Kailash Singh was dismayed. he was walking around the 9,000-sq. feet ‘Easily Elegant' (a.k.a. E-sqd), along with Lopa Mehta, its brand guardian. E-sqd was a lifestyle store — clothes, linen, household accessories and elegant living — with 18 other outlets.Kailash was an interactive brand strategist. On a recent holiday to California where business associates asked to see Indian lifestyle goods, he had readily opened the store's website and was shocked that they did not sell online. And that was one of the reasons he had called on Lopa Mehta. Lopa: The online sales module is too minuscule a business proposition. It is hard to keep online shoppers' interest levels up. I have spent a lot of time on this, Kailash. The effort that goes into generating a sale of Rs 6 lakh a month online, could generate four times as much sales per month in our store. We have accepted that being online is irrelevant for E-sqd.Kailash: Online presence is about much more than sales, Lopa. There is more to your brand which gets communicated, known, felt, understood, perceived… when you stay open and available and visible to the consumer. It's a completely new world now; just as today we want our product to be known globally... we want to also follow the global Indian customer wherever he goes! How about Twitter? Don't you want to keep your equity salient in his mind?Lopa: I get your point, but the ones who have something to say, write to us. Anyway, I don't have the fursat for another social networking site. It's intrusive, inquisitive, promotes pointless interest in pointless things. You know each social site now needs a new manager, besides! Yet, later Lopa mentioned it to CEO Dwij Nanda. "It seems that not being on Facebook is as backward as not using a deodorant!" Nanda shook his head and said, "Correct! So have we gone and made a fashion statement by not being on Facebook? So will consumers stop consuming? Wouldn't we rather have them in a 3-D store than speculate in 2-D? Let's not get into all this. We will all be immensely distracted. From what I see, whether you get there or not, those chaps will cause a buzz around you. That is their business. And we have to remain focussed on ours.Sankalp Handa (merchandising manager): It may be a good idea to get there to construct, like build new segments, cater to new tastes, research with new groups... engage with them, talk to them... establish presence…Nayana Dhir (research): Whether or not we are on Twitter or elsewhere, those who have an opinion will opine. It is the nature of these media. The social space is OK to hang out in socially, to inquire ‘hey, wassup?'; but is this relevant data? No. Emphatic ‘No'. Social media is mere rabble rouser, that's all. As far as I see, data collection has to be organised and done under a formal environment. In a noisy place, you get noise; you may imagine you are sifting and getting to the heart of the data, but you aren't. Conventional, old fashioned MR (market reasearch) is what works. The most relevant research data for marketing is one that is done in an unaffected environment, where people are not in performance mode, where they have normal, average stimuli. Does the social media proffer that? I don't think so.Reshaad Nariman (youngest of the team): It will be sometime before the new Net behaviours settle into a pattern. Do recall a brand mishap that happened a year ago, in November 2008. McNeil's Motrin story gives an insight into a different world; it shows us that a huge population is being ‘itself' as it populates a faceless, smell-less space, where introductions and familiarity is no big deal, where people exist on the go. What is amazing is that it works for them! [The Motrin-Twitter story: Motrin is a pain killer from McNeil Consumer Healthcare. A campaign in October 2008 targeted ‘babywearing' moms (mothers who wear the baby on their person as against putting the baby in a pram) and, at some stage, the copy referred to such moms as ‘official moms' and went on to use a sentence structure that led young moms to feel that McNeil was saying that babies are an accessory. The moms' annoyance gained terrific momentum on Twitter, so much so that McNeil's vice-president consumer business, Kathy Widmer apologised on Twitter and withdrew the ad..]Arjun Das (marketing): A thing works if it is granted space. Take a parallel. In our eight-hour day, we had just one lunch break. Before and after, nobody eats. Recently, we introduced a tea break. Now many people eat during this break, not necessarily because they are hungry. The canteen is also stocking Haldiram sachets. See what is going on? If you create the opportunity, there will be opinions, arguments, protests, morchas, hartals, anything! 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;') } On the Net, you have a million people dying to be heard, to be seen, to make a difference, to express, to be appreciated, to shout. These are people who don't even know each other. Now, take the Motrin situation in a supermarket — a scenario of no internet. Three women having seen the ad are tut-tutting ‘is baby an accessory?' Three other women pass by wheeling baby prams. Do they stop and say, ‘Did you mention the Motrin ad?' No! They walk on, even though the first three women are in the same segment, shop at the same supermarket and are in the same spot at the same time. Yet, no contact or opinion trading. Reshaad: Okay, here is another scenario. Move out of the supermarket to a wedding of Bunty and Babli in Golf Links, with 5,000 invitees. Twenty five friends of Bunty make a beeline for dinner. They comment ‘this palak paneer is weird…'; two of Babli's friends standing nearby hear that and say, ‘we thought so too! Try the dum aloo, it is divine'. So what are we now seeing? People are getting sociable even if they don't know each other, but they are in the same setting. Yes, people want to talk, be heard, opine, blah. All they need is a fine thread of commonality connecting them, as in this case, a wedding to which both have been invited. As in Twitter, where they are all co-members.The point is earlier brands were marketing in a space where the consumer was kept in mute mode; today, the brand is placed in a space where consumers are talking. Until now, getting a feedback through to a brand manager was tedious, but not any more! As for the brand owner, if he has the sense to listen and correct, he has all these people with him, if not, not!Nanda: See, we cannot be present everywhere. I agree with Lopa, we will then have to hire a Facebook manager, a Twitter manager, an internet manager to whom they will all have dotted line reporting… insane! Where all can we be? Reshaad: Wherever your consumer is or could be! See, it's like a virus that spreads across the Net; and it cannot be controlled — only managed by participating in it. Examine Motrin's path: the ad was on its Web pages for a long time. Then a blogger picked it up and made confetti of it. The shreds then flew and reached Twitter, then a tweeting blogger compiled the tweets and made a video for YouTube, and finally mainstream New York Times, Wall Street Journal all picked it up. See? The Net is thus a great viral ground. The blaze spreads.Nanda: Actually, there is a whole new psychology at play, which is why I am not Net-happy. It is not easy to simplify it like this. There are multiple skits being played out, all at the same time, each with a completely unique perspective. For example, the first salvo may have been the most decisive. It came from a blogger mother who had 1,800 followers on Twitter. So she swings the polls. She began by saying stuff like ‘I am outraged'. Now close your eyes and visualise 1,800 women standing on a podium and chanting ‘I am outraged'; What do you get? Panic.Other women stop and look. ‘Hey, she is outraged, what happened? Here is something! We must find out, maybe we don't know...' The next missile came from another lady blogger who ran a kids clothing store. She put together the tweets from offended moms and developed a video for YouTube. Her video got 21,000 views! Is 21,000 anything? No! But, there is g-r-e-a-t curiosity value behind the drama. You see one reaction today. You will come running back in an hour to see what someone else said… soon you are drowning in a foamy froth!Reshaad: I agree with you. Some blogger with some following is making angry sounds does not count for anything! But when you are linked to other bloggers and they all carry links to your blog on their pages and if they too made growling sounds, you have a bigger chorus. Don't you see, it is a society of people all together!Sankalp: My question is, why was this much enough to rattle McNeil's Kathy Widmer? She runs a business, she manages a serious brand, is a tough, well-heeled marketer… then what happened? She went on Twitter and apologised and promised to withdraw it. You say 4,000 or 5,000 followers is to be seen as a small blimp, a village march. Then was Widmer overreacting? Nayana: Yes! But what caused that overreaction? Suddenly you are faced with angry voices. Until now, when a consumer got angry, you got a monotone letter, an email at best. But a crowd? 5,000 consumers tweeting for your blood the minute you log on? Never before! When you see tweets from bloggers who carry four-digit followerships, your first reaction is, "Oh my God! If here and now I am seeing 4,200, how many am I not seeing?!Arjun: Stop, stop, stop. Recall her words on Twitter: "We have heard you… please accept our sincere apology." Not just apologetic as in ‘The management regrets the inconvenience caused', but deep and desperate. In that I read panic. Nayana: Exactly! So, was it a fear of the unknown social media, its capability, its potential to cause damage, the possible ripple effect? Please understand, what freaks you is seeing those followerships in numbers and imagining them raising hands to vote against you. TV too clocks followers through TRPs. But what is this TRP? Is it a measure of people who like and dislike your show? No! It is a measure of how many people had their TV sets on when this show/ad was being aired. Did they watch it? Did they like it? Did they hate it? No answers! TRP ‘implies' or assumes that ‘TV set is on = People watching shows'. But here the vote is clear and vocal. And that is unnerving. Lopa: So those 15,000 tweets were correct? 15,000 people flicked off a possibly Rs 35-lakh ad? 21,000 watched the YouTube video, but did they decry the ad? They watched. And they opined. But, don't you validate their opinions first? Are we saying 5,000 or 10,000 tweets can topple an ad? Is this a reality show? What about the creative, copy and the client service people who have built this brand, its success, its image? Sankalp: Wait, go beyond the surface noise. Success, image, staying power — all that gets redefined every time a screaming audience decides to topple you. Your success is defined by your reaction to a screaming audience! 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;') } Lopa: That is the point. In my humble opinion, Kathy Widmer directed her success by withdrawing that ad. She declared the ad was a failure because it failed with 20,000 or 30,000 tweeting people. The media who wrote about Motrin, actually wrote about a hysteria on Twitter. They were not writing about Motrin the brand being bad, failure, etc. Importantly, did Widmer know whether those tweeters were Motrin users? If they were not, did they have any context complaining? Mind you, it was not offensive copy. Then why did she react?Reshaad: Don't you see, that is the strength of the social media! And such a medium is today's reality — the society of bloggers, YouTubers, Tweeters, etc. also hold the mike. They can snatch the mike from you if they don't like your script, and start speaking their's!Nayana: Take the example of our own Shashi Tharoor. The print media painted him into a corner based on what the Congress said. But did you check the tweeters? They were in his favour. Over the weeks, Tharoor has become a cult figure and must change his name to Shashi Twitter. Someone even ran a tiny survey on Twitter: a. Do you think of Dr Tharoor's reference of "cattle class" and "holy cow" as a derogatory statement towards common man? 71 per cent said ‘No'.b. Do you think media, especially the visual media, over-reacted? 75 per cent said ‘Yes'.c. Do you want to see more politicians join social networking/microblogging sites like Twitter, Facebook, etc.? 84 per cent said ‘Yes'.But the crowning glory came from one anonymous who said: "These are TRP games. The media and vested interests are making puppets of all of us and we are sadly behaving like a herd of cattle." That, I think, sums up the Motrin-Twitter episode!Nanda: Okay, hang on guys. What would have happened if McNeil had not pulled the ad off the air, when it did? Sankalp: You mean, was that reaction from Widmer based on logic or calculations? If you take Motrin's market size, TA, segments, etc., what percentage of Motrin users did those angry moms represent? Are the opinions of these tweeting moms dependable? Could they have been able to damage the brand? Perform the arithmetic please! Suppose 2,000 tweets decry a soap brand; will it really break the brand following? Suppose its total market is one million users. How many of these are on Twitter? Say 5,000. How many of these 5,000 base their brand preferences on Tweets? Social media chatter has a shelf life. It is fanned and fuelled the first five days, then new things catch their fancy. Taking any decisions during these five days can be premature.Reshaad: Nonsense! You cannot believe that after five days, the news dies? Noooo! Take the Motrin situation. Within the week, the ad was generating 300 tweets per hour! Once it made it to ‘Trending Topics' on Twitter, the original bloggers took their stories to newspapers which had to perform the funeral services.And mind you, on Twitter the impact is more vivid and deep because you are actually getting to read the unedited anger, the vicious glee as they rubbish the brand… In contrast, conventional brand advertising, the one that talks for the brand, is less effusive, see, which is why negative advertising works stronger. Lopa: Wait Reshaad. Truth is, finally when they examined it, it was found only 35 per cent of the tweets were in fact negative! That is what makes this whole thing very reactive. There is something to what Sankalp said: taking decisions based on tweet calls is an insult to your brand and your brand manager. But then I also believe the brand manager has axed his feet by not stomping down hard enough and asking to validate feedback before withdrawing the ad.Nanda: But say, were they able to dialogue with these mothers and find out what was so offensive about the ad? It's finally McNeil baba… those guys are careful, decent marketers. It's as if one of our focus groups goes ballistic, starts calling us names and we withdraw the product!Sankalp (laughing mirthfully): Yes, it looks like that! Except what makes this bothersome is that the focus group also wielded a mike, so that many many people heard them. I feel somewhere this sort of thing loses objectivity and takes on a morcha kind of appeal, which is what makes this medium less about marketing and more about emotional table thumping. Nanda: So how long was it between the time they began to tweet till they pulled off?Reshaad: 4-5 days, less, if at all. But the funny thing is, once the ad was pulled off, a new set of people began a new song, ‘Oh, but McNeil should not have reacted like this!' Like one post on YouTube said, "This is hilarious and so is the outrage. A lot of people actually did not mind the ad which really meant McNeil was overreacting to a bunch of overreacting moms."Lopa: But coming back to where we began today — should we be on social media or not? I was looking at all this on the Net, and I did a simple search on Motrin and Twitter as my search words. What I saw blew my whole resistance to this social media carnival. On Twitter, the same host who hosted the hysteric dance and helped pull down the ad comprised people who were all posting messages that said, "oh take a Motrin"; "nothing like a Motrin"; "you need some Motrin! It always gets me together :-)"; "Motrin targets your pain the same way a dog targets your leg"; "oh yea, I like Advil but when I have lil' pains and headaches, Motrin is what you take when it starts bangin!"Didn't Widmer see what a presence and following the brand had? Why didn't she analyse the sentiments before pulling off? I do think Motrin has a great thing going on Twitter; and with all that following I would have started a dialogue with those moms — not pull the shutters down on the ad! Can you imagine having E-sqd talked about like that? So…Nanda: Are you saying we should? I am very iffy… would be valuable to call Ms Widmer and find out what she spent on damage control. I'd rather not be talked about than be talked about and then pay a PR company to put me back on the pop charts. Reshaad: Let me leave this thought with you: marketing bloggers were of the view that Motrin's ad agency had no idea about Twitter or the online fracas until it was pointed out to them! I don't know how true that is, but if it is, we don't want to look like them! Classroom/Syndicate DiscussionHow do you identify your target audience in cyberspace? Can a brand be handed over to a mob?casestudymeera at gmail at com 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;') }
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Here is a great story about how managing for the present can be at the cost of foresight. There are two things that have occurred. First, a customer (Ken West) reserves the right to hand over their business to another organisation that is seen to have the greater capability. Second, there are clear rumblings from a customer on the delivery front. The two events have a common thread that of losing business (now or in future) as a result of customer dissatisfaction or even evolving customer needs. Both have acted in tandem to hit SysTech hard and that too when the overall global scenario is itself compressing business opportunity. Context is ever changing. Needless to say, what we do under a given set of circumstances cannot be the same when the situation has evolved or morphed into something else. The advantages of price arbitrage can never remain. Early benefits last only for a short time. Some focus needs to be on the changing nature of things. Markets, technology, you name it, they are all rapidly evolving. The name of the game is anticipation without losing focus on the present, one cannot be at the cost of the other. In the absence of anticipatory thinking one is forced to look at the reality only after the event. Vital time may be lost. But what's new? Is that not the nature of things as we look all around us? The most glaring is our government which manages the past, not even the present! The moment we enter the anticipatory space we get into approximations, the grey area. Perhaps it is a combination of some facts, some intuition, some conjecture and so on. Not all are comfortable with being in that space and therefore tend to move away from it perhaps towards a more conservative approach. However, does one really have the luxury of choosing whether to anticipate or not? I believe we have no choice because if we do not anticipate what was hitherto our strength can suddenly become our weakness. But at the point of ‘retooling' or ‘re-configuring' there is going to be a frustrating time perhaps full of a lot of inter personal differences and so on. The way these covert processes are handled will determine the strength that emerges and the manner of dealing with the anticipated situation. Devdutt Behl, Head of Operations, says "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. No! You first try and stay the course. You try and figure out what is going wrong and how to keep the boat steady and deliver the same numbers quarter after quarter…" while there is some truth in this, do we need to adapt differently? Are there a set of things we can do which will better be able to cope with the changes taking place? There could be a tacit warning that something in the context is changing and we will have be mindful of these and determine the future course. The polarization is between those who try and maintain the responses that have worked in the past and those who believe that the responses have to change. The second issue that is embedded in this case is not about anticipation and thinking about the best course for the future, but how are we managing even the present. SysTech's customers are not happy. Middle management is being held responsible by seniors. Looks a bit like passing the buck. Has complacency set in? How? What was the role of their managers? Did nobody see the writing on the wall? Can we even begin to look at the future when basic stuff in the present is not happening? This is perhaps a challenge – of dealing effectively with the present and simultaneously steering for the future. 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;') } The discussion between the senior leaders of Systech is reminiscent of the six blind men who are trying to understand what the elephant really is, each is clearly on to some aspect of the truth but what they do to each other is not try and integrate and build from the separate perspectives. It seems more like "The way I see things is the only truth." The MD finally sums up in an over generalised way and suggests further talk, which doesn't seem to integrate and build a consolidated view. Development is a dynamic process and needs to be recognised as such. Whether at a collective or an individual level, the context is ever evolving. What one needs to keep a focus on are the following if one is to be relevant and meaningful in future:Strengths may become weaknesses: SysTech had a large work force capable of handling the eventualities of earlier times. When technology requirements change those capabilities can suddenly become obsolete. Hardeep observes - "We are heavy on people; our middle level is the one which services projects, no doubt but 200 VPs and GMs? Look at the mix; For every good manager we have three that are not so good. It worked earlier because our ‘3' were cheap and expectations were lower and we wanted to always have extras in case of sudden jobs…" The danger is to believe that once a strength always a strength.Flaws may suddenly matter: The ‘bulky' middle management now suddenly feels heavy and begins to make its presence felt in a negative way. And, as Tarik says of the caterer, "their whole system is based on low cost resources who are not great on quality or drive." These flaws perhaps could be easily overlooked in the past, but over time they cannot be swept under the carpet and need to be addressed, albeit belatedly. Current strengths can be less important for the future: SysTech needs to anticipate how their client needs are evolving. Indeed they have to know their customer inside out. Only if they are able to read the signs will the recognition develop that we in the organization do not currently have the capability of delivering their clients evolving need.New skills may be required: Consequently the search will need to start for obtaining the requisite skills. From this point of view learning — consolidation — relearning is an evolving spiral. The moment one begins to think otherwise, that what got us here will get us there, trouble can be round the corner.Therefore, with great humility one needs to be able to see what is going on and what the response may need to be for the future. Not to be aware could mean the difference between survival and oblivion. Kaushik is an independent consultant. His focus is on individual and organisation development. He can be reached on kaushikgopal01@gmail.com 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;') }
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Systech's problem is bigger than their senior managers think it is. Firstly, it is bad delivery resulting in customer dissatisfaction and loss of business. But even more alarming is the problem of self-deception that the senior management is suffering from. Self-deception occurs when leaders do not even know that they have a bigger problem. Leadership guru Warren Bennis calls this "unconscious conspiracy". Wind-milling at the middle management for all the woes of SysTech is not going to help much. The first step towards curing SysTech's problems is senior management learning not to sidetrack the serious problem of poor delivery. Kapalesh perhaps comes close to recognising this when he says, "denial is also lethargy."Biggest contribution Kapalesh could make is to help his colleagues recognise that they are externalising the problem by blaming it on the middle managers. And this is not uncommon in management discussions for it brings enormous comfort to senior managers, counterfeit one, though. Setting the strategic direction is unquestionably the agenda for senior leadership. This is, of course, done with discussions and debates with experts with deep industry insight and with middle managers who deliver results to the customers. IT industry leverages capabilities in people, process and technology. SysTech leadership seems to be blissfully unaware of the changing technology, besides widening gaps in delivery. Software engineering techniques and principles are precisely meant to ensure consistent and reliable production of software provided there is a certain rigour in their implementation. While India can boast of being the country with maximum number of companies assessed at CMMI (Capability Maturity Model Integrated) level 5, it is anybody's guess as to how many of these firms maintain the rigour post-assessment. Discussions amongst Vyaas Varshnei and other leaders are revolving around establishing what may be called the "problem-lie-elsewhere syndrome." And this is despite Devdutt inviting his colleagues into a "soul-searching conversation." This team needs help from a consultant who can help them go through the problem identification, ownership and solution process. And this normally involves five stages. (a) feelings; (b) facts; (c) problem recognition; (d) ownership and accountability; and (e) execution for desired results. Right now, the team is taking comfort in sharing feelings and indulging in defensive behaviours such as generalising, externalising, projecting, pairing and humouring. They are nowhere near stage two, which is "fact finding". An organisation such as SysTech with $1 billion in revenues and 50,000 people will find it difficult to be nimble. But rude shocks, as with KenWest and Delstar episodes, should shake them out of the slumber. Cloud computing, currency arbitrage and complacence are problems not just for the middle management to worry about, but fall squarely in the agenda for the leadership team. While the very existence of 100+ VPs is no big negative for SysTech, it is the absence of well-defined roles that is. This is responsibility of Kapalesh as head of HR in-charge of organisation design. Even as they seek external help, I would put few questions before the leadership team: Is there a well-constituted leadership team with clear responsibility for steering the company in the right direction?Are there appropriate social operating mechanisms (SOMs) with clear agenda and objectives? SOMs include periodic management team meetings, annual planning sessions, budget and operations planning sessions, quarterly review meetings, technology review meetings, operations/delivery health check meetings, dash boards and reviews, talent review councils, succession planning reviews, and the like.Is there a performance management and review system? How well is that implemented? How strong is the consequence management process for non-performers?Is there a clear understanding that structure follows strategy, and staffing follows structure? Do leaders spend time doing what IBM's Lou Gerstner did — "Operation Bearhug" whereby leaders spent time with key customers and understood their expectations and complaints?Do leaders walk around the "software shop floor" getting a sense of what is fine and what is not? Often, the engineers know the problem long before managers get to hear about it.What kind of customer feedback mechanisms are in place to address customer dissatisfaction expeditiously?Searching for answers to the above questions will prepare the SysTech for recognising the problems that are more fundamental in nature. There is, of course, the other option. Do nothing or keep complaining collectively as at present, and become a laggard. Let us wish the team all the very best! C. Mahalingam is the EVP & Global Chief People Officer with Symphony Services Corporation of India 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;') } (This story was published in Businessworld Issue Dated 14-09-2009)
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The turmoil at SysTech has led to an intense debate on the nature of the problem and who is responsible. It is very interesting when the MD, Vyaas Varshnei, says, "From what you all are saying I hear there is a physical problem in the form of strategic foresight, etc. and a physiological problem in the form of a middle management (MM) that is seemingly lethargic. Frankly, my concern is the physiology. What should we do to set it, the MM, right."It is not necessarily a correct diagnosis of the problem. Moreover, if the CEO is less concerned about the physical problem of strategic foresight than the physiological problem of middle management, he is missing the wood for the trees.The management layers and thickness of each layer is an outcome of the business model pursued by Systech, like the majority of software companies. It served its purpose and will continue to serve, till the existing business model provides significant returns. The tendency will be to stretch the business model to its maximum capacity, till it works.If Vyaas expects that the MM in this business model will deliver on its job and should also be able to define the contours of new business model, conceptualise it, execute it and make it viable, it may not work.An ability to spot shifts in business and economic direction, ability to sense the opportunities in these shifts, and ability to build a business model to address these opportunities is one set of capability. This can come from anywhere. The current set of IT leaders were built by people who came from diverse backgrounds. Some were entrepreneurs, and some were MM of older generation IT companies such as DCM and PCS. It is more a function of individual excellence than a routine characteristics of a management layer.The ability to execute the business model and help scale it up is another set of abilities. Today's MM is rich in the second set of capabilities.As the business focus shifts, and the need for a new business models becomes clearer, a set of leaders will emerge who will create new businesses in new markets with new business models. The success of these business models will redefine the management layer and the physiological problem, as Vyaas puts it, will automatically disappear as it will no longer serve the needs of new business models. Trying to cure this problem without fixing the strategic foresight problem is like putting the cart before the horse. The key here is Systech's overall ability to adapt and change and reinvent itself as a company. It is instructive to see how two different industries in the US dealt with changes in the macro environment. The auto industry in the US faced increasing competition from efficient Japanese companies who built cheaper, better and fuel-efficient cars. The US companies refused to change and refused to invest in new technologies and innovation. In the end, when push came to shove, they asked for government subsidies and one of the reasons cited was ‘need to invest in innovation'. It is now apparent to all how the auto industry lost the lead to Japan.The IT industry in the US, on the other hand, continued to reinvent itself as the computing environment shifted from mainframes to mid-range to desktops. As software matured and technologies like internet redefined the industry, a new set of leaders emerged while older players such as HP and IBM reinvented themselves. Companies such as Microsoft and Apple are adapting to changes and continue to do well even though new leaders like Google and Amazon emerge on the horizon. Offshore services was a big game changer, which created another set of leaders. All the major IT companies, though, quickly adapted to this new model and leveraged it effectively to strengthen their existing businesses.The level of openness and intropection seen in the debates is a reflection of Systech's ability to adapt and change.Audarya quotes Tata Motors and their numbers in favour of his argument. He can draw inspiration from the fact that Tata Motors, which was in the trucks business and had seen rough times, successfully reinvented themselves with Indica and then the world's cheapest car, Nano. Kapalesh puts it very well when he says, "Tough is the road when a unit output compels, nay, demands a larger input and you feel ‘this is too much'. It is a tough road when what you do is not enough for customer, is not what or as much as the customer 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. Tough is the road, when you know what you should be doing, but also know you do not have the human resources or the will to do it."Systech's future depends on how fast and how well it walks this tough road.Anirudh Joshi works for an IT company and is based in Bangalore. The views expressed here are his own 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;') } (This story was published in Businessworld Issue Dated 14-09-2009)
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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)?" 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;') } 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. 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;') } 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. 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;') } 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..."casestudymeera@gmail.com 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;') }
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A rising tide lifts all boats. the fundamental problem at SysTech is typical of a company that has grown thanks to market momentum rather than due to any strategy. If anything, the "strategy" appears to have been to stick to the comfort zones namely, operating in known geographies (the US and the UK) and sectors (application maintenance primarily in legacy systems). An ethical company focused on diligently executing a customer's requirements is what SysTech appears to be. In not-so-charitable terms, SysTech seems to be an "order-taker", reacting only to the customer's needs rather than defining them.Not surprisingly, companies such as SysTech grew to a billion dollars thanks to market demands and customer requirements that did not see the need to invest in sales, demand creation, and market and service line expansion activities. They believed that the good times would continue to roll, which is dangerous in any industry, especially in a fast changing one like IT.The broad issues at SysTech can be listed as:Leadership: The long-serving CEO appears to be facing a real crisis for the first time. The company that was coasting along under his stewardship for over 18 years is now having to deal with the effects of a passive and myopic leadership. The CEO clearly carries the can for allowing the company to reach the current state. The rest of the management team rode the waves of market demand as well, and seems to have become wise only after the fact. Strategy: This is a function of the quality of the leadership team. At the end of the day, it is the leadership team that develops the strategic objectives, the operating plan and gets the team motivated enough to successfully execute it. SysTech does not appear to have had a strategy that factored in changing market conditions and customer requirements and rolled them back into organisational preparedness.Structure of the company: That the structure of a company — financial and people — should follow its strategy is an old adage. In SysTech's case, the lack of the strategy shows in the structural issues. For example, the lack of sales and marketing people and the fractured decision-making process. The non-alignment of the structure with the strategy of the company also manifests itself in people playing the blame game. Culture of the company: Culture again flows from the top leadership. With the company tacitly and passively following a path forced upon it by customers and the market, it is not used to being proactive and setting the agenda. Senior leadership too seems incapable of doing this. How does the company change from passive-reacting to aggressive action?That SysTech is hopelessly out of touch with the market and customer needs is clear. That it is in a tough position with shrinking market demand, loss of contracts from long-time customers and a harried leadership team is an understatement.There are no short and or easy solutions ahead of the company. Can the CEO take the appropriate decisions for getting the company back on track? Given the circumstances, it appears not. After all the company's current situation came about under his stewardship over 18 years. Winston Churchill is supposed to have remarked, "I've yet to see a bottle where the bottleneck is not at the top". here too the core issue is that of a bottleneck at the top, namely the CEO. The current CEO needs to change its mindset or be replaced. The possibility of sudden and dramatic change occurring in the current CEO leading to the creation of a changed company looks remote. The management team too seems to have suddenly realised that their passive and tacit attitude has not helped and are frustrated and angry at the turn of events. The problems at SysTech would have surfaced sooner or later. The current market situation only precipitated it. But the problems are symptoms of a deeper malaise — that of strategy myopia, leading to a narrow view of the business the company was in. This in turn led to the creation of a set of competencies and capabilities within SysTech that did not and could not address the changed nature of business. The strongly held beliefs of the management team of the nature of their business blinded them to the changing external conditions. A look at the collapse of companies in sector after sector over the decades only showcases the dangers of not staying engaged with the environment and not having the leadership ability to address the situation. In the Indian IT industry alone, leading companies of the 1980s such as DCM Data Products, ORG Systems, PCL, Siva and IDM are no longer heard of. Globally, Netscape (the first browser company), database companies such as Ingres and Informix, networking software companies such as Novell, systems companies such as Compaq, Digital and Tandem did not adapt to what the market, technology and customers were saying.Sanjay Anandaram has over 20 years' experience as an executive, entrepreneur, advisor, visiting faculty and investor 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;') } (This story was published in Businessworld Issue Dated 31-08-2009)
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Systech is facing its moment of truth. a situation where your most loyal customer chooses not to invite you for a large bid, and tells you the facts in clinical language can be quite disheartening for any company. Reality has a way of forcing itself upon you if you choose to ignore it — as the Systech team has discovered.The success of IT in India was not exactly serendipity, but one cannot ignore the fact that it was a fortuitous combination of circumstances, which led to the rapid growth and success of export services in IT from india. We saw a phase of huge global demand in the past two decades; had a currency arbitrage which was in our favour; and the government stepped in with its tax exemptions and stayed away from trying to regulate the heady growth. The talent pool of hard-working engineering graduates willing to work at salaries, which were a fraction of global salaries was readily available to fulfill this demand. A set of visionary leaders and managers in the industry spotted the opportunity very early, and built their companies and businesses in the most impressive fashion. A great business model was born which drove the growth till now.We are now entering a different set of circumstances, and while Kalpesh may not be completely right when he says that "The business model is not holding up", it is clear that what got us here in past 10 years won't get us there in the next decade. It will be a long time, if ever, before the global demand goes back to what it was a few year back. The tax regime is set to change. Our costs are not what they were, and all the global vendors have figured out how to play the cost arbitrage game as well. The set of circumstances have changed, for the worse, and the business model, the business practices, the strategy and the tactics, all need to change. It is interesting to see that most people think of the success of Indian IT as the success of technical abilities. The business of technology is first a business and then technology. What succeeded was the business model not the technology. Technology was only an enabler, and it was the people involved who made it work.Any business, be it technology, manufacturing, finance, films or construction, is an interplay of human energy and money. A lot of rules differ from business to business, but some things are basic, and they are common to all. However, now that the rules of the game are changing, IT companies will need to create new business models and target new markets because traditional markets and traditional business models are facing diminishing returns. In the new environment, there are no props or crutches, and the ability to staff a team with large number of people and manage them is no longer a guarantee of success. The history of IT industry globally is replete with examples of companies, which disappeared because they could not change their strategic direction, became too complacent, or were in denial of the reality. IBM survived and thrived only when it shifted its focus to services in the 1990s. Other companies who were in mainframe businesses were wiped away or got acquired as mainframes gave way to PCs. Companies such as Novell which were leaders in networking, or like Baan which were leaders in ERP, or Compaq which were leaders in PCs have either disappeared or are pale shadows of themselves today. Back home, all the companies who were leaders in IT in the 1970s and 80s like DCM, ICIM, and ORG could not change their direction and were not able to leverage the new set of opportunities which were created globally.In both domestic and global business, those who saw the change, understood it and dealt with it, survived and thrived. Rest is history.The question to answer for Systech is not if it should get into hardware or not get into hardware, or in other related services like BPO. The question is what it will do when the world around it changes completely, as it surely will, sooner rather than later. There will soon be a time when they will not have tax exemptions, when the dollar will no longer be Rs 47, when US companies will no longer have the same chunk of business at rates, which are attractive to customers, but are still highly profitable for Systech. Creating a business model to achieve profitable growth in changed circumstances requires a different set of capabilities. What Systech needs to figure out, without being in denial, is where exactly does it want to be, what is the road it wants to take, and what does it take to create those capabilities and then has to execute it with rigour. It is easier said than done, and the first step is to accept that the world has changed.It has the option of hoping that the world does not change and its current set of capabilities continue to deliver, like many of its peers. Hope unfortunately cannot be a strategy.Anirudh Joshi works for an IT company and is based in Bangalore. The views expressed here are his own 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;') } (This story was published in Businessworld Issue Dated 31-08-2009)
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Vyaas Varshnei had never felt more alone in his 58 years. Not hopeless, but desolate like Moses atop Mt Sinai. At SysTech he had a wonderful team, raring to go, to achieve — constructively aggressive.Systech was a mid-sized software services company, with a revenue of roughly $1 billion. Not yet the industry's poster boy, it was known for its persevering, steady yet ethical climb up the ladder of growth. Market watchers liked Systech for its image of eager beavers, who had come up the hard way bearing a wholesome Indian approach to business. Last fortnight, Vyaas, Systech's managing director, came head on with what might be his moment of reckoning; the recurrence of this situation in a span of eight months caused him a moment's anxiety. Where did I turn complacent?This is what happened: KenWest, a large multi discipline hospital in the US, had been a client of SysTech for over 18 years. KenWest ran its core applications on mainframe, and it wanted to migrate from mainframe to open systems architecture, because the mainframe was cost ineffective while also operating on legacy systems. KenWest had decided on its new platform as well as the new softwareplatform, system blueprint and preferred design. The consequent migration, transition and settling process was a $30-million deal. The assignment required that the service provider should be conversant with mainframe, all new hardware and know the entire stack well, to migrate smoothly, without derailment of current operations. Now, there were three clear parts to the assignment: a) choosing the hardware and software and advising on compatible parallel applications, b) migration, installation, test runs, validation of all systems and; c) routine maintenance. Having been their resident service provider all these years, Systech assumed the $30-million deal was in the bag. But KenWest's Mark Springer wrote to Systech's Operations head Devdutt Behl saying, "Once we move and install the new software and new hardware, we will give it to you to maintain, as hardware and its ilk is not your core business expertise. Given how risky the migration process can be, the teams here have elected to work with Kessana Inc. We have restricted our bid invitees to only integrated firms with a strong track record in hardware. Hence, SysTech does not qualify to bid." Vyaas was taken aback. This was unusual. Individually, Devdutt, Alex Verghese, vice-president of hospitals vertical, and Kapalesh Desai, the head of business structuring and HR, sat in their respective offices dealing with the shock and strangeness of the message. Soon they were all in the conference room grappling with the pall of gloom. The one thought on every mind was: ‘This probably has to do with the last product design architecture for KenWest and they were not very enamoured with the attention the assignment got.' Eight months ago, SysTech had delivered a design architecture for KenWest's Medic Trend, a small data analysis product, which surgeons and specialists used, to track and study symptoms. The design was trashed by KenWest as lacking contemporary dynamism. At an internal post audit, Samresh Sanyal, the design engineering chief, told Vyaas, "In hindsight, I do feel we should have viewed the complexity of the work and its importance in the context of the changing marketplace. I think we did not factor that in." So now, when it became known that Systech has lost the $30-million deal, especially during recession when everyone was trying to keep at least what they had, not being invited to even bid caused a lot of discomfort. Vyaas did spend time thinking about it, but he had been in this industry long enough to know that business gain and loss had to be taken in a balanced way. Besides, these were difficult times, and reasons for someone else getting a job were not exactly logical. Yet he knew, that at the heart of this crisis lay a lesson to be learnt.Vyaas had wanted the initial raging feelings to dissipate before he sat the team on a soul searching exercise. But even as they stepped out of his room to walk back to theirs, Kapalesh and Devdutt, two strong directors and strong comrades, were already sparring and immensely. Said Kapalesh, "I saw it coming, Dev. We are not matching pace with the industry's evolution, we are not evolving afresh! If we, at the helm of affairs, shy away from calling a spade a spade, how will the business gain direction? This is a professional mishap, and even now it is not late. The MD did not want to enter the hardware business and did not allow me to build competencies. You, as the operations head, are the primary custodian and treasury of our quality... you need to think about this. Everybody is talking integrated business models, except us.Unable to brook attack when he was so vulnerable, DevDutt hit back, "How come, Kapalesh? At Systech, aren't you the architect of structure and systems and a close advisor to the MD on business development direction? How come it is not also your fault? 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;') } "True", said Kapalesh "but HR cannot force direction. I can point to it, like a compass. But the decision to choose that direction has to be of operations, along with the chief technical officer (CTO) and Strategy. Dev, you are a old hand, you needed to have cast away your blinkers and seen that we needed to get into other businesses too." Ninety percent of SysTech's revenue came from software services; while it did have small initial investments in BPO and hardware, not much attention was paid to grow these businesses. But then again, at the time the software services business was launched, it had relevance and commanded high margin fees and that worked for the state of evolution that the IT industry was in India, especially the offshore model. While other companies in the industry were investing aggressively in infrastructure and BPO as well as exploring markets other than the US and the UK — APAC/Middle East/Latin America — Systech continued to have faith in the software business and remained in its comfort zone. This was at the heart of Kapalesh's irritation. He felt Systech was snoozing and needed to revisit its business plan. Life had changed, the alarm had gone off long ago for many, only Systech was yet to awaken, he thought. Sure, this may not have been the right time to say all that he did, but then he had been saying all this for long, and each time he only felt vindicated, as he did now. The situation was irresistible. Kapalesh: I think the biggest mistake we are making is in not venturing outside software. But today, if we do not expand in all categories, we are limiting our reach. It is just a perception that software is the high end to be in. Enterprises want the service provider to look at the entire stack — hardware+software+business processes, and the innovation around these. Devdutt: But don't forget — being in software allows me to stay in touch with my customer and have a front seat view of the market evolution. And we need this business to own the entire universe to which it belongs. Kapalesh: But we also need the low margin businesses like infrastructure, even the logistically tedious ones like BPOs; whereas we are caught in our own story of how good we are. We continue to pat ourselves on the back for an era that was about a completely different set of dynamics. Now that is over, we need to move on! Devdutt: Software is even today better placed in terms of average margins, Kapalesh. Look at the operating margins of Wipro and Infosys and TCS — they range from 20-30 per cent! Kapalesh: Yes, but what do we do with this slap in the face from KenWest who have sidelined us? We have been their vendors for 18 years; we saw them through their every growth phase. Today when they have a major assignment, we are not good enough. Why? Don't tell me that is perception. That is not perception my friend... it is reality, the hard truth. Matt Kroner's mail was unmistakeable — "hardware and migration are not your forte..."! Here they were in the lobby outside Alex Verghese's office and the four management committee members stood there, hands in pockets, unable to make sense of what the future with KenWest held. Audarya Guha, the CTO, was already insulted by KenWest's email. Deep within, he rued the fact that they had been informed like any applicant and not been called as would befit such a long-standing relationship. He felt it was a stab in the back. But Kapalesh felt that it was a slap on the face, the kind that you would administer a sleepy groggy person. For Audarya, Kapalesh's verdict was painful and almost an assault, since he had always closely nurtured the KenWest account. And now, as the others listened in silence, Kapalesh said, "You are too involved with the business to be objective, Dev. The tech and strategy teams are too consumed by Systech's success story that makes news now and then, and the loyalty of our US clients. But we, who are support functions, are able to see a bigger picture, for we know that our continued success as functional gods will sustain only if our strategy is sound. If Operations succeeds, then we succeed, but by ourselves we cannot achieve success and that is why I am anxious. We are slowly losing out because the changed environment seeks something different, and we have not changed." Chintan Deo was angry now. The loss of the assignment was not after a pitch, was not after a bid, was not after competing. It was ‘just like that', he asserted. "Not ‘just like that'," said Kapalesh. "How can you forget the mess up on KenWest's Medic Trend architecture?" KenWest had wanted to redesign the architecture for Medic Trend, which had been developed in-house a long time ago and which was far too basic for the modern times. Systech did not realise the importance of this assignment, it was being argued. Architecture in this context meant designing, preparing a blue-print for the product, which meant, high-end resources. It was argued then that Technical and Operations departments, did not pay attention to it, and staffed the project with low-end resources. The resultant job was trashed for its mediocrity by the product value audit team at KenWest. So now, here they stood in the lobby, dissecting and acknowledging that the Medic Trend failure was what led to getting by-passed on KenWest's migration project. "Worse can follow," said Audarya, mellowing down a bit. "We may slowly lose all of KenWest because I think they are hinting at integrated all-rounders, which we are not. or, we may remain maintenance boys, thanks to Operations, with small blessings like KenWest, which will cast our reputation in stone as maintenance people!" 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;') } Two alleys behind this lobby sat Vyaas thinking about how he could organise an audit of the Medic Trend assignment to establish four sharp points that would point to what went wrong. But Kapalesh's words that morning, soon after the email arrived, had been incisive, "No audit is going to point out the whole truth, Vyaas. And even if it reveals anything, it will mislead us back into a state of false conclusions and verdicts. The business model is not holding up. Start today, revamp, call for a brainstorm…" The KenWest fiasco may have been bearable had other accounts not been shrinking as they were. SysTech clients were enterprise customers with revenues upwards of Rs 500 million, chiefly in banking, finance and hospitality and some insurance too. Shrinking demand, coupled with stubborn cost lines, was beginning to tell on the internal patience and bonhomie at Systech. It had done what most organisations did to cope with the recession: tightened expenses, shrank increments, froze recruitment and put a ban on business lunches. Steadily, manpower costs stabilised, but its facilities and IT costs were still going up. Systech had availed many years of STPI tax exemptions like other companies. This had translated to an advantage of 7-10 per cent impact on the net bottom line. The scheme expired in 2009, and had worked beautifully for all the IT companies. But how long could they depend on superficial and temporary benefits? Later, the management committee met Vyaas again, hoping they would now speak more objectively about KenWest. Audarya argued his point, "What we are refusing to face up to is that the going was really good for 10-15 years. Demand was high; there was the currency arbitrage facilitating us also; and the profits too were not taxed by the government. So we had huge margins and thus we paid high salaries. That phase has changed. It is not about recession. It is about many changes and we not adapting to these external changes. Not investing enough! I have been saying all this for sometime; you guys never had faith in other businesses and never invested time in learning these businesses to master it. Now, see where we are. "For one, now the industry is $50 billion and 5 per cent of GDP, so it has no rationale to ask the government for tax exemptions, especially the STPI. Two, the demand has not gone down in itself; the demand is there and will be there, because businesses will be in business. But the competitive argument for outsourcing from India has changed a bit. I was discussing with Kapalesh this morning and he too agrees. You can still go get the business, but you need to bring newer skills or attitudes to the table, which you are not. That is simply the fact of the matter." Alex was hinting at the same counsel, but differently. He said, "The majority of our business has come from application development, maintenance and managing infrastructure. We now need to think beyond this and come up with new business models and develop newer service offerings. In the past 15 years, business came to the industry owing to cost-value advantage, and focused on executing it well. Consequently, our management expertise too is narrow and geared towards demand fulfilment. Truth is, we need to develop skills for developing new markets, new offerings and also build capabilities for selling in hostile markets." And Kapalesh had agreed, "Exactly my point. We keep running back to US and UK because there is familiarity with cultures, costs and levers. These comfort zones have to be dropped because business cannot be about comfort. There is a huge market outside these two, and we need to face the truth that cost advantage and dollar-rupee advantages were simply advantages. We have milked these markets clean, now get on with it, grab early-mover advantage and explore other markets. Our people need to develop the emotional stamina for this. And as a people's officer, I feel helpless that until business takes a stance, people development cannot." Audarya endorsed that, "Our problem is as senior management, we cannot afford to remain mesmerised into a belief in the current state, such that we are unable to take our attention away from the current business. As a result, all effort is channelled into ensuring status quo." "This is the bird-in-the-hand syndrome," said Alex. "Everyone is clutching their hair and killing themselves to survive… when they could have easily thrived by doing different acts." Vyaas wondered as he heard this, "They are saying that earlier business came sheerly because of the curve the industry was in, the cost arbitrages available, and of course the industry — and hence SysTech itself — was lean and hungry, and hence, work patterns and ethics too were far richer. Don't I know what ails us today? Today, we are unable to move from a demand-fulfilment mode to a whip-up-new-business mode, to a create-new-needs mode, examine-user-habits mode, to how-are-industry-needs-changing mode… which is really about innovation… No?" Kapalesh: To be fair, markets have also changed in structure and composition, Alex. India and APAC are emerging markets and demand will boom here, but the customers in this region are toughest customers in the world and most cost-conscious. so they will never give you the margins compared to US and Europe. The other thing is also that this region may not place a premium on looks and bells and whistles as much as the other markets do. They look at the core efficiency of the product, its content. This is a serious difference between the two markets. Chintan: Companies which are focusing on software services only will suffer if they ignore infrastructure services. Take Standard & Poor who compile industry reports; you will find that they have four categories, computer hardware, software products, and IT services. So globally, IT services firms such as CSC, IBM, HP, ACS do everything including hardware/software/BPO. Globally there are no big companies who only do software services. Because service is low margin business, so you have to be doing everything; you cannot restrict yourselves to software. "In India, due to the way IT evolved and the way software was glamourised, we have seen this huge category of software services companies. So, to acquire scale and leadership, we, SysTech, need to focus on all three pieces, infrastructure, BPO and software services." Vyaas said, "We need to get the middle management into this discussion." But like Moses, Vyaas's struggle was about to begin, but not yet... his apostles were about to wage a war. Classroom/Syndicate Discussion Success leads to a sense of invincibility and perpetuity. But the contrary is true. Why do we then promote and preach success? casestudymeera at gmail dot com 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;') }
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