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We have a three-pronged strategy of "build, buy and ally". We are building ferociously. We are buying as well as allying with several companies for our product suite.

Mr Rajesh Hukku, Chairman and Managing Director, i-flex solutions.

A SUCCESS story in the software products space, i-flex solutions hardly has any parallel in the Indian IT sector. Apart from being the torchbearer for the products opportunity, the i-flex story has also been a harbinger of several domestic and multinational companies to enlist and explore the product model. Operating currently in over 100 countries, i-flex's flagship product, Flexcube has seen strong client wins in the banking space over the past few quarters.

Speaking to Investment World, Mr Rajesh Hukku, Chairman and Managing Director of i-flex solutions outlines the company's vision, trends in the banking products space and how its services business complements the product model.

Excerpts from the interview.

i-flex has seen some strong product wins in the past few quarters. Is this a sustainable trend in the banking products space?

Three years ago, when we did our IPO, our average deal size was $1-2 million. In the last five quarters, in every quarter we have signed a deal that is 5 to 10 times bigger than our average deal size then. Take Lloyds TSB Bank in Britain, HVB in Germany or Banco de Chile at Chile that we have won. All of these are big deals. These deals are also complex, where we are competing with different companies in each of these countries, say with SAP in Germany, Fidelity and Fiserv in US or Temenos and Misys in Europe.

At the same time, some of the other things also matter such as what is your brand, what references you can give, how many stable installations you have and the overall effectiveness of your technology and functionality. We have a three-pronged strategy of "build, buy and ally". We are building ferociously. We are buying companies such as Super Solutions and Equinox Corporation among others. And we are also allying with several companies such as Peoplesoft, Reuters or Wall Street Systems for our product suite.

The in-house development units of banks have traditionally resisted this move towards packaged software. How are you changing this trend?

When banks typically do in-house development work, what they eventually do is outsource to India. That is why our services business is growing 70 per cent year-on-year and the trend is that we are growing the non-Citi business. We have also entered into the BPO area (through a recent acquisition of Equinox). So, the point that in-house teams will resist is a known fact as banking systems is quite complex. Even for Citibank, it took us four years to sell them Flexcube. On the other hand, if you look at companies such as Systematics, which has been around for 30 years or more, have been selling packages to all the large banks. Large banks such as Bank of America, JP Morgan Chase,

Citibank have been using their packages. So package selling has also been around for years.

How do you see your partnership with IBM to provide Flexcube on the DB2 platform shaping up and what are its implications for the US

market?

The alliance with IBM and their DB2 platform initiative is important for us to move to the high-end, tier-I retail banks. US continue to remain the biggest market for us overall, but I am not hung up on the US. As far as I can see, in Europe and Asia Pacific, the larger banks are much more aggressive in changing their systems. The large banks in the US are not showing the same level of enthusiasm in changing their legacy systems as compared to Europe.

Our view is that whenever the cycle turns, where large US banks are ready to replace their legacy systems, we should have a proven platform. Our Flexcube product that is available on the Unix platform will also be available on DB2.

If you look at i-flex closely, ours is a hedging strategy. Whether it is the geographical spread because in the products business, cycle is a big thing. The second is the technology hedging. I think the Unix/Oracle solution is powerful and will benchmark us against the best in the industry. The third aspect is the relationship with the largest player in the industry — IBM. Three years ago, IBM was working with all our other competitors, but we were not in that list. Now we have also entered that list and are aggressively co-marketing with them.

IBM is introducing us to global deals that we would not have known about in the past.

Can you spell out the strategy for getting the best bang for your buck from selling and marketing expenses, especially for the products business?

We clearly understood that we are not a billion-dollar company and marketing and sales can expensive. In the first few years, since 1992-93, we decided to spend 7-8 per cent on marketing, once we had matured to over $ 100 million, we will step up to 10 per cent and when we reached $ 250 million, we will raise it to 15 per cent of revenues.

So, in the last four to five quarters, we have a target that our total branding, marketing and selling expenses has to be 15 per cent of revenues and we have maintained that. In the five-year target that we have, we are not going much beyond that, as revenues will start kicking in. Second thing that we did was to work with alliance partners.

We have solid alliances with companies in 50 countries that are our exclusive partners. If you go to Poland, one of the largest companies, Computerland is selling and supporting Flexcube. In other countries, we have systems integrators, software or consulting companies that are selling Flexcube. For the last 12 years, we have slowly created this network and most of this is variable cost to us.

Three years ago, we started to globalising our sales and marketing force, with offices in Moscow or Beijing every other quarter.

In the high-growth markets, we are putting up our small sales offices and hiring one or two local people, with a few Germans, Austrians, Japanese and Koreans working for us. The third plank is the big boy worldwide alliance such as IBM, who were willing to be serious partners only if we do it on DB2 platform. We have very good relationships with HP and Oracle also in several countries. The fourth factor is branding, where we are bringing executives with several years of experience such as Mr. Dennis Roman, who is Chief Marketing Officer in the US and Mr Olivier Trancart, whom we inducted recently (as Executive Vice President- Global Sales).

How do you plan to kickstart the contribution of Reveleus, your business intelligence /analytics division?

In FLEXCUBE and services, decisions on product sales and outsourcing sooner or later get made. But Reveleus is like a pie in the sky, where deal sizes matter and the actual decision process gets lengthy. But what we are doing is being resilient on this division. We were selling Reveleus as a technology, but we could not sell it. Later, we sold it as a general-purpose data-warehousing tool, but even there we came close to deals, but it did not happen. Our biggest push is on Basel II, since it is hot and everybody has to do it like Y2K. Here we have proven to big banks that what we offer as frameworks is close to the solution. We are also beginning to sell Reveleus for profitability analytics. So, companies can buy Reveleus for different things such as Basel II, anti-money laundering, analytics or CRM. We are confident that Reveleus will work.

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