"Will the new company Mahindra Satyam formed from the takeover of the embattledSatyam ComputersbyTech Mahindrabe successful in regaining its market share in the long run?"
After Satyam Computers overinflated its profits over a period of several years to the tune of approximately $1 Bn the ephemeral Satyam Board subjected the company to an open bid. Tech Mahindra finally emerged as the winner to acquire crisis-ridden Satyam Computer Services by issuing Rs.58/share. Its new brand identity, ‘Mahindra Satyam', was unveiled on June 21, 2009. The new identity will blend core values from the Mahindra Group and the strengths of Satyam, said Mr Anand Mahindra, Vice-Chairman and Managing Director of the Mahindra Group. Though Tech Mahindra acquired Satyam, Tech Mahindra and Mahindra Satyam operate as separate entities.
Through this commentary I shall analyse whether the new entity Mahindra Satyam can regain its past glory and be profitable with the help of SWOT, Ansoff Matrix and Porters' generic strategy.
SWOT analysis of the new brand entity “Mahindra Satyam”
(to achieving an objective)
(to achieving an objective)
(attributes of Mahindra Satyam)
1. Emergence of a robust brand of Mahindra Group and Satyam.
2. An amalgamation of the Mahindra Group's values with Satyam's fabled expertise, commitment, purpose and proficiency of the organization and its people
3. Mahindra Satyam or the erstwhile Satyam Computer Services has bagged around 30 IT contracts
4. Market Share: With the combined revenues of the two companies, it puts Tech Mahindra is the big league of IT services companies in the country.
5. Synergies: operating from a common infrastructure
1. Demotivated workforce: Satyam's employee strength has already come down to 48,000 -- it was 53,000
2. Resignation of Top Brass
3. Diminution of share prices
4. Loss of customers
5. There will be conflict of interests in case of common clients between both companies
(attributes of the environment)
1. Merger with Tech Mahindra:
2. Opportunity of more synergies between the two companies Tech Mahindra and Mahindra Satyam
3. Mahindra Satyam is working on proposals to position itself as an information and communication technology (ICT) company as against its present profile of an IT company.
1. Litigation against Satyam
2. There is a general slowdown in the IT services industry globally.
3. Tech Mahindra estimates just around $1.3 billion revenue this year. That's $27,085 revenue per employee -- compared to around $40,770 for Infosys $35,270 for Wipro and $35,156 for Tata Consultancy Services
4. Global downturn
Tech Mahindra is built around the core values of customer satisfaction, quality before price and dignity of the individual and Mahindra Satyam integrates this into Satyam's fabled expertise in the IT industry. The amalgamation has led to Mahindra Satyam's emergence as a powerful player in the IT industry. The new entity “Mahindra Satyam” also benefits from synergies since this acquisition was a horizontal integration for Tech Mahindra. Both the companies are planning to share infrastructure in places such as Bangalore, the US and Europe. This synergistic approach will enable Mahindra Satyam to benefit from the best management practices of the <Mahindra Group.
Although, the new entity “Mahindra Satyam” benefits from synergies, Satyam suffered from massive drawbacks before the acquisition. Soon after the scam broke out, Satyam' staff reduced from 53,000 to 48,000 along with the top brass resigning. Mahindra Satyam lost employees with expertise in the industry. A large scale client exodus also led to companies such as Coca-Cola and State farm insurance walk out of their contracts with Satyam.
Thought the IT industry is undergoing a global slowdown, opportunities for growth and expansion exist for Mahindra Satyam. Mahindra Satyam could strike a merger with Tech Mahindra which would give the former a significant market share and a better market standing. Mahindra Satyam could also look into transforming into an ICT company against its current profile of an IT company, by merging with Tech Mahindra and offering complete telecommunications and IT solutions to clients.
Several threats also remain for Mahindra Satyam. The $1 Bn liability arising from the Upaid case and many other litigations against Satyam is one of the biggest threats to Mahindra Satyam. Mahindra Satyam also remains vulnerable to takeover by other IT giants with significantly larger revenues and market share. With the current downturn in the economy and the general slowdown of IT industries, Mahindra Satyam is facing the same problems and challenges that the market is facing.
Ansoff Matrix for Mahindra Satyam
The Ansoff Matrix will examine the possibilities for market development and penetration for Mahindra Satyam
Using pricing strategies to sell more products to current customers. It is a low-risk growth strategy.
A medium-risk growth strategy that involves businesses selling new products in current markets.
A medium-risk growth strategy involving businesses selling existing products in new markets.
A high-risk growth strategy comprising of businesses selling new products in new markets.
1. Rebranding: Through this exercise Mahindra Satyam gets a new image that of commitment, efficiency and expertise which will enable it to attract new customers at the same retain the older ones.
2. The acquisition of Satyam by Tech Mahindra helped the new entity “Mahindra Satyam” to gain fresh contracts from former clients. These contracts, in the range $1 Mn to $20 Mn have resulted in an increased traction in the verticals of healthcare, utilities and retail. Mahindra Satyam managed to revive a deal with a former client, an oil exploration company.
3. Mahindra Satyam is trying to rule out methods to become more cost-effective, to become better at onsite offshore mixes and to reduce prices to attract customers.
4. Mahindra Satyam has appointed Bain & Co as consultants to prepare a plan to win back the old customers and to offer better transformational experience and new value proposition to the new and existing customers.
1. Tech Mahindra added various products and services to its catalog after it acquired Satyam computers in April 2009. Tech Mahindra has since expanded into outsourcing, partnered with a leading telecom giant and managed the customer service desk for a leading Indian telecom company.
2. Mahindra Satyam is trying to strike a merger with Tech Mahindra to offer more products and services to its clients, especially in the telecom sector. This merger will put Mahindra Satyam in the domain of ICT (Information and communication technology) industries against its current profile of an IT company. The move will help Mahindra Satyam to bag contracts from clients in various countries.
1. Mahindra Satyam has bagged new deals from companies in the Asia-Pacific and Europe. Mahindra Satyam will now provide its services in the area of outsourcing related to enterprise applications, business intelligence and engineering services in these new markets.
2. Mahindra Satyam has entered into a strategic alliance with Australasia's information and communications technologies (ICT) provider Gen-I. This alliance with the local partner Gen-i will help Mahindra Satyam to explore the New Zealand market efficiently.
1. Mahindra Satyam has announced a global alliance partnership with Vision solutions, the leading provider of IBM solutions. This tie-up will enable them to leverage the growing market for HA/DR (high availability and disaster recovery) solutions by exploring new markets and supporting existing clients.
2. Mahindra Satyam would get 110 customers of Tech Mahindra's enterprise service business. This will help Mahindra Satyam to further new products and venture into newer markets.
Porter's Generic Strategies for Mahindra Satyam
In order to understand the competitive advantages for the new entity over the market leaders Infosys, Wipro and TCS I shall use Porter's Generic strategies.
1. Cost Leadership: Satyam has made use of predatory pricing strategies for business from 1 or 2 of its clients. With the financial backup of Tech Mahindra, Mahindra satyam can focus on better pricing. There will be increasing synergies and economies of scale in the long run.
2. Differentiation: With Tech Mahindra's track record and Satyam's expertise customers are definitely going to recognize the value created through the new identity and the imminent future merger of the two companies will let it create a niche position in the market.
3. Focus: through the takeover the new entity can target its existing customers in IT and with the impending merger with Tech Mahindra it will be a cohesive targeting of Telecom and IT.
The merger of Mahindra Satyam and Tech Mahindra will allow the combined entity to reap the benefit of the various synergies generated and propel the new entity to be the leader of the IT field in the Indian subcontinent. This strategic move may pave the way for the emergence of a robust brand, which draws from the core values of the Mahindra Group and the inherent strength of the Mahindra Satyam brand. However, key issues like conflict in projects and clients, roles of top management executives, redundancies and culture clashes will need to be addressed. Another big challenge would be to bring Mahindra Satyam back on the growth path. However, if Tech Mahindra's management team and Mahindra Satyam's top executives manage to address the problems and work together to reap the synergies, the future would certainly hold good for the survival and growth of the new entity and the parent Mahindra group.