SoftServe Targets $1bn as it Tackles Innovation Challenge
PAC has written several times about the return to prominence of mid-sized IT services providers, as buyers look for a more agile and personal touch in supporting their digital strategies.
This week we caught up with SoftServe, a 5,900-strong digital and application services provider, which can claim to be one of the fastest-growing examples of this new breed.
SoftServe’s numbers are certainly impressive. Revenue has been growing at an organic CAGR of more than 30% in recent years, and it is looking to expand from last year’s level of $250m to in excess of $1bn over the next five years. The company is currently adding a new developer to its ranks every hour, and expects its global headcount to top the 20,000 mark by 2023.
But what is perhaps more interesting is the way that the company has evolved from providing behind-the-scenes custom development for big technology providers, to supporting some highly strategic programmes at organisations in its target commercial sector markets.
The company may be best known as one of the cluster of Eastern bloc application services providers supplying highly technical but competitively priced development resources – a group that also includes EPAM and Luxoft. Founded in the Ukrainian city of Lviv in 1993, SoftServe won its first contract with General Electric one year later and as it grew, it shifted its corporate headquarters to the US and expanded its delivery centers into Poland.
Providing development support to ISVs still represents the largest chunk of the company’s revenue, but the fastest growing part of the business is its sales into commercial clients in sectors including healthcare, retail, financial services and media. The US accounts for the lion’s share of sales, but Europe – where the UK, DACH and Nordic territories are the key focus - is making rapid progress.
Chris Baker, SoftServe’s CEO, said that the company aims to position itself in the middle ground between the high end business advisory services of the big four, and the technology-centric propositions of the traditional IT services supplier community. A key part of SoftServe’s work is to challenge clients and in some cases, to stop them in their tracks. Baker says that sometimes prospects will reach out and ask for resources to support a particular project, but SoftServe will push back and question why they are doing it in the first place. The aim for SoftServe’s client-facing team is to work with the client to understand the business problem they are trying to address, rather than focusing on a particular technology solution.
Virtually all of SoftServe’s new development projects begin with a design-thinking workshop, which are aimed at improving the efficiency and quality of new products and services, by (in Baker’s words) developing good ideas into great ones before starting the software development lifecycle. Baker said that the best conversation opener with prospects is to ask them how their innovation strategy is going, with many struggling to innovate at speed, to focus new development in the right areas or to measure the success of their efforts in a meaningful way. SoftServe has created a toolset to help customers manage and track innovation processes, which has been deployed by a major energy sector client and one of Europe’s largest banks, among others.
SoftServe is privately owned, and Baker says that one of the benefits of being able to operate away from the glare of the stock market is that it can take a longer-term view on issues such as which accounts or deals it pursues, and the key issue of skills development.
PAC heard from one of SoftServe’s European clients in the financial services sector this week, who cited the quality and depth of talent in the vendor’s ranks that was a key factor in selecting the vendor to support some early initiatives in blockchain. SoftServe says it invests two margin points of EBIT profitability into talent development, with Baker claiming that he spends more than half of his time on this topic. SoftServe has its own university in Lviv, which provides a free three-month course in tech development from which it cherry-picks the best talent (more than 5,000 individuals have been through this to date).
Once they have joined the company, developers are given the chance to work on a broad range of topics in order to keep them motivated and interested. As a result, the company’s staff attrition rate hovers at around the 13%-14% level, with Baker putting his peer group average at around 16%.
Baker is confident that SoftServe can continue on its current growth trajectory, although it is increasingly likely to consider acquisitions as a way to support this and perhaps to flesh out its industry domain expertise in its target vertical sectors. The company has an impressive enterprise client roster, although it will need to invest in raising its market profile in order to build on its footholds in these accounts and play a more prominent role in supporting their innovation agenda.
SoftServe has demonstrated an ability to win against some of the biggest brands in the sector, and its biggest competitive threat will come from those IT services vendors that are most successful in melding the design thinking approach of their digital wins with their deep industry domain expertise and scale: Accenture, Capgemini, TCS, Wipro etc. It will be interesting to see if SoftServe can retain its culture, edge and approach as it rises up to the next level.