Small & Medium Business (SMB): The Next Frontier: Playing the Long Tail – Talk By Raman Roy at the NASSCOM CEO Forum
Loading ...Once again, it was Mr Vishnu Dusad who introduced Raman Roy to the participants. A man who really needs no introduction! the Quatrro Chief has many firsts to his name. And certainly not the least among them being a visionary, who is credited to have created half a million jobs for the BPO sector. His bio was so impressive that we were absolutely enthralled, as it was being read out. Raman Roy was even compared to F C Kohli, the father of the Indian IT industry in more ways than one. Mr Roy accepted the praise very gracefully and even remarked on a lighter vein, that he can now look into the mirror with a renewed sense of self respect. He was also rather apologetic and looked quite sheepish, for losing his way and being late. Brilliant raconteur that he is, he went on to share his views, his thought process and what he had learnt over the years at Spectramind, and now at Quatrro.
India had achieved a considerable bit in the IT-BPO space, riding on exports of 46 Bn US$, creating 2 million jobs directly and another 8 million indirectly, thereby contributing about 5.8 % of the GDP. The industry certainly has all the right reasons to feel proud of its stellar performance, Mr Roy said. But, we must ponder awhile and examine as to how this growth has come about. The reader is also advised to refer to his presentation for a better understanding. He calls it the inverted beer glass and the frothy head, represented by Fortune 1000 companies. What exactly was he referring to? Well, if you plot the size of organisations (either by revenue or number of employees) on the Y axis, and number of companies on the X axis, the shape of the graph would resemble an inverted beer glass – hence the moniker. These large companies, essentially accounted for 87 % of the 50 Bn US$ business or thereabouts, that the media gloats over. As you plot the next 5000 companies, the graph is essentially a line, parallel to the X axis. Furthermore, the next 20000 companies (SMEs) is represented by the “long tail”. Serving the frothy head is great business – proven so far by the success of the 50 Bn US$ IT BPO industry. Serving the tail efficiently can be even more compelling, he said. In Spectramind, when Mr Raman Roy was at the helm, there were 31 customers clocking in 260 million US$ in revenue, and serviced through 90 business processes. Presently, at Quatrro, there were 5000 customers. Serving the Fortune 1000 companies, always put a serious pressure on pricing. The big boys are apt to negotiate hard, till the last dollar. However, when SMEs go for renewal of the contract, they are hopeful that prices won’t shoot up beyond 10%. It’s a completely different mindset really. The size of this market is mammoth, as compared to the frothy head. The expertise that India has developed over the years has positioned the nation very well. Mr Raman Roy puts it across glibly – moving from dozens of markets of millions to millions of markets of dozens.
The Perspective 2020 report predicts a 7.7 times growth in total market size, in the next decade, to reach 300 Bn US$. 80% of this growth will come from markets which are “not core” today. The SMB market (beyond Fortune 500) is estimated to be around 230 Bn US$ or 80% of the market size. Out of which, 190 Bn US$ would account for the new verticals. Presently the penetration is only about 200 million US$ in the SMB segment. This is truly a Blue Ocean strategy, the uncontested market space – large in size and significant. As against this are the opportunities from Fortune 500 and other large organisations – the Red Ocean strategy. This space is characterised by intense competition, a price war, where companies outbid each other and bring down the profits.
What does it take to milk this cow?
Though it may seem opaque at present, the opportunity is real. According to the latest US census, 51% of the workforce (including the government sector) works for the SMB segment, characterised by manual content with a huge scope for automation. Over the years, Indians were very good in defining a process for everything – even for waking up, Raman Roy jocularly remarked. Though, much of it may be true but the real value proposition was in lower cost. Better work at lower price.
- For SMB customers, trustworthiness ranked amongst the most important attributes as they depended heavily on references from like minded people. Once you could reach that level of acceptability, you could have them as customers for life. This was also a sector, often neglected by the larger players as they frequently came up with “no bid”. Even if you do not win the deal, it was important to engage in a dialogue and work towards building trust, Raman Roy said.
- SMB’s, value flexibility and are petrified of the rigidity of larger players. Since their organisational structure is flexible, as is reflected in their quick decision making, they prefer to see a similar approach from their outsourcing partners too.
- Size of the CXO’s ego is not directly proportional to the size of the organisation, Mr Raman Roy remarked on a lighter vein. No matter how small the organisation, issues need to be addressed with sensitivity.
- As CXO’s are directly involved in the decision making process, decision making is much faster as sales cycle gets shorter.
- The focus is on value and not on pricing. Pricing will feature much later in the discussion – only if the values match primarily, that is.
- You have to demonstrate end-to-end competence. The total size of the business is not large enough to carve out a piece. Christiansen’s concept of disruptive innovation is also evident. One has to be prepared to provide better products and services to established markets. So far the IT BPO industry was modelled on low end disruptive innovation, leveraging mainly on cost. Of course this was a distinct advantage for India and one that should not be given up under any circumstances. But, to serve the SMB market, it was critical to develop domain expertise. The “beyond Fortune 1000” is largely unexplored today and it was imperative to create products and services in keeping this market segmentation in mind. It is never going to be easy to develop this market, Mr Raman Roy said.
Servicing this sector was quite different from the “frothy head”. Out of 5000 customers of Quatrro, only 3 have visited India. One even remarked that a single trip to India would wipe out his savings for six months. While striking deals, it is advisable not to resort to jargons but give them a clear and more informed picture. They aren’t prepared for any nasty surprises, which may actually hamper the relationship permanently. For them endorsement from similar businesses were very important, Mr Roy reiterated. In Quatrro there were 150,000 individual customers who did business as little as 7 $, and even paid by credit card. About 52 % of such clients (for tech support) were even willing to sign up for 2-3 year plans, he said. New service lines that did not exist, new business models, new geographies will all contribute to this new opportunity.
What we see today is like the tip of the iceberg. What lies unexplored is humongous and will decide the future of the IT BPO industry.
Q&A:
1. Market segmentation at Quatrro
A. 0-2 Million US$, 2-10 Mn US$, 10 – 50 Mn US$, 50 – 200 Mn US$, 200Mn – 1 BN US$ & beyond 1 BN US$. Direct sales model may not be effective for all segments and a go-to market strategies would differ for each segment. This was not the final model and the company was still experimenting with market segmentation.
2. Best way to reach out to SMEs
A. No clear-cut strategies. But, it was important to build partnerships, to service such a large market segment.
3. If start-ups don’t have the particular domain expertise, how does one serve this sector?
A. Having domain expertise was a prerequisite. Hiring the right domain experts was really the key.
4. How did Quatrro build on the goodwill?
A. In Quatrro’s case, a very strong pedigree worked to its advantage.
It was finally time to wrap up this brilliant session, as we all thanked Mr Raman Roy for taking time out and giving us a sneak preview of what was truly “Raman Effect”.
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Thanks Avinash for jotting down the key points of the discussion. I was really glad to be a part of the session. The group consisted of highly experienced entrepreneurs and business heads and they brought to the table their very valuable ideas.