BW Communities

Case Study: A-Tisket A-Tasket… Where’s The Buck?

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Taarik Goel was angry. He had ordered his lunch as he always did from Choolha: one gourmet diet tray, and for his colleagues Vignesh and Hardeep one granny's thali each. instead, the Choolha lad had left three trays of saag paneer and pulao, and zipped off. Taarik called Choolha, got the chap who took orders and gave him an earful. The hapless man at the other end said, "But my man has left and I can't do anything." This further incensed Taarik. And as he ‘educated' the Choolha man, in walked Hardeep Singh, GM-customer satisfaction, muttering under his breath. A large customer, Delstar Inc., was unhappy with a recent project. This was the third such event at SysTech India in eight weeks. And today, he had summarily told the VP-service delivery: there seems no real urgency to change. And here was Taarik slamming down the phone, mid-sentence as he told Hardeep about the food trays. "They are like us," said Hardeep. "their whole system is based on low-cost resources who are not great on quality or drive." Presently, Choolha called again with a negotiation, "Sir, aap thoda adjust kar lo aaj, please. Kal ka lunch free..." Taarik took off: "Today, no one is looking for freebies. You have grown big but your quality instead of improving has gone worse. No, no, no… It's not your food; it's your service. Your total packaging. Your management! delays, oily food, cold food, rubber rotis… there are innumerable restaurants who deliver lunches, and they are upgrading everyday!" Grinning, hardeep said, "Our story, all the way! We have grown in size, but not in depth. The offshore model is a given now, and business expectations are higher. But our business model is outdated. Our costs are high; profit expectation is higher, unrealistic; and content, packaging and delivery, mediocre. We are heavy on people; our middle-level is the one which services projects, but 100+ VPs and GMs? "Look at the mix. For every good manager we have three that are not so good. It worked earlier because our ‘three' were cheap and expectations were low. Today, these three have become expensive! Our managers are engineers who have been pushed to the top; we hired freshers below them to do the grunt work. As a result, we have 125 VPs!" Vignesh Iyer came in sprinting. "Did my food come?" he asked. ‘Oh my God! this is not what I ordered!" Hardeep laughed. "Now why do you sound like KenWest and Delstar? They too said, ‘Oh no! this is not what we asked for!'" Taarik could not resist a smile. Vignesh was annoyed. "Yaar, I am hungry and have a meeting at 2!" Hardeep: Change your vendor; go to one who is able to grow before you do. I tell you, Choolha is a scaled down version of SysTech. Today, like Choolha, we are continuing to work exactly as we did during the demand fulfillment era. The fact that today delivered food is a norm has not urged Choolha to innovate." SysTech was a software services company, which was labour-intensive work. It was 90 per cent of all SysTech's business, and it defined their environment, verily. SysTech had been a good player in its own space, thanks entirely to its effort in the past 15 years. Two days ago, KenWest, a key US client had bypassed SysTech on a major assignment and handed it to another vendor, much to the shock of SysTech's management committee (MC). A corridor discussion of what they were facing, ended with a stunning verdict from Alex Verghese, VP-hospitals vertical, "Is this a function of a fattened middle management (MM)?" <script type="text/javascript"> var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } </script> Devdutt Behl, the operations head, was peeved. Time and again, fingers pointed to the middle managers who were innumerable, and who were being seen as not effective anymore. Now he bravely offered, "When you are in the driver's seat running the show in a certain way for 10 years, and the winds suddenly change, what do you do? Steer in a different direction? No. You stay the course, then figure out what is going wrong, how to keep the boat steady and deliver the same numbers." What could have been an explosive argument was quelled then. But today, two days later, it was renewed over lunch with MD Vyaas Varshnei. Audarya Guha, the CTO said, "Our MM is in denial mode. They are not even able to see the flaws in their work. For the past 10-15 years, people were buying technology because there was all-round growth; now almost 7-10 per cent of money has disappeared from the markets and people are spending only on essentials. Companies have become sensitive about spending. MM has become too comfortable with easy business that came their way until now and is in part denial, part lethargy mode unwilling to take the pains to walk the tough road." Kapalesh Desai, the head of business structuring and HR, was of the view that the Indian IT industry was spending too much time preening itself, claiming authorship for demystifying and commoditising the software business compared to the IBMs and HPs of the world. That, he felt, helped put software on a pedestal, both at SysTech and the industry in general. A bulk of revenue and profit did come from a lot of low-tech work for which they got paid high-tech rates. No doubt even these rates that Indian software industry got were lower than what US customers paid the IBMs and HPs for similar jobs, but Kapalesh felt SysTech needed to stop comparing and behave like a pioneer, and ask, ‘am I running ahead of innovation?' And now, Audarya's words echoed in the directors' cafeteria on the sixth floor: MM has become too comfortable with easy business of the past 10 years and is in part denial/part lethargy mode … Kapalesh: Lethargy… it's a big word. Has various locations. So, where does lethargy reside —in your drive to renew your approaches, or in your desire for self-improvement? I see these as two handles that enable growth. One a passion for improving my external world; two, a burning desire to better myself, aware that I am not good enough. If the fat has settled on my waist-line, then I keep thinking that soon I will set it right, but for now its OK. Or, I look outside and blame others, which really means, being in denial that your phase of demand-pulled market is OVER; it's time to innovate. The denial is also lethargy. Chintan: This resembles IBM's condition in the 1980s. It held centerstage then; yet this inventor of the PC underestimated the market's potential evolution. So, the markets of desktop and mid-range servers and softwares exploded while IBM kept chanting, "I know it best because I invented this business". When Louis Gerstener took over, he made IBM realise that yes, you need big machines, you need big boxes and you need software, but you need to invest in services and make the business customer-centric. Thus, he heralded the back-to-basics approach, which had not occurred to anyone. Likewise it has not occurred to most of us that this crisis is NOT recessionary. KenWest, Delstar, etc. is not about recession and the crisis is not temporary; there is a huge strategic and fundamental shift needed. Vyaas: I see a physical problem in the form of strategy, foresight, etc. and a physiological problem in the form of a MM that is seemingly lethargic. Frankly, my concern is the physiology. How should we set it right? Kapalesh: One pointer would also be the life stage condition of the MM: Married 10 years, young children, parents just retired, urge to enjoy the pleasures of the world — travel, recreation, parties, social circles — in other words propensity for distraction very high… no threats, not from external world, no calling from within either. Or as we say, mid-life crisis has not hit yet. Chintan: The physio is also affected by the external environment. Trends like open source, SaaS, cloud computing, virtualisation are going to change the game completely in the next 5-10 years; currency arbitrage is going to disappear in 1-3 years, demand from US and Europe will shrink dramatically and all these are going to change your physiology. Then, there are the excesses. IT companies are overstaffed and overpaid. When the industry was nascent and the excitement was high, there was overpayment because margins were high, but then so was real estate, which soon corrected itself. Likewise, the crux of business evolution and growth was via IT. So, all businesses tended towards an evolved state of IT. <script type="text/javascript"> var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } </script> Alex: So, were the visionaries of the IT industry myopic? Since Vyaas is talking physical and physiology, I am saying the physicality is a function of the physiology, and not the other way round. Yes, MM is a physiological aspect, but there are other aspects of the physiology. the MM can be blamed only for his delusion that the entire industry is a making of his effort. But equally, to deny their hard work and capability is incorrect. What they did then was relevant, required and commensurate with the needs of the time. No doubt from where we stand today, it looks like small change. Kapalesh: Let us examine what changes we can bring about to our mix of managers, to the profiles and their expertise. For example, do we really need engineers for the basic tasks or can we work with science and commerce graduates? Alex: You see, 15 years ago, when all this began, the only people with the mindset for the evolving industry were engineers. Today, our curriculum is enriched and enhanced, what was possible only after graduation is now being offered in college, albeit not proficient enough. Yet, for all this, I would caution — a misplaced quest to turn away from qualified engineers to retain margins will cause a dilution of quality. Kapalesh: I doubt it. The level of standardisation itself has risen so much that the breakdowns will not be of the genre that requires engineering skills, but maintenance skills only. Alex: These are not sensible debates. Sitting in the here-and-now, we cannot flip back and rewrite old chapters. Ten years ago, it was not just about the doing. It was about the thinking too! It was the mindset, whose format and bandwidth that enabled innovative thinking, that was able to see a bigger picture and work for it. Audarya: This debate is meandering. What was, what can be, etc, is relevant if we can rewrite our episode with KenWest and Delstar. We are talking revenues and better margins and that is possible only by raising the quality bar. The definition of what is the ‘optimum quality' needs to be clarified. Has the industry become complacent with the quality standards it had put in place so that it now feels a non-engineer can do for maintenance and there is no real engineering effort needed for quality? Devdutt: Let us not talk about what is not, but what is! And what IS, is according to our good friend Alex — a overfed, fattened MM who have the initiative of a slug! So now, tell me! Kapalesh: I think the point we are driving at is this: industry norms cannot remain static. Success until now was a combination of opportunity, cost arbitrages and tax exemptions. The industry created a good model and the past 15 years were spent perfecting it. But because it led to high margins, people got high salaries and they thought this is their real worth. That correlation was our undoing. Devdutt: You are making a sweeping yet pointless statement. Yes, people got high salaries, because the particular skill was in high demand. That led to high margins, not the other way round as you put it. Kapalesh: Ok! let me explain. A $5-million project in IT takes 8-9 months to execute; the project manager will be paid about 15 lakh and the chances that the project will be completed on time, within budgets are, say 50 per cent? You take a similar case in say construction industry; for a project of similar value and size, the PM will get less than Rs 10 lakh. His experience will be twice that of the IT guy and chances that he will complete his project on time, within budgets and quality norms, are more than 50 per cent. So, the middle manager in IT is a child of opportunity, not intrinsic worth. Devdutt: You are comparing chalk and cheese, Kapalesh. Industry dynamics are very different for different industries, and you cannot randomly extrapolate. For example, construction industry demand is not based on need, but investment opportunity. Kapalesh: Correct! But are construction engineers paid as much as IT VPs? If you ask me IT project manager's job is far easier than job of PM in conventional industries, but they were getting higher salaries because they brought home more profits, because the business model itself was new. They have been led to believe that they are getting more money because they are superior in capability and skills which is not right, so there is a discrepancy. Audarya: We should look at another comparison. Take Tata Motors: it earns $14 billion in revenues, and has 23,000 employees and less than 25 VPs. However, SysTech in IT has less than Rs 2 billion in revenues, 50,000 employees and 100+ vice-presidents. So, if you compare, IT service business is overstaffed and overpaid. Kapalesh: There is a difference, Audarya. VPs in telco and other manufacturing companies are not classified as middle management. They would be senior management if not mezzanine. <script type="text/javascript"> var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } </script> Devdutt: You miss a serious point, Kapalesh! Tata Motors's project management is about managing materials and machines, which forms 80 per cent of resources. At Systech and other IT companies, PM is about managing manpower, which is 80 per cent of all employed resources! Behaviour of materials and machines is standardised, assured and predictable with a small standard deviation. For example, the input-output ratio of caustic soda and soap is standardised. Whereas that of humans is based on a reasonable expectation that his past creativity and productivity will repeat. And how do we ensure this? Through motivation and morale! Therefore my friend, through salaries that increase! Kapalesh: Debatable, but to consider other physiological issues, technology models are also changing because of many trends like cloud, as Chintan mentioned. So, when software is not within your premises, you will not need to hire people to maintain it, so all these tens of thousands of software support people will no longer be needed. IT services companies need to accept the reality and change their revenue model. It happened to hardware 10 years back. Hardware support used to be 10 per cent of hardware cost, so Rs 5,000 for a Rs 50,000 machine; and within few years it came down to few hundreds per machine per year. And not just we, Dev. Almost all players in the industry are reluctant to change their revenue models. Worse, companies like us are in denial! I am surprised that many think the dip in the IT business curve is due to recession and that soon high margins will return. But the truth is this dip is due to lack of strategic and structural reform. Alex: What recession? All are struggling, please. Your telco, your P&G, your Nirma and your dhobhi. But they are renewing their moves. At SysTech, we await the return to high margins and high revenues. Recession is the deluding mind at play! Your inability to change is your reluctance to change. You ask me what is wrong with our MM. Just this morning, I was talking to Hardeep Singh and he was ranting about how the MM is "keeping its jobs and not doing its job". Is a job to be kept or done? Hardeep is caught between a customer who is telling him the delivery is disappointing, a team of middle manager colleagues who are saying ‘what does he mean? We have done what we always do' and a boss who fears slapping the table. Hardeep says the MM is reluctant to make tough calls... Once again Audarya's words resonated — MM has become too comfortable… they don't want to take the pains to walk the tough road. Chintan (pensive all this while): What is the tough road? What exactly do we mean? Don't give me the nonsense about business cycles. Kapalesh: The road is tough where business exists, but what you have brought to serve it with is no more adequate. Not because you are inadequate, but because the people laying it out are incapable of being driven... But these cannot be justified as reasons for a job not done well enough. Today, as Hardeep said, we are trying to keep our jobs, not do them. You do a job when you ensure you have all that is needed to deliver 100 per cent. Tough is the road when a unit output compels, nay, demands a disproportionately larger input and you feel ‘this is too much'. It's a tough road when what you do is not enough for the customer, is not what or as much as he wanted. When the customer finds suddenly that as his mind expands for his customers and he is delivering more and better, his vendor stands far behind… in spirit and content. Vyaas wrote on the whiteboard: "The customer anticipates that you the vendor, will unfold at his level of sophistication." Then he said, "Everything else is less. This is where we need to always be. Let us reconvene with action plans..."<a href="mailto:casestudymeera@gmail.com">casestudymeera@gmail.com</a> <script type="text/javascript"> var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } </script>