Uncharted Waters It was raining heavily in Indore, a mid size industrial town in Central India.

In his fourth floor office, Manjit Barua, CEO of Rs300mn Newlink Technologies India Limited was watching the water slide off the glass faade of his cabin with a frown. On his desk lay a report presented by Nitin Joshi, the company's director of technology and Barua's schoolmate and partner in the company. The findings of the report upset his well thought out business plan for the current year. Having propelled the company to a giddy 100% growth rate in each of the last two years, this year Barua had planned to sit back, relax, and take an overview of the business and plan for the future. The previous financial year had closed well and they had sufficient orders to implement during the current year. He thought that this situation was an opportunity to stop aggressively pushing for growth and instead focus on business strategy and models that would bode well for the organization's future. This is quite a turnaround, isn't it? Usually it would be I who would want to exploit a new opportunity to expand while you would hit the caution button. Today, however, you want to take on a business opportunity, while I am doubtful, Barua remarked to Joshi who was pouring hot water from the electric kettle to make tea for two. That's life! Kamath Joshi said. Did we ever imagine that we would set up a firm together? But here we are running a company together. Who really knows what the future holds in store? Barua:How big do you think is this opportunity? And give me realistic figures. Joshi: I don't know. Your guess would be as good as mine. But the whole world is talking about it. We cannot let this opportunity pass by. Barua: For all your findings and analysis this may just be another of those big bubbles, which will eventually burst. Joshi: You're right. Yet, I would bet that there would still be discrete success stories that would escape from within that bubble. Barua: True! What are Jose's views on this?(Jayson Jose was Newlink's director of operations and implementation.) Joshi: I did not have much time to discuss the issue with him. However it has been Jose and his team who have been sending me relevant information snippets over the last eight months. He seems quite upbeat and feels this is the next best thing for Newlink at this point in time. Barua: Now this beats me! On the one hand, Jose is perennially whining that he does not have sufficient resources to execute existing projects and on the other, he has been sending these flyers inviting more trouble for himself.

Joshi: Oh come on now! This is an opportunity. You sense it. And I know it. The source of the idea is immaterial. The fact is that, this is a one time window. I am not suggesting an aggressive entry into this market. But, yes I do believe that it is essential for us to enter the segment on a merit of the case basis. Barua: Would we qualify? Joshi: Not in all places but definitely in some. Barua: Have you looked at the investment involved? That would be an issue. Joshi: Not deeply. We need to discuss and evaluate that aspect. But where the hell is Jose? It was a Friday and both of them knew that Jose was out at a client site overseeing the implementation of a data centre at a mid size cement company, fifty kilometers away from Indore. It was almost seven in the evening and he was expected to reach office shortly. The client was implementing an ERP solution and had chosen Newlink as its system integrator for the complete infrastructure setup. Jose walked in at 7:30pm. Who are we? asked Jose, looking at both of them. We are nothing more than slightly glorified electricians; when an electrician fails we take over, replied Joshi. Barua muttered an expletive under his breath. Jose: Great! But here is the next question what do we want to be? Do we continue to run the business by procuring boxes from elsewhere and installing it for the clients and earn just labor charges? Barua: Whats wrong with that? Jose: Nothing, nothing at all boss! But my question still remains. Is that all we want to be? Barua: What options do we have? Joshi: We could be solution architects and service providers. Barua: I am of the impression that we are already performing those roles in a way. So what's the point? Joshi: I think Jose started out on the wrong foot; let me rephrase his sentiment. Barua (taking a dig at Jose): if he doesn't start on the wrong foot, he's not Jose!!! Joshi: Manjit, the question here is less about the role. It is more about the customer. All

our business is currently happening in the corporate space. Jose and I feel that we should also look at a slice of the government space. Barua: Honestly speaking, I am not comfortable dealing with the government. There's too much bureaucracy to cut through. It also involves a lot of lobbying which eats up valuable resources. The projects are perennially delayed and there is no track of payments. I am not at all comfortable with all these factors and ambiguities. Joshi: You do have a valid point there. However, in the interests of the organization, it is essential for us to diversify our customer portfolio, our personal preferences aside. Barua: I do understand. Come on let us evaluate the options. Jose would you once again help us start on the wrong foot? Flag Off Newlink Technologies India Limited was currently in its sixth year of operation. Barua had earlier worked for fourteen years in the Middle East with a leading IT company. During this period he garnered rich experience in setting up huge IT infrastructure for oil companies, sea ports and banks. Having built a secure financial portfolio he returned to India to set up his own business in his home town Indore. At about the same time, his schoolmate and friend Joshi having worked with many reputed technology companies across big cities in India was tired of life in the metros and was looking for an opportunity to return home. Unfortunately, there weren't too many opportunities commensurate with his experience and expertise in Indore. Barua reconnected with Joshi and offered him a partnership in his new venture. Jose was earlier employed in the air force. However he could not reconcile with his life there ever since he was grounded from flying following a high altitude breathing problem he developed. He moved laterally within the air force and became a systems support personnel. He studied some technical courses and helped the force set up vital infrastructure. During a chance visit to his mother's home town, he met two guys who had started a new company and had bagged some good orders from surrounding industrial units. The work was similar to what he was doing in the air force. Having spent over fifteen years in the air force, he took voluntary retirement and moved to Indore to take charge of the operations and project implementation functions of the company. Together, the three of them went on to build an Rs300mn, 150-strong IT services company. The First Milestone The path for Newlink had been more or less smooth till now. Barua hailed from Assam, but had lived all his life in Indore. Soon after his return from the Middle East, he quickly established contact with an associate, who had taken over as the CTO in a fifty year old industrial spares company. The CTO's task was to modernize the systems and upgrade the IT infrastructure of the company to match the growing needs of the business. Barua sensed that this was the perfect opportunity and despite having competition from IT

majors, he managed to emerge as the vendor of choice. That first business deal was worth Rs60mn. A small team, put together by Barua and Joshi, spent the first year implementing the industrial spares company project. There was no other business development thrust for the company in those days. Both Barua and Joshi worked out of the client's premises. Barua's home was the company's headquarters and all support services such as accounts, HR and administration were outsourced to a local accountancy firm. The investment had primarily come from Barua's savings. Joshi knew some bankers, one in Mumbai and another in Indore, who extended a decent line of credit to the new company. That was how they got going as a partnership firm. An order worth Rs60mn made them attractive to the bankers. By the end of the first year of operation, the partners' roles were more clearly defined. Barua took charge of sales and business development and Joshi looked after technology and implementation. The fledgling company also started operating from separate business premises; a rented commercial space in the industrial area at the outskirts of the city. Staff for support functions were appointed and the team strength rose to 55. Most of them were fresh graduates or young people with little experience. The company staff, however, did boast of a sprinkling of graduates from engineering colleges or IT institutes in and around Indore. A Trying Time The team did not achieve any major breakthroughs immediately but there was a steady flow of regular orders of small value from various industrial units across Indore. These were mostly, IT modernization projects, all collectively accounting for a billing of no more than Rs20mn. It was towards the close of the second year, when, happy with Newlink's previous performance, their first client returned to place an order worth Rs100mn with the company. Barua realized that he had to scale up operations. In the third year, Newlink became a public limited company although shareholding was still limited to the initial promoters and two banks, who were persuaded to take stake in the company (refer exhibit 03). A need for an independent head of project implementation was felt. Luckily, this was exactly when they met a vacationing, disillusioned and disgruntled with the air force, Jose at the local club. Soon after Jose joined the company, Newlink faced its biggest survival challenge. There was an unexpected change of management at their principal client. A large number of senior managers left, including the sympathetic CTO. The changes led to confusion over continuation of existing contracts. Newlink's outstanding in terms of unraised and unpaid bills, at that point, was close to Rs 40mn. Barua quickly responded to the situation. He met the new management, worked out a compromise and renegotiated prices to prevent the project from being stalled. The

compromise came at a heavy cost and involved some considerations outside the ambits of justified governance. Jose worked extra hours to ensure before time delivery of the project. Joshi ensured that the company's bankers lent them the necessary support in their hour of crisis. He also managed the vendors on whom Newlink depended for delivery. At the end of it all, Newlink managed to recover its costs from the project. The next six months were sluggish. The team spent time implementing small projects for SME clients in the Indore-Devas industrial belt. Though cash flow was never blocked, it was never in free flow either. Barua was disillusioned and felt that perhaps Indore was not the right place to look for business. Crossing Over At this juncture, two events occurred simultaneously. Indore became a hub for network expansion for telecom operators and second, cash rich people started setting up educational institutes. Both sets of players needed system integrators for their IT infrastructure. And Barua and his team were waiting right there. In the next two years the company set up seven POP (point-of-presence a small exchange) locations for a private telecom operator. They commissioned thirty BTS (Base Transceiver Station) shelters and twelve microwave sites. The company also worked as a sub-contractor for a national level contractor engaged by a telecom company. Based on this experience, Newlink bagged a direct order worth Rs200mn from another telecom operator for setting up infrastructure for IP based services across 98 locations. The total revenue from the telecom division was expected to touch Rs 300mn during the current year. To execute the order well, Newlink appointed senior level retired telecom professionals of the state run operator as its consultants and advisors. Further, the telecom business was made into an independent division overseen by Jose. Operative in nine towns and cities across the region, Newlink's telecom division was headed by an engineer with fifteen years experience in telecom projects, supported by a team of fifteen engineers and five sub-contractors. Concurrently, Newlink also procured orders from two engineering colleges, one medical college and a 100% residential international school in Panchmari, Madhya Pradesh. By focusing on timely and efficient implementation, Newlink gained excellent referrals, which led to a steady increase in its customer base. At about this time, Newlink also won a contract for setting up LAN & WAN connectivity for a 200 seat call centre being set up by one of its banks in Indore. The networking project was assigned to a separate team, reporting in to Jose. The team was headed by a networking engineer with over fourteen years of experience. To keep up with the rapid pace of growth, Newlink underwent further organizational changes. Joshi now lead a team of fourteen people in what was termed as the pre-sales department responsible for all technical solutions and relationships with vendors and suppliers. Barua continued to head business development, with a team of five handling

different market segments. A twenty member strong finance, legal and administration support team headed by the company secretary and the legal head also reported to Barua. Barua wanted to appoint separate heads for HR and finance before the end of the year. Joshi wanted to relieve Barua of the business development portfolio by bringing in a new business development head and Jose thought that they must formalize their strategy for the next five years, including a strategy to enter the profitable sector of e-governance. The Right Way Ahead? Barua: What is e-Governance? It is nothing but computerization of government departments. Jose: Not exactly, it is much more than that. Joshi: I feel a case-by-case evaluation approach would be more productive in reaching a decision. Barua: Fine, let's understand the available opportunities. Jose: Majority of the e-governance projects are being advertised on the PPP model i.e. Public-Private-Partnership model. Joshi: The government does not invest. The private operator ploughs in the investment. The government in return allows the operator to operate the facility and collect a toll from the public for a fixed number of years. Barua: I know! Like those expressways, where the operator keeps increasing the toll at on a whim. Joshi: The projects are executed on a Build-Own-Operate-Transfer basis, called BOOT or BOT model. Barua: So what are the various types of projects in our segment? Jose: The first and foremost are computerization projects. Barua: One minute! Hasn't computerization been going on since Rajiv Gandhi was the Prime Minister of the country? That means, little headway has been made. Joshi: There is a big difference between the previous bout of computerization and this round. Barua: Ok, I understand. This is about creating client-server architectures across a Wide-Area-Network or over the Internet back-bone..but

Joshi: No but! Just listen. This time around there is a deployment of applications to facilitate customer servicing, whereas the previous round was largely for internal automation. These are business process management solutions. Here there are two categories: Category 01: Infrastructure projects for generalized use such as setting up state WAN for connecting all government offices and setting up state data centers. Category 02: Service oriented projects such as issuance of ration cards, setting up customer service centers, toll plazas, ticketing solution for state transport services and so on. The e-passport project is also underway by the Government of India . driving licenses Barua: Yes, the old monkey! He pulls out his license from his wallet and displays it to the other two. See the beauty of this! This is a smart card with all the details loaded on the chip. However this is not used properly because our cops do not have smart-card readers. They do not have the slightest idea how to use one. So this piece of plastic continues to be an identity card only, instead of a proper driving license. Who-so-ever sold this idea to the government must have made his fat share of booty, to achieve nothing. Jose wanted to respond to Barua but Joshi signaled, stopping him since he didn't want the discussion to go off on a tangent. He continues: Then there are projects such as setting up vehicle tracking systems for vital organizations such as petroleum companies, nuclear establishments, cargo carriers and defense utilities. Barua: Those would actually be good options! But would these projects come under eGovernance? Joshi: Also there are projects involving partnership between the government, financial institutions and the system integrators or service providers. Barua: Like what? Jose: Such as the projects being sought for disbursements under National Rural Employment Guarantee scheme, Old Age pension scheme, Rastriya Swasthya Bima Yojana the health insurance scheme for below-poverty-line (BPL) families. We could partner with our owner banks for these projects. Barua: All that is fine. Can you define the business size? Jose: In the last three months, there Has been 154 tenders and expression of interests advertised in newspapers, which we could look at. The total value of these projects is

approximately Rs5bn with an average project value of Rs400mn to Rs500mn. Barua: Who are the advertisers?' Jose: The government of India, state governments, municipal corporations, banks and public sector entities. Here is the list. Jose then passed the sheet of paper to Barua. Barua studied the document while Joshi and Jose waited. Barua: Who would want to do business with municipal corporationscustomer facilitation centers? It should be renamed corruption facilitation centers. Joshi: Manjit, I disagree with you. It is true that our systems do not function efficiently at times, but that doesn't mean that they don't exist or don't work at all. Here is an example, when my daughter was born; it took me just ten minutes to get her birth certificate from the municipal office. They were efficient and quick. Remember people do want change for the better and the politicos know that change has to happen if they want to retain their seats. Barua: What change for the better? 80%of these tenders have come from states which are headed for elections within the next twelve months. I bet that at least half of these tenders will not see letter of intents being issued to the selected vendors; one quarter will go into litigations and the remaining will be delayed or derailed for one reason or the other. Just a few will eventually materialize and these will be touted as our big success stories for the next twenty years. Jose: I agree that there is a strong risk element. Barua: Look here, Manjit said picking up the list. Rajasthan has advertised twelve tenders in a span of seven days. No RFP less than Rs60mn. Does the state have this level of funds with it? There's no tender from Gujarat because the elections just got over. It's all an election year game. Joshi: You do have a valid point there, Manjit. But still look at the projects commissioned over the last six months. Every state has awarded at least a few. Besides, we can always exercise our option later to enter a market or not. Barua: It is only one or two states, which have executed any substantial contracts so far. I think most of them are being implemented in Andhra Pradesh. All the others seem to be in the pipeline only Jose: This is why I believe that it is the right time to enter the market. Everyone is keen to replicate Andhra's success model. Barua: We would need a separate team to manage these relationships because unless

we succeed in influencing an RFP from the beginning, there is less likelihood of getting the order eventually. Joshi: I agree with you totally. We would need someone senior enough with the right blend of experience. Barua: Let's do a SWOT before reaching any decision. Taking Stock Getting up from his chair and picking up a white board marker, he drew three vertical lines on the board creating four sections and wrote S, W. O. T in sequence as headings for each of the four columns. Technology, we can manage. Solutions we can design, said Barua as he wrote under the column Strengths. Joshi: We have vendors and established supply chains. Barua: We have been a profit making company for the last three years, although our turnover might be restrictive in some cases. Joshi: I feel Rs300mn turnover will be sufficient, except in a few cases where the projects are really huge. So let's count that as strength. Jose: We have experience in system integration. Joshi: But Jose, our experience is in the corporate sector. Most of these RFPs would demand experience in government establishments. Jose: Would the experience with a public sector bank help? Joshi: But that's a very small project. Barua: Okay. Let's consider that as a weakness. Jose: We always have the option of entering this market segment as a consortium partner with someone else. Barua: You mean these tenders allow for bidding by consortiums? Joshi: Of course, most of them. Barua: Good! That's an opportunity. Although we shall have to analyze the type of partnership we'd be comfortable with. Joshi: We have to carry out that exercise for each project separately. However, yes, many vendors bid for these projects in consortiums.

Barua: Any specific reason you see for that? Or is it just to mitigate the risk? Joshi: Risk mitigation is one aspect. The other being most of these solutions or projects require diverse components. There could be multiple hardware and equally, multiple distributed software. It is difficult to have the entire range of expertise under one roof. For example, we would not be able to develop software, while a software specialist would not be able to do system integration. Nevertheless the project might require both. Further if there is requirement for any specific hardware, say smart-card or card-reading terminals, then accordingly those specialized competencies shall also be required. There are applications such as bio-metrics which are highly specialized fields. Hence companies form consortiums to bid. Barua: How successful have these consortiums been? Joshi: To be fair, I think it's still a recent phenomenon to make any conclusive comment. I would say it's still in the honeymoon period. Barua: It would be interesting to watch the divorce rate. Jose: Area of operation shall be one of the constraining factors for us. We also have to carefully analyze what sort of financial risk we would be able to bear. Barua: Absolutely important! In government business the payments are always delayed and if we are doing business in our state, more so. Joshi: It is still better than doing business in some other states. Barua: There's the overall political risk that could derail the entire process, which is a sure threat. Jose: I feel we shall have to segregate on the basis of the nature of the projects and on the source of funding. There are projects for which state governments have received aid from the central government such as the State Wide Area Network (SWAN) project. These I feel would have a better ROI. Joshi: Also projects which we undertake along with a financial institution or some other body would have a lower risk of failure. Barua: Why do you feel so? Wouldn't that financial institution be at risk of receiving the promised budgetary or payment support or whatever from the government in a delayed manner? Joshi: No! Not necessarily. If the financial institution uses the same infrastructure for its own business growth, then it might start making profits independently. Barua: Are there any examples of such ventures?

Joshi: Yes, there have been pilots for financial inclusion by banks. Some micro-finance institutions have already grown big enough to be small banks. We could do well associating with such people as their technology partner, while they deal with the government. Jose: But that's not always the case. Many a times these institutions want the system integrator to be their service provider as well. That is the case in the financial inclusion you just talked about. Barua: We can't be a service provider. I cannot be sitting in every nook and corner issuing ration cards or driving licenses. Jose: So that is definitely a weakness. Joshi: I would classify it as a threat because the entire concept of e-governance is that of being a service provider to the citizens, on behalf of the government! Barua: In that case let's be a service provider for things we are familiar with. For example, I don't have an issue maintaining the SWAN network or monitoring a vehicle tracking system, but I can't be getting into disbursing government funds at remote locations or providing Aanganwadi cards to pregnant women for keeping track of their immunization needs, even with technology. Joshi: We can cross that bridge when we come to it. We would always decide what kind of projects we would want to get into and which ones are avoidable. For the moment let's move ahead.' Jose: SWAN maintenance would also involve maintaining the buildings and arranging security. If I am right, at one place, in a toll-plaza tender the government wants the service provider to maintain the surrounding garden and even the public toilets. Joshi: Good God! Now that's the only thing we have left to do.' Barua: Yes why not! Our contribution towards corporate social responsibility. Jose: I calculated profitability for some of the projects awarded in recent times and on almost all my numbers ran into the negative. I fail to understand how people work or reengineered the whole thing. Barua: The real picture will only become clear in two years from now. Joshi: I think, 8%-12% profitability would be the maximum bandwidth available to us on these projects. But, we could test the waters soon. The government is planning to setup information kiosks under Ahilya Devi Holkar Scheme for rural women in Khandwa district on a pilot basis. The tender is expected sometime later this week. The kiosks will be owned by Malwa Bank, which will use them for servicing the business needs of

women self help groups. The expected value of the pilot-project is Rs27mn. Besides the IT infrastructure we also have to arrange for manning of the kiosks. Barua: What is the qualification criterion? Jose: It would be a restricted RFP. The bank is floating the tender on behalf of the government. They are inviting people with experience in similar kind of business and since we are a company owned by the bank, we could also be included. Barua: Great! RFP influenced. So, it looks all set. What do you guys need from me now? Your approval to go ahead!' said the two in chorus. Your Question? Is the e-Governance market a viable business opportunity for Newlink Technologies? If yes, what is the best business strategy for the company? If not, why not?