ARN: How would you describe your business operations, and how it has evolved from when you first started?
Baker: We are horizontally focused, with a sales force that sells generic services, and then introduces and identifies other opportunities outside the services area, which then introduces specialist consultants to our clients.
Systems integration is essentially where we started in 1992. We started as a Novell local area network consulting-type organisation.
As technology changes, we embrace new technology. Today, in systems integration, there's a host of services which we provide - typically focused in the technology consulting area, and according to the type of industry demand, we'll introduce various other services. Enterprise marketing, remote monitoring, remote managing of customer sites, the uptake of the Internet, and the whole range of security services, from auditing to implementation to consulting.
Why do you consider a horizontally focused strategy more effective?
There are two schools of thought. In the US, you have to be very focused, but the US market is an extremely large market, so you can have a billion dollars in revenue simply focused in one specific area. In Australia, where we first started, the market is extremely small. We cannot create a large, profitable organisation. You can certainly have a small, profitable organisation.
The other aspect is that our services are quite general. Although we have our own range of IT skills, we didn't start from an IT perspective, we started from a services perspective. Although it seems a little overwhelming when we first talk about it, yet when we go back to our initial definition, we have training, recruitment and then services.
Training and recruitment are run as independent organisations. But they are very complementary to each other.
From a services perspective, there are only two components to our business: systems integration and enterprise business solutions. Systems integration is the foundation and then from there, we have a bunch of services we then extract, challenge the business, and then create an application that sits on the infrastructure. So from our perspective, it's a good service to provide and it's a significant competitive advantage when we talk to our customers.
We are not vertically focused from an industry perspective, although we have tried to be vertically aligned. We'll have our sales and marketing attack a particular market. But our organisation as a whole, really looks at the market from a horizontal perspective. There's no specific market. Certainly when you look at banking and finance, manufacturing, insurance, and transport, they are all big industries. And in each of those industries we identify go-to-market strategies in each of those markets in those particular areas.
What would you say differentiates you from your competition?
One part of our business comprises the Enterprise Business Solutions Group. There are three components to their business. There's the services component, products component, and transactional component.
The services component is a range of technology services and consulting services. Essentially we start right at the top with business re-engineering, business consulting, and business analysis.
We work with the organisation at a very senior level, to identify business challenges and provide the technical solutions with regard to that, utilising a host of technology skills. Our skills range from mainframe, mid-range, to either Intel or PC-based skills. What we're finding is that a lot of organisations have an existing legacy-based system and they are not going to throw that out to embrace the Internet. What they want is someone who can develop middleware in each rack and process it. So we see that as a significant differentiator from our perspective.
How has your acquisition of Asian firms like CSSL extend your reach in Asia?
With the acquisition of CSSL, we got three areas of expertise: manufacturing ERP expertise, banking and finance expertise, and freight forwarding expertise. So that's where we saw the marriage work - where we can extend the services we have in Australia into various Asian cities and extend those capabilities in those locations.
On the other side of the spectrum, there's a bunch of services like banking and finance, freight forwarding and various other services that we are extending to Australia. For instance, training has been extended into Hong Kong and we are running our first boot camp course here.
We've got ASP capabilities in Singapore through an acquisition and some implementation of our services. We've extended the mid-tier accounting ERP software into Malaysia; we've won about five deals in that area where we'll embrace some of the ASP capabilities. So that, really, at a very high level, is what our strategy is - to extend those capabilities and services into those particular locations.
What other acquisition targets do you have in Greater China?
Where we're weak in Asia is in the business consulting space. We have, in specific areas like manufacturing, been doing ERP there for quite some time, but we have not made any substantial or numerous acquisitions in that area. So that is an area which we need to put more energy into.
Also, e-business is an ever-evolving area. It's not necessarily the lack of expertise, but the lack of capacity. And the quickest way to get capacity is to acquire versus employ. So it will not be unusual for us to make a number of acquisitions in and around the Asian area in the consulting and e-business space. These are the fundamental components in our transactional business as well.
Why the move to acquire so many companies in Asia?
We've made, in the last eight months, 19 acquisitions. However, a lot of acquisitions were small in magnitude. Six were less than half a million dollars and the largest cost about $10 million.
The competitive advantage here is the quality of people. If we want to go up the value chain and embrace management consulting, we can go out and hire an Ernst and Young person, and pay them $200,000, and over 12 months realise that failed.
The other alternative is to spend a million dollars and buy a small consultant firm with ex-Ernst & Young and Anderson Consulting people to bring across customers and a methodology and that's much more successful. We've used our acquisition strategy to buy good people. Today, 70 per cent of our management are people that we acquired.
Is there any particular focus that Powerlan has in Asia?
Transactional business. This is not necessarily an Asian focus, but more of a company focus. The corporate aim is to add value to our business and one of the best ways we can do that is to develop products, which gives us recurring income and there's a lot of effort that's put into this.
In the ASP area, which is anticipated to grow, we already have paid customers in Singapore. We've partnered with Singapore Telecom for the provision of these ERP-type products. We're developing, with another Australian-listed company in the US, a videoconferencing ASP service which we will launch throughout the Asia-Pacific. So everything we do has an Asia-Pacific flavour - it's not just Australia - and it's not just Hong Kong.
What are your plans looking forward?
Our strategy is to essentially undertake work in various levels of what we call the IT value chain. The most important element is to drag our organisation up the value chain and undertake projects that are consultative, and drag in all the rest of the other services.
Our intention is to move up the value chain. A lot of acquisitions we've made have been right up at the top of the value chain, to the extent we've bought small, management-consulting-type organisations that have had employees from Anderson, Ernst & Young, Deloitte, and the likes of those.
What are your customers asking for?
Our customers are asking for us to do more things. They want us to take the responsibility with the package we provide. They don't want us to develop the applications only. They want us to implement it, support it, and outsource it. So really, if you look at our model, it's probably closer to the EDS model, or the IBM Global Services model. But we don't see ourselves competing with those companies. We see our clients as being the mid-sized corporations, which are still essential customers and there is enormous opportunity.
Is there a difference between what customers want in Greater China as opposed to elsewhere in Asia and Australia?
The demands of clients are pretty similar. It's really the rate that technology is taken up. And from our perspective, that's good. Australia is a bit of a testing ground for some of the products out of the US and Hong Kong is a great adopter of technology. So it means we can get our hands real dirty early and then by the time we're extending out of the country, we've got models, and systems, and a process to extend the services, so it's very advantageous for our customers.
What kind of challenges do you face when localising your offerings for a particular market?
As an Australian company, our biggest challenge was the cultures throughout Asia. And because many of the Americans and Australians, and Europeans, view Asia as a whole, many have failed doing business here.
We provide services as Powerlan, a truly Australian organisation, on a fly-in and fly-out basis and our listing process was to raise money to expand into Asia. The advantage was establishing relationships and ultimately acquiring companies, which have long-term presence in each particular country. And the greatest advantage it gave us was overcoming the cultural challenges.