It Pays To Think Big

Márk Lazarovits took over the management of Synergon Informations System Nyrt last year when it was hard to find a new leader for the company, with its owners fighting each other. Now he seems to see the light at the end of the tunnel and is positive about the new strategy. According to his plan, Synergon will focus on the Hungarian market of public tenders, which will increase rapidly due to the European Union funds coming into the country. 

Lazarovits gave up his financial director position at the Hungarian affiliate of SAP AG in order to lead the restructuring of the Hungarian company. “After seven years at a multinational firm I was looking for challenge, and Synergon seemed to be one,” he said. Working at a multinational firm may be less interesting because major decisions are made abroad and the local firm only implements them. The relatively small Hungarian market is usually not considered among the most important by large firms, which gives a feeling of being on the sidelines. On the other hand, multinationals have their advantages. 

There is always an umbrella of safety and if one year is less successful, the mother company might not be happy but can always help out. At an independent Hungarian firm the reality of the market is felt much more harshly, Lazarovits says.
Before SAP, he worked for other multinationals, as CFO of the leasing company of Hypo-leasing Hungary Kft in Hungary and before that he started his career at IBM and worked in different financial positions.
 
His education had nothing to do with the fact that he has spent most of his life in the IT industry, because he graduated from the College of Finance and Accounting (PSZÁF). “I went to work with an IT firm by accident but it turned out that i t suits me. The industry and the products have a lot to do with the type of people who work there, and in the IT world there are a lot of bright, original-thinking people working,” he said, when talking to BBJ reporter Katalin Tóth at Synergon’s headquarters in the Újpest district of Budapest.

You say that the new strategy focuses on large public projects. Is the previous strategy of Synergon, focusing on mid-sized companies, dead? 

A: I would not say so. We will continue to provide solutins like ERP systems for mid-sized companies, in order to serve the segment of the market that needs IT systems but cannot afford expencive applications. We already have clients from the mid-sized companies working in the fields of industry and trade, and looking for new areas to expand. These are not bad projects because free software needs more programming to tailor it for the client.

Q: But while serving a large number of mid/smaller clients can stabilize the sales of IT firms, those who depend on large projects, especially on public ones, are exposed to large volatility, aren’t they? 

A: It is true about every firm which is not entirely retail. I think we should earn our bread on the market of projects at banks, oil companies like MOL Nyrt, Hungarian Telekom Nyrt, National Bank of Hungary at pharmaceutical firms, and even in the mid-sized company sector, which should cover the costs and provide a 5%-10% annual growth. But the really big development, which could transform Synergon to a company in a different league, can come from the large public projects.

Q: On the other hand, public projects bear a significant political risk and unpredictability. Before elections the decision-making process is blocked, after elections previous projects can be revoked or given to someone else. Does it worry you?

A: It is true that the volatility of public projects was very obvious in the last year, when no new government-funded or EU projects were tendered. But the EU funds will have to be spent, and the tenders are likely to appear well before the next elections. I do not think that tenders will be revoked or revised because the EU does have its processes, so EU-funded projects cannot be turned upside down at any point. 

Of course we already see that the opening of the tenders is already late, and there are a lot of projects on the horizon the future of which I am skeptical about. But several of them will happen sooner or later, and Hungarian IT firms, Synergon at least, wants to win a fair share of them. I also know that the process is sometimes complicated and unpredictable. In the case of the developing Ft 60 billion road toll collection system, Synergon is among the four consortiums short-listed for the second round of tendering, but two other foreign consortiums, which did not make it to the short-list, are already going to court. These things will of course delay the process.

Q: Which significant public tenders do you expect in the near future?

A: Apart from the already mentioned road toll collection system there will be projects in public education, which are called the “electronic school board” program. It will mean network development between schools as well as upgrading the hardware of the educational institutions. This probably provides less individual programming than the toll collection but will still provide added value. 

There will also be a project for the ministry of finance, which wants to have any IT system that will be able to control the central budget in the same system, not only in the ministry but also at the institutions that are financed by the government. This project will be around Ft 15 billion. If the new government district will be built up, it will also require a lot of IT investments, just like the reform of the health-care system. It is hard to tell which of these projects will materialize and exactly when, but one or two of them could raise the level of sales of a Hungarian IT firm to a new level. 

Q: While Polish IT firms usually win Polish IT tenders, in Hungary foreign companies tend to win the tenders much more often. Why do you think that Synergon is going to win a number of tenders? 

A: It used to be a negative preconception that Hungarian IT firms cannot make projects in the same quality and time as United States or Western European companies. This is changing. Lately more and more Hungarian companies or consortiums of domestic and foreign IT firms win public tenders. Of course, consortiums are often necessary for the local firms, because in many cases the foreign partner brings in some specific expertise, like how to build a road toll collection system, for things that have no precedent in Hungary. 

Hungarian IT firms are also winning more and more tenders because they became bigger and more established companies, so the buyer can know that the firm will still be there is five years if the system needs some correction or upgrading.

Q: Synergon went through a difficult phase when the new owners took over and changed the management. Is this over?

A: Yes, I think it is. The hardships in the change of management did show in the results of the first quarter of 2007, but since then we have managed to almost catch up to the results previously planned. We did not lose any clients due to the management change, but during the transitional period people were busy protecting their livelihood and worked less on bringing in new deals. Now the insecurity is over so the sale of new projects has improved. 

The company announced Ft 3,735 million sales [13% lower than a year ago] but Ft 12 million net profit exceeding the Ft 10 million in the third quarter a year ago. The product range of Synergon moved towards the type of products which provide higher EBITDA, while the share of revenue coming from the sale of hardware and other low-revenue products decreased. A one-off effect, the sale of Span, the Croatian affiliate of Synergon, provided Ft 305 million. But the increase in profitability already shows.

Q: Are you going to continue the regional expansion strategy of the previous management of Synergon?

A: No, regional expansion will not be the focus of Synergon’s growth strategy in the future. I do not believe that a regional multi can be developed from Hungary from this platform. At that time this strategy did seem to make sense, but looking back I cannot say keeping loss-making companies was a success story. In the future Synergon will focus its investment and management resources on domestic growth and expanding the capacities in Hungary to make large projects."

By Katalin Tóth

Source: Budapest Business Journal