Outsourcing: Raju Reddy, Chairman And CEO Of Sierra Atlantic (Part 2)

By guest author Tony Scott

Leveraging Customer R&D into Intellectual Property

Tony: What are the core competencies you are focused on, and what’s the value proposition that you deliver to your customers?

Raju: There are two segments to our business. One is outsourced product development for software companies, and that’s a fairly fragmented space. The largest companies are probably about $100 million, no bigger, not counting Wipro and HCL, both of which do some product development. We have historically done product development for enterprise software companies such as Microsoft and Oracle and a variety of late-stage venture-backed software companies.  Typically, we look at companies as a good prospect if they have at least  $20 million in annual revenue. Our clients range in size anywhere from $20 million to $1 billion and above.  This represents about 25% of our revenue.

Tony: The outsourced software product development?

Raju: Yes. And the other three-quarters comes from end customers where we are building business applications, doing maintenance, upgrades, and so forth.

Tony: So you are doing custom development or customization of applications that customers already have?

Raju: That’s right. Again, the basic idea is that we leverage the R&D work that we do for the software companies. When I say leverage, I mean that we have built some IP that we use as a differentiator. Most of that has been in the business process integration space.

A lot of our R&D work was for companies that have now become part of the Oracle family such as Oracle, Siebel, PeopleSoft, Agile, and BEA. These are all customers for whom we did significant R&D work, so we are in a unique place in the industry in that we have that history that we can take to our customers.  You know, it is a fairly large market that has picked Oracle as its core enterprise resource planning (EPR) or customer relationship management (CRM) system. So that’s the strategy.

Tony: So, basically, your positioning is that you’re providing product development services for the Oracle product ecosystem, and you’re also creating some custom IP that is helping to integrate the business processes that Oracle’s customers have into the Oracle family of software?

Raju: Yes, exactly. To give specific examples, there is one product that we developed called Supply Chain Network (SCMnet) that takes the bill of materials and engineering change orders from a PLM – product lifecycle management software, and moves that into your ERP system back and forth automatically. We have over one hundred customers we have been able to gain through that product. Again, we do not view ourselves as a software company, we are a services company, but we use that product as a differentiator. Otherwise, how do I compete with an Infosys or Accenture?

Tony: So you have created a niche in which you have stronger knowledge of how the products are built and how they are used than anyone else – and created some IP that can be re-used around that.

Raju: Yes. We are getting close to the $100 million mark and, frankly, we have been able to drive higher margins any public outsourcing company that is under $500 million in revenues.

Another more recent example of what we are doing in the productization of our IP is for something called BankON, which is a product that we have developed where we have some early customers. We essentially think of it as Internet banking for companies.  As individuals, we don’t even think about paying our bills over the Internet now. Almost all of us are used to doing it at home on the Web. We no longer write checks, most of us, but for companies, especially unless they are among the Fortune 500 where they have custom maps developed, the majority rely on a manual process. They still cut checks manually, and it doesn’t get necessarily get reflected in the ERP system. BankON is an out-of-the-box integration between the company and their bank. It could be Bank of America, Wells Fargo, or Comerica, whichever bank, and it works with the company’s ERP system, whether that is Oracle or SAP. Right now we are talking to five of the ten largest banks, and there is a lot of interest.

This segment is part 2 in the series : Outsourcing: Raju Reddy, Chairman And CEO Of Sierra Atlantic
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