India is a market filled with Paradoxes...every MNC that come here get carried away by the GDP growth (6-7%) even during recession, the middle-class size (remember the 200 million middle class episode painted by Chidambaram in late 90s and the market flooded with MNC searching opportunities), the growing affluent class (also remember the Percapita income of ~USD 3000) demanding new products and services, deregulation and progressive structural changes in economy leading to open policies for investments (remeber the 1991 deregulation and the gradual expiry of license raj), strong regulatory & legal system (IRDA, RBI, TRAI, NASSCOM, you name it all strong) etc. Among all these positives juxtapose the abject poverty with more than 25% of population living below poverty line (BPL) with a Gini Index of 36.8 (not really bad is it..but then this was in 2004 and it had a rising trend...also this is a sample and knowing fully well we have no basis to anchor on this number!), 86th rank as the most corrupt country, the infrastructure (social/Physical/Infrastructure) in shambles, pending cases that comes for hearing after the petitioner dies (remember Lakhubhai Pathak and NRI who has the famous Masala, pappad business who died before his corruption suit against the Govt. of India was filed), largest stock market in Asia with ~ 5000 companies listed and actively traded in the market, etc. You bet this is country of paradoxes....
Now why is this country so mystical. Look at it this way there are great academicians (remember the number of Indian Profs have taught you in your PG courses in US/AUS/UK/etc.), Nobel laureates (Chadrashekahr, Raman, Venkatraman Ramakrishnan), CEOs (Vikram Pandit, Indra Nooyi), relegious leaders (Buddha, Mahaveer, Dalai Lama, Vivekanand), environmentalisits (Pachuri), Sociologist (Amartya Sen), poets (tagore), activist (Gandhi) endless names...all eminent people who have played on the World platform and recognized for their endeavors that shaped and changed the world, but how much impact did they have on India? Have you ever considered why? sometimes it make me believe they are all mystics of India!
I'm sure we may not have answers to it...these are profound questions not worth bickering...
But lets look at what is required to set-up and run a successfull business in India...what wualifies me to say this...well I'm entitled to my perspectives as I've set-up and run a business for a MNC in this very market...but unsuccessfullat that...Well I've walked the talk (shall I say my inflated overambition busted by the reality of the markets) by set-up a business, accepted a sales target and trying to meet these numbers in a year in this market...
Lets simply see what it takes an MNC to set-up and run a successfull India market:
1. Setup a separate LE with following mandate: RoI focused, Separate brand (avoiding brand dilution of Accenture), engineered cost/price/margin structures to meet market requirements, focused team and differentiated operating model.
2. Define sharp Go-To-Market-Initiatives for key growth areas (Government, Banking, Communications, etc.) in collaboration with partners (Hardware, OEMs, etc.) in the market.
3. Provide Autonomy to India team: Empower the India team to run the business enterprisingly and enable decentralized decision making.
4. Remember three golden rules to foster business in Indian market: Cost, Cost and Cost.
5. Be conscientious of India market paradoxes and don’t set unrealistic growth goals.
I participated in an Idea competetion with my above perspectives before my CEO visited India and lost in the competition...so dont take my perspectives too seriously :-) ....
Thursday, November 19, 2009
Wednesday, October 21, 2009
Are you leading with a mind on your brain?
I read an interesting neuroscience research on how socail nature of humans define the high-performance in workplace....http://www.strategy-business.com/article/09306?gko=5df7f
I tend to agree part of the reasearch in my real-life experience. We often feel utter dispair in working in some environments where SCARF: Scare, Certainity, Autonomy, Relatedness and Fairness was absolutely lacking in one or more of these factors. We feel restless till we get out of the environment and it was quiet pleasing to realize that the author has put a well defined structure to understand why we feel so and why we avoid getting into such work environments....
However, What made me wonder is that if there is tolerance levels for each individuals to handle the lack of SCARF factors?
In my view and insight it is "YES". Some individuals have higher tolerance levels to handle lack of SCARF factors in work environment. I guess they probably do the following to survive longer in the environment:
1. Ignorance is bliss: They are highly people oriented and lack sharp cognitive skills that allows them to carry on longer in such environment purely due to lack of choices.
2. The Ventilator: They find equal minded people and socialize more to share their work woes with similar collegues and jointly vent out the frustration, which eventually allows them to sustain the lack of SCARF factor longer.
3. Fatalist: People accept that as their destiny and continue to work in such environments.
What do you think?
I tend to agree part of the reasearch in my real-life experience. We often feel utter dispair in working in some environments where SCARF: Scare, Certainity, Autonomy, Relatedness and Fairness was absolutely lacking in one or more of these factors. We feel restless till we get out of the environment and it was quiet pleasing to realize that the author has put a well defined structure to understand why we feel so and why we avoid getting into such work environments....
However, What made me wonder is that if there is tolerance levels for each individuals to handle the lack of SCARF factors?
In my view and insight it is "YES". Some individuals have higher tolerance levels to handle lack of SCARF factors in work environment. I guess they probably do the following to survive longer in the environment:
1. Ignorance is bliss: They are highly people oriented and lack sharp cognitive skills that allows them to carry on longer in such environment purely due to lack of choices.
2. The Ventilator: They find equal minded people and socialize more to share their work woes with similar collegues and jointly vent out the frustration, which eventually allows them to sustain the lack of SCARF factor longer.
3. Fatalist: People accept that as their destiny and continue to work in such environments.
What do you think?
Tuesday, October 13, 2009
Viewing outsourcing deal through the Contract lens - Transaction cost perspective...
I was reading an interesting article from Olivier E Williamson, who won the 2009 Nobel prize for economics....Just curious if it was due to Obamanomics (the obama factor you see...the guy who won Noble peace prize for 2009 for just being what he will be (did)/should be (do) than what he is)....He has viewed the entire transaction cost economics from the contract lens...there are few powerful insights that he shared and it reverberated with my current thinking and challenges that I'm facing at work on day-day basis...
1. Contract refrative index theory (This term is copyrighted, dont steal or quote this term ;-): Contracts tries to capture ideal transaction cost, but often the real/hidden transaction costs are visible when it is actually implemented.
How is it relevant to IT outsourcing Industry: Simple you may present great solution and contract it with client, but if you do not have the experience/acumen to see through the real/hiddent transcation costs that may emerge during implementation, you will end up losing the game. maybe not in short-term but long-term.
2. Hostage Theory: All contracts are made for mutual gains and at the same time it should also capture/share losses if the other party terminates.
How is it relevant to IT Outsourcing: Simple no matter how you structure a deal, if either party are not willing to share losses as equally as gains it will be an unsustainable deal (meaning we cant execute the deal without heartburns and with degree of fairness that will leave the client and supplier happy).
3. Incomplete contracts: No contract out there is completely complet in the realm of bounded rationality. In reality there are so many factors to be considered, that it is impractical to nail it down on contracts
How does it apply to IT outsourcing contracts: Common guys (I mean lawyers) just wake up, dont think you have protected your client (i mean in terms of lawyer, the cupplier and the client) from every feasible uncertainity. We are all humans and our rationality is bounded in utopian world but predictably irrational in real world.
So what does it make my position on lawyers/contracts and analysis of why Indian Pure play firms are more successfull in some areas that large outsourcing vendors who have presence in India...I still stick to my view that lawyers overcomplicate things and loose focus that business transactions sometimes have to be based on trust and good intentions....An optimist view not a pessimist view....Have an open mind for the predictably irrational!
1. Contract refrative index theory (This term is copyrighted, dont steal or quote this term ;-): Contracts tries to capture ideal transaction cost, but often the real/hidden transaction costs are visible when it is actually implemented.
How is it relevant to IT outsourcing Industry: Simple you may present great solution and contract it with client, but if you do not have the experience/acumen to see through the real/hiddent transcation costs that may emerge during implementation, you will end up losing the game. maybe not in short-term but long-term.
2. Hostage Theory: All contracts are made for mutual gains and at the same time it should also capture/share losses if the other party terminates.
How is it relevant to IT Outsourcing: Simple no matter how you structure a deal, if either party are not willing to share losses as equally as gains it will be an unsustainable deal (meaning we cant execute the deal without heartburns and with degree of fairness that will leave the client and supplier happy).
3. Incomplete contracts: No contract out there is completely complet in the realm of bounded rationality. In reality there are so many factors to be considered, that it is impractical to nail it down on contracts
How does it apply to IT outsourcing contracts: Common guys (I mean lawyers) just wake up, dont think you have protected your client (i mean in terms of lawyer, the cupplier and the client) from every feasible uncertainity. We are all humans and our rationality is bounded in utopian world but predictably irrational in real world.
So what does it make my position on lawyers/contracts and analysis of why Indian Pure play firms are more successfull in some areas that large outsourcing vendors who have presence in India...I still stick to my view that lawyers overcomplicate things and loose focus that business transactions sometimes have to be based on trust and good intentions....An optimist view not a pessimist view....Have an open mind for the predictably irrational!
Tuesday, October 6, 2009
Closing an outsourcing deal - Whats your view - An Optimist or pessimist?
Closing an outsourcing deal is one of the most challenging aspect I've ever witnessed...no matter the size of the deal...this is not just in services firm but in product firms too especially if it is a MNC in developed market jurisdiction!
Why is this so complex? I understood that this has got to do with the legalities and these damn lawyers...they make it so complex on the T&C that it is next to impossible to close a deal...By the time you close the deal we loose our breath and lose any interest in celebrating the win....
Lets look at a comparitive view of a large multinational view to contracting vis-a-vis a typical Indian pure play view to closing a deal:
Multinational view: I call it the pessimist view
1. It follows Murphys law, everything will go wrong in engagement and hence cover your ass as much as you can
2. Excessive mitigation and covering of positions through tight verbiage by the service providers on every possible risk there is...
Pure play view: I call it the Optimist view
1. Business done based on trust, assume everything will go right in engagement
2. Very loose verbiage and cover positions on very big ticket items on the contract that potentially exposes service provider to uncovered risks that leads to significant financial/legal/brand impact.
Who gains from all this: a Lawyer or third-party administrator who makes money out of extensive negotiations between client and service provider. Both the client and service provider loose critical time and money negotiating the contract.
Both client and service provider become so desperate to close the deal, the contract hardly matters and the points of disagreements sound ridiculos as they may have such low probability of materializing in reality...
What has been your view?
Why is this so complex? I understood that this has got to do with the legalities and these damn lawyers...they make it so complex on the T&C that it is next to impossible to close a deal...By the time you close the deal we loose our breath and lose any interest in celebrating the win....
Lets look at a comparitive view of a large multinational view to contracting vis-a-vis a typical Indian pure play view to closing a deal:
Multinational view: I call it the pessimist view
1. It follows Murphys law, everything will go wrong in engagement and hence cover your ass as much as you can
2. Excessive mitigation and covering of positions through tight verbiage by the service providers on every possible risk there is...
Pure play view: I call it the Optimist view
1. Business done based on trust, assume everything will go right in engagement
2. Very loose verbiage and cover positions on very big ticket items on the contract that potentially exposes service provider to uncovered risks that leads to significant financial/legal/brand impact.
Who gains from all this: a Lawyer or third-party administrator who makes money out of extensive negotiations between client and service provider. Both the client and service provider loose critical time and money negotiating the contract.
Both client and service provider become so desperate to close the deal, the contract hardly matters and the points of disagreements sound ridiculos as they may have such low probability of materializing in reality...
What has been your view?
Monday, September 28, 2009
Do you often overvalue your experience, skills, knowledge, etc?
I strongly believe we overvalue our experience, knowledge, skills...rather simply anything that can be defined as measure of success in society :-)...I do that often and to some extent knew it too whenever I encountered my frailities. I got a rude awakening to it when I read the book Irrationally predictable" and some of the works of Daniel Kahnemean and Taversky....
But, why do we do this and how do we avoid it? Lets answer the first part of the question:
1. To gain social acceptance.
2. To prove to the people we know and sometimes want to know to build a superior perception of us.
3. To get an expected treatment of ourselves or to achive the higher gaols we set upon ourselves in society, workplace and so on....
How can we avoid it?
1. Accepting the fact that our measures of success is relative. Its all a matter of anchoring ourselves to the right individuals/groups and our position/status quo in a society is relative.
2. Constantly, reminding ourselves that the workings of this world is far more complex than that appears on the surface or at our levels of understanding.
3. Reading more and more about topics that we know we know too little about!
How do we handle such people at work?
1. Pamper their ego: Just give it to them...let them reach the self-realization on their levels! Atleast, you please their ego and let him/her be happier in their own perceptions :-)
2. Probe them to discover if they really know what they think they cliam to know....
3. Netural approach, just listen to them. Most of the time you are never entitled to your opinions or maybe the other person is a poor listenet!
4. Remind them that one knows far less than what one thinks and if possibel quote them to "predictably irrational" and works of Daniel Kahneman :-)...
5. Prove to them you know much more than them...hee hee...you bet this is something that will please your ego!!!
We may choose a combination of options...not really restricted to one...Whats your view?
But, why do we do this and how do we avoid it? Lets answer the first part of the question:
1. To gain social acceptance.
2. To prove to the people we know and sometimes want to know to build a superior perception of us.
3. To get an expected treatment of ourselves or to achive the higher gaols we set upon ourselves in society, workplace and so on....
How can we avoid it?
1. Accepting the fact that our measures of success is relative. Its all a matter of anchoring ourselves to the right individuals/groups and our position/status quo in a society is relative.
2. Constantly, reminding ourselves that the workings of this world is far more complex than that appears on the surface or at our levels of understanding.
3. Reading more and more about topics that we know we know too little about!
How do we handle such people at work?
1. Pamper their ego: Just give it to them...let them reach the self-realization on their levels! Atleast, you please their ego and let him/her be happier in their own perceptions :-)
2. Probe them to discover if they really know what they think they cliam to know....
3. Netural approach, just listen to them. Most of the time you are never entitled to your opinions or maybe the other person is a poor listenet!
4. Remind them that one knows far less than what one thinks and if possibel quote them to "predictably irrational" and works of Daniel Kahneman :-)...
5. Prove to them you know much more than them...hee hee...you bet this is something that will please your ego!!!
We may choose a combination of options...not really restricted to one...Whats your view?
Sunday, September 27, 2009
Cover your ass (CYA) - Its economic recession!
I've seen so many people gaining expertise in covering their own ass when it comes to protecting their jobs and status quo in organizations. It seems the more you reach positions demanding decion making.
I've mostly seen lot of people out there who shy from making decisions and live through it consistently (good or bad). If decisions are forced upon them they lack the guts to own up the outcome especially when things go wrong. They usually seek refuge in adopting a stance, whereby they claim anything but their how bad their decision has been.
How do you describe these behaviours?
1. You may simply blame it on the value system: Integrity, commitment, Authenticity, etc.
2. You blame it on their competencies, skills or experience?
3. You blame it on the social norm/culture of the position in the organization?
4. You blame their id
5. You blame it on the externalities: Economic recession !
I've often seen they exhibit all the above traits.
How do you handle such people?
1. You avoid them!
2. You deal with them in a politically right way!
3. You fight them head-on!
What choiced do you have to enable objective decision making in each of the above case:
1. Be straight present facts and figures to enable right decision.
2. Play their game and beat them at it, but objectively through facts and figures.
3. Become them and avoid contributing to any objective decision! BTW, who cares.
What would you do?
I've mostly seen lot of people out there who shy from making decisions and live through it consistently (good or bad). If decisions are forced upon them they lack the guts to own up the outcome especially when things go wrong. They usually seek refuge in adopting a stance, whereby they claim anything but their how bad their decision has been.
How do you describe these behaviours?
1. You may simply blame it on the value system: Integrity, commitment, Authenticity, etc.
2. You blame it on their competencies, skills or experience?
3. You blame it on the social norm/culture of the position in the organization?
4. You blame their id
5. You blame it on the externalities: Economic recession !
I've often seen they exhibit all the above traits.
How do you handle such people?
1. You avoid them!
2. You deal with them in a politically right way!
3. You fight them head-on!
What choiced do you have to enable objective decision making in each of the above case:
1. Be straight present facts and figures to enable right decision.
2. Play their game and beat them at it, but objectively through facts and figures.
3. Become them and avoid contributing to any objective decision! BTW, who cares.
What would you do?
How do you enable objective decision making if your boss thinks he knows everything?
You may surely have faced similar situation at work. Especially in societies where collective (to be more precise hierarchical) decision making is prevalent.I'm sure you would've seen war movies where decision making follows hierarchical protocols and the people on the ground suffer (eg. US war in Vietname, war in Iraq) where 1000's of foot soldiers loose their life and/or limb abiding decision made by a general somewhere out there who knows nothing abt ground realities. Sometimes the decision making realm has lot more complexities and dynamics that are difficult to comprehend superficially (i'm sure there are lot of superficial leaders out there!). What do you do in such circumstance?
1. Try to remedy it:
a. You give your bosss the context, facts and apprise him/her of the complexities involved in making the right decision and let him/her solve it?
b. You enable the right decsion by giving appropriate choices to choose from (well ofcourse only if your boss is a listening type?)
2. Do nothing about it:
a. Just wash off your responsibilities and let your boss make the his/her own decision and live through it whether it is right or wrong? Ofcourse you suffer on the field, but you do it anyways if you choose option 1 above :-)...
All the above make you realize how futile being objective and pragmatic is in real-world!
What would you do in such situations? What course do you choose?
1. Try to remedy it:
a. You give your bosss the context, facts and apprise him/her of the complexities involved in making the right decision and let him/her solve it?
b. You enable the right decsion by giving appropriate choices to choose from (well ofcourse only if your boss is a listening type?)
2. Do nothing about it:
a. Just wash off your responsibilities and let your boss make the his/her own decision and live through it whether it is right or wrong? Ofcourse you suffer on the field, but you do it anyways if you choose option 1 above :-)...
All the above make you realize how futile being objective and pragmatic is in real-world!
What would you do in such situations? What course do you choose?
Friday, September 25, 2009
How do you influence objective decision-making in a group that has race prejudice?
How do you influence objective decision-making in a group that has race/class/citizens prejudice?
Thats a very interesting question, what will one do if he/she is challenged working with people across countries from different race to enable objective decision making. What will one do if there is a clear demarcation of racial undertones/overtones that one witnesses day in and day out localized to specific country/geography. what will one do if one believes it is an accepted social/organizational norm to play one-up race against the other or atleast subtle biases that clouds objective decision making? What will one do if he/she is unable to influence rational and objective decision making?
I'm sure each one of us has faced the above situation working in cross-cultural setup. (sure Mr. Obama you face it everyday as President so does the average common man like me somewhere in India facing it too in my realm). How do we handle such scenarios?
1. Do we do something about it? If yes what are our options:
a. Should we be more assertive in influencing objective decision through facts and numbers?
b. Should we escalate within the organization through ombuds or similar such processes and draw it to management attention to set it right and stter towards objective decsion making? (well ofcourse we need to have all facts lined up to make a strong case)
2. Do we just read Geert Hofsted culture topology and then change yourself to be more "culturally" sensitive?
3. Or do we do nothing about it?
I dont have answers just questions.....How have you handled such situations to enable objective decision making?
Thats a very interesting question, what will one do if he/she is challenged working with people across countries from different race to enable objective decision making. What will one do if there is a clear demarcation of racial undertones/overtones that one witnesses day in and day out localized to specific country/geography. what will one do if one believes it is an accepted social/organizational norm to play one-up race against the other or atleast subtle biases that clouds objective decision making? What will one do if he/she is unable to influence rational and objective decision making?
I'm sure each one of us has faced the above situation working in cross-cultural setup. (sure Mr. Obama you face it everyday as President so does the average common man like me somewhere in India facing it too in my realm). How do we handle such scenarios?
1. Do we do something about it? If yes what are our options:
a. Should we be more assertive in influencing objective decision through facts and numbers?
b. Should we escalate within the organization through ombuds or similar such processes and draw it to management attention to set it right and stter towards objective decsion making? (well ofcourse we need to have all facts lined up to make a strong case)
2. Do we just read Geert Hofsted culture topology and then change yourself to be more "culturally" sensitive?
3. Or do we do nothing about it?
I dont have answers just questions.....How have you handled such situations to enable objective decision making?
Thursday, September 17, 2009
Free IT SI and Outsourcing services pointers: Can we offer such services for different IT service categories?
Having looked at the problem statements for free IT System integration and outsourcing services, lets now look at some examples of 4 free IT pricing models based on the categories suggested by Chris Anderson in his Free book:
1. Direct Cross-subsidies: This category is defined by as those services that are offered as free in relation to another good. In simple terms we are cross-subsidizing one service while charging for the other. Given this definition, here are the problem statements:
1.1 For an integrated SI and Support service can we offer the SI service free to client if the support pricing exceeds a certain threshold?
1.2 For just support services, can we offer transition service free to client, instead of charging them for the transition service?
2. 3 Party markets: This category is defined by the fact that IT services are offered free to the actual consumers but being paid for by a third-party. For example in Radio & Boradcasting services, Newspaper and digital newspaper industry; advertising companies pay for the free services to consumers. Going by the statistics provided by chris the market for these services in US alone is USD 45 billion in 2006 and he estimates worldwide this is to the tune of USD 80-100 billion. In IT services space the following problem statement arise:
2.1 Can Hardware and IT product vendors sponsor the free IT service to client? Why not they do charge a huge AMC or Software Update and product support fees every year on clients? What is the minimum portfolio of services that can be offered free in this mode? Are their any companies already providing this in open (lets forget for a moment about IBM).
3. Premium or versioning: The service here is defined by the fact that few clients who can afford and are willing can pay for these services. In reality there can be tiered service offering to clients. For example Flicker and some Startup companies Web 2.0, etc. offer tiered services for free and some features and functionality only for premium clients. According to Chris, in 2008 there is an estimated USD 36 billion worth of business done through this medium: corporate clients USD 800 million, Retail clients USD 200 million, Opensource 30 billion (Red hat ), other apps ~1B, Online game markets (Multiplayer games is USD 1b; Casual is USD 3 B ). Now lets turn focus on IT services problem statement:
3.1 Can we offer a shared service model for outsourcing where we can offer free services for small support footprint? This may also help in smoothening the load of resources?
3.2 Can we charge premium whenever the bespoke service support requirement is high? Typically large and complex home-grown system. The challenge ofcourse is how do we qualify "Large and complex system" objectively?
4. Non-Monetary markets/ Gift Economy: Wikepedia example. Here no dollar figures attached. Apple iPod USD 4 billion, my space 65b (free music), 2b music concert business due to online trading of music.
4.1 Can IT product companies offer these IT support services for free like the Linux ecosystem? Can this atleast be modeled for PHP platforms? I'm sure there are lot of freelancer/mavens who would love to do it for free (just that it gets them the recognition)?
What are your views/insights? I'm sure the model can be better qualified and refined to a great extent.
1. Direct Cross-subsidies: This category is defined by as those services that are offered as free in relation to another good. In simple terms we are cross-subsidizing one service while charging for the other. Given this definition, here are the problem statements:
1.1 For an integrated SI and Support service can we offer the SI service free to client if the support pricing exceeds a certain threshold?
1.2 For just support services, can we offer transition service free to client, instead of charging them for the transition service?
2. 3 Party markets: This category is defined by the fact that IT services are offered free to the actual consumers but being paid for by a third-party. For example in Radio & Boradcasting services, Newspaper and digital newspaper industry; advertising companies pay for the free services to consumers. Going by the statistics provided by chris the market for these services in US alone is USD 45 billion in 2006 and he estimates worldwide this is to the tune of USD 80-100 billion. In IT services space the following problem statement arise:
2.1 Can Hardware and IT product vendors sponsor the free IT service to client? Why not they do charge a huge AMC or Software Update and product support fees every year on clients? What is the minimum portfolio of services that can be offered free in this mode? Are their any companies already providing this in open (lets forget for a moment about IBM).
3. Premium or versioning: The service here is defined by the fact that few clients who can afford and are willing can pay for these services. In reality there can be tiered service offering to clients. For example Flicker and some Startup companies Web 2.0, etc. offer tiered services for free and some features and functionality only for premium clients. According to Chris, in 2008 there is an estimated USD 36 billion worth of business done through this medium: corporate clients USD 800 million, Retail clients USD 200 million, Opensource 30 billion (Red hat ), other apps ~1B, Online game markets (Multiplayer games is USD 1b; Casual is USD 3 B ). Now lets turn focus on IT services problem statement:
3.1 Can we offer a shared service model for outsourcing where we can offer free services for small support footprint? This may also help in smoothening the load of resources?
3.2 Can we charge premium whenever the bespoke service support requirement is high? Typically large and complex home-grown system. The challenge ofcourse is how do we qualify "Large and complex system" objectively?
4. Non-Monetary markets/ Gift Economy: Wikepedia example. Here no dollar figures attached. Apple iPod USD 4 billion, my space 65b (free music), 2b music concert business due to online trading of music.
4.1 Can IT product companies offer these IT support services for free like the Linux ecosystem? Can this atleast be modeled for PHP platforms? I'm sure there are lot of freelancer/mavens who would love to do it for free (just that it gets them the recognition)?
What are your views/insights? I'm sure the model can be better qualified and refined to a great extent.
Free IT Services - Pay nothing for IT Implementation (System Integration, Application Development) & Outsourcing (Maintenance & Support) Services
I was listening to the Free audio book "Free" and was quiet intrigued by why we havent seen any IT service provider offering free IT Implementation and Outsourcing services. This excited me and I had formed some interesting hypothesis based on my insights in the IT products and services industry.
Lets look at good examples cited by the author about 3 formats of free forms in markets and let me problem statements (some lead to hypothesis) on what similarities do we see in the industry:
1. Paying people subsidizing loss making products/services: I never imagined if IBM ever made any money selling some of their Hardware and software products like Lotus notes, z series and so on! IBM shift to services from their product focus may be a great example....see some companies like Sun never managed to make that shift and ended up getting bought out by Oracle...
Problem statement 1: Can we offer some (need to qualify this well) SI/AD services free and cross-subsidise this with some (qualifications needed) Outsourcing service?
2. Paying later subsidizing paying now: Well Red-Hat Linux or Novells Suse Linux is a classic example....no license cost for software but imagine paying their support through your nose...any CIO will keep scratching their heads on how to associate a firm value...wondering why Oracle dropped the idea of acquiring Red-Hat...theyy seem to be happy just allocate R&D investments to support Red Hat platform...
Problem Statement 2.1 : Can all SI/AD engagement services be billed (through claw back clauses) to client on annuity basis instead of charging them upfront?
Problem Statement 2.2: Can transition costs (for outsourcing engagements) be billed on annuity basis instead of levying an upfron fees on clients?
3. Paying people subsidizing free people: Adobe Reader is a great example where the reader is offered as free downloads to all, but some enterprises and media companies will be forced to buy the Adobe Writer so they can use the Adobe reader to reduce their distribution costs...Well ofcourse some may never buy Adobe Writer but use tools like Amyuni or Open-offcie ports to achieve the purpose....Poor Adobe!
Problem Statement 3: Can we offer free services to some clients who cant pay and cross-subsidize with other paying clients? (Ofcourse yes but what are these qualifiers. You have to pay me to know it or implement it!
What are your insights and data points that can help prove/disprove such hypothesis. IOfcourse it should be an econmoically feasible solution...I dont want to sell my brethrens to unemployment!
Lets look at good examples cited by the author about 3 formats of free forms in markets and let me problem statements (some lead to hypothesis) on what similarities do we see in the industry:
1. Paying people subsidizing loss making products/services: I never imagined if IBM ever made any money selling some of their Hardware and software products like Lotus notes, z series and so on! IBM shift to services from their product focus may be a great example....see some companies like Sun never managed to make that shift and ended up getting bought out by Oracle...
Problem statement 1: Can we offer some (need to qualify this well) SI/AD services free and cross-subsidise this with some (qualifications needed) Outsourcing service?
2. Paying later subsidizing paying now: Well Red-Hat Linux or Novells Suse Linux is a classic example....no license cost for software but imagine paying their support through your nose...any CIO will keep scratching their heads on how to associate a firm value...wondering why Oracle dropped the idea of acquiring Red-Hat...theyy seem to be happy just allocate R&D investments to support Red Hat platform...
Problem Statement 2.1 : Can all SI/AD engagement services be billed (through claw back clauses) to client on annuity basis instead of charging them upfront?
Problem Statement 2.2: Can transition costs (for outsourcing engagements) be billed on annuity basis instead of levying an upfron fees on clients?
3. Paying people subsidizing free people: Adobe Reader is a great example where the reader is offered as free downloads to all, but some enterprises and media companies will be forced to buy the Adobe Writer so they can use the Adobe reader to reduce their distribution costs...Well ofcourse some may never buy Adobe Writer but use tools like Amyuni or Open-offcie ports to achieve the purpose....Poor Adobe!
Problem Statement 3: Can we offer free services to some clients who cant pay and cross-subsidize with other paying clients? (Ofcourse yes but what are these qualifiers. You have to pay me to know it or implement it!
What are your insights and data points that can help prove/disprove such hypothesis. IOfcourse it should be an econmoically feasible solution...I dont want to sell my brethrens to unemployment!
Thursday, September 3, 2009
How can client Short-list the right Outsourcing IT service provider?
Large IT services firm try to offer all types of services to every other client in the market. Most often one in the system realizes that what the big IT services firms are selling to client is really their internal complexities rather than what the client really wants. In good times, clients are willing to tolerate all this complexities and buy services/their internal complexities from large IT service firm. There are few reasons for it:
1. De-risking service delivery by the brand name of the services firm (large IT services firm), rather than their ability to deliver flawlessly.
2. Clients often convince their internal stakeholders by saying that the are paying premium for the brand accretive outsourcing. For example when you are outsourcing to Cap Gemini by paying them premium rates that makes big news in media as the perception built among the stakeholders in the market is that the client is spending on preparing for "high performance" business
3. You must've heard the famous saying, "No one got fired for hiring IBM for service delivery". Large IT services company often have good relationships with boards and senior stakeholders that it affords a middle manager facilitating the decision on the large IT Services vendor easy. As you know the middle manager is just aiding the senior client leadership team to make a safe choice :-)...
You'll often note from above that in a thriving market client is willing to pay premium for the "Value" rationale and buy the complexity of large IT services firm. In difficult times that may not be the case, client is wanting to buy specific services that are simple to manage and enables the client businesses to be run without much complexity. Imagine in this situation if we still try and sell complexity, value and premium service to client!
It is no surprise to see the quarterly results of the Indian Pure play IT services firm continuing to keep their y-o-y revenue growth flat though there are lot of clients who are cutting down agressively on discretiionary IT spends.
Having understood the problem scope, what characteristics should the client look for while selecting the right IT Service provider:
1. Simple service offering.
2. Willing to be flexible (comercially and operationally) to suit client service demands.
3. Demanding less if not zero upfront investments from client in terms of transition cost, setup cost, etc.
4. Ability to pass on lot of cost saving back to client through various levers at the disposal of the IT Service provider.
5. Providing the required value in service and not overplay and charge premium for even the basic client service requirement.
6. Understand clients position in market and engage in a mutually beneficial relationship, rahter than trying to protect your interests alone in an already difficult market. Some of the cases here are that some IT services firm go an extra mile to protect themselves from failure points (on SLA, paymet terms, etc.) and try and inpose a very tight legal T&C.
7. Last but not least, be willing to make investment for the client especially in areas where you dont have a strength. This will help you in more than 1 ways, help you build/strengthen your own service offering at a marginal cost while at the same time provide the basic service to client.
I'm sure client would have access to the competitor analysis for Q1'09 for Tier 1 players and Indian Pure plays from their TPI's. ofcourse, they can gain the above insight with some difficulty from the TPI's/analyst reports.
Now compare the above with the leadership position of the IT firms mentioned in the earlier article? What are your views on who is best positioned to emerge out of the current scenario competitive and well-positioned to serve long term in IT Services outsourcing market?
1. De-risking service delivery by the brand name of the services firm (large IT services firm), rather than their ability to deliver flawlessly.
2. Clients often convince their internal stakeholders by saying that the are paying premium for the brand accretive outsourcing. For example when you are outsourcing to Cap Gemini by paying them premium rates that makes big news in media as the perception built among the stakeholders in the market is that the client is spending on preparing for "high performance" business
3. You must've heard the famous saying, "No one got fired for hiring IBM for service delivery". Large IT services company often have good relationships with boards and senior stakeholders that it affords a middle manager facilitating the decision on the large IT Services vendor easy. As you know the middle manager is just aiding the senior client leadership team to make a safe choice :-)...
You'll often note from above that in a thriving market client is willing to pay premium for the "Value" rationale and buy the complexity of large IT services firm. In difficult times that may not be the case, client is wanting to buy specific services that are simple to manage and enables the client businesses to be run without much complexity. Imagine in this situation if we still try and sell complexity, value and premium service to client!
It is no surprise to see the quarterly results of the Indian Pure play IT services firm continuing to keep their y-o-y revenue growth flat though there are lot of clients who are cutting down agressively on discretiionary IT spends.
Having understood the problem scope, what characteristics should the client look for while selecting the right IT Service provider:
1. Simple service offering.
2. Willing to be flexible (comercially and operationally) to suit client service demands.
3. Demanding less if not zero upfront investments from client in terms of transition cost, setup cost, etc.
4. Ability to pass on lot of cost saving back to client through various levers at the disposal of the IT Service provider.
5. Providing the required value in service and not overplay and charge premium for even the basic client service requirement.
6. Understand clients position in market and engage in a mutually beneficial relationship, rahter than trying to protect your interests alone in an already difficult market. Some of the cases here are that some IT services firm go an extra mile to protect themselves from failure points (on SLA, paymet terms, etc.) and try and inpose a very tight legal T&C.
7. Last but not least, be willing to make investment for the client especially in areas where you dont have a strength. This will help you in more than 1 ways, help you build/strengthen your own service offering at a marginal cost while at the same time provide the basic service to client.
I'm sure client would have access to the competitor analysis for Q1'09 for Tier 1 players and Indian Pure plays from their TPI's. ofcourse, they can gain the above insight with some difficulty from the TPI's/analyst reports.
Now compare the above with the leadership position of the IT firms mentioned in the earlier article? What are your views on who is best positioned to emerge out of the current scenario competitive and well-positioned to serve long term in IT Services outsourcing market?
Friday, August 28, 2009
A perspective on competitive positioning of IT Services companies?
Not every IT services company have the same strengths or short-comings, nor do they claim to differentaite themselves similarly in the market-place. Their differentiators are often subtle and somtimes it makes it very difficult for clients to make an objective selection or short-listing of an IT services firm. The choice of a right IT services firm for a desired service (AM, AD, Consultng, Trasformation) varies widely be some key factors
1. Cost (Delivery, Year-on-Year Savings, etc)
2. Quality (People, Delivery, case studies, Services, etc.)
3. Capital (experiences, Assets, capabilities, productized services, etc.)
4. Flexibility (ability to meet client diverse requirements and remodel their delivery to suit client requirements)
5. Scalability (size, ability to grow in size and scale to provide services across the regions where client may require servie)
6. Portfolio (the ability to handle different portfolio of services, products, etc.)
7. Commercial/contractual limitations (FX, COLA, Tax treatment, Partnerships, Jt. GTMis etc.)
There are lot of other soft factors (relationship, ongoing service, prior experience, preferences, perceptions, etc). These often tend to not very objective.
The perception that I document here are based on the insights of different IT service providers in the market. These are not based on any objective assessment (based on factors listed above), survey results or facts. Some of these could be superficial/erroneous, neverthless I would take a pass at it for some top-tier companies in India that seemed to have being great offshore players:
TCS - Cost Leader
Wipro - Quality Leader
Infosys - Flexibility Leader
HCL - Commercial/Contractual Leader
Cognizant - Scalability Leader
For the large tier 1 vendors their
IBM - Portfolio/Capital Leader
HP - Portfolio/Capital Leader
Accenture - Multiple dimension (difficult to clearly get their sharp market position)
Cap Gemini - Unknown
There are lot of niche companies whose positioning has superceded the above common factors. These niche players are identified below:
Tech Mahindra - Telecom Services (this assessment is before Satyam was acquired)
Sasken - Embedded Product development
What are the other factors and perceptions you share based on your insights?
1. Cost (Delivery, Year-on-Year Savings, etc)
2. Quality (People, Delivery, case studies, Services, etc.)
3. Capital (experiences, Assets, capabilities, productized services, etc.)
4. Flexibility (ability to meet client diverse requirements and remodel their delivery to suit client requirements)
5. Scalability (size, ability to grow in size and scale to provide services across the regions where client may require servie)
6. Portfolio (the ability to handle different portfolio of services, products, etc.)
7. Commercial/contractual limitations (FX, COLA, Tax treatment, Partnerships, Jt. GTMis etc.)
There are lot of other soft factors (relationship, ongoing service, prior experience, preferences, perceptions, etc). These often tend to not very objective.
The perception that I document here are based on the insights of different IT service providers in the market. These are not based on any objective assessment (based on factors listed above), survey results or facts. Some of these could be superficial/erroneous, neverthless I would take a pass at it for some top-tier companies in India that seemed to have being great offshore players:
TCS - Cost Leader
Wipro - Quality Leader
Infosys - Flexibility Leader
HCL - Commercial/Contractual Leader
Cognizant - Scalability Leader
For the large tier 1 vendors their
IBM - Portfolio/Capital Leader
HP - Portfolio/Capital Leader
Accenture - Multiple dimension (difficult to clearly get their sharp market position)
Cap Gemini - Unknown
There are lot of niche companies whose positioning has superceded the above common factors. These niche players are identified below:
Tech Mahindra - Telecom Services (this assessment is before Satyam was acquired)
Sasken - Embedded Product development
What are the other factors and perceptions you share based on your insights?
Tuesday, August 25, 2009
Enculturation and Acculturation of IT Solution - Does culture influence the IT Solution design and delivery?
This is an interesting question that has been nagging me for a while. I've been designing and delivering IT solutions for clients across the globe: Americas, APAC and EALA geographies. I got inspired by Geert Hofsted works on assessing culture of different countries based on the 5 dimensions: Power-distance, Individualism, Masculanity, Uncertainity avoidance and Long-term orientation. While, these dimensions may or may not (followers of Brendan Mcsweeney and Ailon G articles cannot agree less) be relevant or even correct in the current context, but still provides a sound perspective to compare culture across countries. Another interesting observation I noted after reading these articles is that the Occupational culture is not the same between employees within the same organization. Ofcourse, one could argue as McSweeny did; where the organizational culture across nations may still not be the same. My thesis here hinges on challenging the fact that Occupational culture differences between nations for IT services segment and also that fact that I worked in multiple organizations transcends the premise that it is unique to an organization culture as well!. So give these premise and the belief that national culture does exist and is homogenous, lets look at the patterns I saw in IT solution design and delivery.
The IT solutions that are designed and delivered across different countries seem to have some pattern that further elaborates the "uncertainity avoidance" dimension of Hofsted. I got a Self Reference criterion (SRC) whenever I look at some solution designs and sometimes even search for these traits in the IT services execution. In my SRC, I have abstrated few dimension that characterizes IT solution design and delivery.
1. Engineering/Structure: In this dimension, we see how the levels of engineering for a solution design and delivery varies from low to High. Generally we have seen German ways to design and delivery is high leading it to be too complex. On contrary we see the other extreme, bieng the low engineering and design and delivery of IT services to be low for India.
2. Clarity: The amount of clarity (scope, outcome/deliverables, schedules, efforts, etc.) required to design and execute the solution seems to be high for typical European client than the american or APAC clients. This can be construed in other ways to minimize the unfacourable outcomes and the propensity to tolerate ambiguity.
Are there anyother dimensions that you have witnessed? I'll be happy to hear it.
I'm not sure we can give a quantitative score for each of the above attribute for each of the country. It may be a worthy exercise to pursue. The study result can be put to use effectively in devising a solution for clients in the geography. What do you think?
Sunday, August 23, 2009
What options/scenarios lie in breaking the People-Revenue jinx for IT services firms
It is not suprising to see that the revenue growth and profitability of IT services firms have been closely knit with the people scale. The levers (Strategic, tactical and operational) for growth and profitability that have been driving this industry has not changed in the last decade and neither are we seeing any innovation that would break the jinx. This is quiet contrary to what we see in the IT Software products companies, where the relationship between people and revenue/profitability does not exist. Why is that different for IT product companies? It is simple their economics of operation is not very different from that of industries like FMCG, CPG, pharmaceutical, their levers of revenue growth/profitability is the unit of product sold and the cost of creating them....Definitely NOT PEOPLE.
What are the options are available with leadership of IT services firm to break the people-revenue jinx?
Lets look at what IT services firms have been talking about lately:
1. Commercial pricing plays: There are several variants, whereby one can claim to break the jinx between revenue/profitability from people. They all go by different names like Fixed-price delivery, value-based delivery/pricing. All these as I've seen are just the variations in pricing plays. The underlying delivery construct had hardly changed. We still see that the core drivers of revenue and profitability are still based on people.
2. Shared services: Services delivery with 1-many client realtionships. For example 1 resource serving multiple clients and thereby changing the linear relationship between revenue growth and profitability.
3. Productized service: Offering more products and building layers of services around the product that require less people to service. The companies then charge premium for selling such productized service.
But none of the above three seems to set the tragectory or crossed the required threshold or gained the required meomentum to enable the IT services firm to break the revenue/profitabilty-people jinx.... Atleast they are trying, not by design or forethought but my compulsions to meet their short-term numbers!
What are the options are available with leadership of IT services firm to break the people-revenue jinx?
Lets look at what IT services firms have been talking about lately:
1. Commercial pricing plays: There are several variants, whereby one can claim to break the jinx between revenue/profitability from people. They all go by different names like Fixed-price delivery, value-based delivery/pricing. All these as I've seen are just the variations in pricing plays. The underlying delivery construct had hardly changed. We still see that the core drivers of revenue and profitability are still based on people.
2. Shared services: Services delivery with 1-many client realtionships. For example 1 resource serving multiple clients and thereby changing the linear relationship between revenue growth and profitability.
3. Productized service: Offering more products and building layers of services around the product that require less people to service. The companies then charge premium for selling such productized service.
But none of the above three seems to set the tragectory or crossed the required threshold or gained the required meomentum to enable the IT services firm to break the revenue/profitabilty-people jinx.... Atleast they are trying, not by design or forethought but my compulsions to meet their short-term numbers!
Monday, July 27, 2009
The Age of Turbulence - Some anecdotes to laugh about
I was reading Age of Turbulence by Alan Greenspan. I found some really interesting quotes to laugh about....(as such it is tough enough dealing with head-less chickens and heady-chickens and everything in between to add to the miseries of life ;-), why not have a good humour to it)....
Ronald Reagan defending his error on wrong economic speech whereby he used the word "Depression" instead of "recession" during his presidential campaign criticizing the incumbent Jimmy carters economic policies. Carters campaign managers criticized Reagan by saying he does know the definition of the words:
"If it's a definition he wants, I'll give him one," Reagan would continue. "A recession is when your neighbor loses his job. A depression is when you lose yours. And recoveryis when Jimmy Carter loses his!"
Anothe comment by Reagan stating the excesses of the Government policies on the lives of people. Basically, hwe was alluding to the wrong policies of carter that resulted in Inflation:
"Government exists to protect us from each other. Where government has gone beyond its limits is in deciding to protect us from ourselves."
Another exerpt from Alan Greenspans book about his interaction with Ronald Reagan that captures Reagans view of economists:
".....He told one on the airplane that seemed particularly meant for me. It started with Leonid Brezhnev on the reviewing stand at Lenin's Tomb, surrounded by underlings, watching the May Day parade. The Soviet Union's full military might is there on display. First come battalions of elite troops, impressive soldiers, all six foot two; marching in absolute lockstep. Right behind them are phalanxes of stateof-the-art artillery and tanks. Then come the nuclear missiles—it's an awesome show of strength. But after the missiles comes a straggle of six or seven civilians, unkempt, shabbily dressed, utterly out of place. An aide rushes up to Brezhnev and begs forgiveness. "Comrade Secretary, my apologies, I do not know who these people are or how they've come into our parade."
"Do not be concerned, Comrade," replies Brezhnev. "I am responsible for them. They are our economists, and you have no idea how much damage they can do."
"
Ronald Reagan defending his error on wrong economic speech whereby he used the word "Depression" instead of "recession" during his presidential campaign criticizing the incumbent Jimmy carters economic policies. Carters campaign managers criticized Reagan by saying he does know the definition of the words:
"If it's a definition he wants, I'll give him one," Reagan would continue. "A recession is when your neighbor loses his job. A depression is when you lose yours. And recoveryis when Jimmy Carter loses his!"
Anothe comment by Reagan stating the excesses of the Government policies on the lives of people. Basically, hwe was alluding to the wrong policies of carter that resulted in Inflation:
"Government exists to protect us from each other. Where government has gone beyond its limits is in deciding to protect us from ourselves."
Another exerpt from Alan Greenspans book about his interaction with Ronald Reagan that captures Reagans view of economists:
".....He told one on the airplane that seemed particularly meant for me. It started with Leonid Brezhnev on the reviewing stand at Lenin's Tomb, surrounded by underlings, watching the May Day parade. The Soviet Union's full military might is there on display. First come battalions of elite troops, impressive soldiers, all six foot two; marching in absolute lockstep. Right behind them are phalanxes of stateof-the-art artillery and tanks. Then come the nuclear missiles—it's an awesome show of strength. But after the missiles comes a straggle of six or seven civilians, unkempt, shabbily dressed, utterly out of place. An aide rushes up to Brezhnev and begs forgiveness. "Comrade Secretary, my apologies, I do not know who these people are or how they've come into our parade."
"Do not be concerned, Comrade," replies Brezhnev. "I am responsible for them. They are our economists, and you have no idea how much damage they can do."
"
Thursday, July 23, 2009
Opportunity Engineering Does it really help plugging the downside without affecting the upside?
I recently read the book review of "Unlocking Opportunities for Growth" By Alexander B. van Putten and Ian C MacMillan and surmised if opportunity engineering methods and tools can really help in plugging the downside. The author argues that Opportunity engineering can help in breaking the typical symmetry on the downside of the opportunity. If for a moment we assume a normal opportunity return curve as illustrated in Fig 1 below where the mean is the break-even point for an opportunity, the author mentions that opportunity engineering can help in breaking the symmetry of the curve by eliminating the likelihood of an opportunity outcome falling on the left side of the curve. This effectively means we have an asymmetric curve (that is a curve with different functional drivers; obviously the whole curve is no longer normal then!)... Please note the author never mentions that the opportunity is a normal curve, all he mentions is that there is a symmetry between the risk and reward. These are typical stochastic models. i've used a normal curve to help illustrate the gaps that I see in what is proposed by the author. Now note that at the time of planning or forecasting for an opportunity we usually use DCF and NPV to make crucial business decisions, however in reality the actual outcome is influenced by several real-life factors and parameters. This means at any point in time we may land up anywhere in the green rectangular box at any point in time in reality assuming we fore casted and planned for a normal-curved based returns for an opportunity.... Now there are underlying assumptions in the argument the author makes that can be challenged:
1. The existence of symmetric relationship or equal likelihood nature of opportunity return curves. This is seldom a case where we have equal likelihoods on either side of a break-even point for an opportunity curve....there are countless product curves and innovations curves that can be plotted with products in the market that have a asymmetric opportunity return curves...
2. Assumption that any propensity to reduce the risk will impact only the left side of the opportunity return curve without having a holistic impact on the right side of the return curve...look at this this way have we ever seen a car or a computer that meets every customer need out there....if that is the case then we would not have various product categories and customer segments :-)....
Having noted 2 such fallacies, let us also look at what are all the options or scenarios we can generate at the time of forecasting to ensure that we are in a position to manage the outcome always on the right side of the normal curve. (For a moment I've now assumed the normal curve remains and the authors inherent assumptions of changing the curve only for the left side to break symmetry is not feasible in real-life!). Let us assume that we are simplifying the forecasting model for business decision by only factoring a finite set of known parameters or factors that could affect an opportunity (Making that assumption is theoretical it is never practically feasible...I'm just attributing a zero probability for the occurrence of a "force majure" event during a planning horizon!). Lets now look at 3 ideal scenarios:
1. "Conservative Scenario": Reducing the skew or variance of an opportunity outcome (Fig 2) . In this scenario we make certain choices for the opportunity that limits the failure points at the same time also limits the success. Classic example is that of Nokia Mobile phones, they keep releasing model after model with incremental feature having now got a base mobile phone ecosystem right, they just add a camera, stereo phone, touch screens etc. as added feature on mobile phone. So every new model that Nokia makes can now leverage the evolutionary scenario forecast model. This model usually works in oligopolistic markets with few competitors: Microsoft, Nokia, etc. The have shaped their market as oligopolistic through differentiated strategy and reached where they are over the years by decimating competition. Basically what this means is that the opportunity curve for every model they release in the market have an equal likelihood of success and failure!
2. "Normal Scenario": ": Increasing the expected return for the opportunity curve while reducing the loss (Fig 3). This is just shifting the normal opportunity curve (Fig 1) by increasing the expected value of returns on positive side. Most businesses try to make sure that their forecasted model always has yields a positive return and reduces the likelihood of failure i.e. falling into the left side of the expected value. To achieve this forecast model look at an opportunity holistically from different functional perspectives: Engineering, Design, production, Sales, and marketing. There are tactical strategies and lobbying made at conception stage of the opportunity to make it successful. Typically we see this in commoditized market where opportunities are shaped to meet a specific customer need. The customer need is well understood through market research. Good examples of such products are in the Consumer goods industry: Colgate tooth paste with salt. J…
3. "Aggressive scenario": Increasing the expected return for the opportunity curve while reducing the loss at the same time increasing the likelihood of the outcome falling within the forecasted opportunity curve (Fig 4). This is not just about shifting the curve by its mean and reducing risk, but also about increasing the likelihood that the outcome will fall within the opportunity curve that is forecasted. Good example of this model is that of an iPhone, iPod, etc, here Apple has done something magical in reducing the returns from the opportunity curve through innovative design to create an successful market for its product, while at the same time limiting the left side by offering complementary services such as iTunes, tie up with telecom operators who are ready to offer 3G services, and so on. They may not have necessarily addressed the immediate customer need, but created a new customer need. These products are revolutionary in its nature and it is often difficult to forecast such model without tipping off competition about such an entry into the market. There are few companies that can create such opportunities.
Having discussed all this, we cannot say with certainty that our forecasted model will always predict a positive outcome or we have a mind and hand of God to plug the downside of an opportunity without commensurately impacting the upside!
But we can definitely analyze scenarios based on range of possible outcome to satisfy ourselves at the time of making business decision!
Friday, June 19, 2009
Contractual options to manage IT Outsourcing risks and the paradox therein for Fixed price projects...
I heard a very interesting presentation by Late Peter Bernsteing knownt to be an expert in managing risks...he made very interesting remark about risks and gave some real-life examples from the finance industry where options are effectively used to manage risks...He had this very interesting articulation of the idea of risk through few anecdotes that sparked my imagination and led to some very interesting insights about IT outsourcing industry....Lets see some of the anecdotes he used and how they relate to our IT industry...
1. Finace industry always revolves around making decisions based on incomplete information. This leads to us taking risks and an expectation to be rewarded commensurate to the risks (the whole idea of CAPM by Modiglani and millers, the Betas our ability to quantitatively assess our risks).
In IT outsourcing contracts, we do similarly solution and price a fixed price deal based on incomplete information (estimates, scope of work, etc.). This is a risk that we undertake for which our rewards are the margins that client pay us. Now unlike financila industry there is no standard quantitative model we use to assess risks and can expect to get rewards commensurate to the risks we take....So the question arose within me why do we bid for fixed price projects when we do not have complete information? (It is a completely different topic to define what completeness in information mean...we will discuss this hopefully in some post in the future)
2. When we buy shares of a company we have a passive control over the decisions of the company and the decisons we make as passive investor is reversible. On the contrary if we look at the Executive or management has active control and make more decisions on behalf of the company but their decisions are irreversible. The do take equal amount of risks for making decisions as we do and their rewards are obviously paid in stock options and % commissions (maybe Obama thinks that CEOs of funded companies shouldnt be paid at all....:-))..Now in IT outsourcing contracts when we do a fixed price 3-5 year deals the client and service provider do make an irreversible decision for a fixed duration. Their decisions are irreversible and are actively involved, and seem to control the engagement through extensive management. Now paradoxically we do sign lot of Fixed price projects knowing fully well risks-rewards dont match, besides we make irreversible decisions which we presume to control when we dont/cant...(well there are other contract T&C to put a boundary around these changes but then what the heck the change management always are active and manage the heck a lot of change out of clients)
3. In finance industry we have instruments such as Futures, derivatives and Options that gives us the right but not the obligations to manage the risks with at a manageeable (Only for those who know how these markets operate and also note i'm not sayin small) price... So what it effectively gives a passive investor is the ability to make further choices in reversability of decisions but ofcourse at the cost of not being able to control the decisions of companies that has bearing on the outcome...Now lets turn to our IT industry the fixed price contract are risks with unknow outcomes, uncontrollable and active decisions require to manage a contract and finally has no instruments (forget the Change managers) to manage the reversability of decisions when we bid with limited information....
Given all the above tenets, why do we do fixed price contracts at all....Doesnt it make us stick out our ostritch neck to be chopped off by a predator, or sticking out a thumb that invariably turns sour....
Whats driving us to Fixed price projects that are based on limited information other then the seemingly predictable revenues that we fool ourselves to be getting out of these deals :-)....
Now why cant all the deals where we have incomplete information be contracted using the real options model that is prevelant in the Finance industry...come to think of it, this will lead us to consider all engagemetns where we are bidding with limited information to statrt off as T&M deals.. we can build a real option (:-)...if I can use the term here) to convert this to a fixed price engagement maybe 6 months to 9 months into the delivring on the deal...during this time we will definitely have lot of data and complete information to know what is the risk we will be underwriting through a fixed price contract...now to get the benefit of defering the decision of making an engagement with incomplete information to fixed price we need to compromise on the fact that the deal may not materialize for us at all at the end of 6 months or 9 months....we give client that right (but not the obligation to convert this to a fixed price deal), so it is like the client buying the call option if you will from us to convert it to a fixed price model...so what do we do as a firm selling the fixed price option to cover our cost for lost opportunity if the deal does not materialize...we will expect client to pay us for the T&M project in the interim of 6 months to 9 months and the cost of reversing this decision still exist with client and with the service provider......ofcourse imagine if we also have an exchange where different service proividers can trade this...we can in effect trade these options with several supplier out there in the market..and ofcourse the underlying resources need to move with this too that are serving the client....
Looks like this idea is too raw and i'm almost at the boundary of being called insane...but nevertheless a good topic to explore further....What is your thought here...pls share your thoughts on my jabber....
1. Finace industry always revolves around making decisions based on incomplete information. This leads to us taking risks and an expectation to be rewarded commensurate to the risks (the whole idea of CAPM by Modiglani and millers, the Betas our ability to quantitatively assess our risks).
In IT outsourcing contracts, we do similarly solution and price a fixed price deal based on incomplete information (estimates, scope of work, etc.). This is a risk that we undertake for which our rewards are the margins that client pay us. Now unlike financila industry there is no standard quantitative model we use to assess risks and can expect to get rewards commensurate to the risks we take....So the question arose within me why do we bid for fixed price projects when we do not have complete information? (It is a completely different topic to define what completeness in information mean...we will discuss this hopefully in some post in the future)
2. When we buy shares of a company we have a passive control over the decisions of the company and the decisons we make as passive investor is reversible. On the contrary if we look at the Executive or management has active control and make more decisions on behalf of the company but their decisions are irreversible. The do take equal amount of risks for making decisions as we do and their rewards are obviously paid in stock options and % commissions (maybe Obama thinks that CEOs of funded companies shouldnt be paid at all....:-))..Now in IT outsourcing contracts when we do a fixed price 3-5 year deals the client and service provider do make an irreversible decision for a fixed duration. Their decisions are irreversible and are actively involved, and seem to control the engagement through extensive management. Now paradoxically we do sign lot of Fixed price projects knowing fully well risks-rewards dont match, besides we make irreversible decisions which we presume to control when we dont/cant...(well there are other contract T&C to put a boundary around these changes but then what the heck the change management always are active and manage the heck a lot of change out of clients)
3. In finance industry we have instruments such as Futures, derivatives and Options that gives us the right but not the obligations to manage the risks with at a manageeable (Only for those who know how these markets operate and also note i'm not sayin small) price... So what it effectively gives a passive investor is the ability to make further choices in reversability of decisions but ofcourse at the cost of not being able to control the decisions of companies that has bearing on the outcome...Now lets turn to our IT industry the fixed price contract are risks with unknow outcomes, uncontrollable and active decisions require to manage a contract and finally has no instruments (forget the Change managers) to manage the reversability of decisions when we bid with limited information....
Given all the above tenets, why do we do fixed price contracts at all....Doesnt it make us stick out our ostritch neck to be chopped off by a predator, or sticking out a thumb that invariably turns sour....
Whats driving us to Fixed price projects that are based on limited information other then the seemingly predictable revenues that we fool ourselves to be getting out of these deals :-)....
Now why cant all the deals where we have incomplete information be contracted using the real options model that is prevelant in the Finance industry...come to think of it, this will lead us to consider all engagemetns where we are bidding with limited information to statrt off as T&M deals.. we can build a real option (:-)...if I can use the term here) to convert this to a fixed price engagement maybe 6 months to 9 months into the delivring on the deal...during this time we will definitely have lot of data and complete information to know what is the risk we will be underwriting through a fixed price contract...now to get the benefit of defering the decision of making an engagement with incomplete information to fixed price we need to compromise on the fact that the deal may not materialize for us at all at the end of 6 months or 9 months....we give client that right (but not the obligation to convert this to a fixed price deal), so it is like the client buying the call option if you will from us to convert it to a fixed price model...so what do we do as a firm selling the fixed price option to cover our cost for lost opportunity if the deal does not materialize...we will expect client to pay us for the T&M project in the interim of 6 months to 9 months and the cost of reversing this decision still exist with client and with the service provider......ofcourse imagine if we also have an exchange where different service proividers can trade this...we can in effect trade these options with several supplier out there in the market..and ofcourse the underlying resources need to move with this too that are serving the client....
Looks like this idea is too raw and i'm almost at the boundary of being called insane...but nevertheless a good topic to explore further....What is your thought here...pls share your thoughts on my jabber....
What lies on the other side of Economic Event Horizon for IT Outsourcing industry?
The economic event of meltdown and slowing growth that we are witnessing today is unprecendeted in its nature in terms of the following:
1. The scope of coverage (includes all the industries)
2. The scale (effects felt globally) unlike the prior Japanese, Argentinian currency crisis, Russian bond market initiated crash or the East Asian BoP crisis
3. The intensity/depth of effect it has had on the industry
4. The speed at which it propogated; virtually in 6-9 months timeframe it had affected the scope and scale
What lies on the other side of the unprecedented economic event horizon...No brownies for guessing it for the Financial industry as almost every one has seen and will see in terms of regulation, infusion and bailouts by governments, recapitalization, more stringent monitoring of risk exposure...read more of it in RGE Monitor an article written by NY Stern school of business. Lets look at our IT outsourcing market alone for a moment. I just happened to come out of a leadership meeting at work and was quiet amazed that every one claiming that the other side of the event horizon will be fundamentally different from what we have witnessed in the past...But no one knew what exactly what it really means :-)...either they thought we may not understand it or they themselves were not so sure.... I for one believe that they might've thought we would not understand it.
The IT outsourcing industry has witnessed just one such downturn in Year 2000 & 2001 (Popularly called DotCom Crash) when the Telecom & Technology industry led downturn had immense impact on us (we will compare and contrast this in a separate post) . Having seen through that downturn and journeying through several organizations and roles, here are my insights:
1. Client will demand more value (one can define it in many ways) to be delivered by Suppliers at lower cost.
2. Client would demand transformation of their IT services/model/organizations leading to higher efficiency and effectiveness of IT support function at lower cost.
3. Client would expect suppliers to bring innovations to life through IT services to businesses earlier, and faster than their competitors at lower cost.
4. Higher performance/productivity levels (enforced through stringent SLAs) for thier businesses than before at lower cost.
5. Better resources (may I call them Super-humans: higher talent, highly flexible, having shorter learning curves, working longer, etc.) at lower cost.
Now if you do not understand whats and how of lower cost, it is immaterial you are best in any other tenet. Remember you still cant get a dime for your organization and find yourself running around amidst headless chickens or Heady humans ;-)...
What has been your experience regarding these heads and your predictions on the other side of this event horizon?
1. The scope of coverage (includes all the industries)
2. The scale (effects felt globally) unlike the prior Japanese, Argentinian currency crisis, Russian bond market initiated crash or the East Asian BoP crisis
3. The intensity/depth of effect it has had on the industry
4. The speed at which it propogated; virtually in 6-9 months timeframe it had affected the scope and scale
What lies on the other side of the unprecedented economic event horizon...No brownies for guessing it for the Financial industry as almost every one has seen and will see in terms of regulation, infusion and bailouts by governments, recapitalization, more stringent monitoring of risk exposure...read more of it in RGE Monitor an article written by NY Stern school of business. Lets look at our IT outsourcing market alone for a moment. I just happened to come out of a leadership meeting at work and was quiet amazed that every one claiming that the other side of the event horizon will be fundamentally different from what we have witnessed in the past...But no one knew what exactly what it really means :-)...either they thought we may not understand it or they themselves were not so sure.... I for one believe that they might've thought we would not understand it.
The IT outsourcing industry has witnessed just one such downturn in Year 2000 & 2001 (Popularly called DotCom Crash) when the Telecom & Technology industry led downturn had immense impact on us (we will compare and contrast this in a separate post) . Having seen through that downturn and journeying through several organizations and roles, here are my insights:
1. Client will demand more value (one can define it in many ways) to be delivered by Suppliers at lower cost.
2. Client would demand transformation of their IT services/model/organizations leading to higher efficiency and effectiveness of IT support function at lower cost.
3. Client would expect suppliers to bring innovations to life through IT services to businesses earlier, and faster than their competitors at lower cost.
4. Higher performance/productivity levels (enforced through stringent SLAs) for thier businesses than before at lower cost.
5. Better resources (may I call them Super-humans: higher talent, highly flexible, having shorter learning curves, working longer, etc.) at lower cost.
Now if you do not understand whats and how of lower cost, it is immaterial you are best in any other tenet. Remember you still cant get a dime for your organization and find yourself running around amidst headless chickens or Heady humans ;-)...
What has been your experience regarding these heads and your predictions on the other side of this event horizon?
Friday, May 22, 2009
Success for Mature firms in difficult times.....
Is it that matured IT and Consulting firms often loose track during difficult times?
Probably yes.
To understand this lets define what qualifies Maturity:
1. Differentiated Services to client - Creating multiple offering in the continum between Fixed Price deals Vs T&M deals
2. Sound business practicies: Sales, Financial, Contract/legal and economic factors....
3. Strong culture: Behaviors and attitudes deeply ingrained in its employees..
A mature firm exhibits some of the above qualities stretched to the extreme that has defined their success in good times. (It reminds of the book Good to Great by Jim collins that I referred to see if there are anyother tenets we can include for the same, but lets keep it simple for discussion purposes as too many people critize a good work of Jim collins anyways saying it has a very high statistical bias......).
The whole premise that they did well and matured to a certain level in providing goods and services in the past itself become their nemesis...they tend to stretch the qualities even in bad times when the context in which they operate has changed. Take for instance what we are going through under current economic conditions, everything: Inflation, Forex, COLA, employment, etc has become so volatile that for a large MNS/TNC it is almost impossible to meet their forecast with any reasonable probability....
One very interesting insight I had too, is that some of these firms carry around the business with the same best practices even in circumstances like this without realizing how complicated their ways and means to profitability have become...This goes to an extent that they forget their past journeys on how simple, nimble and flexible their operations have been in the past....When the current environment requires them to really go back to the basics they had almost forgotten them or despise them as old habits that they believe are irrelevant! In the process they also become irrelevant in the market and forget what the customer/client really wants...
One can Live through this nightmarish experience to understand the frustrations or learn from others insights...what has been your experiences?
Probably yes.
To understand this lets define what qualifies Maturity:
1. Differentiated Services to client - Creating multiple offering in the continum between Fixed Price deals Vs T&M deals
2. Sound business practicies: Sales, Financial, Contract/legal and economic factors....
3. Strong culture: Behaviors and attitudes deeply ingrained in its employees..
A mature firm exhibits some of the above qualities stretched to the extreme that has defined their success in good times. (It reminds of the book Good to Great by Jim collins that I referred to see if there are anyother tenets we can include for the same, but lets keep it simple for discussion purposes as too many people critize a good work of Jim collins anyways saying it has a very high statistical bias......).
The whole premise that they did well and matured to a certain level in providing goods and services in the past itself become their nemesis...they tend to stretch the qualities even in bad times when the context in which they operate has changed. Take for instance what we are going through under current economic conditions, everything: Inflation, Forex, COLA, employment, etc has become so volatile that for a large MNS/TNC it is almost impossible to meet their forecast with any reasonable probability....
One very interesting insight I had too, is that some of these firms carry around the business with the same best practices even in circumstances like this without realizing how complicated their ways and means to profitability have become...This goes to an extent that they forget their past journeys on how simple, nimble and flexible their operations have been in the past....When the current environment requires them to really go back to the basics they had almost forgotten them or despise them as old habits that they believe are irrelevant! In the process they also become irrelevant in the market and forget what the customer/client really wants...
One can Live through this nightmarish experience to understand the frustrations or learn from others insights...what has been your experiences?
Thursday, February 5, 2009
Will democratising of Innovation lead to futility of Patents & copyrights?
There is the amazing trend of democratizing innovation carried out by Open Source Software..remember a blog I had written on the same topic fome time back....it seems the abstraction of the thoughts there has finally leading me to understanding the idea of democratizing innovation...thanks to great open source book by Eric Von Hippel and the book by MS Krishnan and CK Prahalad in their book "New age of Innovation"...
Interestingly, we are seeing more user initiated innovations shared freely and openly off late. It seems the key motivation for sharing the innovationa re:
1. The purpose of sharing innovation to benefit the society... Great example generics in the market by developing countries like India...I know pahramaceutical companies will hate this, but who cares! other example include wikepedia
2. The value of getting back refinements to the innovative idea by user community that leaves the product or service richer than it would have been otherwise..Great example is Linux...other example include the custom Semiconductor development kits by Xylinx
3. The motivation one gets by merely sharing their learning experiences to wider audience out there....Great example Innovation community portals (i've written about these earlier)
Now lets look at it from the financial angle:
we know that innovation leads to sunken cost for the innovator...there can be the direct costs or several proxies to these costs such as invested time, effort, and so on...We all know from our business experience that sunken costs are always unavoidable and unrecoverable unless some greedy accountant out there capitalizes it and amortizes it over the the life of the innovated product/service so he can avoid paying additional taxes ;-)...so whats the big deal in not being too obsessed with recoverability of the cost...the benefits of sharing openly that I listed above far exceeds the sunken cost for some....
So now lets come to the entire idea of having patent and copyright laws preventing/limiting the wider commercial benefit of an innovation...what it really means for the commercial benefit is to exploit the common need of the large community of users by the manufacturer/service provider to make money...in the process what really happens is the innovative product/service focus is to not only recover the sunken cost but also to generate more benefit to satisfy the greed of the organizations....The product/service meeting mass-market needs is not good enough for some users of it, who have either found better use for it by innovating more on the product...good example here is the surf board holders innovated by surfers to enable them jump over waves pointed in the book by Eric von Hippel...or alternate uses for the product :-) Benadryl used as a good substitute for chep intoxicating agent....
Atleast in the 21st century of consumerism we will see more users and the communities will start creating more innovation on the product making the product more of a commodity....the patents and copyrights then naturally becomes futile either by filing new patent over the base and completely altering it...well some of the TRIZ fans would love this.....Net-net what it will do is displace the manufacturer from the Product-Development/Engineering and Service development domains. They may only survive in the realm of Manufacturing or Service execution spaces purely due to the benefits that can accrue due to scale economies...
So what does it really mean....i've really argued (may not be a very erudite one) for futility of patents and copyrights and favoring the open source innovation as long as I'm not a manufacturer of the service provider with huge sunken costs :-)....Whats your view...
Interestingly, we are seeing more user initiated innovations shared freely and openly off late. It seems the key motivation for sharing the innovationa re:
1. The purpose of sharing innovation to benefit the society... Great example generics in the market by developing countries like India...I know pahramaceutical companies will hate this, but who cares! other example include wikepedia
2. The value of getting back refinements to the innovative idea by user community that leaves the product or service richer than it would have been otherwise..Great example is Linux...other example include the custom Semiconductor development kits by Xylinx
3. The motivation one gets by merely sharing their learning experiences to wider audience out there....Great example Innovation community portals (i've written about these earlier)
Now lets look at it from the financial angle:
we know that innovation leads to sunken cost for the innovator...there can be the direct costs or several proxies to these costs such as invested time, effort, and so on...We all know from our business experience that sunken costs are always unavoidable and unrecoverable unless some greedy accountant out there capitalizes it and amortizes it over the the life of the innovated product/service so he can avoid paying additional taxes ;-)...so whats the big deal in not being too obsessed with recoverability of the cost...the benefits of sharing openly that I listed above far exceeds the sunken cost for some....
So now lets come to the entire idea of having patent and copyright laws preventing/limiting the wider commercial benefit of an innovation...what it really means for the commercial benefit is to exploit the common need of the large community of users by the manufacturer/service provider to make money...in the process what really happens is the innovative product/service focus is to not only recover the sunken cost but also to generate more benefit to satisfy the greed of the organizations....The product/service meeting mass-market needs is not good enough for some users of it, who have either found better use for it by innovating more on the product...good example here is the surf board holders innovated by surfers to enable them jump over waves pointed in the book by Eric von Hippel...or alternate uses for the product :-) Benadryl used as a good substitute for chep intoxicating agent....
Atleast in the 21st century of consumerism we will see more users and the communities will start creating more innovation on the product making the product more of a commodity....the patents and copyrights then naturally becomes futile either by filing new patent over the base and completely altering it...well some of the TRIZ fans would love this.....Net-net what it will do is displace the manufacturer from the Product-Development/Engineering and Service development domains. They may only survive in the realm of Manufacturing or Service execution spaces purely due to the benefits that can accrue due to scale economies...
So what does it really mean....i've really argued (may not be a very erudite one) for futility of patents and copyrights and favoring the open source innovation as long as I'm not a manufacturer of the service provider with huge sunken costs :-)....Whats your view...
Friday, January 30, 2009
Cloud Computing & SOA - Hype and Hoopla
There is so much hype and hoopla about Cloud computing and Service Oriented architecture....as I had earlier mentioned in my earler article that these are going through the peak of Inflated expectation (thanks Gartner for this nice terminology other than the Magic Quadrant)....
If you have been long enough in the IT career say 10-15 years you can see through it nothing differently than Inflated expectations...
Remember the great hype and Hoopla created at every phase of an Innovation:
a. Midrange computers challenging the Mainframes: The SUN & HP of thw world giving the IBMs of the world the run for their money...it all seemed to be a great hype on midrange as Intel based servers today are giving the midranges run for their money...
b. RDBMS challenging the Network and Hierarchical DBMS: Remember the Oracle/Ingres/Sybase/Informix/DB2s of the world giving the DEC and IBMs databases run for their money...we also brefly saw Object oriented Databases momentarily sending sparks and fizzling out
c. Client server architecture challenging the Mainframe screens/C cursors/the Windows SDK fat clients: Remeber Oracle, Powerbuilders of thw world giving the gargantuan and complex Windows SDKs run for their money...all to be challenged again by the internet thin client frameworks...we saw a full circle here...
What is a pattern we see in all the above...it seemed that they are really reinventing the wheel or coming a full circle...I'm unable to articulate this much better, but let me try and give this simple analogy...its like the earht going around the Sun year after year in a clocks precision...I dont really see the Cloud computing any different from retracing the Mainframe era....and the SoA going back to the very fundamentals of what the technologies and methodologies exit for to run a business with what you have rather than buying new technology to support the existing business....
So whats so great about the SoA and Cloud Computing...not coz' i', not chasing them this time...it all seems to be a good marketing gimmick...what has to be innovated in the technology space has really been innovated and it is just about putting the old wine in a new bottle or just plain message in a bottle ;-).... it seems its all about the context and not really the core....
What do you think? Just a hype and Hoopla around cloud computing and SOA...Whata the big deal?
If you have been long enough in the IT career say 10-15 years you can see through it nothing differently than Inflated expectations...
Remember the great hype and Hoopla created at every phase of an Innovation:
a. Midrange computers challenging the Mainframes: The SUN & HP of thw world giving the IBMs of the world the run for their money...it all seemed to be a great hype on midrange as Intel based servers today are giving the midranges run for their money...
b. RDBMS challenging the Network and Hierarchical DBMS: Remember the Oracle/Ingres/Sybase/Informix/DB2s of the world giving the DEC and IBMs databases run for their money...we also brefly saw Object oriented Databases momentarily sending sparks and fizzling out
c. Client server architecture challenging the Mainframe screens/C cursors/the Windows SDK fat clients: Remeber Oracle, Powerbuilders of thw world giving the gargantuan and complex Windows SDKs run for their money...all to be challenged again by the internet thin client frameworks...we saw a full circle here...
What is a pattern we see in all the above...it seemed that they are really reinventing the wheel or coming a full circle...I'm unable to articulate this much better, but let me try and give this simple analogy...its like the earht going around the Sun year after year in a clocks precision...I dont really see the Cloud computing any different from retracing the Mainframe era....and the SoA going back to the very fundamentals of what the technologies and methodologies exit for to run a business with what you have rather than buying new technology to support the existing business....
So whats so great about the SoA and Cloud Computing...not coz' i', not chasing them this time...it all seems to be a good marketing gimmick...what has to be innovated in the technology space has really been innovated and it is just about putting the old wine in a new bottle or just plain message in a bottle ;-).... it seems its all about the context and not really the core....
What do you think? Just a hype and Hoopla around cloud computing and SOA...Whata the big deal?
Innovation at the Core and the Context - An IT Services View
Lets define what is Core and the Context first.
The core is the raison-de-etre of an organization, and/or
the purpose for which a going concern/organization exists,
Good examples of core:
a. IT Service Organizations: Wipro, Infosys, TCS, etc. exist for the purpose of providing IT services to clients
b. Tiger wood brand exists so he plays Golf :-)...
c. Shahruk Khan/Amithab Bachan/Angelina Jolie brand exists so he acts in Movies
The context is every other things that supports the functioning of the organization:
a. For IT Services: Company laws, GAAP/IAS/India AS rules, Brand, Marketing divisions, etc.
b. For Tiger woods: His clubs, his golf gears, turf, Gillette ads, golf balls, :-)...
c. Sharuk Khan/Amithab Bachan/Angelina Jolie: Loreal, Inox, Paramounts etc.
In the earlier post I had discussed about the ideas I got reading "Dealing with Darwin"....Thinking further on it, I realized that most of the innovation 15-16 different innovation types were really in the core of the organization...nobody talked about innovation at the context....
Imagins a new innovation of Titanium metal used in making golf clubs it may give our great Tiger woods an extra fillip of performance on the turf...maybe even a minor edge in his core to win more matches...
Now I realized that some of the Operational excellence zone innovations: Value engineering, Value migration, Integration, and Process innovations actually performed on the context of IT service industry can infact give the IT services industries the extra edge....Imagine applying lean principles, 6-Sigma, and good accounting policies, excellend financial controls within the organizations can provide great reputation for the service industry and infact contribute to winning more deals for them in the market...guess what the innovation at the context really translates directly into providing experential innovation in the customer intimacy zone...clients would love tow work with organizations that are nimble, flexible and provide a great reputation when associated with....That is the case of some of the Indian Pure plays like Wipro, Infosys and TCS (for its Nano...god one client manager in US remembers only one name TCS not coz it provided IT services coz thee guys make lorries and also sell Tetley tea :-)....
So what I really think is that the different innovations mentioned by Moore in Dealing with Darwin are indeed highly interconnected and one feeds into another....it seems to me that great organizations in the world (not just IT services companies) have infact know these interconnectedness and play the innovation nodes so well that one feeds into another leading to growth...For example I dont think Toyota has just been known for just operational excellence through its lean principles that is leading it to be Numero Uno in the Automobile industry it is far greater than that!
What do you think!
The core is the raison-de-etre of an organization, and/or
the purpose for which a going concern/organization exists,
Good examples of core:
a. IT Service Organizations: Wipro, Infosys, TCS, etc. exist for the purpose of providing IT services to clients
b. Tiger wood brand exists so he plays Golf :-)...
c. Shahruk Khan/Amithab Bachan/Angelina Jolie brand exists so he acts in Movies
The context is every other things that supports the functioning of the organization:
a. For IT Services: Company laws, GAAP/IAS/India AS rules, Brand, Marketing divisions, etc.
b. For Tiger woods: His clubs, his golf gears, turf, Gillette ads, golf balls, :-)...
c. Sharuk Khan/Amithab Bachan/Angelina Jolie: Loreal, Inox, Paramounts etc.
In the earlier post I had discussed about the ideas I got reading "Dealing with Darwin"....Thinking further on it, I realized that most of the innovation 15-16 different innovation types were really in the core of the organization...nobody talked about innovation at the context....
Imagins a new innovation of Titanium metal used in making golf clubs it may give our great Tiger woods an extra fillip of performance on the turf...maybe even a minor edge in his core to win more matches...
Now I realized that some of the Operational excellence zone innovations: Value engineering, Value migration, Integration, and Process innovations actually performed on the context of IT service industry can infact give the IT services industries the extra edge....Imagine applying lean principles, 6-Sigma, and good accounting policies, excellend financial controls within the organizations can provide great reputation for the service industry and infact contribute to winning more deals for them in the market...guess what the innovation at the context really translates directly into providing experential innovation in the customer intimacy zone...clients would love tow work with organizations that are nimble, flexible and provide a great reputation when associated with....That is the case of some of the Indian Pure plays like Wipro, Infosys and TCS (for its Nano...god one client manager in US remembers only one name TCS not coz it provided IT services coz thee guys make lorries and also sell Tetley tea :-)....
So what I really think is that the different innovations mentioned by Moore in Dealing with Darwin are indeed highly interconnected and one feeds into another....it seems to me that great organizations in the world (not just IT services companies) have infact know these interconnectedness and play the innovation nodes so well that one feeds into another leading to growth...For example I dont think Toyota has just been known for just operational excellence through its lean principles that is leading it to be Numero Uno in the Automobile industry it is far greater than that!
What do you think!
Thursday, January 29, 2009
Dealing with Darwin in the IT Industry - What is the Innovation strategy that is apt for the IT Industry
In Dealing with Darwin book Geoffrey A. Moore brings a great menu of innovations types that can be applied by organizations operaing in different market/growth phase of their respective industry...
Let me trace the growth of Indian IT Services Industry and the innovations that were so effectively applied over 2 distinct phases:
Early 1980-2000: The Indian IT Industry was in the growth phase and if we look at the dominant innovation themes was that of Disruptive innovation of Offshoring. The primary participants here were TCS, Wipro, Infosys, PCS, IBM, and HCL-HP
2000 onwards the IT Service industry is quickly become that of a mature market: The dominant innovation themes used in customer intimacy zone were: marketing Innovation and experential Innovation. The marketing innovation was to provide different types of services AM, & AD and within them Fixed price, capacity and T&M models. The experential innovation was to provide services to client businesses on SLA and KPI. The participant in the industry were still TCS, Wipro, Infosys, IBM, HCL-HP and we saw new emerging MNC like Accenture :-)...
On the operational excellence zone it was a combination of Process Innovation and off late Value engineering and Migration innovations. The process innovations were the ISO, CMMI and so on. ALl participants in the industry have adopted this innovation which resulted in these cores actually becoming the context. Very few organizations graduated to the value engineering and Value migration innovation like TCS and Wipro by adopting 6-Sigma and Lean management practices....But there are some fast followers..
Now all the above innovations have actually been adopted and replicated very quickly by other resulting in these cores actually becoming the context...Now every client looks for their service provider to have adopted and assimilated these innovations. Hence performing on Quality, offshoring etc. only gives a neutral or negative outcomes to service providers and definitely not positive :-)...
The question of what is really the core of the services offered by IT services companies...I really dont know....I've been struggling to figure this out myself...the core it seems really lies in the unique culture of the organizations and in specific domains of IT service like in embedded engineering etc. we'll dvelve on this topic later...but you can reach me through the comment section if you are interested in discussing this and application of the 5 model core-context repurposing strategy...
It is also interesting to understand what will a new player getting into the market operate on in the mature market. It definitely has to be a disruptive innovation...where will this disruptive innovation come from:
1. Marekting innovation/Experential innovation in the customer intimacy zone: For example: Cost, price innovations like outcome based pricing, variable margins, etc.
2. Integration, Value Engineering, Value Migration/Process Innovation in the Operational excellence Zone: Usage of automated tools or operating model to provide a unique benefit to the client....
Or a combination of the above two...It would be good to think about this
Interestingly we see that the market has not gone into Declining market yet...so I'll reserve discussing this for later...however we have seen some organizations may soon reach this phase if they are in niche/commoditized service areas like AM where only the bigger players can survive the challenges by sheer scope and size....
Well my thoughts are flying in a zillion directions right now....maybe i'll structre it better with more insights....watch out this space for more....
Let me trace the growth of Indian IT Services Industry and the innovations that were so effectively applied over 2 distinct phases:
Early 1980-2000: The Indian IT Industry was in the growth phase and if we look at the dominant innovation themes was that of Disruptive innovation of Offshoring. The primary participants here were TCS, Wipro, Infosys, PCS, IBM, and HCL-HP
2000 onwards the IT Service industry is quickly become that of a mature market: The dominant innovation themes used in customer intimacy zone were: marketing Innovation and experential Innovation. The marketing innovation was to provide different types of services AM, & AD and within them Fixed price, capacity and T&M models. The experential innovation was to provide services to client businesses on SLA and KPI. The participant in the industry were still TCS, Wipro, Infosys, IBM, HCL-HP and we saw new emerging MNC like Accenture :-)...
On the operational excellence zone it was a combination of Process Innovation and off late Value engineering and Migration innovations. The process innovations were the ISO, CMMI and so on. ALl participants in the industry have adopted this innovation which resulted in these cores actually becoming the context. Very few organizations graduated to the value engineering and Value migration innovation like TCS and Wipro by adopting 6-Sigma and Lean management practices....But there are some fast followers..
Now all the above innovations have actually been adopted and replicated very quickly by other resulting in these cores actually becoming the context...Now every client looks for their service provider to have adopted and assimilated these innovations. Hence performing on Quality, offshoring etc. only gives a neutral or negative outcomes to service providers and definitely not positive :-)...
The question of what is really the core of the services offered by IT services companies...I really dont know....I've been struggling to figure this out myself...the core it seems really lies in the unique culture of the organizations and in specific domains of IT service like in embedded engineering etc. we'll dvelve on this topic later...but you can reach me through the comment section if you are interested in discussing this and application of the 5 model core-context repurposing strategy...
It is also interesting to understand what will a new player getting into the market operate on in the mature market. It definitely has to be a disruptive innovation...where will this disruptive innovation come from:
1. Marekting innovation/Experential innovation in the customer intimacy zone: For example: Cost, price innovations like outcome based pricing, variable margins, etc.
2. Integration, Value Engineering, Value Migration/Process Innovation in the Operational excellence Zone: Usage of automated tools or operating model to provide a unique benefit to the client....
Or a combination of the above two...It would be good to think about this
Interestingly we see that the market has not gone into Declining market yet...so I'll reserve discussing this for later...however we have seen some organizations may soon reach this phase if they are in niche/commoditized service areas like AM where only the bigger players can survive the challenges by sheer scope and size....
Well my thoughts are flying in a zillion directions right now....maybe i'll structre it better with more insights....watch out this space for more....
Starfish & the Spider - The power of networks in IT Organizations
I read the excerpts of the book Starship and Spider and really loved the power of Starfish - Network of decentralized decision making...
Its quiet amazing how the author narrates the difficulty faced by Spanish in decimating the Apache tribe in the US, while the same decimated the Incas and the and other tribes of New mexico....
It seems it was difficult to decimate the apache coz it was a tribe which shared decision making in decentralized groups....the network of the groups were linked up by a Nantes where ideals, and beliefs are shared consistently among the Apache tribes...quier amazing..this is exactly what we with the evolving terror modules of Al Qeda..The interesting part of such society is that whenever it is attacked the society becomes even more open and decentralized...
No doubt the Americans have not learnt their lessons in dealing with the Talibans in the Afghan and Pakki borders...
Now imagine large MNC or Transnational organizations operating a network of delivery center...do they really run it as a decentralized empowered network node that runs their organization...not exactly they are strongly controlled by the Headquarters either as a cost center or as a profit center with control over common functions like marketing, branding, corporate finance..etc. they have some function that limits and subserves the node to the headquarters....look at countless organizations in this sphere, P&G, Unilever, Pfizer, J&J, Dell, etc. But, do these MNC/TNC really achieving their mandate of successfull growth in the regional nodes they operate in...Not really they are also ran...
Just look at the IT Industry, the Indian Pure Plays are gicing a run for money to the large MNC/TNC like IBM and Accenture....How do they manage to do that so effectively...it seems the MNC/TNC always in a reactive mode when it comes to competing with the Indian Pure plays...almost to an extent that the Indian nodes of the organization grow only coz clients come to indian pure play....would they have really grown and pursued a strategy of India growth otherwise...
My perspective is a BIG NO...coz there are certain paradoxical and conflicting Performance gaols that drive the organization. For example Revenue received by using the India node is much less when compared to using the local workforce...the challenges of economic factor and their management: Inflation, Forex, etc.
What do you think? Any other whacky conspiracy theory????
Its quiet amazing how the author narrates the difficulty faced by Spanish in decimating the Apache tribe in the US, while the same decimated the Incas and the and other tribes of New mexico....
It seems it was difficult to decimate the apache coz it was a tribe which shared decision making in decentralized groups....the network of the groups were linked up by a Nantes where ideals, and beliefs are shared consistently among the Apache tribes...quier amazing..this is exactly what we with the evolving terror modules of Al Qeda..The interesting part of such society is that whenever it is attacked the society becomes even more open and decentralized...
No doubt the Americans have not learnt their lessons in dealing with the Talibans in the Afghan and Pakki borders...
Now imagine large MNC or Transnational organizations operating a network of delivery center...do they really run it as a decentralized empowered network node that runs their organization...not exactly they are strongly controlled by the Headquarters either as a cost center or as a profit center with control over common functions like marketing, branding, corporate finance..etc. they have some function that limits and subserves the node to the headquarters....look at countless organizations in this sphere, P&G, Unilever, Pfizer, J&J, Dell, etc. But, do these MNC/TNC really achieving their mandate of successfull growth in the regional nodes they operate in...Not really they are also ran...
Just look at the IT Industry, the Indian Pure Plays are gicing a run for money to the large MNC/TNC like IBM and Accenture....How do they manage to do that so effectively...it seems the MNC/TNC always in a reactive mode when it comes to competing with the Indian Pure plays...almost to an extent that the Indian nodes of the organization grow only coz clients come to indian pure play....would they have really grown and pursued a strategy of India growth otherwise...
My perspective is a BIG NO...coz there are certain paradoxical and conflicting Performance gaols that drive the organization. For example Revenue received by using the India node is much less when compared to using the local workforce...the challenges of economic factor and their management: Inflation, Forex, etc.
What do you think? Any other whacky conspiracy theory????
Friday, January 23, 2009
Exiting a large IT service contract and its implications on companies
IF a large IT service contract is terminated midway in the deal there are implications to the IT services vendor financials...lets try and understand this a little bit more..
Whenever a client terminates a large IT outsourcing contract due to extraneous circumstances (for example when Satyam like episode occurs) the effects of the annulment of the contract has implications on the company financials. As we saw in the earlier post in this blog that revenue recognition and the expense incurring is amortized on a Straight line proration basis. The extraneous event will result in realizing all the expenses in the year the contract is annulled. Now the revenue recognition depends on whether client has already been billed and paid for or is deferred. Either way there is going to be Operating margin impact on the IT services firm margins negatively.
So when some of the financial companies went belly up in the last 6 months and annuled their contract (TCS/Infy) or when client annuls some of their contract with Satyam their margins will definitely get impacted....
But inspite of these challenges companies like TCS, Infy and Wipros have reported a great run with revenue and margin growths for the recently ended Q3...Whats really going on...have their revenues been increasing when the entire market is down and new deals are few and far between...or is it some accounting gaps...
I would love to see their annual reports for FY'09 to really figure this out...For now be sure not to go long on these IT companies...you maybe in for surprise
Whenever a client terminates a large IT outsourcing contract due to extraneous circumstances (for example when Satyam like episode occurs) the effects of the annulment of the contract has implications on the company financials. As we saw in the earlier post in this blog that revenue recognition and the expense incurring is amortized on a Straight line proration basis. The extraneous event will result in realizing all the expenses in the year the contract is annulled. Now the revenue recognition depends on whether client has already been billed and paid for or is deferred. Either way there is going to be Operating margin impact on the IT services firm margins negatively.
So when some of the financial companies went belly up in the last 6 months and annuled their contract (TCS/Infy) or when client annuls some of their contract with Satyam their margins will definitely get impacted....
But inspite of these challenges companies like TCS, Infy and Wipros have reported a great run with revenue and margin growths for the recently ended Q3...Whats really going on...have their revenues been increasing when the entire market is down and new deals are few and far between...or is it some accounting gaps...
I would love to see their annual reports for FY'09 to really figure this out...For now be sure not to go long on these IT companies...you maybe in for surprise
Revenue recognition and Expense realization for IT services contract
Well understanding the accounting treatment for large IT outsourcing contract is giving me sleepless nights now! God how I wish I get a cure for obsessive compulsive disorder when I hit upon something I dont know about and ought to be knowing!
I read the valuation book from Krishna Palepu (The same author who was Independent Director of Sathyam :-)...) where he has written so well on revenue recognition principles and Expense realization...
Revenue recognition is done under 2 key principles:
1. When the service or product is sold, and
2, There is a reasonable sound estimate of probability in realizing the revenue
Expense incurring for a deal is done under 2 key principle
1. Clear cause-effect relation exist between revenue and the incurred expense, where the expense is recorded as expensed in the year when the revenue is recognized and
2. Expense is incurred in the year when the resources are expended productively toward comletion of service or product
Now the above principles are really put to a test in a real life scenario where it leads to applying the above principles consistently. A good case in point is in the IT services space where the client is not willing to pay for the transition cost of the engagement. This is due to the fact that paying upfront for the transition is a balloning cash flow problem for the client due to 2 reasons:
a. It pays for the incumben t services while transition is going on
b. it pays additionaly for new resources for their high payroll and expenses during the transition period
In such troubled times when cash is the king this has a huge bearing on organizations cash-flows to pay transition fees upfront or pay them at all.
Now how the service provider accounts for this is even more interesting based on whether the transition cost leads to economic or normal margins or not and accordingly recognize the appropriate revenue or defer it...
I've now realized how this accounting treatment can be made either to the benefit or detrimant of the shareholder..It seems here the brilliant mind and foolish mins can think alike based...one by knowing well and the other without knowing....:-)...I dont know where Satyams CFO and CEO would fall if they encounter similar scenario....
having understood this a little bit more I can now get back to my normal routine..Gosh, I'm amazed at how open the interpretation of accounting policy can be....wish there is more consistency and predictability of the numbers posted out there by all IT services companies.....
I read the valuation book from Krishna Palepu (The same author who was Independent Director of Sathyam :-)...) where he has written so well on revenue recognition principles and Expense realization...
Revenue recognition is done under 2 key principles:
1. When the service or product is sold, and
2, There is a reasonable sound estimate of probability in realizing the revenue
Expense incurring for a deal is done under 2 key principle
1. Clear cause-effect relation exist between revenue and the incurred expense, where the expense is recorded as expensed in the year when the revenue is recognized and
2. Expense is incurred in the year when the resources are expended productively toward comletion of service or product
Now the above principles are really put to a test in a real life scenario where it leads to applying the above principles consistently. A good case in point is in the IT services space where the client is not willing to pay for the transition cost of the engagement. This is due to the fact that paying upfront for the transition is a balloning cash flow problem for the client due to 2 reasons:
a. It pays for the incumben t services while transition is going on
b. it pays additionaly for new resources for their high payroll and expenses during the transition period
In such troubled times when cash is the king this has a huge bearing on organizations cash-flows to pay transition fees upfront or pay them at all.
Now how the service provider accounts for this is even more interesting based on whether the transition cost leads to economic or normal margins or not and accordingly recognize the appropriate revenue or defer it...
I've now realized how this accounting treatment can be made either to the benefit or detrimant of the shareholder..It seems here the brilliant mind and foolish mins can think alike based...one by knowing well and the other without knowing....:-)...I dont know where Satyams CFO and CEO would fall if they encounter similar scenario....
having understood this a little bit more I can now get back to my normal routine..Gosh, I'm amazed at how open the interpretation of accounting policy can be....wish there is more consistency and predictability of the numbers posted out there by all IT services companies.....
What is the best way to model economic externalities in pricing IT Services?
Lets look at some of the economic externalities/factors that impact a long-term pricing contract for IT Services (call it Outsourcing services):
1. Inflation
2. Cost of Living Adjustments
3. Foreign exchange volatility
Some of the above factors can lead to Operating margin erosions to tune of 10-15% if they are not built and recovered.
There are two ways in whic we can recover these costs
1. Engagement level: One by directly including it in every deal as part of the contract
2. Organization level: by currency hedging, managing cola & inflation internally through managed attrition :-)..
I'm now curious now what is the Accounting regulations that will support on inhibit either of the above model. or are there really none...
I've been struggling to get clarity on this and not being an accountant is a definite minus...Can someone help me here!
1. Inflation
2. Cost of Living Adjustments
3. Foreign exchange volatility
Some of the above factors can lead to Operating margin erosions to tune of 10-15% if they are not built and recovered.
There are two ways in whic we can recover these costs
1. Engagement level: One by directly including it in every deal as part of the contract
2. Organization level: by currency hedging, managing cola & inflation internally through managed attrition :-)..
I'm now curious now what is the Accounting regulations that will support on inhibit either of the above model. or are there really none...
I've been struggling to get clarity on this and not being an accountant is a definite minus...Can someone help me here!
Tuesday, January 20, 2009
More on the Ponzi schemes on IT
I wrote a brief on Ponzi schemes http://insightful-journey.blogspot.com/2008/12/ponzi-schemes-in-it-do-we-have-ponzi.html on IT, just before the Satyam scam hit the media in December'08. Not that I was rolling a dice or had the sagacity/gumption on the Satyams case.
I would be too arrogant if I said Satyams case was not very surprising...what else will you be if you knew for sure the revenue recognition systems were doctored, the internal cost controls are negligible or altogether non-existant, the cash-flows can all be played up with help of Financial ponzis...
What was infact surprising to me is to see the former head of my alma maters sitting on the board and great valuation expert like Krishna palepu sitting on the board as independent directors...what did they think about their role when they accepted to be directors of companies...did it all make them look great on their resume...or they wanted to make some good money through the sitting fees...absolutely ridiculous....I cant believe people of intellect failing to decipher the scam going on around here...should I say they had no clue to what IT services is all about...maybe they were just sitting on board to understand how IT services companies work or dont work perhaps...maybe it helped them write a theisis or sponsor one based on some god known reasearch grants...
So here another episode of shareholders who know little abt IT taken for a ride on a Ponzi...What did they think when they invested in Satyam:
1.Cost saving thru offshoring is a route to perpetual earnings
2. Clients have infinite IT budgets and they'll come to offhsore vendors for IT services
3 Or are they after all wanting to hide their costs by siphoning out non-existant work or service to offshore vendors...
I'm sure we'll see more ponzis in our lifetime in IT....
I would be too arrogant if I said Satyams case was not very surprising...what else will you be if you knew for sure the revenue recognition systems were doctored, the internal cost controls are negligible or altogether non-existant, the cash-flows can all be played up with help of Financial ponzis...
What was infact surprising to me is to see the former head of my alma maters sitting on the board and great valuation expert like Krishna palepu sitting on the board as independent directors...what did they think about their role when they accepted to be directors of companies...did it all make them look great on their resume...or they wanted to make some good money through the sitting fees...absolutely ridiculous....I cant believe people of intellect failing to decipher the scam going on around here...should I say they had no clue to what IT services is all about...maybe they were just sitting on board to understand how IT services companies work or dont work perhaps...maybe it helped them write a theisis or sponsor one based on some god known reasearch grants...
So here another episode of shareholders who know little abt IT taken for a ride on a Ponzi...What did they think when they invested in Satyam:
1.Cost saving thru offshoring is a route to perpetual earnings
2. Clients have infinite IT budgets and they'll come to offhsore vendors for IT services
3 Or are they after all wanting to hide their costs by siphoning out non-existant work or service to offshore vendors...
I'm sure we'll see more ponzis in our lifetime in IT....
Factors driving Output based pricing in IT Services
What are the factors that drive output based pricing in IT Services?
This is an interesting question client seem to be asking for IT services from vendors. Lets define the context for zeroing into the factors for output-based pricing. The context of our discussion is typical Application maintenance engagements with defined Service level metrics. Some of these factors that could be applicable are:
1. Price per ticket. To accomplish this the ticket has to be clearly defined and categorized:
a. Level of ticket (L1/L2/L3 definition,
b. Priority/Severity of ticket (P1/P2/P3),
c. Technical skill/experience required to resolve the ticket (Technical/Functional),
d. Timing when the ticket is raised for resolution
The best place to apply these is in the Application maintenance tickets.
2. Price per Service. To accomplish this the service has to be clearly defined and categorized using the same parameters as above. This is typically valid for Infrastructure based tickets, archiving, patch application, typical admin. tasks, pwd resets and so on.
3. Price per outcome/deliverable. This can often be applied for minor enhancements tickets such as price to perform a test based on defined test scripts, release/transport of objects to production, etc.
But to define all the above one needs to have control over the mean and almost negligible variance in resolving the ticket, providing a service or a standard estimates for outcome agreed by both the client and vendors/service providers.
We'll discuss the benefits of such a pricing model to client in a seperate thread...
Avenues are available to play more with this by providing options to client. Any ideas that you want to share. If you are interested to develop and share more perspectives on this mail me to sunil_raghunathan@hotmail.com...
This is an interesting question client seem to be asking for IT services from vendors. Lets define the context for zeroing into the factors for output-based pricing. The context of our discussion is typical Application maintenance engagements with defined Service level metrics. Some of these factors that could be applicable are:
1. Price per ticket. To accomplish this the ticket has to be clearly defined and categorized:
a. Level of ticket (L1/L2/L3 definition,
b. Priority/Severity of ticket (P1/P2/P3),
c. Technical skill/experience required to resolve the ticket (Technical/Functional),
d. Timing when the ticket is raised for resolution
The best place to apply these is in the Application maintenance tickets.
2. Price per Service. To accomplish this the service has to be clearly defined and categorized using the same parameters as above. This is typically valid for Infrastructure based tickets, archiving, patch application, typical admin. tasks, pwd resets and so on.
3. Price per outcome/deliverable. This can often be applied for minor enhancements tickets such as price to perform a test based on defined test scripts, release/transport of objects to production, etc.
But to define all the above one needs to have control over the mean and almost negligible variance in resolving the ticket, providing a service or a standard estimates for outcome agreed by both the client and vendors/service providers.
We'll discuss the benefits of such a pricing model to client in a seperate thread...
Avenues are available to play more with this by providing options to client. Any ideas that you want to share. If you are interested to develop and share more perspectives on this mail me to sunil_raghunathan@hotmail.com...
Subscribe to:
Posts (Atom)
