Friday, January 21, 2011

Does the Market Reward Only Risk Averse Companies?

     My last post had been about the Software Value chain, and how Indian software companies are eager to move up the value chain, and do something more than just software services. But do their investors allow them to move up the chain? Do their stockholders have the long-term vision to understand that a new business model means taking certain risks?
    As the Q3 results start pouring in, the press & investor reaction it would not seem so. MindTree released their Q3 results today, and the reaction has been particularly acerbic. Quote from the economic times headline  
“Bad decision & some wrong strategies hitting management's credibility. Some of it's strategies and bets, including it's most recent one of launching a 3G smartphone based on the Android platform, have flopped.”
     Now here's one software company that's really trying to get out of the services & “body shopping” space, and do something challenging. Agreed, the strategy to launch a smartphone may be looked upon as downright silly, considering the existing competition, but I'm sure if they had pulled it off, it would be a different song that Economic Times would be singing! I particularly liked the response that CEO gave to the media...”Business is about taking calculated risks. If we try to become an Infosys or a Wipro, it will destroy the industry”. Well said! So many Indian software firms are doing the same thing that it would really lead to a complete price war, and harm the margins of all. Here's good luck to the leadership team in MindTree on understanding that they need to take risks. Hope their shareholders wont force them to become an Infosys or Wipro!

No comments: