service players, Virtusa is the only company its size to be shortlisted. “The selection speaks of our platforming methodology and thought leadership,” says Paul with pride.

The Global Technology Office
Winning clients is one thing. But at the end of the day, what matters to clients is whether platforming improves the efficiency of their IT environments. Toward this end, Virtusa has set up a Global Technology Office (GTO), whose mandate is to enhance engineering excellence and improve productivity. "Our philosophy is, you can improve what you can measure," says Chandika Mendis, Director and Head of Global Technology Office. "In the outsourcing world, quite often we come across clients saying, 'recruiting Indian engineers is cheaper, but the productivity is worse'." Mendis' team wanted to nail this issue. However, there are few accepted industry metrics to measure the productivity of various types of IT engagements such as application development, maintenance, quality assurance and consulting.

Mendis' team identified three large accounts and asked its clients to define three productivity measures for their Virtusa projects. The respective teams were then challenged to beat the defined productivity measure. "We saw some startling results—we managed to unleash an amazing level of creativity and innovation among all team members by motivating them to improve productivity. Teams ended up leveraging both process improvements and innovation to improve their productivity, even going to the extent of writing custom tools that cut down their effort. And it resulted in enhancing productivity by 15-30 percent," notes Mendis. "In the second phase of this initiative, we have provided teams with a productivity measurement cookbook that comprises our learning from the first phase, plus best practices and standards from industry, where available. We also intend to leverage lean techniques as applicable to software development projects in this phase," he adds.

In many organizations, technology groups are structured outside the business groups. In such cases, much of the research done by practitioners may not be getting used. For effectively delivering value to its clients, Virtusa's Global Technology Office is highly connected to its project delivery infrastructure. Most members of the GTO leadership have dual reporting to the senior delivery leadership and to the GTO. This ensures that what the GTO takes on is highly relevant for delivery, as well as ensuring that it is well-positioned to absorb any best practices from teams as soon as they occur. The senior technology leadership that is driving GTO’s roadmap is also involved in setting the MBOs of the delivery technology leadership, putting them in a position to encourage individuals to contribute to collective knowledge.

Beyond Code Detection
Software quality is a prime concern to Virtusa’s clients. To ensure quality delivery, Virtusa’s GTO has taken up a major initiative—Engineering Rigor Automation. Whenever a programmer writes a piece of code, it goes through a GTO-developed custom IDE that runs a detailed quality check, and is benchmarked with globally-known code quality best practices as well as Virtusa specific coding standards and conventions. It automatically captures code, design and copy paste defects and also facilitates automation of peer review workflows, resulting in improved code quality. "If we reduce the defects as the code moves from development to testing, we improve overall productivity and quality, and therefore client satisfaction," says Mendis. His team has also developed a tool called Insight, which provides visibility to various code level metrics on a central dashboard including defects, complexity, maintainability measures and reuse index, with trends and drill down features. Today 90% of eligible projects are on the dashboard and are being tracked meticulously by both delivery and technology leadership. The tool serves as a great safety net for issues which are not addressed at an individual or project level for different reasons can be caught early on in the technical and delivery reviews.

As several studies point out that IT executives in large enterprises plan to weave open source solutions more closely into the fabric of their core IT infrastructure, from procurement processes through deployment of next-generation applications, Virtusa’s Global Technology Office has taken up several open source initiatives in response. Virtusa as actively contributed to several Apache projects and to Sahana, an open source disaster management solution. Everyone in Virtusa, starting from individual developers to its Management Committee members, must take up a mandatory IP certification. "Our clients have varying degrees of maturity in open source, and we provide consulting to them on licensing and other areas of intellectual property compliance. Going forward, we expect this to be an increasing area of focus for us. Internally we have saved millions of dollars by using open source for applications like source code control, and we want to help our clients do the same," says Mendis.

Analysts point out that Virtusa represents an attractive alternative to the largest IT service providers when clients need a highly-responsive, agile provider, particularly for specialized skills like platforming. Virtusa's focus on creating innovative, high-value services has enabled the company to enjoy rapid growth even during tough economic climates. Virtusa’s dedication to increasing software engineering efficiencies through platforming, and its relentless focus on execution excellence, should put it ahead of the pack.
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