Unifying strengths to e-biz, June 25, 2001

Deccan Herald
June 25, 2001

SPOTLIGHT / Jerry Rao has been successful in amalgamating two loss-making software companies into a single profit-making entity

TWO minuses combine together to make it a plus. This is not just pure mathematical calculation but it is true sometimes in business with MphasiS-BFL Limited being such a case in point. Yes, MphasiS-BFL Limited is one company which converted two loss-making entities into a profit-making venture in less than a year.

The new company was formed hardly a year ago by the merger of two firms - the California-based MphasiS Corporation specialising in web-integration architecture and the Bangalore-based BFL Software Ltd, which provided Unix-based client/server solutions, brought together by Barings, which held 52 per cent of BFL's equity and also a shareholder in MphasiS. At the time of the merger, both the entities were in the red. Post-merger, for the financial year ended March 31, 2001 consolidated revenues were $64.3 million.

Mr. Jaithirth (Jerry) Rao was named the Chairman and CEO of the new combined entity to address the high-growth 'interactive architect' segment. The combined company will sell software to help other companies bring legacy customer information systems onto the Internet. By 1999 end, privately held MphasiS had revenues of $5.6 million but had run into capacity constraints. "We needed an alliance with someone that could bring capacity and quality processes," Mr. Rao says. He knew listed company BFL Software was strong on the retail side.

"We could take our architecture and high-end development skills and combine them with their software skills," he says. Now, MphasiS-BFL helps clients draw up project specifications and then develop prototypes in India. Adds Mr. Jerry Rao (as he is popularly known in corporate circles), "We have been able to leverage the combined strengths, without diluting the expertise that the individual companies bring and still be in a position to address scalability and speed - two critical areas for success in providing e-business solutions."

Consequent to the transaction, MphasiS became a wholly owned subsidiary of BFL Software. BFL Software acquired MphasiS Corp, US for a consideration of about Rs 864 crore. The merger happened when the industry was witnessing a technology boom. With the company headquartered in California (USA) with divisions in Europe and Asia, Mr. Jerry Rao is enjoying the best of both of the worlds. Bangalore-born Mr. Jerry Rao (48) spends equal amounts of time in India - Mumbai and Bangalore and the United States.

His CV is typical to that of any CEO or a business leader. Armed with management degrees from University of Chicago and Indian Institute of Management, Ahmedabad, Mr. Rao is proud of building and developing consumer businesses of Citibank in India, Middle East, Eastern Europe, and UK as the country/regional manager.

He is also proud of designing global MIS System and as steering Citibank out of financial trouble as leader of one of the task forces. He was heading the Citibank's Development Division and was the Chairman and CEO of Transaction Technology Inc., and Head of the Global Electronic Cards Division until recently. Mr. Jerry has testified before the US Congress on e-Commerce on the legal framework.

MphasiS Corporation, an e-business solutions company was started by raising an initial investment of $4.5 million in October 1998 by Mr. Rao along with ex-Citibankers with considerable experience in retail banking, brokerage and cards. Mr. Jerry Rao hired 20 high-ranking former colleagues to a company with a 'double-barrelled name' and an admittedly humble-sounding mission of doing the 'plumbing' job behind the websites. Mr. Rao was head of Transaction Technology Inc., Citigroup's advanced-development centre in Los Angeles, before he struck out on his own in June 1998. He and Mr. Jeroen Tas, who had been chief operating officer of Citi's development organisation for global electronic banking products, set up MphasiS Corp in Santa Monica, California in the following October. MphasiS took the acquisition route for growth. It acquired divisions of various companies and also set up a subsidiary in Europe. Subsequently, the company did go in for two rounds of venture capital funding.

MphasiS-BFL is ideally positioned today to serve the industry and its global partners. It's mission is to build bridges; between clients and their consumers, between existing systems and new technologies, between older distribution channels and new generation platforms.

Mr. Rao says MphasiS-BFL's clientile list does not include the fast fading all-virtual dotcoms but brick and mortar companies that were extending their businesses across the Internet. The IT industry is changing so rapidly and unpredictably so. At the time when the IT industry is hit by the US slowdown, Mr. Rao says the slowdown has to be seen from a long-term perspective because the industry has seen a technology boom from 1997 to 2000, especially in 2000. "The growth rates which would be considered fantastic in some other industry is considered not so great in IT industry. The last 10 years has been a technology boom of unprecedented dimensions. These things will settle down after some correction. It is a temporary phenomenon that every industry undergoes. It is an economic cycle that happens everywhere. In a market-driven economy we could continue to see secular growth. It is good to cleanse the system especially when there is a boom."

The last 10 years of technology boom has thrown up new opportunities for Indians. But, Mr. Rao says, "India continues to remain a country of great promise and potential that somehow doesn't get fulfilled. Our reforms are half-hearted. If China can achieve 10-12 per cent, we should be able to achieve the same given the enormous human capacity for which we have to undertake real sector reforms. We don't have labour market reforms and real estate reforms in place. We do not have appropriate pricing for infrastructure - water, electricity, transportation. India does not boast of even a single world-class highway or an airport. We have not been able to change the law or create a legal structure for any of the market reforms to enforce contracts. We have also not been able to charge for public utilities and attract investment in infrastructure. If a rich country like US can achieve 2-3 per cent growth (because rich countries cannot grow more), India could easily achieve a sustainable growth rate of 10-12 per cent, as our per capital income base is small without harming environment. Airport corporatisation and airline privatisation has still not happened that continues to take up a huge amount of fiscal slack for us. If deficits of the Central and State fiscal accounts are added up, our deficit would be double digit as a percentage of the GDP. India is in a decision-making grid lock and a country of stay orders."

For higher growth he advocates, property rights, labour market reforms and contractual enforcements, real sector and human capital investment reforms ahead of even financial sector reforms and address issues of regional imbalances.

The last decade of economic reforms have fuelled growth in the Indian IT industry. "IT is one good thing that has happened. It is not a panacea and one should leverage IT as an opportunity rather than hold it as a panacea."

MphasiS-BFL seeks to remain a global, multi-cultural, solutions company and not a products company with focus on areas - front-end backend messaging system, due diligence on products, financial, logistics and technology.

What keeps Mr. Jerry Rao ticking? Says he, "I never think about it really. I do not have the time to sit back and think. One event flows out from another. There are frustrations along the way, but I am enjoying myself."

What does he consider as the secret of his success? Says he, "First of all, success is a relative term. I don't consider myself all that successful. I would ascribe it to two things: the right mentors at the right time; and good fortune or God's grace along the way."