There is obviously residual value in the Satyam brand, sufficient for Tech Mahindra and the broader Mahindra Group to retain it in the new concatenated brand. Many had called for the Satyam brand to be annihilated in a kneejerk reaction to the corporate governance scandal wrought on the company by chairman and founder Ramalinga Raju. This reaction failed to recognize that the majority of Satyam staff, not just customers and shareholders, were also victims of a scandal that they knew nothing about. On a day-to-day basis, Satyam continues to provide services to a large number of customers, with stability and certainty increasing since the Tech Mahindra acquisition was announced in April. It is those everyday customer interactions that represent the remaining value in the Satyam brand.
In our discussions with Satyam customers, with few exceptions, the reactions to the scandal have fallen into two camps. First, there are those who feel deeply disappointed, some say cheated, disheartened, upset and almost entirely negative toward all things Satyam. Second, there are those customers who remain happy with the Satyam teams who support them on a daily basis and who want the company to continue to provide them with the services that they need. As a general rule, those customers who had personal dealings with Raju fall into the first category, and those who didn’t fall into the second. However, business decisions need to be made on the basis of rational logic not on purely emotional grounds.
START OF A NEW CHAPTER– PRACTICALITIES NOT POLEMICS
Initial indications are that Mahindra Satyam and Tech Mahindra will run as separate businesses. However, we expect that practical cooperation and cross-working between the companies will emerge. There are complementary capabilities within the companies – for example, the combination of the infrastructure managed services capabilities in Tech Mahindra and the application services from Mahindra Satyam. What we hope to see emerging is a realpolitik where the two firms cooperate on deals where it makes sense for them and where the skills needed are genuinely complementary – this is already happening in places. This is practical integration rather than forcing through a destructive but theoretically sound integration strategy.
The post-acquisition integration in many companies turns into a territorial minefield where decisions are made in the interests of demonstrating decisiveness and a long-term vision. However, this is not always the right thing and certainly would not be the right strategy for Mahindra Satyam and Tech Mahindra. In the generic case, value can often be destroyed through hasty decision-making, and this would certainly be the case if Mahindra Satyam and Tech Mahindra were rapidly crashed together.
Beyond the pragmatics, the question of corporate culture will be the next talking point. Each of the brands that make up the new Mahindra Satyam brand brings cultural heritage. Of the five values espoused at the launch of the new brand (good corporate citizenship, professionalism, customer first, quality focus, and dignity of the individual), the focus on the dignity of the individual is, in our view, the prime one. All of the other values will flow from here.
REMEMBER THE COST BASE AND READ THE SIGNALS RIGHT
The Tech Mahindra team is patiently and calmly working through the problems that it inherited with the Satyam acquisition, even though it may be tempting to rush through and attempt to “fix” all of the issues in a few weeks. It will take some time to work through the phases of understanding, stabilization, alignment, integration, and growth that the team’s plan will inevitably need to encompass.
There will undoubtedly need to be realignment in the Mahindra Satyam cost base to cope with the revenue realities of today rather than the Raju-esque figures. When these cuts come – as they inevitably will – care will be needed to interpret them correctly. Major cost reduction could not be driven out of integration synergies in IT, marketing and other back-office functions – and the market should not expect this. Instead, it needs to be the service delivery functions that bear the brunt of any cost reduction, since they are where the biggest cost-line items can be found.
Equally, the market needs to be careful about reacting adversely to any future Mahindra Satyam cuts. Significant cuts will be needed to realign delivery costs with real revenues. The market must recognize that these cuts will inevitably be designed to protect shareholder value, while still ensuring that customer commitments are delivered.
Courtesy: David Mitchell, SVP IT Research, Ovum
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