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this podcast is brought to you by india
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knowledge at wharton
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please visit knowledge.wharton.upenn.edu
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india for more information
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in april when makaron tejay became ceo
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of app labs
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the world's largest independent testing
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and quality management firm
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his priorities were clear he wanted to
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strengthen client relationships in the
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u.s and europe
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tj also wanted to find ways to increase
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revenues from 67 million to 100 million
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dollars
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in a slowing global economy what
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strategies will app labs adopt to reach
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its ambitious goals
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tj discussed that question and more in
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an interview with
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indian knowledge at wharton our guest
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today is makran tejay
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ceo of app labs mac thank you so much
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for joining us today i'm glad to be here
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thank you
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it's been about two months since you
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took over as ceo of app labs
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what were your priorities for your first
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100 days
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that's a great question you know my
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earlier getting on board as a chief
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operating officer
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gave me a good understanding as to how
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are we really doing as a global business
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but after first april when i took over
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as a ceo
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the clear priorities were to further
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strengthen our client engagements that
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we have
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in our u.s business as well as europe
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business and continue to look for
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opportunities in terms of our operations
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area
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where we can really look for improvement
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in our margin
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what are overall priorities for app labs
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you know the
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our journey has been really exciting and
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over the last seven years now we are the
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largest independent testing services
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company in the world
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and we started serving the independent
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software vendors
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what we're finding really interesting
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over the last two years is that the
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services that we are providing for the
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software vendors are now more than
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valuable to the enterprise customers
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and to talk a little bit about
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enterprise customers insurance companies
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airlines companies utilities companies
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manufacturing and logistics
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and the very reason for that is software
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today is so much
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intertwined with every business process
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and it would be fair to say that it is
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more complex than ever five years back
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and it is going to get increasingly
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complex
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so real key issue from a cio perspective
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is that when we look at the full life
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cycle development of a software
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are we really adequately budgeting time
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are we really allocating money
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for the testing of the activity because
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successful testing
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is what really results in terms of
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successful release of the product
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how does app labs scale of operations
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compare with some of your
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indian and american competitors app labs
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today has
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about 2 000 employees and we are in u.s
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europe as well as india and we serve
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about
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80 plus customers globally and nature of
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these engagements are
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more year on year so they are doing some
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projects but more engagements are based
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on annual engagements where we really do
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ongoing work with the clients in terms
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of the capability that we have really
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built it's
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more of 360 degrees capability in the
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testing services areas alone
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and to illustrate we do certification we
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do performance testing
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we do manual automation testing as well
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as we have also launched a new service
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of
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advisory practice around test process
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consulting
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and short of that for a cio defining
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a blueprint in terms of how should my
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test process really look like across the
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organization
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bring us in we'll be able to define but
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not only define help you really
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implement that
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you refer to app labs as the largest
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independent testing company
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is there a value to being independent or
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is it better to be part of a larger it
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company
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that does both testing and development
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you know increasingly what we find is
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that the skill of testing is present in
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a developer
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but the independent view what a tester
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really looks at looks at it from
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objectively
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and is really looking at in an unbiased
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way and that's really helping
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organizations to bring us in
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irrespective whether they have an
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internal organizations doing development
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or they have another service provider
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who is really doing development
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and that value of looking at a code in
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an unbiased way is where we really add
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value
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the second one if you look at a full
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service organization
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the way the hiring the talent management
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and the entire supply chain works it is
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geared to really bring in
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all sorts of skills whereas app labs is
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fully focused on
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building career for testers and bringing
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career test professionals and allowed to
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say that
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this is a place only place in the world
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where testers walk with pride
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in 2007 app labs had 67 million dollars
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in revenues
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and you had set a goal to reach 100
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million dollars
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how far along are you towards reaching
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that target
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you know we are uh 0708
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we were right on track in terms of
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really going to our goal of 100 million
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dollars
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we are tracking well above the industry
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average of about 30 percent is what
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general services industry is growing out
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of india
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and as a niche provider we are
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experiencing much higher growth
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and there are a couple of components we
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are really helping drive this growth is
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that
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looking at the clients that we have
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really acquired and representing them if
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i were to say the entire service
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portfolio
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and asking them a business question
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that testing is a technical skill but
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how will it really solve a business
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issue
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and one of the service portfolio which
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we have is a performance testing today
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is a very good service that is helping
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businesses to really post that
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performance of whether it is web
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applications or enterprise applications
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has become a more business issue today
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rather than a technical issue
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so that's really helping us the second
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area is we've strengthened
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our investments in terms of the client
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management
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so we have a client management team that
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is focused in u.s and europe
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which brings a very good cultural
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proximity to the customer in terms of
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how do they engage what they would like
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to really see
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so we kind of built in that initial
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comfort when we start engagements
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so they have an advantage of somebody
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who is they are comfortable with
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interacting with
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as well as they have an advantage of a
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global delivery that we really bring
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alongside
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and that will really help us fuel our
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growth
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in terms of organic peace we are also
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very targeted going after certain
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industries
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for acquiring new customers and
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insurance
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manufacturing retail and energy are some
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of the one which really
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come top of the charts in terms of where
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we are really going after
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in terms of your revenue goals for the
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next two or three years
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what strategy are you using to get there
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you know
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the what we expect is that the current
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traction which we have in terms of
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percentage growth
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of above 45 percent will continue
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and i would say for past where to speak
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of something last four years we had
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about 72
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compound annual growth rate and we going
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forward we expect to grow
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at least 40 plus year on year uh
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organic acquisition of new clients and
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servicing our existing clients in the
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service portfolio what we have is going
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to be major but there is a good
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possibility of even adding some
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inorganic piece as well a number of
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indian companies have been growing
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through acquisitions
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are there any gaps in your strategic
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portfolio
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which you think will be filled by
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acquisitions if so what do you think you
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might do in that respect
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mukul we have done very well with
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acquisitions and we acquired a company
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called key labs here in linden utah
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which really helped us to bring a lab on
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site here
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and help us build the certification
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business
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about a year and a half back we also
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completed another acquisition of a
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company called is integration
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which is based out of uk and this
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company brought us skills in the
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consulting area and more important in
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the system integration testing area
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so our outlook in terms of going forward
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is that anything that will help us
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further enhance our value
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proposition as the overall testing
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service provider
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it's something which will be attractive
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speaking of consulting
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one of the biggest challenges indian
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companies have faced
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is building relationships with fortune
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500 companies
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especially at the c-suite level in fact
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even large indian i.t companies face
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this challenge
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how are you addressing it you know our
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chat
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we recognize the challenge and what we
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are really taking is a selected approach
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and it's the clients whom we have
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already relationship with
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we are really putting additional
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investments because they know us and
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we've been working
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with them for five years six years so it
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is relatively easier for us to really go
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to the c-level executives and explain as
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to what we are really doing
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as well as the team that we are really
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building in terms of acquiring new
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clients
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we are really looking at senior
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experienced professionals who really
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bring the
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understanding of the global culture and
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that understanding becomes important
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it is the whole cultural context as well
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as ability to have dealt with multiple
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time zones before
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and really translate those benefits in
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terms of clients as to what will mean
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for them
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and all this keeping testing in mind as
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you go about trying to get these clients
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whom do you come up against as
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competitors and how do you position
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yourself
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you know competition is coming from
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multiple areas as to we do compete with
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the large global sis
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like the accenture ibm we do compete
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with the
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tier one indian providers like infosys
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and wipro
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and our positioning is that the
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independence of the testing
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and the focus that we really bring it to
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testing is what is allowing us to first
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getting invited to the large deals and
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second really communicating that there
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is something special
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because if you really look at from a cio
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perspective that if they are looking for
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partnership in general id services areas
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they get to hear more or less similar
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message but when we tell that
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if it is testing we'll do it for you if
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it is something
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else we would rather pass and that kind
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of
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gives them further assurance that here
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is a company that is entirely focused
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on testing and wants to really stay
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focused on testing
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and that's one of the ways to really win
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early confidence
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of them in the larger engagements where
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we come across the broad competition
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that's the global size as well as the
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indian measures
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even if you do succeed in winning
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confidence
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the u.s economic situation is so
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uncertain
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there's no telling when the recovery
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will begin
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how is this affecting the decisions big
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companies are willing to make
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about large i.t projects applause
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perspective about
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our revenue base between us and europe
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is about 50 50.
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and what we're finding is that our
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sectoral preference within the
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industries that we are targeting
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which is insurance utilities and
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manufacturing
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is really helping us going after the new
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client acquisition
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what we are certainly seeing is that
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decisions taking longer and probably a
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longer due diligence
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but the fundamental value proposition of
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whether it is global sourcing or trying
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to find out the best of the breed
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in terms of id services or take cost out
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or improve quality or
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improve cycle time that's not really
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change so we just see that as a
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temporary phenomena for a couple of
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quarters and we should be seeing that
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whether it is the new client acquisition
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as well as the client growth that we
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already have
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should exceed in terms of what we expect
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are some verticals being affected more
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than
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others clearly it is the retail banking
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and
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i would say that the mortgage and the
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retail banking
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fortunately we did not have much
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exposure in terms of our current client
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base
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but there is sort of a ripple effect
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what you see in the other industries as
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well
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with our association of banking
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financial services customer we also
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build a very strong capability now in
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the
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exchanges and what we find is that if
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you take
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financial exchanges as the first level
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platform
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and all the other exchanges which is
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either commodities derivatives and
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metals and so on and so forth
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the type of testing skill that requires
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needs a combination of a strong business
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understanding of
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how exchange work and what kind of
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reputable tools that you need to really
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bring
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to make sure that any of the new
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releases that they are bringing in
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are defect free but more important than
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that is that to continue to manage
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defect free they need a very strong
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program in terms of independent testing
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so we recently acquired in last four
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quarters couple of exchanges and we are
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their sole partner
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in terms of testing one good example is
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a turquoise which is
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a platform which is set up in uk by
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about 11 investment banks
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and they are going to create an
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alternative platform for the large
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exchanges and we are their chosen
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partner for testing right now
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app labs has a significant operation in
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hyderabad india
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to what degree is the appreciation of
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the rupee
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still a problem for app labs
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you know i would say in general about
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six quarters back it kind of
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posed as an important thing to really
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look at for overall i.t services
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industry and when we looked at app labs
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that is something we recognize early and
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some of the initiatives that we really
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took in terms of
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continued focus on gaining client
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confidence in terms of the model is
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right
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second looking at operations looking at
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our utilization carefully looking at our
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bench
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more important really using that time to
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create capability for people who are on
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bench in terms of
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industries that i mentioned in which is
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exchanges and insurance
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and second the investment in terms of
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building soft skills
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has really helped us and now
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operationally we have a model by which
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we say that irrespective of what will
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happen
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to dollar and rupee operationally we are
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able to take that
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and manage the expectations our customer
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as well as deliver the robust business
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growth that is expected out of business
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so it is the time about over six
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quarters is really helped us
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to deal with any variation that will
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happen in dollar tree
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the other refrain i constantly keep
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hearing especially from indian companies
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is how hard it is to keep good people
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the
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rate of attrition is terrible how is app
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labs dealing with this problem
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you know if you look at the young worker
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today who is 20-something
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the ideas and the type of environment
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that they need to perform
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and take is entirely different than the
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time when we grow up
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and the interesting part is that the our
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old whole human resource approach is
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based on first
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taking testing as an attraction and
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creating as a career piece
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for the professionals who want to really
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get in and then creating
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a sort of a social network within a
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company which includes the
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the quarterly meetings the time they get
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out with their supervisors
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the program that they really sign up in
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terms of their personal as well as
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professional environment
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all that is really helping us to build a
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sort of a solid community
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we've been able to effectively do that
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across the three buildings that we have
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and that is because of deploying these
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similar human resource processes which
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we have
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which is related to the training
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mentoring as well as the strong
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technical training that we provide
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in terms of testing so broadly we
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expect a much lower iteration compared
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to what we are seeing in the broader
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industry and to give you an idea that
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hyderabad if i were to talk in general
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about 20 to 20
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22 percent attrition would be observed
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and reported
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we're running at about 18 attrition
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right now
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what keeps you up at night well uh
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the excitement that uh first of all uh
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we're the largest independent testing
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company
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and from the early success that we have
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serving the enterprise customers
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there's a lot we could do whether you
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look at the u.s market as well as the
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europe market
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so we've just seen the tip of iceberg
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right now where would you like app labs
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to be in the next four to five years
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the where we'll find the value
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proposition of
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app labs will get much stronger in terms
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of acquiring capability in the
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business critical applications and which
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testing will become so much mainstream
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that whenever you look at
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the outcome of a business system you
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could relate it to
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directly as to what went right and what
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did not go right in a particular testing
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so some of the investments that we are
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really making in building the industry
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capability will really help us get there
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in a five year time frame
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but model is here to state it's going to
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get stronger and probably much wider in
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terms of acceptance
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for somebody to say that we would rather
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look at testing areas done by
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independent players and specialized
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player who have really built their
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entire model
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right from training recruitment as well
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as servicing customers based on focus
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mac thank you so much for joining us
00:17:14
today thank you michael
00:17:19
for more information please visit
00:17:22
knowledge.wharton.upenn.edu
00:17:29
india
