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i flex solutions: winning unconventionally

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i-flex solutions limited (A):

Winning Unconventionally

J RAMACHANDRAN AND PRANAV GARG

J Ramachandran, Professor of Strategy, IIMB Chair of Excellence, and Bain Fellow, and Pranav Garg, Assistant Professor of
Strategy, prepared this case for class discussion. This case is not intended to serve as an endorsement, source of primary data, or
to show effective or ineffective handling of business decisions or processes.

Copyright © 2016 by the Indian Institute of Management Bangalore. No part of the publication may be reproduced or
transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise (including internet) –
without the permission of Indian Institute of Management Bangalore.
i-flex solutions limited: Winning Unconventionally

August 2005. Oracle Corporation, the US software giant announced that it would acquire Citigroup’s
41% equity stake in i-flex solutions limited (“i-flex”) for $593 million. Oracle’s offer to buy an additional
20% stake as mandated under Indian law, if successful, would involve a further investment of $316
million and give it a controlling stake in India’s largest applications software company. Larry Ellison,
Oracle CEO said:i

i-flex is the hottest software company in the banking industry, signing more customers
than any other banking software company in each of the last three years. Banking is a
strategic industry for Oracle with nine out of the top ten banks already running Oracle
ERP applications. Oracle’s overall application strategy is to go beyond ERP and offer
customers richer industry-specific functionality. i-flex gets us there in banking.

With 600 banks as customers in 120 countries, revenues of $261 million in revenues, and profit of $46.6
million in FY2005 (Exhibit 1), i-flex was best known for FLEXCUBE, the world’s number one selling
core banking solution. In 2003, Economic Times, a leading Indian newspaper, selected i-flex as the
emerging company of the year. The same year BusinessWeek recognized Rajesh Hukku, Chairman and
Managing Director of i-flex, as one of 25 “Stars of Asia”. Commenting on the deal, Hukku said:

We have enjoyed a long, highly successful partnership with Oracle, and this transaction
will be a logical evolution of our relationship. Aligning with Oracle, we can jointly offer
an unmatched value proposition to our global customers with truly integrated solutions
across the front, middle and back office.

Charles Phillips, President at Oracle, and a member of the i-flex Board of Directors after the acquisition,
added:

I see a lot of similarities between i-flex and Oracle. The first is passion to win. And I saw
the same passion at i-flex. The second thing I saw is a winner—someone who is
unconventional and says: “There is a way to do it and it can be done, I don’t care if it has
not been done in the past.” The third was is the commitment to customer service and
ensuring that customers get value for their investment. I think that the Oracle and i-flex
partnership is going to be great. It is going to change the entire industry. It has taken time
for the industry to come to common standards but we are there now. We are going to take
our applications forward to the standards-based world. We want to provide our customers
with systems that give them better information at lower cost and fundamentally change
the way businesses are run.

Hukku realized that the acquisition of a strategic stake by Oracle could dramatically accelerate the growth
of the company he had led since its inception. He was aware the deal could help it achieve the ambition of
becoming the fastest Indian IT firm to reach a billion dollars in revenue, much before the existing record
of 21 years. A cricket aficionado, Hukku said:

After scoring a century, a good batsman takes a fresh guard, as if starting from zero. That
is the kind of sentiment that I have now and that is what I am trying to communicate to

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i-flex solutions limited: Winning Unconventionally

the people. The Oracle transaction has fundamentally changed two things for us. First, the
unwillingness of many top tier banks to work with us because of our old ownership
structure goes away. Second, it gives us reach. There are over 8500 banks out there—
about 15 times our current scale—that are potential customers for us. We could not have
reached all of them on our own.

FOUNDING THE COMPANY

Citicorp set up Citicorp Overseas Software Limited (COSL) in India in 1985 with the mandate of
maintaining and supporting the implementation of Cosmos, Citibank’s banking software solution
developed in the late 1970s, across the bank’s global operations. One of COSL’s projects was to
reengineer parts of Cosmos and develop a Unix and a local area network version of the solution. The new
version, branded Microbanker, was then rolled out across 45 sites within Citibank. Over the next few
years, COSL became one of the systems development centers for Citibank’s global operations. It also
started selling Microbanker to a few external clients.

In the early 1990s, as Citigroup was focusing on strengthening its core business, it decided to make COSL
an in-house development and support arm and to spin-off the small business catering to external clients
into a separate entity called Citicorp Information Technology Industries Limited (CITIL). Citibank also
invested $400,000 as seed capital in the new entity. Rajesh Hukku, then a COSL regional manager based
in the United States (US), was chosen to lead the new venture.

Hukku had, by then, spent 13 years in the software industry, initially at Tata Consultancy Services (TCS),
the Indian software major, and later at COSL. During this period, he had worked on software projects
across different industry verticals in various countries. He said:

In one’s life, one has to be fortunate to be in the right environment. I had the opportunity
to work with brilliant people all through my career. At TCS, I realized the potential of the
Indian mind and work ethic. It got reinforced at COSL, where I met highly talented
people like Ravisankar. Sadly, despite the talent, we were not getting our place in the sun.
I repeatedly saw our capability being sold short. We all would sit in pubs of New York
and ask ourselves: “Why are we underselling ourselves?” When I was asked to head the
new company, I accepted because it gave me the opportunity to build a company that will
be very different from others.

The employees of COSL were given a choice to remain with Citibank’s in-house arm or join the new
start-up. The CEO of COSL and Rajesh Hukku made presentations to the employees about the vision and
future plans for the respective companies. R. Ravisankar, CEO (International Operations and Business
Development) said:

The upshot of that exercise was that the more risk taking and entrepreneurial people
joined us in the new company.

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Guiding Principles

Hukku and his team outlined three guiding principles for the new company. The first was a focus on
“domain expertise and specialization”. Ravisankar explained:

When you are a “generalist” you are treated as a “resource”. We had all gone through the
experience of being bodies that had been shopped because we were a “Jack of all trades
and master of nothing”. That is something we did not want to do in this company. If you
really want to differentiate and sell based on value and not on cost, then you have to have
some kind of expertise. You cannot be an expert in everything. So the first decision we
took was not to build a generic horizontal services company, but instead build something
that is specialized. There is nothing wrong in doing the services business per se but our
go-to-market is on the platform of domain expertise.

The real test came when we were faced with the Y2K opportunity. It came at a very
sensitive stage in our life as a company. There was a big debate internally whether we
should take this one-time opportunity and make $15 million of revenue by deploying the
150 people—pretty much half the company at that time—working on product
development. Y2K would have helped us double our revenues. But we decided that it will
completely destroy what we started off to do. So we did not do a single man-day of Y2K
work at that critical time.

The second principle was to “think and act global”. Hukku said:

We were not being courageous. At one level it was all passion. But at another, we knew it
was possible. Soon after joining COSL, I had gone to attend a conference in the US. A
lady speaker was illustrating her argument with the aid of a case study on how the whole
model of outsourcing was creating a revolution. She talked about how three Indian
engineers had created an interesting product that enabled brokers to get all the relevant
data on a single terminal rather than see multiple terminals. As she described the product,
I realized that I was the leader of the team that had written the code! Without realizing,
we had created a product. It was just a “project” for us. Our client—a small start-up
company out of Silicon Valley—had sold the product in many markets around the world
and Reuters eventually acquired it for several million dollars! It then hit me: “My God,
without realizing we had created a product that was being sold globally.” Of course it
had undergone many refinements but at the core, it was what we had developed; yet our
company got very little of the rewards because it did not conceptualize or own the
intellectual property rights. We did not want to repeat that mistake at i-flex.

The third principle was “customer focus”. Hukku asserted:

Every good company says that it is customer focused. But often it is merely a feel good
statement. The strategies of the company are far from the customer. We did not want that

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to happen at i-flex. We said that our mission is to make financial institutions excel in
their business. And even today it is the same mission.

GROWING THE COMPANY

The new company began operations by developing and selling Microbanker, the product it had bought
from COSL. It first focused on improving market share in Africa. Ravisankar said:

Going to Africa was cost effective for a small company like ours. Moreover, the thought
of using a software product developed in India for running core banking operations was
not so counterintuitive in Africa. Microbanker was a functionally rich system. It was
perhaps a bit archaic technologically, especially if viewed from today’s standards. But for
a small bank, it was a pretty cost effective solution. Another advantage was that our
competitors were not even looking at these markets in those days. We were very much
under their radar (Annexure 1).

Initially, the company served these markets by flying out teams from India. Soon, it supplemented the
“fly-in, fly-out” model by entering into partnerships with IT companies/distributors in the countries it
served and started offering immediate help by establishing local support centers. For providing higher
levels of support, the company set up state-of-the-art facilities in Mumbai and Bangalore that supported
all global sites on a 24 × 7 basis. The company also strengthened its customer interface and marketing
efforts by organizing periodic user meets.

Microbanker quickly emerged as a market leader in Africa. The company then started targeting small
banks in Asia-Pacific, Middle East, Caribbean, and Eastern Europe and gained share in these markets.
Even though the primary focus was to sell Microbanker, the company also provided consultancy services
to its customers. In one instance, it set up the entire IT department for a bank and also helped with
recruitment and training of the staff. By 1995, Microbanker had emerged as the world’s top selling
corporate banking solution. However, the company had little or no presence in the advanced markets of
Europe and US. It could not participate in the US market due to the restrictions imposed by Regulation K1
and its limited forays into the European market met with failure. Ravisankar said:

We burnt quite a sum of money, which was significant for a company of our size in those
days. We just did not have the credibility, the brand and in all frankness a product. We
then set about addressing all these. We began with the product.

Developing the Product

The company set up a new product development (NPD) team comprising both technologists and bankers
with a mandate to develop, ground up, a product that would help banks the world over to compete

1
Regulation K, under the Bank Holding Company Act of 1956 and the International Banking Act of 1978, prohibited a US bank holding
company from investing in a non-US company engaged in any business in the US (other than with its affiliates) or engaged in data processing
activities outside the US other than those related to banking, financial or economic data. The Gramm-Leach-Bliley Act in November 1999
amended Regulation K after which i-flex established presence in the US.

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effectively in the rapidly changing business environment. Competitive pressure was forcing banks to cut
costs and improve operating efficiency even as their customers were becoming more demanding in terms
of service. To increase profits, banks had to devise ways to acquire more customers, differentiate between
different types of customers, and cross-sell different products to them.

The NPD team approached the task of developing a new generation solution systematically. It first
defined the desired functionalities by reviewing all the customer requests for proposals (RFPs) the
company had received in the past. It also collected structured feedback from customers about gaps in
Microbanker and from partner companies about the problems they had faced while implementing it. In
addition, it hired consultants to survey large banks in Europe and collect information on their expectations
from a core banking solution.

After much analysis, the team opted for two major departures from the conventional architecture of a core
banking solution. The first was a move from the traditional “account-centric” system to a “customer-
centric” system. Ravisankar explained:

In the conventional system, if a customer wanted to open a savings account, the bank
would open a savings account and then fill in the customer’s details. The product was the
primary entity and the customer was subsidiary to the product. Thus it was very difficult
for the bank to track customers and their behavior across multiple products. We turned
the traditional system on its head and made the customer the primary entity and the
product subordinate. That was a great strength because banks could now have a central
customer file across all accounts and different product lines. They could now track
customers instead of accounts and do several things, which they could not do before.
They were able to detect if a customer had a huge deposit and offer better lending terms.
Adding that intelligence in the system was the fundamental architectural change we
made.

The second departure was the decision to capture the common elements across the various product
offerings of a bank and build them as common service layers that could be leveraged across various
products. Ravisankar said:

Consider two of the staple products—a deposit and a loan—of a bank. The products by
themselves are diametrically opposite. But if you break them down, there is a surprising
amount of commonality in the components of the two products. Take interest
computation. You need to do that for both products. Traditionally, the loan interest
calculation was built into the loan program and the deposit interest calculation was built
into the deposit program. We took interest computation out and built it as a common
service layer and parameterized it. The engine needs to only access the requisite
parameters like rate of interest, mode of computing interest, interest moratorium period,
if any, etc. It will then compute the interest amount. It does not know whether the interest
is being calculated for a loan or for a deposit. It sounds simple but it is very powerful.
With parameterization we reduced the bank’s lead-time to launch new products from
about nine months earlier to less than two weeks.

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The team also debated whether the architecture of the new solution should be multi-lingual and multi-
currency. Joseph John, Executive Vice President, Universal Banking Products recounted:

Part of the team questioned the need for a multi-lingual system since 80% of the market
is English speaking. Others raised concerns about increased cost and development time.
While converting a single language system to a multi-lingual system was expensive but
not difficult, changing a single currency system to a multi-currency system at a later stage
meant virtually rewriting the system. After many heated discussions, we decided to
develop a multi-currency multi-language system because it would enable us to sell the
product all over the world.

For developing the solution, the company took a stance against the mainframe technology and decided to
use Unix; however, once again, not before some intense debates on this issue. The choice of the database
was yet another contentious issue. Ravisankar recalled:

At that time, the newest technology was Object Oriented database. We started the pilot on
Gemstone, one of the two Object Oriented databases available at that time. But at a
design review, doubts were raised whether the customers, who were a conservative lot,
would prefer “bleeding edge technology”. We then had a stormy internal meeting with
the technical team that wanted to stay course. But we finally decided to go with the
Oracle relational database. The technical team was slightly upset since this decision was
not fitting the latest buzz. But going to the market with a new product on a brand new
platform, which most bankers had not heard of, looked like a losing proposition!

Yet another distinct feature of the product design was its modular structure with a common core and
separate functional modules focused on different operations of a bank. Hukku explained:

FLEXCUBE is actually a family of solutions that integrate with each other out of the box
but they can operate on a standalone basis and solve a particular problem. We have
FLEXCUBE Retail, FLEXCUBE Trade Finance, FLEXCUBE Treasury, FLEXCUBE
Investor Services, and FLEXCUBE Consumer Lending, etc. Then there are certain core
things like the general ledger, risk management, messaging that are common across the
entire suite. A bank can just take the treasury suite and attach it with the common things
to run its treasury operations. Later it can add the trade module, and it will work off the
same customer database. In large banks, the corporate and consumer divisions are
effectively like two separate banks. If we tell a large bank that it has to replace everything
if it wants to buy our product, then it is a non-starter. On the other hand, for a small bank
with a billion dollars in assets, we offer the complete solution.

Midway through the development phase, the company encountered a new challenge. Everyone in the
technical team wanted to work on the new product. The company found it difficult to motivate the
technical team working on Microbanker to sustain its efforts and lost a few of them to competition. It then
merged the hitherto separate teams and started the practice of rotating people across the two products.
This delayed the development effort, causing frustration and concern over budget overruns. All these

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challenges notwithstanding, the product was eventually released in November 1997 as FLEXCUBE –
Flexible Comprehensive Universal Banking Environment. Within 3 months, the company got two
customers for the product: Rabobank of Netherlands and HDFC Bank in India. While the Dutch bank
chose FLEXCUBE for deployment in its Turkey branch, HDFC replaced Microbanker with the new
product.

Marketing FLEXCUBE

To create visibility for FLEXCUBE, the company started participating in banking and technology
exhibitions. It also conducted targeted marketing programs in different countries, often in association with
members of its local partner network that it had set up to support Microbanker. In addition to front-ending
the sales effort, these partners participated in the customization and implementation effort (Exhibit 2).
The company also entered into alliances with global IT majors such as IBM and Hewlett Packard (HP).
However, it soon realized that to succeed in a competitive market, it would have to strengthen its direct
sales effort. The company started establishing subsidiaries across the world – in Amsterdam for Europe,
in Singapore for Asia-Pacific, and in the US for North America. To improve market coverage, it opened
branch offices in Tokyo, Shanghai, London, Frankfurt, Boston, New York, and Miami. Ravisankar said:

Alliances work if you are successful! You need alliances but you cannot rely on them to
make you successful. People partner with you to make themselves successful. A partner’s
salesforce is not going to take an unknown product and try to sell it because they are not
in the business of trying to make you successful. Nobody in the world—whether it is HP
or IBM—is going to help you unless you do a good job yourselves. But you can rely on
alliances to accelerate your success.

Simultaneously, the company strengthened its go-to-market strategy by changing the format of its user
meets (later branded as Financial Services Leadership Summit). Peter Yorke, Vice President, Corporate
Communications, said:

We took feedback from the participants in the first two user meets. They told us that they
didn’t want to know only about our products. They wanted to know about the industry,
market trends, etc. They also wanted some fun. So we redid the whole model. We got the
IT majors and analysts from Gartner to present. We consciously kept our own
presentations to a minimum. We also organized the meet in Goa instead of Bangalore.
We transformed the whole thing. One of our partners from Oracle said that it was like an
Oracle meet with a lot of razzmatazz and jazz.

Ravisankar added:

Over the years these meets have become knowledge-sharing platforms. Today a wide
range of people from the financial services and technology industries participate in our
user meets, not just our customers. It is more like an industry forum with everyone
wanting to update themselves with the trends in the world of banking and technology.

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The company’s marketing efforts started paying off. By the end of the millennium, FLEXCUBE had 40
customers. Paradoxically, Citibank, which had the largest shareholding in i-flex, was yet to become a
customer. Eventually, Citibank became its 42nd customer in 2001. However, before that, the company
changed its name from CITIL to i-flex solutions limited. Hukku explained:

We had invested a lot of money in creating the FLEXCUBE brand. We wanted to

leverage it. Secondly, the CITIL name was invoking mixed reactions in the market place.
Many prospective customers were wary of dealing with us. They thought we were part of
Citicorp. They were not satisfied with our explanation that we were an independent
company and Citibank was only a passive investor. So we thought it best to change the
name.

Soon thereafter, Citibank decided to replace its old Cosmos system with FLEXCUBE, a decision that
would catapult the product to market leadership.

Market Leadership

The Cosmos system had served Citibank well. However, over the years, the system had become rather
unwieldy owing to individual country-level adaptations2 and had become expensive to maintain.
Following regulatory changes, the opportunity to centralize the bank’s back-office operations in Europe
provided an impetus for change. Citibank planned to set up one back-end office in the United Kingdom
for the entire continent with only sales and marketing front-ends in each country. This set-up required a
technology platform that would seamlessly support multi-language and multi-currency operations.
FLEXCUBE was preferred over an in-house option. Ravisankar said:

The IT team wanted to build the system in-house. They needed about five years to build
it. But the European business head wanted to roll out his plan fast. Since our solution was
ready, they were willing to try us out in Finland. We made Finland run in six months.
Then they said Finland is too small, let us try another country. We did that too. By then
the European business head got excited, so he made it happen. Within a year, we had
rolled out FLEXCUBE in five countries.

Concurrently, a new management team took charge of the Global Corporate Banking operations in New
York following Citicorp’s merger with the Travelers Group. The success in Europe prompted the new
team to use FLEXCUBE in all countries except the US.3 Ravisankar said:

The Citibank deal was a major inflection point. The biggest barrier to entering any
country with a new product is the need for a reference customer. Every bank wants to see
the product in operation in their country. With that one deal we broke that reference
barrier for probably 100 countries.

2
In 2001, the bank’s global subsidiaries were using 59 versions of the Cosmos application.
3
In February 2005, the US corporate division of Citibank also adopted FLEXCUBE.

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i-flex solutions limited: Winning Unconventionally

Several notable deals followed. By 2003, just 5 years after its launch, FLEXCUBE was ranked by
International Banking Systems (IBS) as the top selling universal banking solution in the world for 2002
(Exhibit 3).

Growing Services

At inception, i-flex set up a services arm, later branded as PrimeSourcing. Hukku explained:

We had services as part of our portfolio because we needed to provide banks a

customized solution rather than a shrink-wrapped product.

The services business grew rather slowly in the initial years, in large part because of the restrictive
provisions of Regulation K. Additionally, at the time of the spin-off, Citibank had imposed the condition
that i-flex could not approach it for services anywhere in the world. As a consequence, i-flex focused on
building its services business outside of the US and outside of the Citibank world.4 i-flex also set up
Centers of Excellence (CoE) in technology and business domains of strategic importance to financial
institutions. While the Business Intelligence CoE focused on data warehousing and business intelligence
needs of clients, the Customer Relationship Management (CRM) CoE concentrated on CRM applications,
and the Payments CoE focused on integrated payment solutions. To help banks and financial
institutions enhance their competitiveness, the company set up i-flex Consulting in 2000. Staffed with
experienced bankers, technologists, and management consultants, the consulting arm helped foster
relationships with a client’s top management. Ravisankar said:

Today, in our space, we have a strong and credible brand. We are winning against well
entrenched competition including Accenture and McKinsey. We recently won a deal in
Saudi Arabia where we were head-to-head against McKinsey.

More importantly, the services business started complementing FLEXCUBE’s journey towards market
leadership. It facilitated both customer acquisition (through cross-selling) and product development. For
example, the FLEXCUBE deal with Union Bank of Switzerland (UBS) was partly enabled by the strong
relationship that the i-flex services team had built with the bank. Similarly, the first version of the investor
services module of FLEXCUBE was a direct outcome of a bespoke development effort of the services
team. Hukku said:

We did an assignment for a mutual fund client in Thailand under our consulting arm. No
one in the market had a solution that the client wanted, so we built a system for the client
in twelve months. We then put forth a proposal to the client to pay back the investment
over time, in the form of a license fee, in return for transfer of the Intellectual Property
(IP). The module is now becoming a booming line of business under the FLEXCUBE
umbrella.

4
While Citibank did not engage i-flex, it did not work exclusively with COSL either. It worked with other third-party service providers, including
some of the Indian software services majors. i-flex then appealed to Citibank to repeal the original condition. Citibank agreed after protracted
negotiations.

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Even while it managed to harness the synergy between the products and services businesses, the company
took great care in managing them separately. Ravisankar explained:

There is a clear demarcation of the two businesses and we never cannibalized one for the
other. We have never taken a bunch of people from the services business and put them on
the products side or vice versa. Here our approach is very different from that of other
Indian software majors who also tried to build a product. Most of their attempts failed
because they sought to utilize the spare capacity in the services business to build
something, which they may be able to sell. As soon as the spare capacity disappeared,
they went back to the services business. Our approach to building the product was
different due to our strategic intent. Second, our services business is complementary to,
not competing with, our product business. Third, I guess, we manage our company
differently. We are creating a lot of formal processes to create informal networks so that
we can be more responsive to market needs and make things happen fast.

STRENGTHENING THE COMPANY

By 2001, i-flex had reached a critical stage in its growth. To fund its growth plans, the company made an
initial public offering (IPO) in June 2002. The issue – an offer of 10% of the equity base5 – was a
resounding success. Hukku and his team then set about strengthening the company’s position in the
market place.

Building Partnerships

The wins at Citibank prompted HP, the global IT major, to convert its loose marketing tie-up with i-flex
into a formal global co-marketing agreement. In turn, that prompted IBM to enter a global alliance with i-
flex in late 2003. Under the terms of agreement, i-flex was to port FLEXCUBE in a phased manner onto
IBM’s middleware WebSphere and its database platform DB2. IBM was to play the role of a system
integrator – front-end the customer acquisition effort, provide the requisite hardware, and take the lead in
software implementation – in select deals.

i-flex enhanced its value proposition further by partnering with other product companies and offering
their products as part of its solution to clients. In some instances, i-flex, even if it had its own product,
offered a rival’s product if it suited the customer’s requirement better. To large banks, for example, the
company offered the more sophisticated CRM packages from Siebel or PeopleSoft, even though it had its
own CRM product. Hukku explained:

To achieve our mission, we put in place a build-buy-ally strategy. We build products. We

buy products or take strategic stakes in companies that are complementary to our product
offerings. Where neither makes sense, we ally. Our strategy is to paint the whole canvas
so that there are no white areas left.

5
Just prior to the initial public offering in 2002, the equity was divided as follows: Citicorp Technology Holdings Inc. (48%), Citibank and
Citigroup employees (40%), and Employee Stock Option Trust (12%).

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Making Acquisitions

In December 2003, i-flex acquired SuperSolutions Inc., a New York-based company that had developed a
consumer-lending suite. A year later, it acquired Equinox, a US company with a knowledge process
outsourcing (KPO) arm in India. Equinox provided services to mortgage institutions, auto financiers, and
credit card companies. Simultaneously, i-flex picked up a 33% stake in Login SA, a French company with
a product called Acumen for specialized front and mid-office treasury solutions. In May 2005, i-flex
bought a 34% stake in Castek Software, a Canadian firm providing insurance systems for property and
casualty insurance industry. In June 2005, i-flex acquired the IP rights for ORTOS (Operational Risk Tool
Suite) from Capco, a Belgian company. Ravisankar said:

Our acquisitions are a combination of strategy and opportunism. We have a strategy

matrix that maps the financial services space by functional segment and by type of
offering (packaged/services/consulting/BPO). For each cell, colored differently to
indicate priority, we have a build-buy-ally analysis. In terms of execution, it depends on
what is available. SuperSolutions was opportunistic in the sense that the CEO called me.
We saw Equinox and liked it. Their business model had IP content. Today, we are one of
the few companies in the BPO space who also have our own platform to do the actual
processing. We can generate much higher margins by consolidating the platform.

Thought Leadership

In 2002, the company launched Reveleus, a suite of analytical applications in the areas of risk
management, customer insight, and enterprise financial performance. Sensing the growing need for better
operational risk management among financial institutions, the company started developing business
intelligence and data analytics applications to help them strengthen their decision-making processes. The
Reveleus suite took on a new level of importance following the Basel II Capital Accord that extended the
earlier risk and capital management requirements for financial service providers. Gartner Group, the
world’s largest IT research and advisory firm, rated Reveleus as a leader in this space (Exhibit 4), ahead
of similar offerings from IBM, SAP, and Oracle. Hukku said:

In a small way, we are the ghostbusters for compliance. i-flex Consulting has worked
with institutions such as Citigroup, IMF, and Lloyds TSB and provided them consulting
help on SOX compliance, Basel II, and anti-money laundering. Who would ever imagine
an Indian company advising these hallowed institutions about compliance? In the last few
years, we have created an end-to-end compliance engine from product to consulting. The
Big Four consulting firms are paying to get trained on Reveleus, so that they can use it to
create solutions for their customers.

MANAGING THE COMPANY

At the time of founding the company, Hukku and his team had an unwritten objective of creating an
organization that was an “open, collegial, non-hierarchical organization – a place where issues and not
personalities dominated discussions”. Hukku explained:

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i-flex solutions limited: Winning Unconventionally

I am very much a people’s person. With people and relationships, I am not capable of
taking too much risk. But I am radical with ideas, competition, and expression of thought.
We communicated that everyone’s ideas were welcome, irrespective of seniority. This
often led to heated arguments and free-for-all meetings. But the counter-balance of that
democracy is the passion and commitment among our people. Nobody in the company
was, or should ever be, in doubt about what we are trying to accomplish. Nor is there any
doubt about our culture.

Managing Operations

The company began operations with all the functional heads reporting to Hukku. However, soon the
company set up an Executive Management Office (EMO) comprising Rajesh Hukku, R. Ravisankar, and
Deepak Ghaisas (who joined the company in 1993). As Chairman and Managing Director, Rajesh Hukku
was responsible for strategy, board management, and revenue generation; as CEO, Ravisankar headed
development, services, and products; as CFO, Deepak Ghaisas was in-charge of finance, legal, risk, and
other support functions.

Initially, the company staffed its subsidiaries and other international offices by seconding people from
India. Later, with a view to develop a superior understanding of local regulatory requirements and to
overcome local language related challenges, it started hiring people locally for the sales, support, and
implementation functions. However, the company was clear that India would remain the focal point of its
software development effort. Ravisankar explained:

One of the advantages that we have is that we have grown up as a software company
based out of India. Our inherent cost structure is much lower. Our R&D cost, for
example, is 25% of the equivalent R&D cost of a competitor in the developed market.
Apart from cost, we do not easily get the quality of people and the work ethic of people
that you get here, elsewhere. We are very process-oriented. No one is near us in terms of
process maturity, especially our major competitors. We are perhaps the first commercial
software product company in the world to attain the highest levels of certification for its
quality processes.

Embedding Process Orientation

In its first year, the company set up a Software Engineering Process Group (SEPG) and gave it the
mandate to achieve highest quality levels in processes and products. Ravisankar said:

The risk associated with having a bug in the software is very high. Compared to making
one customer unhappy if there is a problem in a project in the services business, here you
run the risk of making 100 banks unhappy if the software has a bug. Quality on the
software side is not just a nice-to-have selling factor but it is part of the survival strategy.
With us, quality is very much a top-down driven effort.

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The SEPG defined the software development life cycle processes and standardized them for both product
development and services. It routinely piloted new processes in the company, often after consulting
domain experts. An independent Software Quality Assurance Group (SQA) conducted periodic audits to
ensure process compliance. Joseph John said:

Our strong process orientation is one of the reasons for our outstanding track record of
implementation. We have had only one implementation out of 260 in 95 countries that
has not gone well. Even in that case, it had less to do with us.

To ensure that its product offering was state-of-the-art, the company followed a structured product
management process. For example, it developed a standard template for handling product upgrades, a
critical activity in a software product company. A product management team continuously tracked the
developments on the customer, competition, and technology fronts. Based on its analysis, it recommended
changes that needed to be made to the product groups. The product groups, in turn, classified the
suggested changes into three categories: customer-specific, region-specific, and generic. Typically, mid-
year releases had a smaller number of changes. The annual release carried the largest chunk of new
features. Joseph John said:

It is fairly complex. How do you make sure that you maintain a common source code
across all customers even as you are making changes to the code at the site? Moreover,
changes are happening to the same piece of software in different locations
simultaneously! While a bug is being fixed at the customer site, how do you make sure
that the next release of the software that is being built here in India is not carrying the
same bug? To deal with such challenges, we have developed a rigorous set of processes
that enable us to achieve these rather efficiently.

As its operations grew in scale and scope, the company felt the need to create a function that would
centralize and leverage knowledge from both external and internal sources. The Knowledge Management
(KM) function was created around 2001. The team set up an online repository called Qu-Base, which
contained details of all past and ongoing projects. A project was not deemed to be complete until all the
relevant information, including tacit insights, was uploaded onto the Qu-Base.6 Project teams, located
anywhere in the world, could access the database for help. They could also post a question on the K-
Forum, a sort of modern day blog, and receive replies from colleagues across the world.

Globalizing Management

Concurrent with the globalization of its operations, the company started recruiting foreign nationals at
senior positions, albeit in small numbers. They had worked with i-flex while at partner companies or
came through referrals. The induction of people in senior positions from “outside the family and country”
caused anxiety to the management team in India, especially among those who had been associated with
the company from inception. The issue was quickly resolved when the EMO brought the newly appointed
managers to interact with the team in India. Following this experience, the company, as was its wont, put

6
To maintain client confidentiality, the SEPG sanitized the information before it was uploaded onto the Qu-Base.

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i-flex solutions limited: Winning Unconventionally

in place a recruitment and induction process for foreign nationals. It made offers of appointment to senior
management positions only after the candidates had visited India and interacted with the local team. For
other positions, it invited the foreign recruits to India at the earliest available opportunity. The company
simultaneously strengthened its employee development initiatives by sending senior managers in India to
attend executive development programs at top global business schools. On their return, these managers
were required to share their knowledge with junior colleagues through on-the-job coaching.

i-flex also inducted foreign nationals on its Board of Directors. Most notable among them was Joseph
Kennedy II, a six-term Congressman from Massachusetts and a former co-chair of the House Banking
Committee that overhauled the Glass-Steagall Act.7 Hukku said:

We are well into the process of internationalizing our management team. Of the three
Executive Vice Presidents responsible for global sales, services business, and product
business, one of them is an international person. The numbers are even larger at the
operating management layer. Our sales force is now overwhelmingly international.
Increasingly our implementation teams are becoming globalized. Following our
acquisitions our development teams are also becoming more internationalized. The pace
will accelerate now following Oracle’s acquisition of a strategic stake in the company.

RE-ARCHITECTING THE COMPANY

Even before the Oracle deal, i-flex had started developing the next generation of FLEXCUBE.
Codenamed Neo, the project sought to address the changing needs of customers. Hukku said:

When we started out many years ago, we blindsided our competitors by building a
product that incorporated state-of-the-art technology. The only way to make sure we are
not blindsided is by ensuring that we are addressing customer needs continuously and
predicting what the customers may need five years from now.

While i-flex was re-architecting FLEXCUBE, Oracle acquired a strategic stake in the company. Oracle’s
goal was to become the leading player in the enterprise applications space across functions and industry
verticals. It was investing billions of dollars to build the latest enterprise technologies, applications, and
services by integrating applications into a single set of business services to be delivered on service-
oriented architecture. Acquiring stakes in companies that helped achieve the goal was part of its strategy.
i-flex was the latest.8 Forrester Research noted:ii

This access to i-flex’s banking expertise enables Oracle to offer a much more banking-
oriented set of products than before. Furthermore, i-flex is in a position to leverage
Oracle’s sales and support organization beyond the limits of its own organization and
partnerships.

7
Joseph Kennedy has since retired from the Board of the company.
8
Earlier, Oracle had acquired PeopleSoft (which has solutions in customer relationship management, financial management, supply chain
management, human capital management etc.), Siebel (which has a leading customer relationship management solution), and Retek (which has a retail
management solution).

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i-flex solutions limited: Winning Unconventionally

Hukku agreed. He said:

There are two possibilities for our company. The first is to sustain the momentum that we
have built with our products and services and our excellent track record of
implementation. We do business as usual, improve operational efficiency, and continue
executing our build-buy-align strategy, while taking some extra sales support from
Oracle. That’s one path.

There is another trajectory where we can get Oracle’s multiplier effect. Oracle gives us
unparalleled reach. To exploit that we would need to scale up dramatically and fast—
something we cannot with normal capability. We need to re-architect the way we deliver
everything. We are currently engaged in such an exercise.

However, the Oracle acquisition came with attendant concerns about the freedom that Hukku and his
team would have in charting the future growth and direction of i-flex.9 Questions were also raised about
the company’s technology strategy – whether its partnership with IBM would continue or it would
migrate its offerings exclusively to the Oracle platform. Hukku claimed:

Oracle has made it clear to us that it wants us to run the company and that we will be
arms-length. They also don’t expect us to be exclusively available only on Oracle
platforms. IBM is the largest seller of Oracle products! The two companies have had a
long-standing relationship with each other. So, our partnership with IBM will also
continue.

In October 2005, Charles Phillips, addressed the excited yet anxious i-flexers at the Open House Annual:

People ask me, “How are you going to change i-flex?” And I tell them, “Just the
opposite—i-flex is going to change us!” You do what you do because we think that you
are better at it than we are and better at it than anyone else in the world. Why would we
want to change that? We have critical mass—we at Oracle call it the mothership—and we
want you to take advantage of that. We want to support everything that you are doing. We
just want to make the team bigger and better and go conquer the world together.

9
Gartner Group estimated the company’s addressable market to be of the order of $186 billion in 2006.

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i-flex solutions limited: Winning Unconventionally

Exhibit 1
Summary of Performance

USD
1997 1998 1999 2000 2001 2002 2003 2004 2005
Million
Revenue 15.5 22.2 34.4 47.6 68.9 89.6 133.9 185.6 261.4
EBITDA 6.6 9.2 14.1 19.5 27.3 26.3 42.3 51.7 63.5
EBITDA % 42% 41% 41% 41% 40% 29% 32% 28% 24%
PAT 5.5 8.3 12.0 16.0 23.6 21.3 37.3 41.0 46.6
PAT % 35% 37% 35% 34% 34% 24% 28% 22% 18%

Business-wise Performance

USD Million FY 2003 FY 2004 FY 2005

Prod Serv Total Prod Serv Total Prod Serv Total*
Revenues 85 49 134 113 72 186 139 121 261
Cost of revenues 24 34 58 35 50 84 51 85 136
Gross profit 61 15 76 79 22 101 88 36 125
Selling & marketing
16 2 18 23 4 27 29 6 35
expenses
General & admin.
5 4 15 8 5 23 6 5 27
Expenses
EBITDA 39 9 42 48 13 52 54 25 64
Income before tax 38 7 43 46 11 51 51 22 61
Provision for income
0 0 5 0 0 12 0 0 14
taxes
Profit after Tax 38 7 37 46 11 41 51 22 47

* Total figures have components of corporate overheads and a small KPO business not shown above; “Prod” (Products) and “Serv” (Services)
Note: Financial year is from April to March.
Employee Profile

By Division 2002 2003 2004 2005

Products 818 897 1,148 1,514
Services 891 1059 1,401 2,673
Support group 323 371 425 560
Total 2,032 2,327 2,974 4,747
Fresh recruits 284 87 127 611
Lateral recruits 301 382 889 1,929
Total recruits 585 469 1,016 2,540
Attrition Rate 5% 7% 11% 15%
Revenue per employee
44,094 57,542 62,408 55,066
(USD)
Utilization % 72% 79% 84% 76%

Source: Company reports

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i-flex solutions limited: Winning Unconventionally

Exhibit 2
Revenue Model – Products Business

Revenue Model

License Fee Implementation Annual Maintenance

Contract

Retail Corporate Time & Material Fixed Price 15% of License Fee
Basis

a No. of Accounts a No. of Concurrent Users

b No. of Modules b No. of Modules
c No. of Sites

Source: “i-flex solutions limited”, Inquire Equity Research, October 2002

Exhibit 3
IBS Annual Sales League Table Top 10 (1998-2005)

Rank 1998 1999 2000 2001 2002 2003 2004 2005

i-flex i-flex
1 Temenos Temenos Temenos Temenos i-flex (FX) i-flex (FX)
(FX) (FX)
MKI-
2 Citil (FX) i-flex (FX) i-flex (FX) Temenos Reuters Temenos Temenos
Frusturn
MKI- MKI-
3 MKI Misys Sungard Temenos Misys Misys
Frusturn Frusturn
ERI ERI
4 MKI Trema ERI Bancaire Misys Fors R-Style
Bancaire Bancaire
Synergy- Delta
5 MKI Kindle Misys Misys Infosys Calypso
Login Informatique
Citil London Summit
6 MKI Criterion Sungard Sungard Infosys
(MB) Bridge (Misys)
Delta
7 Kindle Criterion FNX FSS Misys Reuters Reuters
Informatique
i-flex ICICI
8 Trema FNS Fiserv Infosys Infrasoft Nucleus
(MB) Infotech
Citil System Wall Street
9 BML Infosys Fidelity R-Style Infrasoft
(FX) Access Systems
Calypso Synergy-
10 Fernbach Citil (MB) Trema Sungard Nucleus Harland
Tech Login

Note: For a particular year, companies are ranked on the basis of the number of new deals signed in that year.
Source: ibspublishing.com

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i-flex solutions limited: Winning Unconventionally

Exhibit 4
Magic Quadrant for Basel II Risk Management Application Software

SAS

SunGard Algorithmics
SAP FinArch

Risk Management Concept

Business Objects
Ability Methodware Reveleus
Fermat
to
FRS/Providius Fair Isaac
Execute
Oracle IBM Quadrus Financial
Comit Teradata
Portiva Cognos Raft International

Kamakura
Paisley
BWise

Consul Risk Acrys

Consult Centerprise
Services
As of August 2005
CXO Systems

Niche Players Visionaries

Completeness of Vision

Source: “Magic Quadrant for Basel II Risk Management Application Software 2005”, Gartner Inc., September 2005

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i-flex solutions limited: Winning Unconventionally

Annexure 1

Competition Profile

The prominent competitors of i-flex are classified as follows:10

1. GLOBAL COMPANIES

Temenos AG: Founded in November 1993, Temenos AG of Switzerland built expertise in the banking segment
with its product called Globus. Headquartered in Geneva, Temenos has over 500 clients operating in more than 100
countries, over 35 offices worldwide, and about 1,400 employees. In 2005, its revenue was about $168 million with
net profit of about $18 million. Temenos was ranked number one in the IBS Sales League Table from 1998 to 2001.
In 2004, Temenos introduced an advanced product, Temenos T24, with increased functionality and a key feature of
round-the-clock processing that brought it at parity with FLEXCUBE. Oracle, IBM, HP, Sun, and DBS are its
strategic partners. Gradually, the company’s partners are undertaking implementation of the suite themselves while
Temenos provides support services. While product development is done mainly in Geneva and London, customer
support (Help Desk) is provided from India and Spain. The company planned to make its Chennai (India) operations
(where 300 employees work) a global hub for support services and product development.iii

Misys Banking Systems: Misys Banking Systems is part of the UK-based Misys Plc group. It is the largest
independent banking applications software vendor outside North America. Its revenue in 2004/05 was about $430
million with operating profit of about $63 million. It has over 25 years of experience in the financial services
domain with over 2,600 employees serving 1,400 financial institutions in 134 countries. Misys boasts of 49 of the
top 50 financial institutions in the world as clients. Over 70% of its employees are based outside UK. Further, Misys
has sales, implementation, and customer support teams in over 28 countries. It has perhaps the most comprehensive
suite of products among all banking software companies with solutions across retail banking, wholesale banking,
treasury and capital markets, and risk management. Misys has two development centers in Bangalore (India) – one
each for risk management and retail banking.iv

SunGard: Formed in 1983, Pennsylvania, US-based SunGard had (combined) revenue of $3.5 billion and net
income of $454 million in 2004. It focuses on the financial services, higher education, and public sector verticals. It
has solutions in benefit administration and insurance, institutional asset management and securities servicing,
trading, treasury and risk management, and wealth management and brokerage. Its core banking solution Quantum
was ranked sixth in the IBS Sales League Table for 2004. In the same year, it signed one of the largest Application
Service Provider (ASP) deals in its history with a large New York bank for Invest One, its investment accounting
solution. SunGard Offshore Services (India) was established in 1993 in Pune (India) to provide development
services to SunGard businesses.

SAP: Founded in 1972, SAP is a $9 billion (2004 revenue) German behemoth that provides enterprise-wide
business solutions across verticals. It is one of the largest independent software providers in the world employing
over 30,000 people in more than 50 countries with solutions in CRM, Analytics, ERP, Manufacturing, SCM,
Service, and Asset Management among others. For the BFSI (Banking, Financial Services and Insurance) vertical, it
has developed the SAP for Banking solution portfolio with products in deposits management, Basel II, leasing, and
loans management domains among others. SAP for Banking solution runs on the SAP NetWeaver application and
integration platform and thus offers the entire range of business benefits – enterprise management, CRM, core

10
The information has been taken from the respective company websites and annual reports.

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 i-flex solutions limited: Winning Unconventionally

banking, and e-business. SAP started operations in India in 1996. With about 1,500 employees (2004 end), its
strategic development center in Bangalore is one of the fastest growing SAP subsidiaries in the world.

2. INDIAN COMPANIES

Polaris Software Lab Limited: Headquartered in Chennai, Polaris Software Lab was incorporated in 1993. Polaris
has offerings such as BPO, services, products, and consulting. BFSI constitutes more than 90% of revenue. In 2002,
it merged with OrbiTech Solutions Limited,11 a 93.25% subsidiary of Citigroup.v The new entity operated as an
independent company with Citigroup functioning only as a financial investor. After the merger, the plan was to
target large organizations with OrbiTech’s OrbiPack and to target medium and small organizations with Polaris’
Bankware banking solution. Polaris is ranked number 9 in the list of top software exporters from India. It has more
than 6,000 employees with 22 offices across 14 countries. In FY 2005, the company’s revenue was about $160
million with post-tax profit of $12 million.

Infosys: Infosys, the Indian services major with revenue of $1.6 billion (FY2005), has a universal banking solution
called Finacle. The product had presence in 44 countries by FY2005 end. It accounted for export revenue of $19.2
million (about 1.2% of Infosys’ export revenue) in FY2005 compared to $15.6 million (about 1.5% of Infosys’
export revenue) in FY2004. In 2002, the company made two acquisitions to strengthen the product in the CRM
space and extend it to investment and wholesale banking. Finacle is also a modular solution across various segments
and channels of banking. It was declared the winner in the CRM category at the “Banker Technology Awards 2005”
institutionalized by the Financial Times of UK. In the IBS Sales League Table, Finacle was globally ranked number
12 for 2002, number 8 for 2003, and number 5 for 2004.

Tata Consultancy Services: Tata Consultancy Services (TCS) is India’s largest IT company with revenue of $2.2
billion (FY2005). It has more than 50,000 employees across 33 countries. Six of the Fortune Top 10 companies are
its clients. It is predominantly a services major with presence in the core banking solutions space. In October 2005,
it acquired Sydney-based Financial Network Services (FNS) for $26 million. FNS (since been renamed as TCS-
FNS) has a core banking solution called BANCS. It is multi-currency, multi-entity universal banking solution with
an integrated state-of-the-art front-end delivery channel. BANCS has an open architecture, which enables integration,
flexibility, and scalability across platforms. Besides BANCS, TCS has other products such as Quartz Payments, an
enterprise-wide, multi-entity payments processing platform for domestic and international payments; Network
Custody and Clearing System (NCS), a custodial services system which supports a multi-currency environment; e-
Integrated Brokerage System (eIBS), an integrated brokerage solution for brokers catering to retail and institutional
clients; Financial Industry Gateway (FIG), a middleware software product, which addresses the need for intelligent
generic messaging solutions, and TradeX, which offers an integrated and highly configurable trading system
framework for multiple instruments such as equities and equity derivatives.

ENDNOTES

i
Official press release by Oracle Corporation
ii
“i-flex deepens Oracle’s banking vertical”, Forrester Research, August 26, 2005
iii
“Temenos to make Chennai R&D hub”, Hindu Business Line, March 14, 2002
iv
“Misys to expand operations in India”, Express Computer, February 16, 2004
v
“The Citi factor”, rediff.com, May 25, 2002

11
OrbiTech Solutions Limited was the new name for the erstwhile Citicorp Overseas Software Limited.

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