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Outsource magazine: thought-leadership and outsourcing strategy | August 18, 2017

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oNexus Founder Interview: Valeriy Kutsyy, Miratech

oNexus Founder Interview: Valeriy Kutsyy, Miratech
Outsource Magazine

Valeriy Kutsyy is the CEO of IT outsourcing provider Miratech. As part of our oNexus Founders series of interviews, we got together with Valeriy to get a history and overview of his organisation, some thoughts on future growth opportunities and challenges, and key lessons on innovation and the importance of trust…

Outsource: So, let’s start with a bit of background on you and the organisation…

Valeriy Kutsyy: Well, Miratech is 25 years old, and I joined as an engineer 15 years ago. I left, and rejoined  as a project manager a year later. Since then, I’ve worked in various positions, up through CTO, COO, and finally assumed the role of CEO when [Norwegian telco giant] Telenor acquired a majority stake on January 1, 2008. At that time, the company had a five-member board — three representing our major shareholder and two representing minorities: myself and my partner. We executed a buy-out in 2011; since then, the company has been owned by management.

O: It’s good that you’ve lived the DNA of the company through its evolution. What has that evolution resulted in? What does Miratech do today?

VK: We provide outsourcing and IT services. We work with mid-sized to large corporations; we try to be conservative in the number of customers we serve, and grow our revenue through upselling existing customers. Many of our customers are multinational, with sizable budgets for R&D and IT operations; this is conducive to secure growth, because in times of crisis, these organisations are typically considered essential and as a result tend to survive. In many situations, we perform critical processes and therefore don’t face volume reductions. This is also a result of price efficiency, but we’re not really competing on price; in many cases we deliver projects that customers aren’t able to deliver internally because they don’t specialise in this or that technology, or because it’s difficult to focus attention internally, and it’s easier to rely on an external supplier.

Most of our volume comes from three sectors, in almost equal parts: financial services; telco (GSM and cable providers); and tech companies, which can be large technology vendors or integrators.

O: What were the benefits to Miratech of Telenor’s shareholding for the period you mentioned?

VK: We spent four years as part of the Norwegian company, and of course we learned a lot. It was of strong value for our organisation because we learned how to work in those markets and, being part of a large corporation, we also observed how large systems work. In addition, being a relatively small part of this large organisation, we were able to absorb some of the best governance practices in financial management, legal, and risk management. So, it was a very productive time for the company.

In the Nordic region our services were delivered through our parent company in Oslo. That meant that we didn’t interact directly with those customers, so when we executed the buy-out we naturally lost that market; the only direct relationship we had was with our parent as a customer. This relationship continued for one year after the transaction, but then they moved their work in-house. However, we still had plans to work directly in the region; sales cycles are long, but we’ve already had successes. We signed a contract with Lindorff, which is one of the largest receivables management companies in the world. This is an important win for us. We can go further, and win more customers in the Nordic region; we’re able to deliver good quality, and we don’t have limitations based on competition from our previous parent customer, so the market is open for us. We’re very optimistic about opportunities in the region, and just recently we hired a country manager from Norway to help us to accelerate and grow beyond our current position.

O: What are the key challenges in your particular marketplace?

VK: When we get new business and customers, we’re not really facing any major challenges from our competitors because the market is fairly large; we haven’t met the same competitor in tenders more than twice in a couple of years. The biggest challenge is building long-term relationships, and aligning with the KPIs and goals of the buyer’s key stakeholders, who often include their CTO, CIO, CFO, and/or CEO. This is the biggest source of risk because an external service provider often finds it hard to align with the preferences of all internal stakeholders. For example, some of them prefer to do everything in house, while others believe that “the bigger budget is the better budget.” A bigger budget is typically not in line with our value proposition, because we often propose to reduce costs. There have been cases in which the CFO and CIO represent different and almost mutually exclusive requirements.

O: Would you go into those locations solo or are you looking to partner up with established organisations in America or Asia-Pacific?

VK: We perform software engineering and IT operation activities in-house because it’s very difficult to control the quality if you subcontract it. So, we conduct core service production in-house. However, we do partner with many organisations that are complementary to Miratech, including management consultants, strategic advisors, and process improvement or organisational improvement consultancies. Building that specific domain expertise in-house would detract from our ability to focus on our core competencies, whereas working with partners helps us access the best skills available on the market. This approach makes us more flexible, and more agile. We invest continuously in the development of our partner ecosystem.

Thanks to this strategy, we believe we’re better equipped than the large multinationals, because they rely on in-house resources, which are sometimes not best-in-class, but rather just happen to be available. Alternatively, if you look at service providers with a similar size and structure to Miratech, these companies don’t have ready access to domain expertise, and therefore they’re not able to offer customers the full range of competencies that we can.

O: So, looking at access to specific skills: in major markets like the US and the UK, there is constant talk of a talent crisis, but in your region there seems to be the opposite perception. How strong is the talent pool in Eastern Europe right now?

VK: The talent pool in Eastern Europe is both wide and deep; it includes many talented, educated, and experienced engineers. At the same time, we are very selective because we value low turnover and longevity. Today technology labour markets are known for high turnover rates. At Miratech, we plan for long-term relationships with our customers, partners, and employees.  As such, we look closely at the history of our candidates, and we work hard to assure the right fit.

Another unique feature of Miratech is that we build high-performing IT teams dedicated to our customers. This is a further challenge to us since we must recruit and hire the best talent, but also assure that they share our long-term perspective, and are a good match for our team concept.

O: What about the talent on the other side of the deal? Do you feel the skillset of your customers is also up to the task?

VK: Different customers find themselves in different situations. Some may employ staff with a very similar skill set to that of Miratech’s staff. Many of our customers are in high-tech industries, and as such their core business is IT. It might even be that some of their engineers have a higher level of skill in their niche or area of expertise (though this would be an exceptional situation). Alternatively, if we look at industrial organisations, then logically they would rather invest in their core competencies than in IT. As such, we often find that there is underinvestment in IT resources within industrial enterprises.

In many cases, the skills of our staff exceed the technical challenges we face; so there are many situations where we might apply over-skilled people to a customer project. Throughout my career in this industry, I have never actually seen a project fail because an engineer’s skills were insufficient. Often failed projects are attributed to a lack of engineering skills, but, in fact, those instances are rare. When failures do happen, they are usually the result of communication issues, a lack of motivation ,or a lack of alignment on targets. There can also be very complex situations where the interests of the buyer and supplier aren’t properly aligned, and the supplier’s failure may benefit the buyer due to some hidden agenda.

In all of our customer accounts, we have focussed a lot of our attention on assuring that that our interests and motivations are truly aligned, that the people involved are able to communicate well, that we have realistic timelines and budgets, and so on. So, this is where we invest, and where we mitigate risk for our customers, and for Miratech.

O: So how do you manage circumstances in which, as you say, the supplier’s failure is a success for the buyer? How do you get around that? Can you recognise that early enough that you can say “I don’t want to be a part of this agreement”?

VK: We may not always be able to recognise it, but we are able to identify it in many situations. It’s not easy to describe exactly how we do it, and maybe it’s not good to discuss this secret in public! However, to a significant extent, it’s a gut feeling. Like a doctor who sees a patient and, without even sending the patient to a lab, the doctor knows the likely diagnosis. There are a lot of “soft” indicators within the customer organisation that suggest this risk may be high. Based on these behaviour patterns, we can often see where we need to be careful.

O: Moving on, then, how can you be sure that you deliver innovation to your customers?

VK: Sometimes we do work that is very hard and complex, but it’s not innovative, because we need to do the work that nobody else is willing to do in the customer organisation. It might be the maintenance of a 20-year-old system. There is no technical innovation here. Most of the innovation would come in the form of the governance model we set up that defines the relationship between the customer and Miratech.

Everyone uses the same components: we take people from the same universities; we use the same standards to deliver; and we use the same tools. The know-how comes from the way you compile it. Most of our energy is dedicated to applying and evolving this know-how, which we brand as our Managed Competence Center™. Within our Managed Competence Center model, we have aggregated all of our experience over the last 25 years: how to predictably deliver in any environment; where risk exists because of time zones, cultural distance, misalignment on motivation, and language barriers; etc.

This is an area where we try to innovate and invent the right practices, maximising the success of future engagements. For us, it’s critical to maintain 100% customer satisfaction. One way to accomplish this is to keep a small customer base, because the more customers you gain, the bigger the chance becomes of something not working the right way, because of a lack of individual attention. We dedicate a lot of attention to customer qualification and selection, because we cannot successfully serve every customer.

We try to understand which organisations are best to deal with, and we have very tough criteria here. When we find companies that meet our criteria, we try establishing a relationship, starting cooperation from day one, and assuring that we have the right governance model in place — including risk planning — to assure that everything proceeds as planned.

O: What are your ambitions for the next business cycle? What is your vision for the next few years?

VK: One priority is to keep building an international management organisation. Today we’re diversified, in terms of revenue base: equal parts are from Western Europe, the US, and the CEE. From a service production point of view, we still need to do a lot to mitigate territorial dependency by making sure that no country exceeds certain limits in the total volume of services delivered.

At the same time, we plan to maintain relatively fast growth — around 30% year-to-year — and to continue to keep all our customers satisfied. We can make strategic decisions quickly because management owns the company. We’re undertaking this growth in an organic way and, for the short term, we plan to continue our growth organically.

O: Finally, what are the most important lessons that you’ve learned during your time in the business?

VK: Every lesson I learn is the most important to me. The one I like to share relates to trust. I refer here to a business trust between customer and provider, manager and employee, colleagues and partners.

I take an example from the accounts payable process and its impacts on the business. When I became CEO, I discovered, in our accounts payable department, a culture of overdue payments to suppliers. Slow payment was at that time the normal course of business: after the suppliers properly delivered services or goods under valid agreements, they had to submit reminders and wait for an unknown amount of time before their overdue payments were made.

This situation generated a lot of work for everyone, including suppliers’ staff; our accounting and legal departments; and the business buyers and their team members. Everyone felt important, and busy, and no one was accountable for the failure. There were always strong excuses in place: lack of time, missing data, unresolved questions from our chief accountant, a lack of cash in the bank account, and various others.

This situation ate up hundreds of our employees’ hours, put stress on our suppliers, and forced supplier organisations to spend countless hours dealing with us. How do you think this situation reflected on our market reputation, future price quotes, and, more importantly, suppliers’ willingness to bid on our future tenders? How did it increase the cost of future purchases with extended negotiations of “non-productive” contract clauses such as termination, penalty, delivery or payment delays, claim processing, and similar terms? We were operating in a highly untruthful environment with our suppliers, which explained very well why, in some situations, we received very average service, and why the best suppliers didn’t try to serve us.

On one hand it was a sad lesson, and on the other hand it was great news: I had a major improvement opportunity with nearly zero investment. With one very trivial and easy decision, I could make our company much better, improve quality levels, and lower the prices we paid to the community we depend on.

I communicated to the staff that we all have to do our best to establish and maintain a trusting environment with our partners, customers, employees, and suppliers. Whatever we as a company promise to our customer, supplier, employee, or partner — we deliver, no matter the potential short-term win of breaching the promise. A more trusting environment results in a business running faster and more efficiently. That same day, I issued a management notice in which I communicated to the staff that a breach of payment terms under supplier agreements qualifies as gross non-performance.

As only a few managers wanted to test the consequences of gross non-performance, the long-standing problem disappeared. Over next seven years, we had just a few cases in which a payment was delayed, and each of those delays were just a few days in length. Today we get the best service and the best prices from the best suppliers in our key markets. With loyal suppliers, our company stays stronger and more competitive.

As Miratech is in business based on long-term relationships, we expect to be treated similarly by our customers, and we are very proud that they do treat us similarly. This trusting environment significantly reduces transactional overhead and enables bigger and faster opportunities for all parties. This is one of the reasons that Miratech has demonstrated an organic growth rate of 30% over the past several years.

This interview is part of our oNexus Founders series, featuring Q&As with senior figures from partners of Outsource’s oNexus package, and represents part of a commercial agreement between Outsource and the partner, though the Outsource editor retains final editorial control. For more information on the oNexus please contact the editor on…

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