CP Gurnani is not a man to baulk at a challenge. Following his appointment as CEO of newly rebranded IT services provider Mahindra Satyam in June 2009, it falls on his shoulders to restore confidence in a company blighted by the biggest scandal in Indian corporate history.
Happily for Gurnani, and to the astonishment of everybody else, it was a remarkably positive set of revised interim financial results that Satyam made public shortly after Tech Mahindra agreed to acquire a controlling stake in the company for $550 million in April 2009.
Net profit for the quarter ending December 2008 was $160 million on revenues of $2.3 billion. This suggests that, although former chairman B Ramalinga Raju saw fit to fabricate over $1 billion of revenues, Satyam’s underlying business was not in bad shape. But that quarter took place before Raju’s monumental fraud had been exposed.
The financial impact of the departure of customers including National Australia Bank, US insurance company State Farm and storage hardware manufacture SanDisk, all of whom terminated their contracts in the wake of the corruption scandal, has yet to be seen.
More damaging yet could be the impact on ‘softer’ assets such as company reputation and employee morale. Gurnani insists, however, that the reputation remains intact thanks to the new association, reflected in the company’s rebranding, with the Mahindra Group, one of the venerable old firms of Indian business.
“Mahindra is known for its solidity, its governance, its value and its financial stability,” says Gurnani, who was previously president of Tech Mahindra’s global operations.
“The whole purpose of the Mahindra Satyam brand is to give confidence to my employees, to my customers, to my partners and to the community in general.” He acknowledges, though, that restoring confidence in the company will take more than just a branding refresh. “Building confidence is an everyday affair,” he says. “It is not just about executives talking to each another, it is about my sales guy working together with an Oracle, Microsoft or SAP sales guy to design a new solution. It needs to be reinforced every day.”
As that suggests, employee morale is crucial to Satyam’s rehabilitation. But the company is in the process of drastically reducing head count, hardly a recipe for happy employees.
“We had about a 30% excess of employees,” says Gurnani. That has prompted the introduction of a ‘virtual pool’ of employees, which means that around 10,000 workers not currently engaged in a project – ‘on the bench’ in local parlance – will receive just 40% of their salary.
This is meant as a kinder alternative to mass lay-offs, but Gurnani admits it puts a strain on the community.
“The employees that are on 40% salary and those that are on full salary, they live in the same neighbourhoods, their children go to the same schools,” he says. “How do you deal with that emotion? That is a serious challenge for us now.”
However, Gurnani also reports that morale has held up in spite of the corruption scandal. “You need a crisis to unite people,” he says.
Besides a brand makeover, the association of Satyam with Mahindra has benefits for the former’s service offering, Gurnani argues. Tech Mahindra began life as a joint venture between Mahindra and BT, which today owns a 30% stake in the company, and is broadly speaking a telecoms-focused company. It therefore has networking expertise to share, says Gurnani.
Mahindra itself, meanwhile, has a long history in manufacturing. Satyam’s position under the Mahindra umbrella could allow it to extend the R&D contracts it currently has with companies such as EADS or Airbus to include manufacture, Gurnani says.
“Instead of just designing a component, we can also offer to manufacture that component,” he explains. “That means I am taking a risk with the customer; if their product is successful, I profit from the manufacture. We call this ’Art to Part’.”
Gurnani certainly exudes confidence that partnership with his former employer can rescue Satyam from ruin. However, there are many more people he needs to convince of this fact. According to a recent report from Forrester Research, “many [Satyam] clients … are keen to know the road map of the acquisition, and how the integration will pan out”.
The analyst company said it “believes that clients had several concerns about Tech Mahindra emerging as the successful bidder”. The report also criticises what it calls “Satyam/Tech Mahindra’s limited efforts and actions to control further erosion of client confidence”, and it counsels customers to “demand more visibility into the integration process”.
It is now Gurnani’s responsibility to make sure this criticism motivates his employees to reflect his own confidence onto customers. Because while Satyam’s corruption scandal could prove to be the prelude to a turnaround, it is too soon to rule out more misery.