Andrey Morozov: 'The State Should Create an Internal Investment Wheel.'

The Russian telecom market is undergoing dynamic changes towards consolidation. All this leads to more active lobbying of certain companies’ interests. CNews correspondent interviews CBOSS President Andrey Morozov on the problems of the billing systems market, business development under the current conditions and the Company's activities.

cnews.ru, July 05, 2006

CNews: How do you evaluate the dynamics and development of the Russian IT market in 2006? What are its key features, from your point of view?

Andrey Morozov: The recent years have been marked by overall economic growth, first of all, in commodity industries. This stimulates much stronger, actively growing demand, as well as increased solvency in the corporate segment.

Yet, as the business in our country becomes more consolidated, the less is left for the market itself. While the world’s leading companies in the market conditions use real competitive tendering, on our playing field many companies just actively lobby to promote their products. This contradicts with market relations and hinders the IT market development in Russia on the whole.

CNews: What problems do Russian IT companies face today? What is your opinion of the state policy in the field of IT in Russia?

Andrey Morozov:It is the insufficiency, deficiency of the market per se that presents one of the main problems. Unfortunately, in a way this situation is only getting worse. To a large extent this happens due to the efforts of unfair major players that claim for monopoly and even usurpation of the market. While in the 1990s the market was more spontaneous, nowadays it is quite 'politicized'. For those who try to follow the rules of the civilized market, it gets more and more difficult to work. The current market trend is quite clearly directed towards further consolidation and monopolization.

As a Russian businessman, speaking of the state policy in the IT and telecommunications domain, I think it is not that active and efficient in practice. In the US, for example, the government seems to be facing the real tasks of business development, regardless of the forms of ownership and relations of a company’s management with powerful officials. First of all, the development of the market is concerned. If you ask me whether the State Department would actively protect the interests of an American IT provider outside the States, the answer is definite: of course it would! And we, Russian companies, know what it feels like. While lots of Russian officials, we have faced not once, act in a reverse manner.

Although, on the whole, the statements of regulatory documents on IT, adopted at the state level, deserve high praise. It is a pity that these imperatives are often only declarative by nature and are not executed in practice. Say, does any Russian official at the local level bear any responsibility for his/her actions or decisions that directly or indirectly contradict to the state policy? As a rule, he/she doesn’t. No wonder of the inaction of those empowered ‘people’s servants'.

CNews: Do you think the creation of technoparks can revive the industry?

Andrey Morozov: I wouldn’t assert it is a systematic, complete and constructive decision corresponding to the policy, as the final practical goal of creating technoparks, as far as I can judge, has not been announced. There is a feeling that technoparks need to be built just to be built. While any serious successful business, including a state owned one, should not be created without making an elaborate preliminary business plan. For instance, CBOSS has got all necessary technical facilities: diversified state-of-the-art equipment, testing laboratories, cutting-edge technologies, etc. Students from different universities regularly come for practice and training to CBOSS and we give them unlimited access to advanced industry technologies and tools, as well as to our own innovations. But can CBOSS be treated as a technopark? De facto it can, de jure – not, as the infrastructure belongs to a commercial enterprise. According to the law, a technopark is a special economic area that can only be state or city owned and its status must be recognized by the government de jure. We are located in a district which used to host many a research institute of Moscow. Our headquarters are in the building of the former Moscow State Project Institute, which after perestroika sheltered mainly small trade firms. In 1999, we purchased the building and reequipped it, thus having actually restored its status of a hi-tech enterprise. But, unfortunately, we did not fall under the definition of a technopark. To do that, we should have been based on a newly built infrastructure, which I think is not quite businesslike.

However, we were invited to participate in the Dubna technopark as a resident. The conditions were really “attractive”: invest a considerable amount of money at the initial stage and then keep paying an excessive monthly rent and investing in future housing facilities. So de facto we are currently building a technopark in Helsinki.

To revive the industry, one shouldn’t carelessly grant money for obscure ‘raw’ projects: just give the industry freedom for development in the current economic conditions. Perhaps, the state should create an internal investment wheel and provide conditions for market competition in the country and within the industry. Then the state won’t have to leverage it by multimillion investments – the industry will revive itself.

Let’s recall collectivization and dekulakization. Before the Revolution, when there were well-to-do land owners, Russia was the largest grain exporter. After the dekulakization and collectivization our country became a large grain importer. Doesn’t the idea of technoparks remind you of anything?

Another example. Some of our Finnish colleagues, wondering at the Russian emphasis on technopark creation, compared a technopark in the Russian sense of the word with a dormitory. Now let’s ask ourselves: will we really be able to solve the demographic problem in Russia if we, for example, build lots and lots of dormitories by taking the money from the Stabilization Fund?

CNews: Practically all IT market players note a severe shortage of qualified personnel. How do you evaluate the situation with IT staff in Russia today? What should the Government and IT companies do to change these trends?

Andrey Morozov: Certainly, the number of highly skilled specialists is not enough to solve the large-scale tasks. It is mainly due to the fact that the system of higher education is pretty much destroyed. It has become worse than in the Soviet times: by far not every institution of higher education in Russia gives necessary fundamental knowledge. Yet it was a trained ability to think and summarize the knowledge on the basis of fundamental education that distinguished the Soviet higher school and made it so strong. As far as I can see, present-day university graduates are much weaker than those of the Soviet period. Moreover, they are far less in number, which is due to the demographic problems in our country. Even if we build technoparks, there simply will be no one to work there, while the overheating of the IT labor market in the period of ‘eating away’ the investment funds will ruin small independent companies and can, in the long run, destroy the industry itself.

What shall be done? As far as possible, improve the system of higher education, put a greater emphasis on fundamental knowledge, and enhance access to cutting-edge technologies. For instance, the experienced staff of the CBOSS training center (with the help of third-party specialists) have built up the own system of professional training that helps patch the national system of education.

CNews: How does your Company solve the problem of staff shortage?

Andrey Morozov: Mainly by using the internal reserves and providing corporate training. In most cases, we enroll young entry-level specialists and train them both in the Company’s training center (we have 12 training rooms with 250 PC-enabled workplaces), and in field conditions, including training abroad for practice. Suffice it to say that currently the CBOSS training catalog includes over 100 specialized applied courses.

Andrey Morozov: Employees, who have passed the school of CBOSS and worked in the Company for 3-4 years, are highly valued in the IT market

We cannot basically find experienced staff fully meeting the requirements of the current international market – we have to bring them up within the Company.

But still we have quite a substantial number of highly qualified specialists, as the inflow of those wishing to become such is high. People often work not just for money but to get the opportunity to acquire high-quality systematic knowledge and qualification that is in demand. Some of our ‘anonymous well-wishers’ trumpet about too strict rules in the Company. Yet employees who have passed the school of CBOSS and have worked in the Company for 3-4 years are highly valued in the IT market.

CNews: Do you feel an increased pressure from foreign vendors? Can Western providers of billing systems become serious competitors to CBOSS in the Russian market?

Andrey Morozov: Yes, the pressure from foreign IT providers has been felt increasingly stronger in the recent years. As I’ve already said, the market space has considerably reduced in Russia lately. In the real market conditions, Western vendors do not posit a serious problem to us. As for interests lobbying, we keenly feel the pressure from foreign brands that present a real danger to domestic vendors. Feeling that the market in Russia had pretty much narrowed, we made a decision to enter the global market where it is definitely harder, yet more interesting to work. And today it is we who posit serious competition to those vendors in the foreign market.

CNews: Recently there have been some major personnel changes in your Company: three Vice Presidents have been dismissed and the PR group has been disbanded. What was the reason for that?

Andrey Morozov: This is a natural process of the company’s maturing. Not long ago we had a rather flat management structure: the President and various subordinate units. From the point of view of operational management this structure was very successful and justified. But to reach the international level and expand in the global market, we needed to enhance our strategic management, to ‘verticalize’ the company structure. And now some aksakals have moved from regular managers to, one might say, strategy auditors. Now we run an in-house tender for the management of strategic tasks that are still supervised by the former Vice Presidents. This is a sort of unprecedented move: in our in-house management we use a market economy mechanism developed by the civilization on the state scale. Thus, the people you asked me about are not fired, they’ve just changed their profile.

As for the PR group, it was not eliminated forever; the former team was just disbanded. The head merely couldn’t cope with his responsibilities, couldn’t perform the tasks assigned. But nature abhors a vacuum. And today we have a new head of the department which is the successor of the PR group, chosen based on the internal contest. Don’t worry, you’ll have someone in our Company you can contact.

CNews: There’s a point of view on the market that CBOSS has a strict corporate discipline. Can you comment on this point?

Andrey Morozov: We have an electronic ERP system deployed. And as any transnational corporation, sometimes we experience the resistance of individual employees who don’t want to work 'in a cage’ of the corporate information system. However, its requirements are objective: the system registering work results is devoid of any subjectivity inherent in a manager’s assessment. Probably there are people who, unable to find a scope for personal fulfillment, come to think that such conditions are unacceptable and leave the company spreading malicious information. The reason is that they simply failed to blend into our corporate culture.

A person who has realized his creative potential and achieved self-fulfillment will not spread such kind of information. We have employees who received the annual bonus of $30-50 thousand, but not a single person confessed at any Internet forum: ‘You know, guys, I’ve got 50 thousand bucks’. A human being is strange: he believes that only negative experience is worth sharing, while positive results are taken for granted, as something not worth discussing in public.

Moreover, we devote a lot of time to our social program. One of the most important trends of our social policy is a housing program, under which an apartment house for employees has been built next to Bitsevsky park. It’s under finishing stage now, but some families already live in new apartments. Just check whether some residents of the newly erected corporate building ‘complained’ about improved housing, nice view from the window or enhanced comfort of the house?

CNews: What are the Company’s annual results 2005? What branches of your business experienced the most dynamic growth?

Andrey Morozov: The main qualitative result was the enhancement of global product promotion. In 2005, we entered the last inhabited continent where we hadn’t been presented by then – Africa. Another major result was the redistribution and considerable expansion of our business geography: the priority has been given to our business activity outside Russia. We strengthened our position in the international market. This is not an absolute and final victory, but our presence abroad is already substantial. In just war terms, we have landed and consolidated on the line achieved.

Last year, the highest demand was for convergent systems, which, however, was quite predictable. When we started to develop our technologies, the concept of convergence was not quite obvious, but we managed to appreciate it in good time. That’s why the company name is CBOSS - Convergent Business Operation Support Systems. The concept of convergence we’d been sticking to from the very beginning started to work. In ten years the market matured and realized the importance of this concept. Today, it is more important to cut the consumer's costs than the vendor's. Operators are more concerned with the reduction of costs of the IT infrastructure and especially its total cost of ownership, with enhancement of its reliability and performance.

CNews: What additional IT solutions are you going to develop in the near future?

Andrey Morozov: We are in the incessant process of developing new solutions. In the near future we are going to develop the field of enterprise resource planning systems. Currently this solution is provided to our customers on a small scale, but we believe that an ERP system is an essential business segment and there are good prospects for its successful promotion.

CNews: Tell us about the results of your activity abroad. What is the ratio of sales in Russia and in the international market? What solutions do you offer them?

Andrey Morozov: The current amount of our sales in the international market is more than 60% and next year we will increase it to at least 80% in our income structure. One of these days we are planning to announce two major foreign contracts that are interesting because the entire IT infrastructure of the carriers will be based on CBOSS products. I would like to underline that today it’s almost impossible to implement such projects on the Russian market.

CNews: The CBOSS Company has regularly provided information on its sales for the annual rating CNews100: Russia’s largest IT companies. However, this year you have refused to participate in it. What was the reason for your refusal? Was it connected with the considerable reduction of sales last year?

Andrey Morozov: The reason was that last year we experienced harsh pressing and faced attempts of hostile takeover. It started when one of our former customers, having changed its management, stopped to sign contracts and pay their bills. But when we asked to pay for the supplied products, we received a counter offer: no less than to sell the controlling interest of CBOSS.

Having received a refusal to such a tantalizing prospect, the representatives of some structures started to make an insinuation that we are going to have problems with the authorities. Indeed, after that CBOSS was frequented and flooded with inquiries and summons from various supervisory authorities. For the whole year they were trying to find violations, but the haul of supervisors turned out to be ridiculous. For example, OBOP (Department for Fighting Organized Crime) incited a special state unit to take off a small neon sign ‘CBOSS’ hanging over the entrance of the building as we had no properly registered permission for outdoor advertisement. Obviously, there are no other manifestations of organized crime in our capital except for an illegal placement of the company’s name over its porch.

As too many authorities were very concerned with our work and it is not improbable that both ‘customers’ and ‘contractors’ haven’t calmed down yet, we imposed a temporary moratorium on the publication of economic performances in order not to give any food for unnecessary thoughts. What for to trouble troubles?

CNews: You’ve been the head of CBOSS Association for ten years. What can you say about the results of the Company’s work? Have the management strategy changed over the time?

Andrey Morozov: The Company’s management strategy has undergone some radical changes. When the firm was created, there were three and a half employees, and operational management was mainly intuitive. There was a sort of vision of what we needed to do, but no written long-term plans, no formalized strategy. Now we need to focus on strategic management, which has not been properly developed in CBOSS before. After a superb manager, Alexander Prikazchikov, came to CBOSS, the problem with the Company’s operational management in IT and telecoms business was solved. From the next year I’m going to focus on strategic management, while Alexander Nikolaevich will deal with operational management.

Looking at the results of CBOSS’ ten-year work, I understand that a lot has to be done. Without false modesty I must confess that today I know and feel how things should be. A man in my shoes must have such a vision. Even if you follow the rules and patterns, you can fail to get the result you need. But if you have a clear vision and coherent understanding of the goal, if you pursue it deliberately, then you are almost sure to achieve it.

CNews: Does the work influence your free time?

Andrey Morozov: The work, unfortunately, takes a lot of time, so ‘I only dream of calm’. As the Company is at a turning point, all efforts – both physical and mental – are aimed at the business. As for my hobbies, I’d say they are hunting, motorcycling and helicopter flying. On the one hand, hunting is a hobby that allows me to reduce tension, gives a powerful burst of positive energy and relieves stress. On the other hand, hunting is a part of business, if you take into account a perfect opportunity to establish business contacts and to achieve better understanding and confidence in an informal environment. Different people from various countries come to our hunting ground near the comfortable recreation center, Ozernaya, located in Europe’s most ecologically safe place.

Andrey Morozov: As for my hobbies, I’d say they are hunting, motorcycling and helicopter flying

Not long ago I started learning to fly a MI-2 helicopter and I have even received a pilot license giving me the right to be the captain of an aerial vehicle. Running a company or such a comprehensive machine is a universal process attracting me. The helicopter amazed me because, even being absolutely aware of its construction and the laws of aerodynamics, you just suddenly realize you can’t cope with it straight off. In the air, in the pilot’s cabin, any big deal used to managing not only business, but even life, can experience ‘disobedience’ and absence of control over the machine, and as a result face a psychological problem. From this point of view, flights are a fascinating and very interesting thing as, in a way, they allow you to understand yourself better. And, maybe, in a way, to show yourself and other people what you really are.