Nipun Mehrotra, IBM India/South Asia: “We’re happy to work with anybody who is hungry for transformation & growth.”

Nipun Mehrotra is responsible for growing IBM India/SA in its largest and fastest growing market segment – “General Business” representing over two thirds of the India/SA market potential. He has been the leader of this business unit since January 2010.He also carries the responsibility for geographically expanding all of IBM India/SA products and services businesses beyond the three metros (Delhi / Mumbai / Bangalore) into the rest of India & into Sri Lanka / Bangladesh.

But what draws YourStory towards Nipun is the fact that in the last 17 years that he has been with IBM, he has been handling businesses in the Systems & Technology Group (STG) in India and ASEAN along with establishing IBM’s Direct TeleSales organization for STG and Software in IBM Asean & IBM Asia Pacific, largely selling to the SMBs or what IBM calls “midmarket” clients.

We at YourStory caught up with the affable Nipun to understand IBM’s approach to the SMB market and also, to get his views on the domestic IT market.

What is IBM’s focus on SMBs based on?

Honestly, our focus on SMBs has been on, for a long time now. In growth economies like India, SMEs tend to be more much more aggressive and innovative. It’s counterintuitive, some times. But they tend to push the envelope further, sometimes more than the big organizations. They realise that they have market potential and that they only have a limited period of time to take advantage of that. They might lose the opportunity if they continue to keep going at a modest rate of growth.

The companies realise, and rightfully so, that if they push the envelope really hard over the next 10-15 years or so, they will be able to outgrow their more established counterparts through different business models and/or trying different approaches towards the same market.

For instance, you can look at what Bharti did over the last 10 years. Bharti was a medium-sized company in the beginning of the century, say 2000. They have leapfrogged ahead of a whole lot of more traditionally-established international competitors. And I’m not talking about just the Indian competitors. That’s why I think SMEs are facing their chance to go push the limits. That’s why we are really excited about SMEs. We’re in the business of helping customers succeed and helping customers transform, as they push their agenda. And it works well for both of us.

According to you, what are the ‘hot sectors’ for IBM?

See, from a sector standpoint, you cannot limit it to any one of two sectors. I think all the sectors have a few well-established players and dozens of small enterprises in the same space. Therefore, from that angle, all sectors are equally attractive. We have capabilities in virtually all the sectors, whether it’s globally or in the country. And therefore, we aren’t picking or selecting any sectors. We’re aggressively going after everything. We have the bandwidth, we have the scale, we have the capabilities and we want to take advantage of that.How different are the services offered to SMEs as compared to the kind of work that you do with large organizations?

Essentially, they are the same. In some cases, you might package them a little more innovatively. For example, it’s like selling shampoo in a sachet as opposed to selling a bottle of it. In some cases, we might take a hardware product, add a specific software component, add a service maintenance set, combine it into an integrated package and sell it at one integrated price instead of the customer having to pick up three different products from three different parts of IBM and having to integrate them together. But that’s only an aspect of packaging. It certainly has its impact. But it doesn’t change the underlying capability of that package in the sense that you can take those three different pieces separately and do the exact same thing.

From a capability standpoint, customers need the exact same things at different scales. Smaller customers need smaller footprints and that’s entirely understandable. If it is a backup and recovery service, for example, you might do it on 1 TB of data as opposed to 20 TB of data that a large organization might have. But if there is a disaster, the need to recover data within a couple of hours is as important irrespective of scale. In fact, in some cases, it’s even more critical. Smaller companies don’t have the kind of bandwidth or alternate processes to continue working. So, in some sense, their needs are more critical.

IBM is known to do a lot of research on SMEs and their requirements. How have things changed in last two to three years?

In fact, there’s an in-depth study which has just come out on what you call SMEs and what we call midmarket customers. The study covered 100 such companies in India and over 2100 across the world from over 20 other countries. Basically, we had done the last study in 2009 and this report is in contrast to that.

In early 2009, customers in the mid market had said that cost reduction and operational efficiency was a significant part of their focus. Now, that focus has changed to growth, customers and innovation. This is part of a global research and I think it’s even more applicable in India. By innovation, we’re talking business model innovation, process innovation, product innovation, the whole range.

Customer focus is also understandable because there are new ways of reaching out to customers, new types of relationships and new ways of servicing customers. In 2009, the world was a different place and hence, it is understandable that they were focussing on cost reduction and operational efficiency.

Globally, 54% of customers expect their IT budgets to go up this year compared to 20% who said the same thing in January 2009. In India, that 54% goes up to 84%. Of that 84%, more than 50% expect their budgets to go 10% or more which is a substantial increase. In other words, mid market customers and CEOs have changed their agenda towards innovation, customers and growth. They’re putting money on the table by investing in technology, IT, etc. The things that they are very focussed on are things like analytics, cloud, virtualization, redundancy etc. Redundancy is something that goes back to backup and recovery. I believe that mid market customers are relatively more exposed from infrastructure point of view. And they need to focus on that area and strengthen their foundation before building on it.Can you give us a few examples of IBM’s work with SMEs?

Many examples are there. I can readily think of a number of examples from the co-operative banking space. And I’m mentioning co-operative banking because it’s a largely neglected space in the banking sector. And I’m therefore not going to talk about the work that we’ve done with SBI, HDFC, Canara Bank, Union Bank, etc. I can give you the example of Purvanchal Bank in Nainital, which has about 14 or so branches. There’s also a bank that we signed up with in Sirohi. The town has a population of about 50000 people. It’s a cooperative bank with three branches. The turnover of the bank is about 50 crores. And we’ve done a ten year ‘manage services’ contract with them. Now, how small can you get?

We understand that they are in an unenviable position. They cannot hire people in Sirohi. They need to have some basic infrastructure for their customers’ needs. RBI has mandated certain backup/recovery processes that need to be applied. Whether you are big or small, you are providing financial services and you cannot play with people’s money. To implement the basic infrastructure that RBI wants, you need to put in about Rs.4 crores worth of IT approximately.Now, you can decide to implement the 4 crores of capital up front, which is not that easy. Or you can pay approximately 4 crores over ten years. Stagger it, pay me monthly and I’ll manage your IT for you. You’ll not have the risk of people leaving you. You don’t have to worry about which technology to use, which is not your forte anyway. You don’t have to pay the entire amount upfront. You can pay for it over ten years. What can be better than that?

We’ve done pretty much the same thing for larger organizations. People call it outsourcing when we do bigger deals. People call it cloud when they want to use sexier terminology. But at the end of the day, it’s the same thing. So, that’s the value proposition that I think we bring to mid-market customers. We have the scale in India to make it extremely low-cost. And that’s why we can service a customer in Sirohi or Nainital or co-operative banks in Uttar Pradesh and even more remote locations sometimes.

We have the scale. We have the ability. And more importantly, we have the hunger, the ambition and the desire to grow and do something with these customers.

Can you tell us about IBM’s expansion plans in India, in terms of footprint?

We have plans to get to 45 offices in a few years, let’s say, by 2013. We had 30 offices at the end of 2010. If I go back one more year further, in 2009, we had about 8 or 9 offices. And we’re taking that up to 45 – 47 offices. I think that’s going on track, in terms of our progress in that direction. We will try to accelerate that, if possible. But that’s really to expand the number of places from where we can provide business development and client-oriented activities. This is not meant for global delivery. This is for local customers and doing business development activities around them. These are sales, business development offices.

What is your reading of the predictions pertaining to the growth of the domestic IT market?

I completely agree with what the analysts have been saying. Growth is hot. There is a fair amount of activity happening in India. If anything, I think the analysts are being conservative. We’ve been growing faster than the market, anyway. We’re growing at almost two times the market rate. And the reason I said that the analysts are being conservative, is based on the same example that I gave you about the customer in Naintal. If he were to buy his stuff on his own and do it, the entire focus would not be on the IT market. Maybe half of it would be. The rest would be things that he did on his own, internally. He would hire people to do it. And that wouldn’t feed into the IT market.The moment that you start to leverage partnerships, the moment you start to do things with others, the actual IT market actually grows even more exponentially. And this is why I say that market analysts (and this is not a criticism of them), at best, can only be a rear-facing mirror. It cannot be a forward view because, well, you don’t know what’s going to happen. Nobody knows.

Nipun, do you look at yourself as an intrapreneur?

Now that you bring it up, I think it’s a good way to look at it. What I am doing with this market expansion strategy, taking it from 9 offices to 45 offices, is actually a risky and a bold proposition from the company’s standpoint. It’s my neck on the block because I said it’s a good thing to do. Now, this is a strategy that’s locked in with the company and the chairman.

Geo-expansion and market expansion become a very important strategy from not just from an India standpoint but with respect to many other countries. It does require some ability to think differently and to break some barriers. I have done a variety of things at IBM, each one different from what I’ve done in the past. That’s the fun part of working at IBM. You get to do new things and you get to be a part of different projects which are fun.

We have a hand in all of this because we work across sectors, across different segments. We’re not picking and choosing that we’ll work in the transportation or communication or BFSI or insurance. We work in all of them. And we’re happy to work with anybody who is equally hungry for transformation and equally desiring growth.

What is your sales strategy with respect to the midmarket customers? Do you suffer from a perception problem of being too inaccessible?

I think sometimes we struggle with making customers understand that we are not just a hardware company. Customers in many parts of the country have asked me that now that you’ve sold off your PC business, what else do you do? And I say, look, we’re a 100 billion dollar company. We’re a hundred year old company. What we sold off was a very important part of the business. But that represented about 8-9% at that point in time.

But since then, we’ve moved to many different areas. We’ve acquired over 100 different companies over the last 10 years. And we’ve spent about 100-110 billion dollars in acquiring them. These companies have been in the areas of analytics, software, services, etc. We’ve added a whole range of capabilities to the organization. I don’t see any reason why that should slow down. Truth be told, hardware contributes to only 10% of our business today.

The second challenge that we face lies in physically reach out to a number of customers. And so we use different tactics. We have what we call virtual branch offices, which is an office on a website. You can log on, chat with a person, deal with a rep if you’re at a place we don’t have a physical office yet. Yes, we’re expensive. But we are not uncompetitive. We are ready to compete with the best in the country. And we think we can offer significantly higher value against any other competitor.

Sometimes, we struggle with articulating that value proposition to our clients. It’s an internal issue where which you become better at it as you go along. In the bigger cities, the customers readily understand us and the value that we bring. Existing customers who work with us understand the value even faster. So, they want to work with us in other areas as well. With newer customers, you have to cross that first sale barrier. Last year, we probably ended up having a few hundred new customers. And the attempt is to go ahead and rapidly increase the number of customers that we sign up with.

We’d love to hear from you about your views and thoughts on this story. You can write to us at [email protected].

Sriram Mohan | YourStory | 24^th March 2011 | Bangalore