Sudhir Raikar takes a closer look at the firm’s inimitable ethos, radical evolution and self-effacing evangelism in this tête-à-tête with Dr. Anand Deshpande, Founder & CEO, Persistent Systems.
For long, capital markets have allowed the mid-cap status of Persistent Systems to cloud, if not eclipse, its indisputable edge in offering productised service solutions in a market dominated by humdrum body shops and back offices. The Persistent ethos is best articulated by its evolution.
Picture this back-in-time scenario for a moment: It’s the time of the nervous nineties in India, conspicuously marked by grave political uncertainty and economic downturn. A non-conformist in his mid-twenties, a B. Tech in Computer Science from IIT Kharagpur, with a doctorate in object databases from the Indiana University and a prolific 18-month database engineering stint with HP Labs in Palo Alto, bootstraps a boutique firm in the understated Indian city of Pune, specialising in deeper dives into database internals. Consciously retaining focus on the database space to protect the cocoon of his tech acumen, he makes Independent Software Vendors (ISVs) his target audience unlike the Indian IT vendor crowd which is heavily focused on custom application development for different verticals.
Taking a cue from the fact that data is infinite in nature, the firm makes the symbol of infinity its corporate logo and the concept of data persistence – that once written to disk, data becomes stable and recoverable over time and across systems – inspires the gloriously graphic name of Persistent Systems. The rest becomes history, of iconic proportions, created by Dr. Anand Deshpande, unarguably Indian IT’s most prolific and self-effacing thought leader-practitioner. In a world of unabashed corporate antagonism, replete with umpteen “founding” and first-mover claims to breakthrough ideas, concepts or methodologies, this maverick stands out for his razor-sharp insights and matter-of-fact foresight.
Over the years, the name Persistent has aptly reflected the company’s stellar character but its value proposition transcends the database connotation, for the persistence of the company’s vision, mission and values is extremely nimble, guided by the ability to adapt to the changing dynamics and evolving paradigms of the software industry. The company has redefined Persistence - in the non-data context of industries and markets - as an unflinching commitment guided by purposeful perseverance. No wonder, it has rebuilt and sustained its competitive edge at every turning point of the industry’s evolution since its inception.
Excerpts of the interaction with Dr. Deshpande...
How do you look back on your transformative journey till date?
I see the progression as a series of S-curve voyages wherein the predominant industry waves guide the business models till they are rendered invalid by the successive waves. Let me begin with our earliest and latest phases. Our first S-curve was all about sourcing work in a proven area but executing it from India. In fact, we didn’t need to deploy any of our developers in the US during the first 13 years of our operations. This was quite unusual, for the body shopping mode was the mainstay of most software development vendors at that time. Our founding team did coding and marketing simultaneously and contracts were won on personal circles of influence.
The whole scenario has undergone a sea change since then. In the current phase, the 4th S, we are spread all over the globe and see our customers as partners in progress. We are proactively helping them become software-driven businesses to better respond to challenges and opportunities. We call our umbrella offering Software 4.0, inspired by the vision of Industry 4.0, which is about building software-driven businesses and managing software-driven things at speed. The term includes all tools and techniques to build, test and release software rapidly and reliably.
In the intermediary S-curve phases, several things happened in quick succession. The 200-01 dot com bust stunted market opportunities but our risk was minimal as we were a small set up, about 100 people in 1999 and 250 in 2002. By 2003, we zeroed in on product development as a conscious plan and our headcount grew 10-fold to about 2,500. The whole idea was to work in a niche space where it was easy to establish and communicate our edge compared to the teeming market of custom service providers where there was little scope to distinguish one’s capabilities. In 2007, we identified Cloud, Mobility, Analytics and Collaboration as our focus areas, much before industry research analysts and CIOs earmarked them as priorities. By 2008, we had carved a niche in the OPD space and our agile methodologies enhanced our delivery capabilities and growth prospects in the same breath. Since 2011, we began acquiring “end of life” products from other companies.
It’s pertinent to share my experience during the economic slowdown period in 2009. During this lull phase, I met scores of CEOs for capturing their industry bytes. I concluded that most of them – and this generally holds true for any geography – have a few defining traits in common. One, they have limited bandwidth and hence they like to see only high-priority items on their plates, while depending on others for managing the rest end-to-end. If they are convinced of your fidelity on this count as much as your competence, they are more than happy to engage with you. The whole case for outsourcing stems from this rationale, not from cost consciousness as many incorrectly believe.
Two, these guys are revenue-oriented, not cost-focused. This means they instinctively like any revenue-centric ideation, like for instance how tech enablement could enhance the marketability of their products or help make breakthroughs in new geographies. Several of our engagements at premium price points have been the outcomes of such deep conversations which have made trust the driving force of the ensuing relationships.
Three, they are unflinchingly customer-centric and firm believers in the collaborative power of eco systems. If they can’t address a business need of their customers, they have no qualms about partnering with credible vendors who can bridge the given gap. This has helped shape my own thinking in that I now proactively ask my customers about their market plans and propositions to explore how tech could help achieve them. And if we can’t address the given need, I recommend partners from our value chain who can fulfill the need, either independently or collaboratively.
Coming back to the 4th S-curve, how is Persistent geared for the new opportunities?
Thanks to our IBM Watson alliance and the ways in which we have fine-tuned our enterprise digital transformation offerings, we are confident of capitalising on the dramatic shifts and dynamic opportunities of an impending era where connected devices and the Internet of Things (IoT) will rule the roost. Leveraging the sophisticated Watson analytics, our continuous lifecycle management product suite will help customers with performance optimization of their devices in the context of umpteen other ‘things’ in the field. Imagine things reconfiguring themselves, monitoring and sharing parameters with the global cloud in real time. We are truly excited to be an integral part of this landmark revolution, set to change the way systems are manufactured, operated and distributed. Our digital foray is focused on healthcare, financial services and industrial IoT where we have made good progress already.
So, the 4th S-curve has influenced the way software is made and perceived?
Absolutely. First and foremost, there has been a substantial effort shrinkage over time. On the cloud, you build a lot more with less people - what with abundance of development platforms, ease of code branching and merging, availability of numerous testing and staging servers and agile-friendly environments suited for continuous integration and delivery. Release is also no longer the ceremonial event that it once was, given the frequency of software updates in response to user feedback and market demands. On the cloud, every progression builds on the previous one and demands a shift in current processes. But it also ensures value creation up to an order of magnitude larger than the previous one. Several enterprises across verticals are now regularly testing software that is built and deployed in days and evolved on demand.
So, development builds must happen with optimal periodicity aimed at iterative enhancements to keep pace with the user’s market place advancements and developments. The emphasis is on task-centric applications and experiences made wholesome through data collated and curated from disparate sources. We need to offer smart windows of actionable insights to the customer with lot of on-the-go options that can be triggered from the ubiquitous smart phone.
Are we talking of microservices and polyglot persistence?
Yes, but we don’t endorse the jargon-heavy nomenclature. The word Microservices is a misnomer, we prefer to call them API-centric architectures. In a consumerised IT universe, APIs connect, convey and create value for applications and thereby enrich the entire value-chain of vendors, clients, alliance partners and end-users. No wonder, modern software applications trust APIs left, right and centre – whether to connect to clients on the front-end, integrate with internal systems at the back-end, talk to other applications on the sides, or even to form themselves by binding constituent component services. The conventions of RESTful design and JSON-based data facilitate API development, and widespread mobile clients demand it. Open APIs have proved game changers for building contextually intelligent and universally compatible applications in this IoT era. As far as the reality of disparate data sources is concerned, we rely on data lakes for creating single stores for analytical use, which go hand in hand with API-centric architectures and DevOps environments.
You have been stressing on the need to think Y-o-Y rather than Q-o-Q on the revenue front?
This is not a Persistent issue alone; the undeniable fact is that the T & M space is under pressure. Given the effort shrinkage, effort-based billings have suffered. We knew this was coming and hence proactively shifted our focus on IP and digital. Having said that, the shift can’t bypass the cyclical impact. So, for a meaningful picture, it’s imperative to look at Y-o-Y figures, more so in the context of our IBM alliance.
Would it be right to say that the success of Persistent’s solution-centric customer engagements post the reorganization drive squarely hinges on the reskilling capability of its teams – both development and support?
Beyond a doubt. We need to achieve a massive and incisive orchestration of organization-wide efficiencies where sales and delivery would go hand in hand to do justice to the end-to-end relationships in all our differentiated projects. The norms that applied to the cost dynamic don’t work for the value dynamic. The pain point here is that people don’t proactively take on newer roles. Comfort zones are hard to explode, and there’s no ready-to-deploy mechanism to teach people the elementary truth that a thinking mind is not an option at work. As I mentioned earlier, computing work is less and less about conventional human intervention. While this reality does impact the headcount in a big way, other opportunities emerge where human insights and dexterity in design and development make a big difference.
We are setting up vibrant teams on both sides - sales and delivery – who breathe the essence of product development and customer centricity to fully justify the premium price tags to the customer, especially given the competition from low-cost providers claiming similar value props. Over time, we are confident of creating and institutionalizing a business operating model where product development happens in real-quick time and in cost-effective fashion.
From time to time, most of your predictions have come true, with several research and advisory firms claiming stakes to the honour? How you do face this reality?
I take it very positively, there is no greater joy than hearing your own prophecies echoed back to you. And the furious circulation of our insights help our cause. The market becomes more aware on the critical paradigms; compelling business needs are better articulated at the customer’s end and we get ample opportunities to prove our design and delivery edge in the new scheme of things.
Anukool Modak, Head of Investor Relations & Treasury Operations
(Q & A with Rajiv Mehta and Sudhir Raikar from IIFL)
What prompted the recent reorganization of the operating structure? How would it serve the dual purpose of augmenting company’s market position and profitability enrichment?
Under the new structure, we have created 4 separate P&Ls. The division is based on nature of business as:
1. Services: Traditional OPD business with T&M billing model.
2. Digital: EDT business where we provide a digital platform to the customer. This includes our own products, third party products and services around it. So, the billing model is a combination of linear and non-linear.
3. Accelerate: Our own products are sold under this brand. The is a 100% non-linear revenue model.
4. IBM alliance: This includes our business with IBM and allied business. It has two parts. First is the traditional OPD business with IBM and second, our products business with IBM where we have revenue share arrangements.
The purpose behind creating these four divisions is better market positioning in each of these businesses. It leads to better accountability, as the president is responsible for entire P&L of his unit. Further, the HR and sales structure in these businesses are very different from each other. We have aligned them to the nature of each.
How did the idea of the IBM Watson deal materialize? While it surely opens a world of opportunities, does it also bind you to partner-specific proprietary constraints?
Having identified IoT as the next big thing in the world of technology, we were on the lookout for a robust global alliance. IBM has the best IoT offering in the industry and we already have a very strong relationship with IBM. IBM was also looking for a partner in IoT space and that explains the long-term revenue share partnership. The deal does bind us to IBM but given the abundance of ripe possibilities under their purview, the scope is more than enough for a company of our size.
Could you throw some light on the deal’s progression? Given the IBM sale seasonality, does one wait for at least a year to expect significant gains to reflect in the numbers?
The product revenue is on the rise. Apart from this, we have a lot of SI opportunities where we can go to IBM’s customers with IBM. Here our contract will be with the direct customers and the rates are expected to be better than those charged in normal business. We have yearly visibility for products but the QoQ product revenue is quite lumpy.
What is the long-term revenue aspirations for the four divisions? How would these units differ in terms of billing model, operating profitability and scalability?
‘Services’ is a stable, cash generating but low growth business. ‘Digital’ is a very high growth potential business so it requires high investment. The profitability in ‘digital’ will remain low until it gains critical mass. ‘IBM Alliance’ is a combination of products and services. We have high hopes from some of the new technology stuff which we are doing with IBM. ‘Accelerite’ has around 80% mature products but it also has 20% new generation products where the growth could happen. As of now, margins are better on the mature products as there we don’t need to make fresh investments.
How have Hoopz, Akumina and Genwi fared post acquisition in terms of new wins? Do these acquisitions – including the Citirx and Intel baskets - pose any legacy challenges especially in terms of integration of development teams? If yes, how do you counter them?
Hoopz, Akumina and Genwi have been merged with our digital business and we use these in our comprehensive digital solutions. They have certainly boosted our capabilities. Citrix Cloudplatform has its own customers and is part of Accelerate. These acquired products do have integration challenges in the initial phase but we have managed to retain the key employees in all our acquisitions till date. We offer these employees very competitive compensations and benefits.
What’s your approach to headcount? In the time to come, do you foresee any drastic reduction in headcount owing to tech projects involving value-added, selective human intervention?
We don’t foresee reduction in headcount due to new technology but the pace of headcount increase has certainly slowed down and it will slow down further. Employees get quality work in our company as compared to traditional IT services companies. This gives them more job satisfaction. In addition, we give them opportunity to work on different technologies and customers to avoid monotony. Toppers from many reputed Indian universities voluntarily join us every year for this reason. We have been successful in keeping attrition under check by having best in class employee engagement and retention policies. We try to offer more intangible benefits like better work-life balance, flexible working hours, work from home, cultural and sports activities etc.
What’s the growth strategy for the services business which includes a part of the erstwhile Enterprise business?
We are concentrating on certain accounts where we see scope to expand. We are pruning some non-strategic accounts to improve profitability in the long run. We have hired a lot of domain experts to cater to the enterprise segment.
Which are the in-focus verticals in the Digital space? What’s the cross-sell opportunity to existing clients? Does Digital act more like a consulting partner to its clients?
We are concentrating on Healthcare and BFSI verticals. Cross selling opportunities do exist but they are not too many. Our strategy is to get new customers for Digital. Generally, these deals start small and then the size increases as we move towards more comprehensive engagement. The deal sizes are increasing to $ 5-6 million. These deals give annuity revenue and are sticky in nature. Due to technological disruptions happening across industries, business leaders are increasingly looking for partners having strong technological capabilities. That’s a good sign for us. Yes, digital does involve consulting. Consulting fees are included in the overall invoicing for the project. We also involve outside consultants for business consulting.
What’s the strategy for augmenting Accelerite product portfolio and its revenue scale-up? Are these products sold separately or used in delivery of your service offerings?
These products are mainly sold separately but they are also used in our Digital service offerings. The strategy is to upgrade mature products to increase their useful life and revenue and to invest in sales and marketing of new Gen products to increase sales. We are coming up with new products in-house as well as acquiring products from big ISV customers.
What’s your stance on inorganic growth? What’s the idea behind investing in early-stage Silicon Valley start-ups?
We look to fill the white spaces in our portfolio. Our focus is to acquire products than companies. The idea is to be part of the start-up ecosystem. At times, they become our customers. If their offering becomes successful, then we can partner with them and adopt a joint ‘Go to Market’ strategy.
How much of an impact would Brexit have on your growth prospects?
Brexit will not have any impact on our business as we hardly have any exposure to Britain. The slowdown which the larger IT companies are talking about is mainly in their traditional businesses like ADM. We work in new technology areas only. So, this slowdown does not impact us. Their problems are different.
How’s the medium-term growth trajectory? In the long run, what’s the Management vision of growth in financial terms and geographical spread?
We have a vision of achieving $ 1 billion revenue by 2020 as we believe there’s a market opportunity to help us achieve this target. In terms of geography, we are exploring new geographies but our principle market remains the US. We see a lot of scope to grow our business there.
Various strategic investments made in the recent times have impacted your margins. Is the peak investment phase behind you, and how would these investments lead to margin upliftment over the medium term?
Our effort is towards making the billing model non-linear, competing in the market based on value proposition rather than cost. All our investments are directed towards this goal and hence it should result in better profitability with increase in revenue over next 2-3 years. It’s difficult to say whether the peak of investment phase is behind us as there are scores of technology changes disrupting the market. However, in the visible future, our investment should be lower than what we have committed in last 12 months.
Could you throw some light on the IND AS impact on Persistent?
In our case, the major impact was only on actuarial gains which go to OCI and in case of current investments which are reported at fair value as per IND AS. The impact on depreciation and amortization was only at the time of first time adoption.
Atul Khadilkar, President - Corporate Operations on employee training and engagement
(As told to Sudhir Raikar)
Today, digital consumer experiences have made enterprise digital transformation virtually imperative. This transformation must not only be software-driven, it should deliver at speed when and where it matters. Software 4.0 is our approach to make it happen through the confluence of different cutting-edge techniques.
While our domain trainings enable us to deliver appropriate business solutions to customers, we regularly train our employees on various technologies and tools across the engineering lifecycle to make them full-stack developers. They are consciously exposed to the world of continuous integration, DevOps and Design Thinking to help them proactively address diverse customer challenges. Our employees learn through various channels like Instructor-led training (in-class and remote), Assisted self- learning, Massive Online Courses (MOC), Selfy Shots (Self-learning courses) and internal certifications. We are Scaled Agile Inc. Gold Partners and the agile development methodology is deeply rooted in our engineering function.
Hackathons are a way of life within our engineering community to address complex problems through innovative solutions in real-quick time. We also involve our customers and partners in these solutioning initiatives for addressing specific issues. Our Architect school is designed to introduce a wide range of advanced topics in software architecture and design principles to enable employees to take on challenging assignments in the capacity of Product and Solution Architects. Employees work on quick Proof of concepts on latest technologies like Machine Learning, Blockchain, Internet of Things (IOT), Security etc. through our focused program on Talent Transformation to sharpen the saw. All these initiatives enable us to keep pace with evolving business paradigms and technical challenges.
A Tale of Trailblazing Trials and Triumphs: What makes Persistent different?
Growth Trajectory
Unlike most Indian software development players, heavyweights and minnows alike, Persistent chose to tread the challenging pathway of product development right from its formative years. This meant there was no cushion of well-defined specs to deploy resources and guide deliveries. Instead, the name of the game was smart design trade-offs to deliver the best possible product versions within non-negotiable time frames and budget limits. Thanks to its proven engineering excellence and profound business insights, Persistent carved its niche in outsourced product development advising customers – large enterprises and start-ups alike - on timely and cost-effective product enhancements, and thereby winning their confidence ahead of contracts. Persistent’s ‘innovation lab’ approach struck immediate resonance with the business heads of large enterprises, who invariably have rather incoherent, need-based IT assignments that don’t necessarily bloom into mega projects. So, they are always game for any measurable development of R & D flavour. That explains the majority of large enterprise players in Persistent’s kitty. This was a big feat for a small-sized firm of bootstrapped beginnings.
Along the way, Persistent was arguably the only Indian IT player which proactively pushed its OPD clients to acknowledge the enduring rewards of design and build innovations, beyond the conventional benefits of cost and process efficiencies. The company’s breakthroughs in life sciences and telecom verticals is an outcome of this persistence. Persistent’s productization insights prove especially priceless for niche start-up ventures who develop excellent prototype propositions but are clueless about the procedural (but pivotal) issues of testing, QA and integration. This ignorance immediately poses a big question mark on the commercial viability of the given idea, however, disruptive it may seem. Persistent helps these customers with the end-to-end technical readiness for viable market releases, giving the founders the luxury of solely focusing on core intricacies of their logarithms.
Road Ahead
With the company moving at top speed under the stewardship of a dynamic CEO and his think tank, the organization needs more change architects, not merely technical architects, in the middle and lower layers to take on the multiple roles depending on the need. Same holds true for the marketing tribe. It would be interesting to see how the company raises the bar for its people to lock horns with the multifarious challenges of its dynamic market.
When the company says, it would do away with a few non-profitable businesses going forward, does it impact the number of customers, some 200-odd under the Services fold, we are not sure. On the impacted resource numbers, however, it has categorically stated that all released resources will be redeployed on other, more profitable and strategic projects. Another wait and watch area is how the firm deals with the legacy issues of its numerous acquisitions as also specific challenges like in the case of Akumina, given Microsoft SharePoint’s track record of sub optimal adoptions, mobility and integration issues and the threat of competing products.
Notwithstanding all imminent new-wave challenges before it, there’s not a semblance of doubt regarding Persistent’s ability and agility to address the business needs of the fast-evolving modern enterprise: timely releases to keep pace with market shifts or innovations and better customer engagements in a wearable device era. Given its IP-led revenue growth and focused engagements with cream of the crop customers - like the company’s card and retail breakthroughs in Banking, genomics inroads in life sciences and the Appian leverage in telecom space - Persistent looks well poised to capitalise on its value prop to fetch premium price points from a diverse clientele.