Our goal is to bring down attrition to 15%: KK Natarajan

Interview with chief executive and managing director, Mindtree

Mindtree remains confident of meeting Nasscom’s growth projections in 2015-16, even as it continues to face client issues in Europe. On the sidelines of the Nasscom summit, Krishnakumar Natarajan, the chief executive and managing director, tells Sheetal Agarwal about plans to reduce attrition and grow in the digital space. Excerpts:

What is the Mindtree’s strategy for Europe, given the uncertainties there?

This year will continue to see investments in Europe, primarily in client-facing teams. There are uncertainties in Europe but we believe these are blips. The internal goal is to get Europe back into the growth mode. We do not see a challenge in the UK from the demand or client perspective. Germany seems attractive. In fact, we are winning some logos there, such as Espirit. There are issues with a large client in the Netherlands, likewise in the Nordic region with a large customer. Overall, we believe continental Europe will be far more challenging to grow.

What indications are you getting from your clients on budgets?

We actively engage with our top-30 customers because they form about 72 per cent of our revenues. There are no negative tones at all.

While North American customers are positive, Europe has some client specific issues.

Do you expect to meet the Nasscom forecast for 2015-16?

We see strong demand in our key segments of retail consumer products, travel and hospitality. Our high-tech segment is seeing strong demand in the consumer devices business, but the semiconductor and telecom equipment businesses are flat with a downward bias. Overall, the high-tech segment should grow fast. There is a lot of compliance spending in the BFSI space and the complexity is driving them to do a lot of those internally. We anticipate BFSI might be flat next year. The insurance segment though continues to witness strong momentum. Overall, BFSI will witness low teen growth. Mindtree will certainly meet the Nasscom guidance of 12-14 per cent growth in 2015-16.

Can you throw some light on the deal size and profitability in the digital space?

Digital forms 32 per cent of our business and includes digital marketing, e-commerce and digital content. Clients are in early stages of their digital foray and are experimenting. Probably two out of ten experiments go to the next stage. At the next stage, they do a pilot where the ticket size is a little larger, around $300,000. Once that is done, they get into serious implementation where deal size could be between $1 million and $3 million. Clearly, the deal size of digital is much smaller than that in traditional businesses. But in an ERP implementation, I could deliver to the customer after 6-8 months. You need to keep delivering the solution to the digital customer every two weeks, every four weeks and so on. The net margin of digital though is quite comparable with traditional services.

Mindtree’s attrition has been rising for the past four quarters and now stands at 18.1 per cent. What steps are you taking?

We are not losing any of our senior management, the attrition is largely in the experience band of two to four years. Even within this talent pool, we don’t lose our top 25 percentile because we protect them well. We are losing people in the 30-80 percentile of performance and lower. We are making efforts to ensure retention of people in the 30-80 percentile band because this talent is attracted by our IT services competitors as well as start-ups such as Myntra, Snapdeal, Jabong etc.

We will not fight them back because they go at compensation gains of 2-3 times. We also lose to some of the captives that are set up, but the quality of work there is not very good. We are investing to improve our employees professionally, both in terms of technology and domain by sponsoring them for external certifications. We are driving several initiatives. Our goal is to bring down attrition to 15 per cent and below levels.

What is Mindtree’s strategy to participate in the growing Indian IT market?

I think India is starting to look like a great opportunity, with both government as well as private sector IT demand growing strong. For a company of our size, we need to prioritise where we are spending our time. We did a great project in UID, but if you look at our bottomline I think the government has still not paid a lot. The Indian government owes around Rs 5,000 crore to the IT industry. So the government needs to ensure that the vision of driving digital India is executed in a manner where every stakeholder feels reasonably motivated to participate.

What are the industry’s expectations from the Budget?

We need operational clarity on issues such as rules governing asset transfer in SEZs, levy of both VAT and service tax on software products, among others. I think many of these issues will be addressed. The IT industry needs to be present in larger parts of the country to create local employment rather than be concentrated in 7-8 cities. I think the overhead of running a small company in India is very high. Government has to make doing business easier for these smaller companies.