Beyond Engineers, Beyond India

This is Satyam Computers new Mantra which sums up the IT industry trend in India. Even after recording record figures in terms of revenues and profits, Indian IT companies like Wipro, TCS and Infosys doesn’t seem to be too relaxed. No doubt that these companies are going to face more growth in future but there is a fact that is making them ponder on their business model.


Despite of the fact that the companies are growing; the growth seems to be proportional to the headcount. And this proportionality is not linear but follows somewhat exponential complement curve. Look at the figures for TCS.



















Except profit/employee (lakhs) all figures are in Rs crore.


These figures are evident of the fact that over a long range of time all this outsourcing and pumping headcount work is just not going to be feasible.


From manpower to GDM

Until recently Global Delivery Model was something that all these companies were betting upon. Earlier they were totally dependent on the manpower for the timely and efficient delivery of their services and products. Global Delivery Model helped IT Cos to explore new verticals giving a new way to handle entire business. But from now on this model too doesn’t seem to be efficient.


There was a time when CMM levels was a look after feature before giving a contract to a company, now a days this doesn’t seem to be the trend. Rather than CMM certifications clients look after efficiency and quality of service that reaches them. Agile Methodologies perhaps have helped many companies to bypass various regulations of CMMs to achieve profitability they desired.


Indian companies spent lots of money into obtaining some sort of CMM certifications and developing a huge number of employees. They stressed a lot on US and European Markets and almost ignored local IT markets. Exception was that of WIPRO. That is why even Tata Motors relies on IBM rather than their sister concern TCS for their software needs.


What about IBM, Accenture and HP? They too are into Outsourcing business. These companies have already set up their outsourcing departments in India to gain the low cost advantage. But their profit per employee is almost double the Indian Cos. The reason behind this is that they have targeted specific verticals with highly talented software engineers rather then becoming just body shoppers. It shouls be noted that these companies have workforce almost double than any Indian major. IBM has 190000 and Accenture has got around 133000 people which are managed with great skill and difficulty.


It is good to see that all Indian Majors have realized the limitations of their business models and are now concentrating on improving their productivity of employees as well as profitability. So hiring people is not something they are going to stress so much upon. Rather they will stress on improving the quality of workforce they have and they recruit in future.


The Solution


The solution to the problem is very simple. Increase the revenue per employee and profit per employee. How do they achieve it is a very important question.


One solution could be to move to high profit margin verticals such as Consulting. Infosys has already invested Rs 90 crore is setting up a consultancy arm.


We have invested Rs 90 crore in consulting arm -Nilekeni

From Services to Products could be another approach to achieve higher profit margins. Rather than going for new products the existing services to be offered can be converted to products by using a layered design approach. Some layers won’t change and some will be customizable. Coding now a days is a donkeys job and design is the key area. So with better design the margin of profit can be widened.


Foster the talent of existing workforce. It is almost known fact that most of the undergraduates with exceptions of few IITs and IIMs have very little talent and knowledge. The companies have to train them almost from scratch. Since India lacks in the kind of Globally competitive Universities like Stanford or MIT, the companies should either encourage in building up such universities or should invest more in training the new recruits. The training process should go well beyond the training period and the employee must GROW in his talents, kills and knowledge while working in the company.


Developing a knowledge base IBM earns revenues of 1 Billion US dollars every year from their intellectual property rights. Whenever NASA or some other agency wants a breakthrough in technology they discover that IBM already has thought in that direction. IBM has its server and supercomputing business which is fully dependent on R&D.

Intellectual Property is a key area where India needs to grow

Indian IT companies are very reluctant to invest into R&D like IBM or HP but I hope that now they have learnt a lesson. Developing a knowledge base means improving the Intellectual Property that it has got. Just filing patents is not going to help; the IP they generate should convert into money. This can happen only if the companies encourage original thinking and innovation. By honing the skills of their current employees through integrated programs with IITs and IIMs this can be achieved. Satellite campuses may be set up to avail the best education overcoming the physical distance. Online knowledgebase can be set up for their future employees to improve their quality. It is well known that most of the money in R&D goes waste. If WIPRO sets up a online knowledge base it is quite possible that the person benefiting from it might join TCS or Infosys, however if everybody puts some steps in this direction everyone will be benefited.


Identify the talent. Since lots of money gets wasted in teaching the basics to the new recruits, the companies should revise their recruitment strategies. Rather than looking only to Indian Students they should look beyond engineering and beyond India. Instead of accepting the fact that Indian undergraduates are good for nothing the companies must force the students and wonna be IT workers to improve themselves some way or other. Putting the cost of training from Companies to the Employees will certainly save a great deal of money in due course of time.



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