Client Profile: Systech Solutions, Inc.
Arun Gollapudi and his company Systech Solutions, Inc. help some of the country’s biggest corporations make better decisions by giving them the tools to see a clear, comprehensive picture of their performance and operations. Now in its 16th year, Systech has created over 300 business intelligence “dashboards” for its clients from its offices in Glendale, Calif. and Chennai, India. Repeat customers include Disney, Nissan, Fox, Guitar Center and more. Within the past 10 years, Systech was ranked as number 79 and 116 among America’s fastest-growing private companies by Inc. Magazine. This year, to reward his team for building the company while planning for his own succession, Arun made the decision to transfer ownership of Systech to its employees so that they can continue along the same trajectory that has brought them this success.
Before Arun and Systech co-founder Srini Ramaswamy started the company in 1993, Arun was an IT consultant with consulting experience at IBM and on his own. His transformation into an entrepreneur began while earning an MBA at UCLA’s Anderson School of Management. An entrepreneurship professor challenged the students to define a vision for their own venture and to ask themselves, “why wait?”
Arun began to conceptualize what he would want his own IT consulting company to look like. Through his experience developing IT solutions for large companies, he knew that data was often scattered among up to a dozen different systems, resulting in uninformed decision-making that damaged company performance in large and small ways.
“I found it intriguing that we examine business case studies complete with data, but in the real world you don’t get that data on a regular basis in order to make good decisions,” says Arun.
He wanted to specialize in improving business intelligence to help companies drastically improve their operations and management. He wanted to be an expert in business intelligence, while not focusing so intensely on projects that he couldn’t keep up with the latest IT technologies. Perhaps most importantly, he wanted his organization to be an empowering place for employees, driven by a flat, lean management style.
Arun shared his business concept with his friend Srini, a corporate IT specialist whom he had met during a consulting project. Srini asked him, "Why can't we build this?" The two developed a business model and determined what services they would offer to the market. They didn’t focus on a specific industry, but instead on technology that can be used to improve business.
To launch the company, Arun and Srini sought out clients with lots of data that could be better organized and summarized to gain a clearer picture of the efficacy of current efforts. For example, one of their first clients, a leading multinational packaged foods company, offers so many different products that it can be difficult to verify the actual cost to produce, market and distribute each one and to determine each product’s position and “stickiness” in the marketplace.
“It’s a ‘cost to serve’ problem,” says Arun. “The cost to produce an item may be $5 and it sells for $10, but the true cost may be $11 if you factor in transportation, advertising etcetera. It’s more than just gross numbers.”
The business intelligence “decisionable dashboards” that Systech develops for its clients help capture a more accurate picture of their costs, operations and performance. Sometimes they build a system and hand it off to the client; sometimes they provide ongoing support.
The company grew slowly in the beginning. By 1996 it consisted of about 16 people. As business picked up, in 2000 Systech had about 120 employees.
Systech’s success is not just due to its skill in developing valuable analytical tools. In 2000 the company began to strategically partner with leading technology companies including Microsoft, IBM and Oracle so that they could go to market jointly. Instead of selling dashboards based on custom software, Systech utilizes the IT industry’s best off-the-shelf software, giving their clients’ business intelligence solutions more longevity and flexibility. These partnerships also helped to keep Systech employees up-to-date on the latest technologies and trends in the IT industry.
“We partner with technology companies because we didn’t want to reinvent the wheel,” says Arun. “We already have something good for the client.”
Another strategic move that boosted Systech’s growth was the establishment of its Offshore Technology Center in Chennai, India, near the Indian Institute of Technology Madras, the alma mater of both Arun and Srini. Today about half of Systech’s employees are based in India. The Offshore Technology Center is where much of the project development takes place, and it also serves as the company’s recruiting and training headquarters. Before going global, Systech had already set up its own training program, which, despite the expense, proved more efficient than having new hires get up to speed while on the job. By moving recruiting and training to India, they were able to cut costs and access some of India’s best IT talent.
In 2007, a friend told Arun about an exceptional company called LeFiell Manufacturing in Santa Fe Springs, California, which provides tubular products to the aerospace and defense industries. When the company’s owners wanted to transition to retirement, they set up an employee stock ownership plan (ESOP) in order to “cash out” while maintaining continuity in the company’s operations. Arun was especially intrigued by the ESOP’s ability to make all employees think and act like company owners. They discovered ways to cut costs and came up with more efficient ways of doing things. They didn’t have to be told to be on the ball if a prospective customer was stopping by – they always were.
Arun looked into the idea of implementing an ESOP at Systech, but he wasn’t sure it was feasible, especially considering the high fees quoted by the consultants he spoke with. Then in 2008, Arun saw a presentation on employee ownership by Beyster Institute Director Tony Mathews at an event for Wells Fargo’s commercial customers. He was inspired by the potential employee ownership has to engage employees, and he learned that implementation was not as costly as he had imagined. Tony and Arun sat down to review Systech’s situation, design a plan and find the business valuation experts and lawyers who could help put it into place.
The plan rolled out in 2008, and Arun was surprised as to how moved his employees were by this decision. Each year Systech had introduced a new benefit or perk, but sharing company ownership was the gesture that truly exemplified Arun’s desire to build a company of empowered people.
“They were surprised, because other companies get to our size and are sold,” says Arun. “Instead we brought the whole team into it. It was the best thing that could have happened to our company.”
Systech’s ESOP transactions will progress in three “chunks.” This first transaction will transfer 30 percent of company equity to the ESOP, the next will build ESOP ownership to 51 percent and the last would make the company fully employee-owned. For Systech, these transactions will occur based on profits so the company won’t need to take out a loan. While the ESOP currently includes only U.S. employees, Tony and Arun are exploring ways to establish an employee ownership program for Systech’s India-based team.
Arun says the tax benefits of the ESOP are just icing on the cake. “Our main goal was to create an empowered workforce. Our best resources are the ones that walk in the office every morning and out every evening.”
Already, Arun has noticed that employees are beginning to make choices as owners. One employee owner recently discovered significant savings for the company by switching the administrator of one of Systech’s employee benefits. “How many places do you have where employees are seeking out savings opportunities like that?” says Arun.
To business owners who are considering employee ownership, Arun says, “The ESOP was the best method we found to achieve employee alignment, build the business and efficiently use the benefits of the tax structure. This setup also makes us more able than our competitors to attract the best talent. Any resulting fortunate events such as spinoff companies are benefits to everyone.”