The Insightful Journey

Have we seen climax of cloud hype?

2011-09-23T06:45:00.000-07:00

Have we really seen the climax of Cloud hype already? Why do I think so?

maybe they really underestimated data privacy, control and ownership issue on one hand and the passing of contractual risks through liablity and idemnity clauses for data protection...that will hinder growth of cloud...

so what about the high decibel and hig frequency campaigners of cloud have to say now....

1. IAAS: Data center consolidation....maybe we are likely to see the MIS glass house again...maybe now they just call MIS glass house with some dynamic provisioning of servers :-)..
2. PAAS: are we seeing the ISVs attempt to get back in business by trying to repackage themselves as provisioning a platform fizzled out...sybase now repositions itself as mobility ISV...oracle Forms/repoorts moving into open platforms with eclipse and java-based solutions...maybe force.com doesnt have all that horsepower as it claimed it did...nobody knows whats up here another 1-2 years down the line...
3. SAAS: we just have SFDC here....others are all our classical hosting solution providers...maybe oracle ondemand, SAp are all trying to reinvent themselves...maybe they are failing in ERP III :-)....for those who saw MRP I, MRP II, MRP III really renamed themselves to SCM....no idea where this is headed....I'm not sure if anyone is really ready for a multi-tenant, pay-per-use kind of offerings for enterprise systems yet....

What is all the fuss about utility computing through cloud? we are not going to see IT becoming like a power utility company split based on generation (H/w: IBM, HP, SUN,; S/W: Oracle, Salesforce.com, SAP, N/W: Cisco!!), transmission (ISPs and telecom service providers) and distribution (???)....and businesses out there dying to hire them on rental service for what they use....it seems to me most businesses are not even sure the value they are getting from such IT systems anymore....

What do you think?

Whats up with margins of network equiment solution providers (Ciscos and sycamores)

2011-09-23T06:31:00.000-07:00

The margins of network companies (Cisco, Juniper, HP, Sycamore) post 2008 has dropped significantly to 15-16% from 20% just about a year ago...

1. is it due to lack of any differentiations in their core business of routers and switches leading them on a race to the bottom for their margins?
2. are we seeing the climax of hype for cloud computing whereby the growth for more businesses buying new routers and switches will not materialize....
3. Imagine if cisco has to focus only on Brics for growth...we in brics know fully well there arent enough potential to grow beyond ther 10% theatre growth cisco estimates in their analyst briefing...what about their strategy of focusing on public sector investments....we have heard enough of fiscal deficits and govt. debt burden already...
4. We see Huawei and ZTE up and coming....should we be seeing chinese domination for the next decade in this core switches and routers business....

The only way for them to get back on the margin game it seems is through software and services (cisco services growing steadily to 20%+ of their revenue for FY'11). What would it make these players something like IBM? Maybe we need another lou Gestner to make this elephant dance...Lou made the mammoth dance with his services strategy...it seems we may see cisco going the IBM way....

What do you think?

Raodblocks/impediments to digitizing indian TV broadcasting

2011-09-23T04:09:00.000-07:00

Indian broadcasting industry faces serious roadblocks to digitizing though KPMG survey estimates this to increase from 33% in 2010 to 64% by 2015. Nowadays, it is common to blame everything on corruption & politics...so it is not surprisingly true even here...the key impediments/roadblocks to quickly and profitably roll out digitisation:

1. Demand side effects: Subscriber costs will move up limiting slower uptake of services through Set-top-boxes/DTH. Subscribers have become too happy in paying Rs 200-250 for a boquet of popular channels through analog cables running. Probably the analog cable operators and franchisees can afford to provide these at such low cost due to underreporting of subscriber base by their franchisees :-)
2. Supply side: Increasing content development/delivery/marketing cost coupled with decreasing revenues in media (80% revenue comes from advertising in this industry but this would get strained probably due to other channels of communication) strains broadcasters margins & cashflows. This will make broadcasters wary of investing in digitization unless they are profitable. A sort of chicken-egg scenario....
3. Extraneous factors: Cables are run by politicians in some states...In others they are controlled by local goons who control which channel can be transmitted...the other interesting thing is politicians fear that digitization will bring accountability, and transparency removing any discretionary powers of state to control information reaching mass....so we will see lot of irrelevant non-issues being posed as reasons such as employment opportunities denied, poverty, last mile-connectivity, rural population affordability, minority issues, etc.

MIB has published a deadline to phases out analog transmission by 31st Dec 2013 and later created a phased roll out for cities and it seems it is delayed further... we can possible see a festering can of worms bred by unholy nexus here....

Why are IT services firm so confused and mess up when they sell their home-grown products and IT service?

2011-06-18T00:05:00.000-07:00

IT services companies agents do miserably in pricing, selling and delivering their home-grown IT products and associated services. Why does this happen?

1. The sales and marketing team often sell IT software product like services instead of selling the products and then add-on services
2. The solution architects simply dont get how to solution and postion the services and IT Software product separately
3. The marketing folks are confused on how to price the licenses and support for the IT software products effectively and competetively in the market.
4. The delivery team often dont get the fact that you need to run the IT software products business like a product company and not like services. For example they need a Engineering team, development team, dedicated resources who can work on products, processes and methodologies for product development in line with what is used in the industry, professional services arm which focuses on services, which is seperate from the core products team, incentives and motivation for the team in line with industry standards, nurturing and influencing the ecosystem of the IT products through investments and participation, having a support team which focusses on providing ongoing support, a release and program management and product management team that works with cross-functional team and vendors out there to drive features,/functionalities/releasesetc.

The above are only a few, but the biggest challenge often is how do IT services companies solution and price these products?

So what is the right model to sell Home grown IT software products and associated service. To answer this lets look at what SAP and Oracles of the world do and learn from them:

SAP and Oracle charge a Software update and Product support yearly fee of ~25% of their license fee. Ofcourse, this can be negotiated. The software Update and Product support comes with free maintenance packs/patches, ongoing vendor support for product issues. If you keep applying the regular patches and maintenance packs and have done no bespoke RICEF customizations it is as good as upgrades. But this is seldom the case as any enterprise application will require you to build RICEF to work with other IT systems in organization that’s where IT service providers like us fit in.

Given the above background, if you are selling home-grown Software product, client is expecting you to provide this software update and product support. But this doesn’t come free; you have to charge client with a yearly fee a.k.a. 25% of software license fees. I don’t know what is the standard that is charged for the home-grown software product update and software support . You should provide ongoing Software updates/fixes to the product as this is home-grown software and you would have roadmap of future releases that enhances the product based on some charge. Over and above this you need to also clearly separate AM work for client like the way IT services firms do for SAP/Oracle and estimate this work and provide this as a separate service.

So your overall pricing = Home-grown software product license fees + Implementation Fees + Ongoing product and Software support fees + Application maintenance fees.

The first 2 components will be SI and does not concern your ongoing IT services. The last 2 is where you need to separate this our clearly and charge client as you are both the software vendor and application maintenance/management vendor. IT services companies often muddle up the last two components as they don’t have an existing shared services based support team which people like Oracle and SAP does so they often get confused and muddle up the scope of ongoing product and software support with application maintenance. My submission would be to scope and separate this out clearly and position this to client team so they can pitch it to client.

Why IT service providers are not successfull in selling home-grown software products?

2011-06-17T23:42:00.000-07:00

Have you ever wondered why pure play IT services companies are a utter failure in selling a home-grown software product to clients? They are good at providing services and sometimes service large product vendors like Oracle and SAPs of the world to create world-class products, but they fail miserably in either creating industry leading IT software products. Even if they have one they are unsuccessful or rather pathetic in making their products successful in the market. Some of the reasons I believe are:

1. They often dont have the R&D budgets to create and sustain the products in the market over long term.
2. They lack the pricing and delivery acumen to run the Product Update and Software support leaving the clients high and dry with poor future release road maps and upgrades
3. They fail to understand that product support is critical as no IT software product can work independently without configuration, but rather a part of the larger ecosystem requiring ongoing support and maintenance.
4. Since Software product licensing and selling is not their core competence it often takes lesser priority both in budgeting and resource allocations in the firm.
5. They look at every new client opportunistically and when they sell their products they also end up selling part of their critical resources (manpower) into services work leading to lack of competent people to providing ongoing support to product development.
6. The incentives and motivations for for sales and delivery of software products are not commensurate with the risks and efforts of the team. Often they see their services counterparts have better incentives and well motivated.
7. It requires commitment, patience and diligence on part of management to make the software product successful, which they often lack. They take the easier and quicker route of generating the same by selling services.

What can a IT services player do to make their software product successful:
1. Hive-off a separate software product Legal entity rather than subordinating it to the larger services organization. With this you also end up having dedicated management that reports independently to board, separate books of finance, separate HR policies, separate budgets and commitments to make it a successful business.
2. Operate the IT software product business as per the norms of the industry rather than that of a services firm. Eg: Professional services arm instead of full fledged services focus, engineering team for product, R&D budgets for future product releases, participation in Software standard bodies to influence the standards, etc.
3. Have the software licensing and support model in line with the IT products industry norms.
4. Have an arms length transaction in sales, delivery and services around the Software product.

Are IT sourcing Third-party advisors losing steam?

2011-04-29T20:08:00.000-07:00

IT Third-party Advisors for sourcing were viewed as trusted advisors and facilitators of IT decions by several large client. We have seen several TPA both global and niche players in the last decade 2000-2010 offering services such as soucring/legal advisory, facilitating bids for clients through their standardized templates/process, information reports, etc. They had played a crucial role in helping clients in making the righ sourcing decisions on the buy side and providing a good marketing/information service for the sell side clients. Hence their role as information intermediaries for the IT industries had worked extremely well.

With the IT industry maturing and their outsourcing services getting commodotized the large question comes to mind if their sourcing services are helping discover value for the outsourcing clients?

The clients on the buy side have the following percpetion about these intermediaries:
1. Makes the bid process expensive due to the long buy cycle
2. Generalist mentality pushing procurement process, legal diligence, etc. while losing the larger focus on bringing value to the businesses that sponsor the outsourcing decision in long run

On the sell side the Being in the IT industry have the following perception:

1. Paper pushers whose primary drive is in filling templates and lack of transparent rating process leaving the IT vendor confused on client buyer values
2. Make the entire sourcing process driven from legal standpoint rather than really driving value-buy decisions for client.

We have been seeing sever TPA in the market either closing shops or getting acquired by larger TPAs (a.k.a consolidation drive). As most of the IT outsourcing services are getting commoditized leaving us with few questions:
1. Are the TPA really adding value to Client buyers and IT vendors?
2. Should client be paying TPA for sourcing advisory services considering most of the information are in public domain?
3. Can this be a free service offered to clients rather than a paid service?

What next? - IT outsourcing industry.

2010-02-05T03:27:00.000-08:00

We have seen some interesting differentiators used in winning outsourcing deals in the last decade:

Technology based
1. Communication/Connectivity technologies
2. Internet technologies
3. Emerging technologies????

Event based
1. Y2K
2. Dot.Com

People-based
1. # of graduates (engineers)
2. Talent pool

Business/Economic based
1. Manufacturing -> Services

Quality based
1. Quality certifications leading to claims on Industrialized/factory model for delivery

Cost based
1. Labor arbitrages
2. Factor costs based on countries

Risk based
1. Shift and degree of accountability and ownership changes

What is the next dominating set of factors that could (re)shape the IT outsourcing industry?
- Politics (Regulation, taxation of outsourcing industry, and other trade impediments)
- Economics (Inflation, Exchange rates,....)
- Social structures (Free agents as opposed to employees of organization, ???)
-????

Setting-up and Running a successfull business in India - A Pardocixal market for the mystics

2009-11-19T22:12:00.000-08:00

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 :-) ....

Are you leading with a mind on your brain?

2009-10-21T06:51:00.001-07:00

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?

Viewing outsourcing deal through the Contract lens - Transaction cost perspective...

2009-10-13T19:19:00.000-07:00

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!

Closing an outsourcing deal - Whats your view - An Optimist or pessimist?

2009-10-06T04:47:00.000-07:00

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?

Do you often overvalue your experience, skills, knowledge, etc?

2009-09-28T00:01:00.001-07:00

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?

Cover your ass (CYA) - Its economic recession!

2009-09-27T23:19:00.001-07:00

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?

How do you enable objective decision making if your boss thinks he knows everything?

2009-09-27T23:07:00.000-07:00

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?

How do you influence objective decision-making in a group that has race prejudice?

2009-09-25T05:59:00.000-07:00

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?

Free IT SI and Outsourcing services pointers: Can we offer such services for different IT service categories?

2009-09-17T22:15:00.000-07:00

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.

Free IT Services - Pay nothing for IT Implementation (System Integration, Application Development) & Outsourcing (Maintenance & Support) Services

2009-09-17T20:45:00.001-07:00

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!

How can client Short-list the right Outsourcing IT service provider?

2009-09-03T04:34:00.001-07:00

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?

A perspective on competitive positioning of IT Services companies?

2009-08-28T02:34:00.000-07:00

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?

Enculturation and Acculturation of IT Solution - Does culture influence the IT Solution design and delivery?

2009-08-25T23:59:00.001-07:00

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?

What options/scenarios lie in breaking the People-Revenue jinx for IT services firms

2009-08-23T20:11:00.000-07:00

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!

The Age of Turbulence - Some anecdotes to laugh about

2009-07-27T08:11:00.000-07:00

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."
"

Opportunity Engineering Does it really help plugging the downside without affecting the upside?

2009-07-23T08:15:00.001-07:00

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!

Contractual options to manage IT Outsourcing risks and the paradox therein for Fixed price projects...

2009-06-19T04:32:00.000-07:00

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....

What lies on the other side of Economic Event Horizon for IT Outsourcing industry?

2009-06-19T02:11:00.000-07:00

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?

Success for Mature firms in difficult times.....

2009-05-22T04:48:00.001-07:00

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?

Will democratising of Innovation lead to futility of Patents & copyrights?

2009-02-05T22:07:00.000-08:00

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...

Cloud Computing & SOA - Hype and Hoopla

2009-01-30T05:37:00.001-08:00

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?

Innovation at the Core and the Context - An IT Services View

2009-01-30T05:17:00.000-08:00

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!

Dealing with Darwin in the IT Industry - What is the Innovation strategy that is apt for the IT Industry

2009-01-29T08:18:00.000-08:00

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....

Starfish & the Spider - The power of networks in IT Organizations

2009-01-29T07:59:00.000-08:00

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????

Exiting a large IT service contract and its implications on companies

2009-01-23T21:10:00.000-08:00

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

Revenue recognition and Expense realization for IT services contract

2009-01-23T18:48:00.000-08:00

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.....

What is the best way to model economic externalities in pricing IT Services?

2009-01-23T06:12:00.000-08:00

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!

More on the Ponzi schemes on IT

2009-01-20T08:00:00.000-08:00

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....

Factors driving Output based pricing in IT Services

2009-01-20T07:02:00.000-08:00

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...

What can we learn on Offshoring/commoditization in IT Services from garment industry?

2008-12-30T21:49:00.000-08:00

The above is a very interesting question.... I remember while as a kid in India, how the textile outsourcing promised endless employment opportunities to the skilled and unskilled labor of India...so much so that having a sewing machine was considered as an insurance plan for the unemployed spouces of bread-winners....

Lets look at something interesting from the garment industry....

The shift in factors of production to offshore was triggered by the low-cost labour to stich garments and the labour intensiveness (both skilled and unskilled) of the industry itself....As consumer started pushing for lower prices; the textile industry quickly pushed production to the offshore centers in Asia (China, India, Phillipines, Bangaldesh, Pakistan, etc...). The developed countries retained the designing and marketing at their respective centers. The entire offshoring/outsourcing in the Garment industry (textile and clothing) has been highly regulated through GATT, MFA, and ATC regulations limiting the scale and scope of offshoring to developing countries (in other words low-cost). It would be interesting to understand what contributed to commoditization in this industry:

1. Consumer propoensity to spend less on textile/clothing, and
2. Skill/capability requirements required to participate
3. the support provided by local governments which perceived it as a means to generate employment to the masses (both skilled and unskilled)
4. Low labour cost from developing countries and
5. Higher degree of automation in textile and clothing industry (more so in the latter)

The disincentives for commoditization and offshoring are:
1. Regulation (quotas systems, quantitative restrictions, etc.)
2. Customer proximity that helps in understanding the tastes, preferences, needs, wants and choices...this basically relates to lot of qualitatives that are difficult to do from offshore

An interesting additional perspective on this can be got from the web site: http://www.tno.it/tecno_it/fashion4_2_05/documenti/WTO%20Discussion%20Paper%20TExtile%20and%20Clothing%20after%202005.pdf

How much of it relates to IT services? I think most of it in different shapes, sizes, and in scope...We will address this in a seprate article...

What is common or different between "Product Lifecycle", and "Technology Hype-Curve"?

2008-12-29T05:01:00.001-08:00

To understand the basic jargons here are few references for you:
1. Product Lifecycle: http://www.quickmba.com/marketing/product/lifecycle/
2. Technology Hype-Curve: http://en.wikipedia.org/wiki/Hype_cycle

A quick Narrative

When we look at the combined figure all new technology trigger leads to new product introduction in the market. The unabated hype results in inflated expectation this is usally marked by the growth and maturity phases. The market soon comes to grips with the real potential of a technology offering in terms of the benefits/utility of it and troughs in disillusionment, this often is the stage of market decline. The final phase is a plateau of productivity reached by the new technology, this is where the product sales tanks… This is where the “Innovators dilemma” creeps in and also if there is no innovation dilemma there is the “long tails” for the product…Which way it heads to depends on what is the nature of innovation….

Now lets look at the commonality and difference between the curves….

First Lets tackle what is common:
1. They all have a "S-Curves" or seemingly a "Normal curve"
2. They all explain the phenomena of a seemingly predictable pattern for entities through their lifecycle
3. They all appear to be simplifying (maybe somtimes trivializing!) the challenges of Technology Forecasting. (Refer more on techniques one uses in Technology forecasting...)

Lets look at what is so different:
1. They use different jargons (depending on your subject of interest: Marketing, Change Mgmt, etc.) to explain the inflection points on the curves

I cant see any more differences though...Need your help! Any comments or perspectives you can share?

We can look at few ideas like Grid Computing, Cloud computing, SoA and so on on the curves to see how they pan-out... Quiet interesting to view these trends by positing them on the curves....I was quiet amused when I was reflecting on my journey through school where I was so obsessed with AI and NLP...Thanks to my internship in one of the premier R&D center and few Terminator type movies, I was able to see through the disillusionment :-)...

Its a worthy exercise after all!

For more reading on this topic visit : http://www.au.af.mil/au/awc/awcgate/awc-futr.htm#adoption

Its time well-spent I would

Your superstitious Strategic consultant- What do they say for IT?

2008-12-16T06:40:00.001-08:00

I read this article on S&B advice for CEO on how to prepare for difficult times....Let me relate this to some of the IT firms that mushroomed all over India:

1. Acquire captive units of clients whos operations are sub-optimal...just as you note they are 10-20% more expensive then running thorugh a boutique offshoring company
2. Shop for acquisitions...but dont do an AXON one plz....
3. Screw your employees as they are 80% of the operation cost for IT companies..they have nowhere else to go! (Apologies for being rude but I think it is more effective to use strong words)
a.Put them in any project any technology...throw them into the first available project....if they dont survive fire them
b. If your employees ask for change or roll off from engagement lower their performance rating
c. reduce their salaries
4. Anyways IT companies are cash rich and dont need long-term debt (well corporate Financiers will disagree) so we can raise funds on carry huge assets on balance sheets that needs recapitalization (hopefully the operating leases are not revised here)...so use all the cash and diversify into other businesses (for example I know one few large corporates in India going into "Green" business :-)...
5. Take more forward covers and currency options....well you anyway lose them due to volatility...no doubt the currency futres in India is shining like a Star...
6. Invest in Innovation...good for integrated players..what about Pure IT services companies! Just buy more companies in the market to provide integrated services....diversifying into products is not a bad idea after all...
7 Take more risks and bid agressively for deals with lower margins...something is better than nothing...

Any other views!

Ponzi schemes in IT- Do we have ponzi schemes in IT?

2008-12-16T06:30:00.003-08:00

Definitely yes...If you thought ponzi schemes are prevelant only in Capital markets you may be wrong...havent you heard of the latest Ponzi scheme run by Madoff ripping off $ 50 billion in corporate debt markets and becoming the undertaker (not an insurance jargon plz...i'm getting tierd of those at work) of few hedge funds exposed to corporate debts!

There are few in IT, let me name some of these schemes:
1. Offshoring
2. Productivity gains
3. Quicker return on IT investments
4. Zero transition cost
5. Transformational IT engagements
5. Lower TCO

hee hee i wish I can go on for some more....I'd love to elaborate on this further...wait and watch this space in the coming months....let us see what it all throws up...

What is the right Support cost to be factored for large SI engagement?

2008-12-15T06:27:00.001-08:00

This is a very interesting topic for the academics & practitioners. Lets look at some examples of clients and large product vendors like Oracle and SAP only the cost side.

Academic

---------------

Statistic presented in the paper for a 10 year software life: http://www.ifi.uzh.ch/rerg/fileadmin/downloads/teaching/seminars/seminar_ws0203/Seminar_9.pdf

GTE – 60% cost is maintenance and 40% is development

USAF Command & Control - ~65-75% Maintenance

GM – 80% (probably it’s the darn EDS who ripped them off!)

Oracle

----------

Oracle charges 22% for Product Update and License Support. The Product Update is 15% and License Support is 7%. Product update includes enhancement to products, patch release, internal R&D amortized expenses passed on to clients and so on…7% is their charge to clients to provide on-line support suchs as Tars, patches, etc this is typically the amortized cost of providing Level 4 (if you will for using the terminology here…J) for their on-call support. This has been consistent stand of Oracle. They usually do not separate Product Update and License support and sell only one to customer, but then for strategic deal they can do that. The above means once in every 5 years we should replace the software ;-) ……it has a shelf life of only 5 years if we do not pay support fees….

SAP

------

SAP had initially priced their support at 17% and later increased it to 22% and invited client CIO wrath!. This aligns with what Oracle has been doing for a long-time (22%).

Lets look at the effort side of the game…

Based on same research mentioned in the Academic section above for a 100 man days of effort. 49 man days is spent on Maintenance, 43 man days in development and 8 man days in others…

No offence meant to anyone. Based on the above understanding of mine, I was surprised that some IT Consulting/Services orgs seem to anchor 25% - 33% number. I can see the rationale of where this number could’ve come from based on above. But not sure whether we are applying it right

The other challenge I have is to base estimates on call pattern and object maintenance pattern using our typical estimator. If the application built happens to be cutting-edge and innovation, we cant anchor based on SAP/Oracles of the world. There is no precedent exists in such solution similar to what is being proposed that I know off…

For now, it seems I’ve proposed the above 25% rationale on effort per annum.

Impact of 2008 crisis on IT – Driving forward looking at rearview mirror…

2008-12-15T06:07:00.000-08:00

I read a very interesting article in Mckinsey: Industry trends in the downturn: A snapshot http://www.mckinseyquarterly.com/Energy_Resources_Materials/Steel/Industry_trends_in_the_downturn_A_snapshot_2264

Quiet interesting for those of us in the High-technology industry to look at the trends…The IT spending as a trend has reduced 5 to 7 times that of GDP (With h/w 8-9 times and the IT S/w/Svs 3- 5 times)…The article sites the trend chart reasoning rather shallowly as contributed by high-spending in the Y2K and .Com boom…I completely disagree with this, having participated in both the Hardware, Software and IT services in my checkered Industry experience…Lets look at what has really been happening…..

H/w 2001 hence
In Hardware industry the prices has been falling the moment Industry revolutionized the Intel-based servers call it Titanium and/or multi-core technologies…I don’t see many proprietary server uptakes growing anywhere in the market…The commoditization of server has been doing extremely well to drive out the “Elephants who cant dance”
The processor is not he only driver to this trend…the trend is further supported by falling prices of Memory and memory access technologies…so you may use the additional terminology of “Economies of Scale”…Sorry Adam Smithsonians out there, I haven’t seen “diminishing rate of returns” yet…I attribute the reduction in cost driver to Innovation in Marketing first and technology next…

Storage:
In Storage industry too the price per MB/GB of storage has been constantly driven down…more than the commoditization of server it can be attributed to fine slicing of the storage segment for different application requirement of storage: archival, static, dynamic storage:
SATA/ATA disks vs the expensive SCSI disks
Falling prices of controllers
Falling prices of interface cards, and so on…
I attribute the reduction in cost driver in this segment to Innovation in Marketing and not so much the technology…

Network & Peripherals
There are 2 components that has been witnessing drop in prices one is the cost of communication equipments and the services associated with keeping these technologies up and running….some of the key developments contrivuting to these has been the following:
Falling prices of components to assemble network equipments
More efficient routing algorithms and efficient transmission of packets
Technology evolution both mobile and standard in transmissions (I may sound stupid rattling the technologies here without devoting a separate article on the topic backed by solid research: MPLS, ATM, FR, Ocnet, etc…)

Software
The greatest cost has been those of the reduction in license cost while increasing Product support and upgrade cost….

The license cost has been going south facilitated by the following:
Innovative subscription models and SaaS…written by me in other articles
Piracy forcing vendors to reduce cost lest it is completely free
GNU & freeware (spurious ware)

IT Services
No doubt the factors reducing the cost are not just India and China, but also the promise of the COTS packages and the industry specific features that are requiring less effort to manage on the lon term…(I’ll cover this more in detail later)…you can get more view to it on my article under “Outsourcing” category

Is there anything I’ve missed….share your comments and views on this…..

Does Ombudsmen process or Grievance cell created by firms deal with inappropriate behavior by firms’ agents effectively?

2008-12-04T07:31:00.001-08:00

It has been noted that firms often create Ombudsmen process or Grievance cells to deal with inappropriate behavior of firms’ agents i.e. supervisors/managers within an organization. Especially in difficult environment (read economic) conditions there are more incidents where employees are often exploited by supervisors/managers (and vice-versa as well)… This has typically been dealt with in traditional industries by the employee unions….Unions can be effective or ineffective in dealing with such problem, without causing other implicit challenges to efficient functioning of the firm…(Well you know that I’m hinting at the UAW and their ballooning health benefits and other benefits, that is almost sinking big auto players in US…) Unfortunately in IT industry we do not have registered unions…atleast those that were sprouting due to firms entry in certain delivery locations where worker unionization has a strong political will, has also been rendered toothless due to several reasons attributed directly and indirectly to firms and their agents….Lets stop digressing and look at a simple model to look at the cause and effects of such Ombudsmen/Grievance cell in organizations…

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The above model clearly indicates the causal reasoning applied when the ombudsman/grievance cell is put in place to tackle with inappropriate behaviour..On analyzing the above flow it becomes clear that only very few oppressed employees will complaint through the Ombudsman process as they inherently know the effect of retribution by the supervisor/mgr against whom the complaints are launched, but those who do so are already prepared their exit options when retribution arises….The few employees who do not have exit options remain in the system and vent their feelings, which eventually erodes trust impacting the high performance of employees…(countless books written on trust vs. High performance…I’ve written few book reviews on the same topic, those interested may check out my book review section of blogs site http://insightful-journey.blogspot.com …)..You may be wondering how I know this? Well I’ve experienced it myself and seen countless people seeking my advice as well and how to handle this…(I’m not alone out there you see…J..)

Now if the above system is not effective from a systemic perspective why is this being put in place in the first place…Not all it seems is as negative as what is being portrayed above…It is very clear if you know why the system will break you would also define how to correct them by changing the rules of the game (I’m not going to discuss how strategies can be defined using concepts from Game theory though) like for example moving a complainant immediately out of the specific management & control of the oppressor.. Also, there are very few instances where employees utilize these processes and contribute to the system…as always there is a cost the firm and oppressed employees pay as well (either quitting or sometimes even staying on in the organization)…

How differently can such system be designed so the real problems highlighted above can be resolved? There are few potential, untested ideas I have as an effectual reasoning person….The best is to create a Points system (similar to the rewards system) which is objectively designed…whenever an employee is oppressed he/she raises the issue on the portal site using key pneumonic of issues (harassment, Oppression, favoritism, Integrity, etc.)..Each such reason has a certain points that can get debited from the manager who is also cited by the complainant (we can use techniques like AHP to crystallize on the quantitative points for the pneumonic). This can then effectively feed into the yearly appraisal cycle resulting in penalties and eventually affecting their pay-package/promotions etc….Now this system may create vested interest on employees as they may collude to weed out objective decision…the counter-balance to this is the complaint process that can be effected by the supervisor/manager through points system as well overseen by a neutral third-party (can be within the firm or outside the firm…its better to have an outside agency)…On a systemic level this system may figure out an efficient means to weed out managers and employees with inappropriate behaviors…. What is your opinion on this any other system you think can be devised that is fool-proof and more objective?...

Work-Life balance- Looking through a multi-specialty view (economist, Sociologist and Maybe philanthropist…)

2008-12-04T07:26:00.001-08:00

Work-life balance is often the most pronounced topic especially in the IT world…..I was just reading Paul Krugmans book on economics on production frontiers and would construct a very simple model of work in one axis and Life in other axis…to me the graph may have a very interesting bell shaped curve….(depending of course on which axes you put work and life…J….)

Let’s look at the graph to really understand this model….

If one has to view it very simply…there is an optimal balance of work required for a decent life…in effect no works leads to no life and in the same context increased work leads to decreasing life (due to stress, loss of health, poor quality)…again this curve in general applies to a normal productive resource…I mean normal for those who has a balanced life (life is not all about work; but also about spending time with the family)…the above graph itself demonstrates that the perception of balance is often subjective….

The graph above does not differentiate race, color, region, sex, status and so on…it generally applies to all…though the social norms may vary and promote diversity in perception of what a balanced resource means….

Going now by the same logic does it mean then that during difficult times increasing work-hours or putting in more productive hours benefit the organization or economy as a whole…This is a very interesting topic to discuss…what the increase in productive hours seems to do is basically shift the kurtosis of the above bell shaped curve…lets look at this in context of what increased working hour does to the above graph as represented in Fig 2….

This has basically reduced the quality of life for a productive resource…but did it commensurately increase the productive hour of a resource…this may be debatable as one needs to understand what is productive hour of resource…especially if resource contributions are not measured or directly account to achieving or not achieving an outcome…Achieving or not achieving a outcome is usually better achieved through the means of shifting accountability to resources rather than just increasing the productive hours….Again, there is another interesting debate on whether working longer leads to passing on productivity benefits to client…not really so it seems especially for new deals as the new deals will drive towards charging more to client per hour in a day by ~11%...however the old deals contracted for 8 hours a day may stand to benefit due to increased hours of working? Not to sure again it shifts back to what resources really do in that 1 additional hour of work contributing to the outcome….. This is an interesting topic….my hypothesis is just increasing the productive hours may be a bad decision in long run ceteris paribus….What do you think?

What are the IT Service trends that would reduce the cost of providing IT Services by half?

2008-12-04T06:08:00.000-08:00

This is an interesting question. There are some trends that are interesting to track, as they have a bearing in reducing the cost of providing IT Services:

1. Labor Arbitrage: More low-cost countries China, Africa replicating the IT service model and providing the labor cost arbitrage benefits to developed markets - Probability 40%
2. Growth in OSS: and the associated services - Probability 60%
3. Automation through IT tools - Probability 30%
4. More stable platform based COTS applications that reduce the cost of maintenance for S/w - Probability 80%
5. Seeking lesser skills and hence lower cost of providing the required IT maintenance services - Probability 70%

One needs to look at the above trends and run correlation of the above models growth to the reduction in cost of providing maintenance service...The interesting challenge here would be to first track the cost of maintaining the Software and definition of right elements to be considered here such as:

a. Labor payroll cost
b. Non-Labor costs such as Software/Hardware/Network Support, Maintenance & Upgrade license costs

It seems the above is relatively straightforward factors to track. The impacts of the above trends on the elements of costs are interesting to see as in the following table:

Events\Factors	Labor Cost	Non Labor costs
Labor Arbitrage	Medium	Medium
Growth of OSS	Medium	Low
Automation	Low	Medium
COTS package	Medium	Medium
Pyramid rationalization	Medium	Low

Based on the above matrix…it seems one can evaluate the effect of the impacts by understanding the proportion of cost play for the Labor and the Non-Labor factors... Typically this ratio swings from 70-80% of payroll cost and shift the maximum impact to lowering the Payroll cost….It will not be too far when the Non-Labor cost factors moves up to take a significant share of the cost primarily due to COTS packages oligopolistic powers, increasing customization of the packages, extraneous other factors such as inflation/forex mkts and so on….

Entrepreneurship: A great article on what makes entrepreneurs entrepreneurial and the gauge of value...

2008-12-04T06:07:00.000-08:00

I came across this really interesting article written by Saras Saraswathi, which I downloaded while looking up Vinod Khosla the No: 1 VC ranked by Forbes & Fortune. http://www.khoslaventures.com/presentations/What_makes_entrepreneurs_entrepreneurial.pdf. The article clearly brings out what qualities makes an entrepreneur unlike the qualities that make a good manager by bringing out the difference between causal reasoning and effectual reasoning. While in causal reasoning the manager often knows that goals to achieve and may or may not use creativity to pick the best means to achieve the stated goal, while the entrepreneurial effectual reasoning takes stock of the means and set out to action on several means to achieve a unstated or not clearly articulated goals. The author brings out an interesting nuance that good entrepreneurs demonstrate both the qualities of reasoning fairly well....Quiet interestingly entrepreneurs have 3 very important principle abstracted by the author so well: 1. "The affordable loss principle", 2. The strategic partnership principle and 3. The leveraging contingency principle. The Causal reasoning fellows look for predictive model to enable them control a situation, while the effectual reasoning fellows don’t care predicting things they can control nevertheless...Quiet interesting insight for some managers out there :-)....it often sparks a question in my mind why are managers so paranoid about risks-contingency plans, issues etc. on an opportunity...aren’t they the experts who should take it on stride and solve it as it comes along or atleast influence the desired outcomes being the players rather than the spectators... to me that separates leadership and management....

I've also been simultaneously reading about the value created by entrepreneurship http://www.mitpressjournals.org/doi/pdf/10.1162/itgg.2006.1.1.97 . One is an Opportunistic entrepreneurship and the other is Necessity Entrepreneurship.
Opportunistic: It seems leads to tapping the opportunity for unmet need in the market through Innovation. This will result in creating probably a "New Business Model" with new job. This I also come to believe has a positive correlation with GDP and growth of country, thereby adding the maximum value.
Necessity: This I understand stems, when a new entrepreneurial venture is started as the resources are not employable or lack of opportunities for employment. Classic example is that of an agriculturist who ploughs his/her own land to make a living. This does not add great value to the society...
The article also goes ahead in identifying three stages through the development cycle that a country goes through resulting in entrepreneurial ventures/self-employment opportunities: The 3 stages are: agricultural/small manufacturing firms with high self-employment but limited value, stage 2 where managers are in great demand and small firms become bigger, here the self-employment opportunities shrink, this is then followed by Stage 3 where services overtake and creates more self-employment opportunities. Interesting to see in which stage a country is in, thereby giving us cues to what we can expect as the next stage of development/evolution of firms.... But, interestingly it also helps us understand whether an entrepreneurial venture would eventually lead to contributing value to the society on nation-sate.....interesting reflections for me is to consider if any of this thoughts could be used to view the new deals that we sign for our firm....are these deals value adding or value eroding....which stage of cycle is the firm in considering the unprecedented volatility in the markets right now....interesting to think about it....

Is R&D spending a good indicator of Innovation?

2008-12-04T06:05:00.000-08:00

To understand that we first need to define what Innovation means. Innovation is a defined as new way if doing something. There are interesting ways of measuring this and one can get more information from the Oslo Manual, Frascati Manual, Patent Manual, and so on.

So now let’s try answering the above question on whether measurement of R&D spending is a good indicator of Innovation.

No maybe not. Let’s look at some examples all research does not fructify to useful innovation as in the case of Pharmaceutical research. Similarly all development expenses do not lead to innovation either, this cannot be more true than looking at the auto industry...Interestingly the R&D spend for 2007 by 1000 top companies (in terms of revenues) is 3.6% of their sales decreasing moderately from last year. Interesting pattern to observe here is that Software/Internet/Computing & electronics, Pharmaceuticals and Auto are the top R&D spenders. Software and Internet industry has been spending 13.7% of their sales on R&D and are on top of the table even before healthcare...isn’t it surprising....how much of their innovations are we seeing that is making difference to the lives of millions of ppl out there...contrast this with pharmaceuticals....interesting parody!

I'm dying to get the "Grabbing Lightning" book about innovation where the authors’ state: “We found no relationship between R&D expenditures as a percentage of sales and innovativeness,” . They reached this conclusion after reading the same article that I read :-)....( “Beyond Borders: The Global Innovation 1000,” by Barry Jaruzelski and Kevin Dehoff, s+b, Winter 2008.)

It is altogether interesting topic to discuss whether innovation has contributed to profitability and sustenance of a firm in industry more than anything else? I'm not too sure if I'd look at Auto companies in the US....

What should Indian IT industry do to minimize the impacts of reverse offshoring?

2008-09-05T06:08:00.002-07:00

What can the Indian IT Industry do to ensure that we dont loose our jobs when we become less competetive (assuming the technology innovation are not mature enough to eliminate the need for significant labour)?

Any ideas!

The reversal of IT Offshoring - How far is it?

2008-09-05T05:09:00.006-07:00

How far is the reversal of offshoring witnessed by IT companies?

That question may probably be answered by looking at why companies actually chose to offshore:

1. Labour cost arbitrage in other words low wages
2. Currency arbitrage - Appreciation of US dollars against developing economies
3. Flexibility of resources - For example Loose labor policies & its enforcement allowing companies to exploit Indian labour (Imagine overtime in Indian IT services need not be paid). Working in odd hours to make few extra bucks!
4. Availability of Talent - Tricky bit lets defer this for later
5. Scalability of workforce - Ability to quickly ramp-up resource. Another tricky one which we can defer to later

Some of the above conditions may not hold for too long.
1. The wage inflation in developing countries are faster than that of developed world. For example the wage inflation in Brazil, China and India are in the range of 21%, 19% and 33% in last 5 years as per EIU
2. Currency have been artificailly maintained at pegged level, we had seen enough debates of this between China and US. India is not a open market....How many times have we seen RBI intervention in the currency market to manage the float of rupee against the dollar.
3. Labor in developing can no longer be taken for granted...Gen X & Y dont want to work overtime anylonger and defintely cannot tolerate working in graveyard shift...
4. Availability and Scalability are tricky bits....i'll not address this...but they are more perception then reality...Imagine tomorrow technology innovation eliminates a need for huge labour skills!

How long before we can see the trend reversing...it is a worhtwhile study by looking at the above factors. India today is 1/3rd cheaper then the wages in US...so we can do a simple math to arrive at the number of years 11. Now we've not even included the predictions of exchange rate.

What can the Indian IT Industry do to ensure that we dont loose our jobs when we become less competetive (assuming the technology innovation are not mature enough to eliminate the need for significant labour)?

This is an interesting topic in itself...we'll try and deal with it in another Post...

Exploiting the Market gap through innovation

2008-09-04T05:30:00.000-07:00

Interesting interview from Charles Geschke on his life at Adobe....http://knowledge.wharton.upenn.edu/article.cfm?articleid=2038

Amazing to know that this 4th largest IT products company was the first to pioneer freeware with Adobe much before the Linux of the world. Charles cites of how Microsoft has bullied its way into the market by cloning someones innovation on Excel, Word, PPTs and so on and did so well for itself. He also mentions how the company belts out new products so frequently into the market and monetizes it. The simple rule he says is by exploiting the market gap i.e. identify a unmet need in the market, and launch a product to get 100% of market share....

But honestly, how does one spot such market gaps and exploit them for economic profit in an increasingly complex world! Lets look at what structured approached we have to uncover potent unmet needs:

1. Marketing research - which companies in CPG industries: P&G, Unilever, etc. constantly exploit
2. Proximity to customer by eliminating channels - which company like Dell has exploited so well...

Or a sheer gut feel and intuition!!!! or reading "Blue Ocean Strategy"!

Triggers for Innovation - A Laundry list!

2008-08-31T06:19:00.000-07:00

What ae the triggers for innovation?

1. Unmet customer need/unfullfilled demand
2. Supply Side Scarcity (resources, capabilities, etc.)
3. Survival instincts!

Any more that can be added to this list!...

The innovation cost of information assymetry..

2008-08-26T08:32:00.000-07:00

Is information assymmetry one of the biggest Innovation impediment?

My hypothesis is Information assymmetry can inhibit:

1. Innovating new product/service
2. Taking innovation to the market for economic benefit

It is often the case that innovative ideas do not come to the fore not coz' it is not potent to produce economic benefit, but more so coz the innovator does not have a method to its madness to tap it for econmic profit.

Some case in point:
a. Toyota did not invent innovative cars when they started off.
b. Dell did not invent innovative personal computers.

All they did was copied a FORD/GM or cloned IBMs innovative thoughts and exploited them to economic profit through ingenious process innovations. They did that as they knew that some of the methods when cross-pollinated in their industry can aid them in reaching far-fetched profits (which other wise would not be feasible). They exploited the information assymmetry of the existing companies in uncovering customers unmet need and applying these techniques/methods to economic profit.

Another way of looking at information assymmetry, I've seen countless number of cases where an innovative idea never reaches the light of the day due to several reasons:

1. Inability of a technologist to understand markets/customers well (case of Palm PC)
2. Inability of a marketer to understand a technology and its capabilities (cant get a case right-away bit can get back to this later...)
3. Inability of an innovator to understand legalities leading to loosing a patent and hence commercial benefit....

The cases could be innumerable. Whenever one understands and plugs these information assymmetries we have often seen successfull enterprises generating great economic benefit not only to its stakeholders but to the society at large...

Do you agree/disagree? Any interesting insight of yours!

Brains As a Service (BAAS) - Brains on rent

2008-08-26T08:07:00.000-07:00

Is there a scope to offer brains on rent?

There are so many interesting innovations we hear lately especially in the Business-to-business space where enterprise services can be rendered as a utility (like electiricity, water, etc) without assuming ownership of resources & capabilites (power plant, river, engineers, etc...) and their risks (issues in dealing with resource & capabilities).

Think about few such themes:

1. "Cloud computing" where IT processing power is rendered as a utility service. Imagine something similar to electricity. We dont care who produces it, how it is distributed and how it is transmitted. All I care is I plug into a electric socket when I need power for my laptop and I get it. I pay a fee for it. I like the baby steps of Amazon here with their EC2 (Elastic clound computing) platform.
2. "Software as Service": Amazing feature to offer software as a service to clients. The client does not have to bother about infrastructure, software license, supporting the application and so on. All he needs is the IT information service rendered to it on paying rental for such a service. Good examples www.salesforce.com, Sugar CRM, SAP Business By Design???

All the above have a viable business to be made on the "long tail" of clients who need simple service at utility rates, without having to bother about the INfrastructure, Software, people to support and so on. Lot of business to be made out there it seems.

In similar light, can we lend our brains to enterprises to solve their productive problems? A kind of Brain as a Service model. Ofcourse, some of us can make a living out of it and that too a prosperous one at it. I guess, this is what Consultants and IT engineers off late do it seems, but by being part of a consulting firm or a enterprise. Imagine if clients can lend the brains of just the individuals and not contract out with companies/firms/enterprises and put them to productive use. All this, without being encumbered with large companies/firms/enterprises out there...Why should I have to go to consulting companies (like Mckinsey, BCG, etc) or Service providers (Accenture, HP, IBM, etc.) to hire the people they have. If I know that all I want is specific talent from people and not the encumbrance of these companies....

Some contractors out there have already doing this like for e.g. teamlease...are there business more companies out there that work on similar model? I contract with individuals not with companies then....

Maybe my idea up there is quiet raw! on the edges of being incoherent or senseless :-)....

Lean in ADM - Mckinsey Chauvinism

2008-08-11T08:46:00.000-07:00

Sometimes I like criticizing Mckinsey and their superficial thoughts. Here it goes again on using Lean techniques for ADM engagement. How shallow and superficial they seem to be sometime! http://www.mckinseyquarterly.com/Information_Technology/Management/Applying_lean_to_application_development_and_maintenance_1979

I remember dealing with bunch of Mckinsey consultants donning a impeccable (Armani) suit and combing hairs in the rest room before a scheduled meet with CxO of my former organization - guess what they were pitching to get a consulting assignment to pioneer lean techniques in IT Services. Ironically they reviewed the work I was already doing for a large utilities companies, pretended to ask me questions and understanding what I've done (well ofcourse deep down I could sense they were thinking how to make their USD 25 Million money out of this client, and were giving me the "Rats-Ass"). They then repackaged whatever I told them into a nice document/ppt and pitched to the top mgmt. claiming to solve all the problems of the organization.

Guess what you can fool around with some people some time, but not all of them all the time!. They got mutiliated when their idea was presented to the leadership and lost the deal. On the contrary some good sense also prevailed among the leadership, to let us pioneer lean techniques ourselves by just reading books and applying it innovatively in our organization...the rest was taken over by the HBR case study on whether applying innovative techniques like Lean can help change course of my former organization over the other formidable competeitors in the IT services market....

The next I heard was 3000 miles away in Germany when an ex-Mckinsey partner messing up with a Communication giant telling them that vendors should apply lean techniques to cut-down ADM to accomodate + or - 30% variability after committing to the estimates....

Anyways happy reading Mckinseq quarterly....It is good sometimes to introspect!...

Now, I feel a lill good bitching about Mckinsey! I'm a mere mortal and this is my second nature!

Can we have a People Exchange platform to trade resources?

2008-08-07T05:50:00.001-07:00

Think about this! We always struggle to get resources with right skills and experiences for an IT engagement. Though, we get the resource sometimes, we are unable to gauge the salary expectation and price them for a client requirement for a profit. How do we manage the resource economics?

I look at the above situation akin to a stock market where instruments (shares, bonds, options..) are brought and sold for profit. The analogy I can draw between the instruments and resources are as below:

1. Instruments have a certain buy price similar to the payroll cost for resources
2. Instruments can be sold in the market for a price, whereas resource are in turn deployed in engagements with client for a price.
3. The differential in buy and sell price of instruments can lead to profit/loss similarly for resources
4. One can speculate on the prices (buy/sell) of instruments in the market, similar to the one we do for resources. All that without agreeing on the intrinsic value of the instrument/resource...

Now lets look at what Stock exchanges do:
1. Provide a platform for buying and selling instruments based on demand and supply
2. Aid in speculate/price discovery of instrument based on whatever rationality/irrationality

Can we then create an exchange for resources as well similar to stock exchanges then. The resource exchange can then provide this platform for buying and selling these resources based on the need and also aid one in price discovery. Now let us devise this model to face the resourcing challenges for IT Services engagement:

1. The Job portals (like Monsters of the world) become the brokers similar to the agents who fulfill the resource transaction obligation
2. The IT Service Provider can behave like companies that house these resources based on intrinsic value the resource with specific qualities come with a specified price to sell in the market...there can be a standard valuation that is agreed by all IT Service provider in the industry for a specific grouping of resources based on skills and experiences...
3. The clients who want resources to solve their issues then bid to buy the resources through the exchanges
4. Have a new stakeholder regulating agency that comes up with a standard/proprietary valuation model that all Service provider agree on....

The benefits this will bring to the IT industry are:
1. Clients can benefit by discovering the price through the resurce excchange platform
2. Resources get what they are worth by having a standard pricing based on valuation model, rather than having a bazaar type negotaitions on salaries
3. Service providers can value the resources based on a proprietary model
4. Job portals can get their commissions based on the value they add to the clients and service providers

Can we develop similar model? Let me know if your thoughts if this model is viable!

Graph Theory, Influence Diagrams, Morphological analysis - Which method is suitable for Offshore/Outsourcing Mix (OOM)?

2008-08-07T05:48:00.000-07:00

I had this interesting conversation on using AHP, ANP and Graph theory to determine offshoring mix with my good friend Navneet over phone the other day. We had a healthy debate on futility of using graph theory to solve the problem, and some pointers to look at Influence Diagrams. I did a search up on the Web for Influence diagrams (ID) and hit upon a very interesting discussions on this and Morphological analysis (MA).

While debating about the merit Graph theory, I did realize that the challenges of applying it to solve the OOM problem. Think about it how am I going to get the strength of the edges connecting 2 nodes and the influence of the nodes itself on the OOM. Apparently, I do agree with Navneet that the OOM factors, its (inter/intra)influences and the objective function of OOM are not physical phenomena to be objectively used to reach the optimal OOM goal. But going back to using AHP for the same still does not convince me!

So the endeavor continues!!!!

I somewhat liked the idea of using the MA method. MA method is specifically meant to handle the challenge that I'm perplexed with i.e. the the complex nature of systems (OOM) and the unquantifiable nature of the factors (both nodes and edges) to determine the optimal OOM. The MA method has been used successfully in several fields: Zoology, Geology, Sociology and several other-logies. Now the challenge of MA itself is to define the problem very well, identify the influencing factors, establish the boundary conditions for each factors, Analysis-Synthesis loop to identify a consistent configuration (principles of contradiction and reduction) applying filters: logical contradictions, emprical constraints, and normative constraints.

Pretty interesting to think about the above. Now I'm more confused looking at above that the marrying of so many concepts: Exploratory analysis, Constraint theory, influence diagrams, etc. that can help in determining OOM. I'm not sure I can apply any of the above unless I get a broad set of principles based on which I can zero into a good principle.

Bloggers please help me, give me the direction.....

Mean, Lean and the Almighty!

2008-07-28T08:01:00.000-07:00

Is 6-Sigma the answer to managing the Cost of Poor Quality for IT projects?
Thats a mean sales gimmick...by just staring at the UCL and LCL for metrics and then determining the means and reducing the variability does not lead to reducing the CoPQ.

Is Toyotas Production System abstracted as Lean management a panacea for IT services productivity?
It is a pretty interesting question, and its answer depends on whom, when, how and with what intent you are asking.

Can applying any of the above method lead to 30% IT productivity?
Maybe Almighty can answer this!

Is it better than using Agile methodologies for Software development?
The answer to the above, in my opinion is fairly easy for anybody who is seasoned in the IT industry and has dealt with a typical SDLC/V-Process model for their Software products' development.

Analytical framework for decision criteria: Onsite-Offshore mix in outsourcing engagement

2008-07-28T06:50:00.000-07:00

Having used the AHP and a simple linear graph to translate the AHP score to Onsite Offshore mix for a outsourcing solution in IT (some 4 years back), I realized the futility of the model premised on MECE criteria for the factors. On reading ANP (http://chern.ie.nthu.edu.tw/IEEM7103/937805-paper-1-may6.pdf) and weighted graphs, I was curious which of these technique is most suitable to determine the Onshore-Offshore mix for a outsourcing solution.

ANP: This technique is better suited than AHP as it will consider the internal dependence and cross dependence between factors, the issue however is that it still does a pairwise comparision as we did in the AHP model within the cluster. But, usually some factors can appear in more than one cluster and can have interdependency.

Weighted graph: The weighted graph model is better suited than AHP and ANP as it has the benefits of ANP, without ANP issues (factors interrelationship across clusters can be suitably represented).

The scores we get from the ANP or weighted graph can then be used to transform into a onshore-offshore mix.

Deciphering software complexity - Cohesion, Coupling, threading and concurrent engineering

2008-07-23T07:54:00.000-07:00

I was just curious to understand software complexity & concurrent programming...increasingly so as I was encountering several deals where there is a requirement for software concurrent engineering to reduce cycle time from requirements to production deployment especially in AD engagements. It reminded me of the complexity assessment throuhg dependency matrices and application of DSM technique expounded by my former collegue Navneet. It reminded me then to look into cohesion, coupling, concurrent engineering and cyclometic complexity topics in software engineering that I learnt long back while in college. I never got the time to look at it, except for now as I was thinking of a novel approach to handling this problem and write a paper!

Cohesion is defined as the closeness of the relationshio between its components [Ian Somerville on Software engineering]. There are 8 difeerent levels of cohesion in order of increasing strength: Coincidental, logical association, temporal cohesion, procedural cohesion, communicational cohesion, sequential cohesion, functional cohesion and object cohesion.

Coupling is the strength of interconnectedness between the components during design.

In general a reduced software complexity requires high cohesion and loose coupling.

For concurrent engineering perpective one can look at how multi-core processors are handling concurrent execution. This takes me back to the basics of concurrent execution and synchronization basics [Terrence W Pratt, Programming language] I read while at college. Concurrent execution is facilitated through syncronization techniques such as interrupts, semaphores, guarded statements, multi-tasking and so on. Now the paradigm for concurrent execution has shifted with multi-threading and the concept boosted with multi-processor and multi-core systems.

What of the above technique can we use to address software complexity and concurrent
software development?

Breaking down the cost-to-serve parameter for service management optimization

2008-07-18T06:04:00.000-07:00

The objectives of managing the service (any service Consulting, System Integration, Application Outsourcing, etc.) through application of innovation techniques are to reduce the cost to service. It is critical for one to understand the constituent factors that influence cost to serve goal. The following diagram crisply captures the factor trees that influence the cost to serve goal.

Now we can capture the difference in the estimate/forecasted cost for each of above
parameters, measure the actuals during execution and drive management and control to minimize the differential.

Our transformation intiatives can be focussed on reducing the estimate/forecast cost in the first place...we'll dvelve more on this topic later...

Any thoughts on what factors I might've missed

Does too much focus on core competence leads to slow decadence...

2008-07-14T06:19:00.000-07:00

I came across a very interesting intreview od Richard Ruemelt (strategy's strategist - http://www.mckinseyquarterly.com/Strategy/Strategic_Thinking/Strategys_strategist_An_interview_with_Richard_Rumelt_2039_abstract) on how misconceived the strategy plans of organizations are. According to the interview they are nothing but a 3-5 year rolling plan focussing on market share, lobbying for resource allocations and financial projections. Seldom does on see a concrete actionable to handle a changed scenario in the environment, innovation or tapping into a unmet customer value in an industry that could lead to incremental revenue for an organization.

Interestingly he also beleives that organizations by focussing on their core competence discussion during strategy plan often miss innovation opportunities that would sustain the organization on the long run. The only thing that eventually sustains such large organization is their captive customers, and the strong networks in the business ecosystem preemting the entry of innovative/entrapreneurial company for a short-run, and eventually yielding to them. This is not new if one reads Clayton Christiansens "Innovators Dilemma". One can see this more prominently in the Telecom space. Imagine Telecom organizations leapfrogging to 4G without going through the arduous 3G journey....To do this one need to consider the followng challenges:

1. Will the regulators allow?
2. Will the Communication technology vendors right-price the 4G technologies foregoing their massive investments in 3G technologies (EDGE, UMTS...etc.) leading to its quicker adoption
3. Will the consumre electronics companies (read the handset providers) mass produce their handsets @ reasonable price to consumers to facilitate its adoption (ofcourse foregoing huge investments in the 3G network)?

All the above needs to be seen....Atleast, some of my neighbours in my apartment and my collegues at work do not think 4G really has any scope unless one passes through the drudgery/decadence of 3G...Blame it all on core competence....

What do you think?

Illustration of a constraint model for optimal outsourcing decision

2008-07-09T09:18:00.000-07:00

Lets assume the client has shared the following volumetric and requested the service provider to bid for the Application maintenance deal:

Guiding factors:

Utilization %	60%
Call Data Period	1 Month

Call Characteristics:

Domain	Technology	Sev 1	Sev 2	Sev 3
Billing Application	Java	3	15	13
Customer Care	.Net	5	10	28

Required SLA:

		in Minutes
	Availability	Response Time	Resolution Time	Actual Resolution time (Billing)	Actual Resolution time (Customer Care)
Sev 1	24/7	5	60	45	60
Sev 2	8/5	15	240	160	173
Sev 3	8/5	120	480	300	390

Based on the above details we can apply the step-wise resolution step to shape the deal:

Step 1: Assuming that the demand is even and the incoming calls has a poisson distribution, the l

Since Sev 1 calls are 24/7 availability we are assuming the pattern is evenly spread over 24 hrs, 30 days and 60 minutes and l for sev 1 is Number of calls/(24*30*60)

	Sev 1	Sev 2	Sev 3
Billing Application	0.0001	0.0016	0.0014
Customer Care	0.0001	0.0010	0.0029

Step 2: Assuming the service rate is an exponential distribution, the m

Service rate = 1/(Actual resolution time in minutes)

	Sev 1	Sev 2	Sev 3
Billing Application	0.0222	0.0063	0.0033
Customer Care	0.0167	0.0058	0.0026

Step 3: The number of resources for each domain, the r

	Sev 1	Sev 2	Sev 3	Total	# of resource
Billing Application	0.0052	0.4167	0.6771	1.0990	2
Customer Care	0.0116	0.3003	1.8958	2.2078	3

Step 4: The deal optimization based on the above characteristics can be illustrated as follows:

Lets’ assume the following assumptions:

1. We consider 2 locations US and India for this deal

2. We assume there are no shift requirements and the support will be on-call basis

3. There is only 2 levels in workforce: Software engineer and System Analyst

4. The cost for onshore-offshore is as identified in the following table:

	All figures in USD per Hour
	India	US
System Analyst	21	65
Software engineer	19	60

5. Lets assume the pyramid definition is as follows:


	India	US	Engagement Pyramid
System Analyst	5%	95%	10%
Software engineer	95%	5%	90%

The objective function can be laid out as follows:

Min X_onshoreC_{onshore, System Analyst}R_{Onshore,System Analyst}+ X_onshoreC_{onshore, Software Engineer}R_{Onshore,Software Engineer}+X_OffshoreC_{Offshore, System Analyst}R_{Offshore,System Analyst}+ X_offshoreC_{offshore, Software Engineer}R_{Offshore,Software Engineer}

Based on the above equation we can represent it as follows:

Min X_onshore*65*R_{Onshore,System Analyst}+ X_onshore*60*R_{Onshore,Software Engineer}+X_Offshore*21*R_{Offshore,System Analyst}+ X_offshore*19* R_{Offshore,Software Engineer}

The constraint for this is defined as follows:

R_{Onshore,System Analyst}+ R_{Onshore,Software Engineer}<= 5*X_onshore

R_{Offshore,System Analyst}+ R_{Offshore,Software Engineer}<= 5*X_offshore

R_{Onshore,System Analyst}+ R_{Offshore,System Analyst}<= 0.5

R_{Onshore,Software Engineer}+ R_{Offshore,Software Engineer}<= 4.5

X_onshore + X_offshore= 1

X_offshore - X_onshore>= 0

Any Optimization engineer will be able to solve the above equation using a tool to arrive at the optimal deal parameters. We did the above and identified the following optimal function.

The above is an approach 1 for constraint model for outsourcing deal.....how do we do this in approach 2? What are the limitations of the above model?

We'll revisit these issues later...any ideas and recommendations....

Cost optimization objective for service management/delivery in an outsourcing engagement - A challenge

2008-07-08T06:57:00.000-07:00

As in any optimization problem the goal or objective of a outsourcing function is to minimize the cost of providing the service to the lines of business. Evolving an objective function is riddled with multiple factors making it increasingly difficult for one to establish an objective function. Typical factors of an objective function are:

1. Onshore-Offshore percentage

2. Choice of delivery location to perform the services in an outsourced environment

3. Composition of workforce to perform service delivery (managers, Analysts, Software engineers, etc.) and their cost

4. The number of shifts designed to perform service delivery

5. And several more (not sure what I'm missing here)

Modelling based on the above factors results in devising an objective function next to impossible. In this context I was considering two approaches for the same:

Approach 1: Why not we consider all the above factors and design one single objective function. For example:

Min ååå X_dC_aR_b

^{d a b}

where X is each location where service delivery is performed and d = {India, US, China…..}

C is the cost per shift per resource pyramid and a ={(Shift A,Cost of Executives in location d), (Shift A, Cost of Managers in location d), ,…..(Shift A, Cost of Software Engineers in location d), (Shift B, Cost of Executives in location d)…. (Shift B, Cost of Software Engineers in location d), (Shift C,Cost of Executives in location d)…. (Shift C, Cost of Software Engineers in location d)}

R is the number of resources per resource pyramid in each shift and b = {(Shift A, # of Executives in location d), (Shift A, # of Managers in location d), ,…..(Shift A, # of Software Engineers in location d), (Shift B, # of Executives in location d)…. (Shift B, # of Software Engineers in location d), (Shift C,# of Executives in location d)…. (Shift C, # of Software Engineers in location d)}

Approach 2: We peel the optimizing functions for each of the key parameters and individually optimize them.

I'm yet to figure out which is the best approach to figuring out a optimizing function. If I choose the former then the function becomes too complex and modelling the constraints equally so. Will such a function be solvable.

If I adopt the Approach 2 then I'm not looking at it from a systemic perspective and hence may inherently end up building a suboptimal objective function while the individual parameters themselves are optimized.

Any thoughts on what could be the right approach?

Service management - Applying simple queue model to address service management challenge

2008-07-07T09:21:00.000-07:00

A simple Server queue model can be applied to address some of the challenges identified in the blog http://insightful-journey.blogspot.com/2008/07/service-management-issues-with-using.html:

The following step-wise approach can be adopted on the same:

Demand characterization is nothing but the l for a unique combination of the service factors (Service type, service scope, service domain and service category). The best way to represent such a set of demand characterization is defined using the mathematic notation below:

l = l_ijklm

i Î {Incident management, Problem Management, Change requests/enhancement..}

j Î {Level 1, Level 2, Level 3, Level 4}

k Î {Business, Infrastructure, Application…}

l Î {sev 1, sev 2, sev 3, sev 4…)

m Î {Java, .Net, Tibco, Oracle, …)

Capacity for providing service can be determined based on the service rate for each combination of service factor.

m = m_ijklm

i Î {Incident management, Problem Management, Change requests/enhancement..}

j Î {Level 1, Level 2, Level 3, Level 4}

k Î {Business, Infrastructure, Application…}

l Î {sev 1, sev 2, sev 3, sev 4…)

m Î {Java, .Net, Tibco, Oracle, …)

The optimal service level objective can be set by setting factors:

Utilization percentage (as indicated above) 70-90% but not 100%. (Note that a model which is 100% utilized is unstable)
Healthy backlog for tickets to smoothen the demand-capacity gaps. This can be determined as the number of request in queue for each combination of service factors
Balanced service time for service tickets and a cap on target improvement. Uncapped service improvement target leads to instability in system and disproportionate cost to maintain such a model.
Assuming a typical utilization of 90% we can determine the number of resources for each demand:

r_ijklm (number of resources) = l_ijklm /m_ijklm/90%

Total number resources R = å r_ijklm

This is a classical optimization problem where one can apply constraint theory for solving it. (We will cover this in detail later).

Designing the optimal demand-supply model can be determined by applying constraint theory for an optimal engagement.

Objective function is the minimum resources to manage the engagement (note we are not using a function to minimize the cost due to complexity introduced in the system due to workforce, the levels, delivery center utilized and so on)
Constraints are defined by cap on service requests, backlogs and service time for each combination of service factors,

Execution and sustenance of the service model requires one to have the right value stream map (a.k.a. service process), waste elimination by continuously eliminating non value added activities (for example reducing the infused management team for transition engagement), improving turn around time for service tickets by measuring and optimizing time for value added activities (one can also apply other engineering techniques such as DSM, concurrent engineering, etc.), using multi-skilling of resources through ongoing training, and so on.
Continuous improvement involves driving some transformation initiatives similar to ones identified in point 5 above to reach the ideal state as determined by the server queue modeling in Step 2.

Your comments & thoughts welcome!

Service Management - Triavialzing real-world complexity with a simple model!

2008-07-07T06:43:00.000-07:00

The entire service management model can be based on simple Server-queue modeling concepts.

Model Factors
The minimum factors that one needs to understand of the client service management context for an item in the service catalogue are:

1. Service type and the associated processes are activities that contribute to transforming the inputs (a.k.a problem/incident) to a acceptable/predictable outcome (a.k.a resolution/work-arounds)
2. Service scope (Level 1, Level 2, Level 3)
3. Service domain (Business, Application, Infrastructure, Tools, etc.)
4. Service locale (process such as supply chain, HR; functionality such as order management; and technology such as Java, .Net etc.)
5. Severity and Priority within each level (such as Sev 1, Sev 2, Sev 3, etc.)

For the above service context one needs to get the following measures to model the service:

1. Total number of service requests (classified across the above dimension) over an interval of time. (Lets define this as )
2. Number of service request resolved and closed (classified across the above dimension) over the same interval of time as in point 1. (Lets define this as )
3. Number of service request as backlogs (Lets define this as Lq)

Simple Server-Queue Model concepts
Based on the above factors a simple server queue model as identified in the figure can be applied:

The simplistic model is premised on the following:

1. the mean-arrival rate has a passion distribution (established statistically through a goodness of fit test such as Kolmogorov-Smirnov test),
2. the service rate is exponential in nature (established statistically through a goodness of fit test such as Kolmogorov-Smirnov test),
3. All requests are homogenous in nature,
4. All service is homogenous in nature
5. Service is rendered on First Come First Served basis (FCFS)

But note that this is seldom the case and is a gross over simplification of real life scenarios. However, one can best understand the characteristic behavior of a model in its simple form.

What say you?

Service management - Issues with using Analytical model

2008-07-07T06:42:00.001-07:00

The service provider often finds it difficult to agree to a SLA right-away due to several constraints:

1. Lack of clear baseline/benchmark for the service prior to outsourcing due to several factors:
a. Absence of management of service through metrics
b. Absence of structure, processes and organizations
c. Absence of system and measurements
d. Absence of right data in the systems (even if it is available)
2. High client expectations on improvement targets during outsourcing. This results in defining the target metrics at a level which the existing service organizations has failed to achieve

If clients’ services are matured and above constraints are not a bottleneck, then the challenge shifts to the following:

1. Characterization of demand (read as service requests)
2. Characterization of service (read as resolved service requests)
3. Planning the right capacity for providing service
4. Defining the optimal service level objectives for the lines of business and hence the service providers
5. Designing the right capacity-demand model to serve the clients
6. Executing and sustaining the performance of the organization to the defined service level objective, and
7. Continuous improvement on services to the clients and their lines of business

Do you agree? What other problems have you faced?

Service management - Do we have all the answers?

2008-07-07T06:40:00.000-07:00

Clients often outsource service management to vendors to increase the value without assuming ownership for costs and risks. The value capture for the clients by outsourcing service management can be understood from several perspectives: cost, improved service to lines of business and so on (we would not dvelve into details of value management here). The only way the client can ensure utility and warranty of service (scalability, consistency, reliability, security, accuracy etc.) of the service from an outsourcing supplier is by imposing strict service level measures through the Service Level Agreement (SLA). The non-compliance to the SLA often results in business impacts on the lines of business, and the client often impose strict penalty on non-compliance of the SLA.

The intent of a service provider is to sign-up for a SLA limiting itself to controllable risk and manageable cost while making sustainable margin. But it not as easy as it sounds due to several reasons. To understand these reasons every service provider should start asking itself the following questions:

1. Does the client & service provider understand all the problems faced in operationalzing a SLA?
2. What analytical models/techniques one can use to ensure the SLA problem and the solution is well understood and factored in the overall solution?
3. When, Why and how should such a model be applied and not applied for a SLA?

Any thoughts...

Open Innovation Network - The new trends!

2008-06-24T07:48:00.001-07:00

Interestingly, I had a chance to look at two Open innovation networks sites of P&G and Innocentive last week are raised a question on the longevity, impact and value of these networks on my blog article: http://insightful-journey.blogspot.com/2008/06/open-innovation-networks-does-it-have.html

It was interesting to see Mckinsey Quarterly article on "The next step of open Innovation article" yesterday taking an agnostic view of Open network and potraying an Uncertain future. I really believed Mckinsey had a foresight on what will be the next step of Open Innovation networks! While, I was disappointed on not getting the right answer from Mckinsey :-) (as usual) but atleast it provoked me to think ahead on what trends can emerge out of Open Innovation networks

1. Consumerism and mass customization will reach a tipping point. This will force companies to produce unique product/service that caters to needs and wants of just one customer at a time (Read the latest Prahalads book on Co-creation where he mentions this as N:1 scenario)
2. Companies will be forced to reshape/redesign/realign their resource and capabilities dynamically to meet "A" customer need & want (R:G case in Prahalads co-creation model)
3. Shifting of paradigms where value capture will be premised on how networked and closely knit a company is in its eco-system and how quickly it can leverage it to deliver on customers need & want (My own thesis!)
4. Shifting of organizations P&L centricity from product/service lines to customer (Similar to what is happening in Telcos & Utility companies)
5. Emergence of new sets of business laws & practices: stakeholders, privacy, ownerships, contracts, IP....??? (My own thesis)

Any more trends that you think of and can suggest?

Is outsourcing initiative directed to capture maximum value without assuming ownership for its costs & risks?

2008-06-24T07:02:00.001-07:00

I happened to read the ITIL V3 publications on Service Strategy recently. A really well-defined article and came across this very interesting quote that client wants to capture value by passing on the ownership of costs and risks of deriving the value. The focus of due-diligence hence is to evaluate the degree of ownership in assuming the risks and costs for delivering the value for the service provider.

I thought that the former argument was carrying the idea too far, while the latter was too shallow a definition of due-diligence.

This is why I say so:

clients always carry risk of outsourcing critical functions and pay a price to a service provider for acquiring the value of it as well. No matter the degree to which the functions are outsourced. There may be several ways in which the client may protect himself from the costs and the impacts of risks through stringent contracts, SLAs and so on but still carries the risk of loosing the utility and gaining the warranty.

On the topic of due-diligence is too superficial and here is why I say so:

The due-diligence exercise intends to firm up the service offer to a client by not only assessing the risks and costs but also the validating the assumptions, clarifying the issues and firming the scope of work.

Any agreements/disagreements/PoVs....

Madness in the methods!

2008-06-24T06:09:00.000-07:00

4.3 trillion combinations possible in a rubic cube. If one knows what he/she is doing it can be solved in 25 moves....

Isnt the above a amazing method to solve the Rubics madness.

But you can't apply the same method to winning a chess game, can you?

Methods have their limitations when applied to a problem. Not all problems can be solved through methods. Typical failures can occur under following circumstances:

1. Incorrect definition of problem
2. Applying the wrong methods or methods wrongly
3. Deriving the wrong conclusions of resolution
4. Underestimating the complexity and power of execution
5. Carrying rationality of thoughts too far!
6. Underestimating the intangibles!
7. Many other countless reasons.....that I've not listed

Dont you think a typical undergraduate can apply collection of methods to solve worlds hunger then?

Innovation in Monopolistic market

2008-06-19T07:40:00.000-07:00

Microsoft is (almost) operating in monopolistic Corporate/business users market for its Windows operating system. Conventional theory would say that in a monopolistic market the incumbent are better-off not innovating as there are no new entrant who pursues innovation as an entry strategy (lets forget Linux for now as it have very limited presence in Business user/corporate market). Why so?

1. Diverting the precious resources (capital, people, etc.) in innovation endeavor, when instead they can be reduced to increase their margins.
2. Innovation resulting in new product version may lead to cannibalizing their existing products
3. The new version may lead to losing their captive customers due to the cost involved in upgrading/learning/supporting the new version

It seems that is not true for Microsoft, which has been a non-disruptive innovator. Being a monopolist, Microsoft has successfully managed to move their installed base to the latest version of the OS every time, though the product can be frustratingly buggy :-)...How do they do it? By withdrawing support, patches (mean to fix bugs) to the product base and frightening good souls out there of pernicious virus and Trojans that can exploit the loop holes leave aside the fact they never mention that they had more bugs that can harm you then those viruses/Trojans.

However, we don’t seem to see the same pattern when it comes to tangible products (esp. hardware). Here it seems the innovation has mostly been disruptive. Do you recall what ever happened to the 5.25 inch disks? Reading innovators dilemma gives us countless organizations that have failed by releasing new versions of their archaic products. This was due to new innovations that had not only introduced better features but at lesser cost. This has resulted in monopolists always loosing out due to disruptive innovation by new entrant.

I was reading the "Loyal servant" prototypical game in game theory and realized the above pattern was unique where theory didn’t exactly apply. It prompted me to think on these lines and raised few questions:

1. Is there any disruptive innovation in the software product market?
2. How do we spot them if they are already available? (Remember more convenience/features & lower cost for tangible products)
3. What are the right things that these corporations have to do to bring faster adoption of the innovative product (same time faster obsolescence of their existing product)?

Open Innovation Networks: Does it have commercial value for its stakeholders?

2008-06-18T06:59:00.000-07:00

Interesting that I caught up on the innovation network sites recommended by my good friend Navneet recently. It was amazing to see Innovation networks where one can solve problems and in the process make money. Some of the sites I visited:

1. www.pgconnectdevelop.com: Connectors who bring together partners, innovators and P&G lines of business
2. www.innocentive.com: Plays as an aggregator of Innovators and businesses (who want science problems solved)

I'm sure there are more such sites, but I restricted the above two worthy of mention as they provide incentives for innovators for solving their problems. The concept of open networks for a business value is not new. Linux sort of revolutionized this idea where software programmers contributed to the development of the OS (carefully monitored by expert who decide what goes into the production version). It was seen that very quickly businesses such as Red-Hat encircled them by providing support/services and eventually also ending up doing R&D.

But is the open innovation network models really provide business value?

This is one large question difficult to answer as these models evolve. But one can use the benefit of hindsight for software products like Linux. Interestingly so, being in sales and business development in the IT landscape, I can tell for sure the product is difficult to sell to businesses and make a commercial business out of it. Several reasons afflict them and we will not even try and enumerate them here. (you can mail me if you like and I'll share my perspectives on it for a price :-)). Going by the above I feel these networks will die as the savvy scientists and technologists would not like to sell their intellectual capital for free. The best of the ideas will often surface outside these networks and find commercial value outside these networks. Imagine what it will do to the sponsors of research in large universities, commercial organizations that recruit scientists and pay them huge sums for breakthrough ideas/products and so on...Lets not even think about the legal challenges these may pose (I am a novice in IP laws).

My hypothesis:
a. Companies cannot think these networks to replace the R&D divisions yet.
b. Nor will the best of scientists and technologist openly throw away their intellectual capital for pennies.

What fact do you have to prove or disprove above hypothesis? Please share with me...

Busting Business complexity: Shannons Entropy, Constraint theory and Game Theory

2008-06-17T07:08:00.001-07:00

Business ecosystems are becoming increasingly complex. The ability of an organization to forecast and achieve growth and profitability in the complex business ecosystem is more than an art. Imagine how complex this would become for a new entrant in Hi technology industry. In the previous blogs we've seen how value networks can be used as an effective tool to model businesses, analyze, and define strategy. (We are not even talking about executing them! Will leave it to art for now!!!)

Complexity is not unique to business, several technologists and scientists (I've deliberately chosen to separate them) have traversed down the path and created techniques and tools to bust them. A business therefore isn’t so unique except that the factors are many and the dynamism of the factors themselves is uncontrollable. But if we can model an ideal business (assuming limited factors and controllable state) we can converge on strategies.

In this space one can consider some of the existing techniques/tools that have been used in several disciplines: defining a value network, using Shannon’s entropy to determine complexity of the ecosystem within which the business operates, using constraint theory to maximize revenue and growth KPI for organizations and of course use game theory (Stackleberg/Nash games) to model the dynamism in the business. There are several interesting articles I came across recently in this field and itching to apply them in real-life scenarios!

Is there a strategy problem out there for piloting these ideas?

Is your competitor also your best complement?

2008-06-13T04:05:00.000-07:00

There are very businesses that have their greatest competitor as their complement as well. One can see this more pronounced in the Enterprise software segment that I looked at. Let us look at some interesting successful organizations that are both competitor and complement:

1.Windows-Oracle
a. The largest market share for Oracle database is on Windows platform, but Oracle competes aggressively with Microsoft in the database segment MSSQL Vs Oracle.
b. Oracle Accelerate solution competes with Microsoft NetDynamics, Axatpa, & their insignificant other acquisitions
2. Windows-SAP: They sing a duet with SAP enterprise software running on Windows, but they compete as well Microsoft NetDynamics, Axatpa, & their insignificant other acquisitions and SAP Business One.

Seeing the above some interesting question arose:

1. How can you uncover the complement in your competitor?
2. How do you nurture such relationships for economic value while fighting in the market place?

To answer the first question maybe it helps to look at the ecosystem and value networks in which these organizations operate.

For the second question, it is about execution of well strategized Go-to-Market initiatives (as we popularly call them in the Partners & Alliances world).

Any thoughts/experiences you want to share on this….

Value Chain, Value Networks, and everything else

2008-06-10T09:21:00.000-07:00

Value networks is an interesting way to analyze a firms ecosystem and the context in which it operates. This cant be more pronounced in anyother field than in the High-technology industries where products/services have a very small shelf-life, time to market for innovation is short-spanned and almost anything is quickly cloned and commoditized. Few questions arose in my mind:

1. Is it true then that in this hi-tech industry realm no copyright, patents or licensing can give market protection for economic value exploitation by innovators?
2. Is the only way for organization to capture the maximum economic value then rest on ability of the organization to exploit the value chain to maximize its value capture (by doing things like build strong brands, scale quickly to meet imcreasing consumer apetite, agile to create several new innovative product/service parallely, produce highly reliable products...and so on)
3. Given the dynamics of the emergent players in the value chain and its ecosystem can one capture better value by constantly and dynamically capturing the changes in the eco-system through value network diagram? (Here I'm impressed by erstwile Sun Microsystems CEO Ed Zander who later moved to Motorola, whereby he said that he revives the organization strategy everyday...)

I happened to read some interesting articles on value networks from the site http://www.value-network.com where several cases are posted on how value networks (bubble charts) are detailed to capture the roles and exchanges of players in the ecosystem and how this with System Dynamic Modelling (swirly charts) captures the interactions and influences of the players. I was partticularly impressed by the case on Boeing not for the depth of the article or the details on how Value Network analysis and System Dynamic modelling is effectiveley used to test several aircrafts models, but for the ability of the organization to continuously pioneer/adapt such interesting models like DSM, Lean, Six-sigma and so on without inventing them :-)...It sets a precedent and a desire for everyone to adapt it in their own context....

It has now thrown open a zillion ideas in my mind on how Value networks, System dynamic modelling, Constraint theory/Optimization models, Queuing systems can be juggled to solve complex daily business problems like SLA management, Recruitment, delivery management...if only i can get an opportunity to prevail upon my desires in the mundane corporate world....

IT Services Outsourcing Cost saving: Whats are easier then Hows?

2008-06-09T07:06:00.000-07:00

Clients outsource IT services (typical run activities) for non-core applications to reduce the (SG&A) cost of providing the services to Line of Business. Off late clients are not just happy with the initial cost savings that may accrue to the business due to outsourcing of these services, they often demand that the service provider come-up with initiatives to reduce the year-on-year cost systematically over the duration of the deal. Service providers embark on such initiatives to reduce y-o-y costs starting right after the services are transitioned to a service provider. Typical questions that one often ask at this juncture are:

1. How much cost savings can be committed to y-o-y?
2. What are the levers one can deploy to reduce the y-o-y cost?
3. How will the initiatives be run around to reach target yo-y savings through each lever?

To answer the 1st part of the question, it has been observed that any the industry wide y-o-y cost saving cannot exceed 25-30%. The reason for that range is that anything at the higher end of the range affects the stability of the engagement to a layer that it makes it unsustainable.

To answer the second part of the question, there are 3 broad areas we can consider:
1. Arbitrage lever: For example Increase the Offshore % citrus-paribus (an economic talk!)
2. Resource Productivity lever: reducing the number of resources required to perform the service. This can be further broken down (reserve my USPs here...you need to pay me for this!)
3. Resource-mix lever: Getting to do more of the activities by junior resources who cost less.

Answering point 3 is the most difficult. The reason the initiatives that are rallied around these levers for y-o-y cost savings are highly subjective to the following:
A. Deal context (the initial engagement beginning parameters for the levers)
B. Organization context (both the client, and service provider dynamics)
C. IT Landscape context (services, applications, technology...etc.)
D. Other extraneous factors (blame it on the economy)

One may claim to achieve y-o-y savings through the jargon galore if the one does not appreciate the factors contributing to the subjectivity: standardized processes, skill development a.k.a ongoing training, lean, six-sigma, server-queue modelling, well i'm running short of those. We will discuss more of these later.

Innovation Trends - A Case

2008-06-07T05:16:00.000-07:00

Innovation Trends – A case study

We are often use Return on investment as a measure of efficiency of an organization. Let us try an take a look at Return on Innovation (ROIn) that companies may want to use to measure their innovation efficiencies. There are several interesting topics I came across recently on this topic, which sparked my thought process. The questions that arise in my mind:

1. Why do companies invest in innovation?

2. How much do companies invest in innovation initiatives?

3. How does companies measure success of their innovation initiative?

4. Is there a potential business in outsourcing for innovation?

In this, article we try and address some of these topics.

Reasons for Investment in Innovation

Typical reasons often seen are:

Gain market share
Increase profitability
Long-term survival
Others

Of course, all the above are the most important in Pharmaceuticals, health-care and bio-tech companies. Off late one is seeing rampant invest across the industry spectrum for competitive advantage.

Investments in Innovation

The answer to this question varies from company to company. It is best to see what is the typical investment in R&D for an industry group (similar set of companies) and compare it with how the company fares. Rather than looking at just the absolute R&D investment figures (some companies do not report it and others do it just to capitalize on the incentives provided for R&D such as tax breaks.). Some of the numbers we look at are staggering. NA companies spent USD 194.2 billion between 2005-2006 with a y-o-y growth of 10-15% (study conducted by Booz Allen and Hamilton). Other geographies are also quickly catching up as per the study. It is estimated that India & china spend about USD 2.1 billion and growing at 25% y-o-y.

But unfortunately, all spend do not necessarily translate to innovation. The recently published report from DSIR in India is a good indicator of the number of patent filed (since 2005) as a proportion to the R&D spend for Automotive industry. For example Tata Motors ranks as number 4 in the Worlds most innovative companies in Business week, , their R&D spend for the year 2006-2007 was USD 113 million (using Rs 43 per USD) and they filed 5 patents. Interestingly so TVS Motor company had spent USD 3.8 million and filed 29 patents.

Measuring success of Innovation

A very interesting study was recently published by BCG polling some 377 senior executives on measuring innovation. In this study only 28% of executives believe that they have received returns from investments on innovation. It is important to understand what are the key metrics that are used to measure innovation. This is best understood by categorizing these metrics as Efficiency, Effectiveness, and Size metrics (similar to the financial ration analysis category metrics we use):

Size metrics

R&D investment as % of sales
Number of patents filed

Effectiveness metrics

Net new revenue generated from new products/services (read innovation)
Profitability attributed directly to Innovation
Time to Market improvements due to Innovation

Efficiency metrics

% Revenue generated from new products/services vis-a-vis existing offerings
% Margin improvements from new products/services vis-a-vis existing offerings

Trends in Outsourcing Innovation

Innovation outsourcing is not new, but lately one is monitoring and tracking it. US government has publishes a detailed report “Innovation in Global Industries” detailing this trend. To improve the innovation efficiency and effectiveness metrics companies look to outsourcing for innovation. The key criteria used for outsourcing innovation are:

Cost arbitrages
Availability of talent
Proximity to markets
Industry eco-system advantages

Talent Management - A critical perspective

2008-06-05T07:22:00.000-07:00

Managing talent is on top of many business leaders agenda lately. No one can agree more on this topic then the Project managers in IT Service industry. When one starts talking about Talent management several questions arise:

1. What is talent?
2. How can this be sourced?
3. How can this be developed?
4. How can the talent be deployed to meet the demand appropriately?
5. How do we manage the entire talent cycle?

Answering these questions requires one to define the scope and context of the subject under discussion. Lets simplify it by looking at the IT Service industry. For the project managers in IT services, finding the solution for the above question is quintessential for the success of the project/engagement they manage. Not many organizations and their project managers out there found a good solution for the above. Lets look at some of the challenges impairing their ability to find solutions:

A. Difficulty in cleary & consistently defining talent. What do we mean by this? Quiet simply this boils down to knowing what are the capabilities of the resources. The capabilities can be defined given there is base set of factors/parameters pair values standard used to qualify them. To understand this I would draw us all to an analogy of a aircraft which has the capability to transport people, cargo, etc quickly, safely, consistently (in specified time window), and repeatably. The aircraft itself can be different based on the components that go into making them. Ofcourse we know by know there are standards, there are specific components made by differnt companies and when all of them put together make an specific type of aircraft and that aircraft has certain unique capability.
B. Difficulty in clearly & consistently sourcing the defined talent as there is no shared pool of resources that we can draw out from one. In airline industry it is possible to get an aircraft as an outright purchase, wet or dry lease from vendors in the market to manage a certain load in a route. Can we say the same about sourcing talent?
C. Lack of standardization in assets and capabilities to develop talent. We can understand it by appreciating this question: Is it possible to say that every resources going through the same course come out with same level of talent? We know well that Airbus or boing can develop an aircraft in their shop floor with a gaurantee that the end product is of a specific type say A380.
D. Inability to forecast the demand for specific talent. For example not all deploy a SAP FICO/Oracle E-Biz Financials suite in the same way, though the package is the same. This gives rise to different and unique talent required to implement/support/maintain them. However in the airline industry, on e has been able to predict the load factors between any two given cities for operation, thereby making it easy to determine the number of aircrafts/trips to be planned between two cities. Atleast one can manage the economics: demand-supply by varying the ticket prices.
E. Lack of structures and schedules to manage the talent given that the underlying technology/tools are constantly changing in IT services. Even an aircraft has been structured and scheduled for regular preventive/corrective maintenance to keep it in shape and a fixed flying hour after which it is retired. Can we do that for talent?

Come to think of it there are some simle and easy frameworks that we can model, define, create and operate to manage talent. It just requires us to think Out-of-the-box. some of the solution for similar problems already exist. Can we develop a IT tool for the same? Think about it....

How do we maximize value capture for an organization in a value chain?

2008-06-04T08:48:00.000-07:00

Understanding the value chain is crucial for any new player developing a product/component in a semiconductor industry. It helps the player to position themselves and package their solution to maximize the value capture in the value chain. Maximizing the value capture often leads to maximizing the margins. Here is an interesting Semiconductor Industry Value Chain Case Study for one to review and comment.

Offshoring/Outsourcing Apocalypse - Hindsight

2008-06-03T07:09:00.001-07:00

Gartner in 2005 published an interesting article on 5 reasons why offshoring/outsourcing will go bust:
1. Unrealized cost saving: Quick withdrawal or rebidding of offshore services resulting in inability of clients to recoup the initial transition investment.
2. Loss of productivity: Long learning curves involved in some complex tasks leading to initial loss of productivity at service providers end.
3. Poor commitment and communications: Withdrawal of key mgmt team shortly after service stabilization and lack of internal communications on the stakeholders expectations for the deal.
4. Cultural differences: Between the offshored suppliers and the clients leading to poor satisfaction
5. Lack of offshoring expertise or readiness at client end.

It might have been interesting to have the benefit of hindsight and interesting to see how the industry handled these "supposedly" silver bullets for offshoring failures.

Now all the above in 2008 maybe passe! as one sees a clear trend emerging where outsourcing done over 3-5-7 year cycle with a clear goals for transformation/productivity gains in the range of 20-30%, Fixed price bidding for non-discretionary service coupled with clear SLA baselines and performance gaurantees laid in place to avoid perceived productivity loss, attrition KPIs and matured governance structures balancing the challenges on commitment/communication, cultural flattening of the world enabling ppl to work across seamlessly, and the best practices/reference visits by clients to catch-up fast on the expertise and readiness gaps for offshoring.

Here are some of the brass talks/hypothesis if you will on why some offshoring projects may still fail:
1. Too much delegation of risks (performance gaurantees thru'stringent SLAs) and costs (lowering pyramids and costs) to suppliers by clients leading to inability of service provider to sustain service provision to client. (meaning suppliers going underground bending their back on clients demand)
2. High volatility on underlying economic factors imparing the realized benefits of offshoring: Exchange rate fluctuations, Wage inflation, etc.
3. Talent sedimentation and crunch: Challenges in getting the right talent, with right skills/experiences at right-time coupled with trying to get more down from resources lower down on the pyramid.
4. Eroding Service differntiation and increasing commoditization of business clouding the ability of the ability to choose the right partner for offshoring based on capabilities. Client will end up choosing a service provide purely on marketing/sales pitch then on their capabilities to deliver flawlessly
5. Others: I dont know......

What are your thoughts?

What is the biggest challenge of Transformation/Change management engagement?

2008-06-03T07:07:00.000-07:00

Any transformation or change management exercise in an organization involves high stakes and poses significant implementation challenges. Any change management initiative should start first by appreciating (read understanding) the stakes, the stakeholders and their current challenges well. The definition and design of the change management initiative then factors this understanding into it and creates an actionable plan. All that a general gyan!

What is the biggest challenge one faces in executing a transformation/change management plan:
A.Hard areas: Identification of methods, tools, techniques, frameworks, analytics (such as performance KPIs), etc.
B.Semi-Hard areas: Organization structure, existing processes, etc. that are changing as part of the change initiative
C. Soft-areas: Human behavioural- fear, emotion, passion of existing process, NIH syndromes...etc.

I believe the biggest challenges are often in the Soft areas which is often under-appreciated/attended. Are their frameworks or techniques or structure that one can be used in that area?. I'm looking for some things that could be used generically across engagements such that it can be applied for a fool-proof transformation/change management exercise.

A Perspective on Due-diligence for an Outsourcing Service

2008-06-02T18:07:00.000-07:00

It is a common practice to perform due-diligence to validate the outsourcing service offering by understanding/accommodating the risks and cost-to-serve parameters for a deal. The outcome for a due-diligence can be widely varying depending on the scope and defined objective. The due-diligence, usually, is a vital link between the proposed RFP response and the revised final offer from a service provider. Most often the clients take decision on outsourcing based on the revised final offer from the service provider. Given the importance of the outcomes from the due-diligence exercise, one needs to understand the key dimensions around which one performs due-diligence. The key dimensions around which one performs the assessment of risks and costs are:

1. Strategic

2. Financials

3. Legal/Contractual

4. Organizational (HR, Structure, Governance, etc.) and

5. Service portfolio

In each of the above dimension a detailed assessment of the risks and cost-to-serve parameters are reviewed to ensure that the proposed solution is validated and revised. The entire process requires high-touch interactions with clients and the incumbent service providers so that the required information is secured for the revision. Most often the due-diligence exercise almost always results in revising the offer made by service provider to the client and there is tremendous pressure for the participants to improve the offering to client. Seldom does one see a service provider backing out of the deal considering the uncertainty, complexity and the increased cost-to-serve for the service provider. What are the frameworks available out there in the market that one can use consistently for all due-diligence exercise to determine whether to continue bid for the deal or withdraw from it? It would be interesting to understand the existing frameworks or developing one if there isn’t one in the market already?

Any thoughts/ideas?

Is Application Outsourcing Service becoming a commodity?

2008-05-31T01:21:00.001-07:00

What are the typical market characteristics that make an service/product a commoditiy? If we look at the economic theory one would try and understand the following constituents to answer it.
A. Price elasticity
B. Demand Supply curve
C. Marginal Value of service/product to customer
D. Nature & behaviour of stakeholders/participants/Seller-buyer
E. Sensitivities of the above to extraneous factors: Substitutes/complements, exchange rates, wage-inflation, change in resources/capabilities brought to bear for service/productetc.
If we reflect the current outsourcing market in terms of the above factors we may probably agree to it. What do you think?
If the outsourcing market has indeed become a commodity, what is the means by which big organizations can command profitable growth? Is it through one or combination of the following:
1. Mergers & Acquisition - Inorganic
2. Innovation in Service offering - Organic
3. Innovation in resources (people, infrastructure, application, information) - Organic & Inorganic
4. Innovation in capabilities (Knowledge, organization, management, processes) - Organic & Inorganic
5. Others

Any thoughts. Feel free to share.

Transition gratis

2008-05-30T06:46:00.003-07:00

Recently, news feed reported that a leading Indian pure-play vendor is offering transition service free to accelerate closure of an outsourcing deal. Considering that transition is a capital invested by client for an outsourcing deal, there is a elaborate justification required from the clients board (especially for large outsourcing deals) to pass a decision. In uncertain (read difficult) economic conditions the board is often cautious on approving any capital decisions. It seems the pure play vendor is playing smart by removing the need for any board approval, by offerring to partake in the capital cost. Usually, such freebies are generally not good to the industry as it sets a precedent and all outsourcing service providers will be expected to reciprocate similarly. Now, that the precedent has been set what should one do about transition cost?
A. Also, offer transition for free
B. Run initiatives to cut transition cost
C. Do nothing and wait for the time to pass so the clients will forget that transition can be a free service.

2008-05-23T06:34:00.000-07:00

Typical IT/ITES Business Transformation Initiative

Objective

Launch transformation engagement in large IT/ITES projects with team size >=25 and reduce the y-o-y cost of service by 25-30%.

Key challenges

o Ability to maintaining cost competitiveness amidst rupee appreciation and wage increase

o Paradox of resource constraints for new engagements while having resource utilization issues

Benefits to IT/ITES engagements

o Increasing the revenue potential (to be benchmarked or baselined for improvement goal)

o Reduced cost of service for the engagement in the range of 25-30%

o Productivity improvement on the engagement by minimum 30%

o Better utilization of resources within engagement (>90%)

o Better management & control of the engagement (appropriate improvement in realized risks metric)

Key business levers

o Process improvements

o Skill development

o Workforce scheduling & allocation

o Ideal team sizing

o Onshore-Offshore management

o Pyramid management

o Demand-Supply management

Frameworks or technologies

o Work distribution and allocation modelling

o Server & Queue modelling

o Value stream mapping

o Concurrent enginnering

Required support to run the initiative

o Initiative sponsorship by top management and a team of 2-3 people

o Leadership time

o 5% of management time to evangelize the initiative

o 5% of management time to review progress of the initiative

o Management time: Dedication of 20-30% of Project managers time to run the initiative

o Access to systems and metrics to enable running the initiative successfully

Why is Transition so important for Outsourcing deals?

2008-05-21T06:53:00.000-07:00

Introduction

Transition is a critical program run to setup and mobilize for an Outsourcing engagement. The transition program lays the stage for successful service delivery. Considering the criticality nature of transition, significant time is spent on making sure the transition value is architected, solution is shaped and planned well upstream in the deal cycle. This often acts as a differentiator to win or loose an outsourcing deal. Even after the deal transition execution determines how prepared the new organization/supplier is to begin their service delivery to client.

In this article we will try and understand the reasons why transition assumes so much significance for outsourcing deals. The significance of transition can be best appreciated by looking at the considerations in these three areas:

1. Financial consideration
2. Legal/Regulatory consideration
3. Operational Considerations

In this article, we will try and appreciate these considerations that make the transition program important for outsourcing deals.

Financial Consideration

The transition cost is a one-time cost for outsourcing deal for which specific accounting treatments can be administered. Considering it is a one-time cost to the client; as in any capital purchase decision, the client wants to look at opportunities to reduce it through negotiations. It then helps one to understand what the transition cost comprises of and why the client would want to look at this cost separately based on the following 2 criteria:
1. Transition cost/Investment
2. Special Accounting Treatments
Transition Cost/Investment

Transition is a period where the client has to pay for the new service providers’ learning curve, while continuing to pay for the existing team providing the support. This is often an added expense (or investment) for the client in the year when transition is performed. The expense (or investment) for transition often pays itself when one considers the outsourcing deal economics, thereby leaving plenty of cash on the table for the client to use this more effectively for other initiatives of value. Hence, it helps to understand the typical transition cost elements and cost drivers:

The primary transition cost drivers are broadly categorized into the following heads:
1. Core Group
a. Subject Matter experts
b. Knowledge recipients
c. Service delivery or management team
2. Management Group
a. Transition management
b. Over sight group
3. Support Group
a. Internal support groups: HR, Legal, CIO groups, etc
b. External Service providers such as network vendor, actuarial agencies, legal agencies
4. Infrastructure
a. Tools
b. Property and Equipment

An illustrative list of cost heads/ cost elements is briefly identified here:

1. Payroll Cost
a. For the Knowledge Recipients
b. For the Transition Management team
2. Non-Payroll costs for Knowledge recipients and Transition cost
a. Travel & Boarding Cost
b. Transition and Service delivery Tools Cost
c. Connectivity setup cost
d. Temporary Work-equipment costs
e. Communication cost
f. Event cost
g. Incentive cost
h. Other Administrative cost
3. Service Providers cost. This is often the cost paid for several service providers to setup the environment such as the network service providers, data center service providers, etc.
4. Special people related Cost items
a. Hiring cost
b. Rebadging cost
c. Redundancy fees
d. Benefit equalization cost
e. Pension actuarial cost
f. Other Administrative costs
5. Special Asset related cost items

Since most of these costs pass through a Service provider books, there is a certain contingency and margins built into it before priced to the client. The client often desires to minimize the transition cost and there are several hot-buttons to press to reduce cost. These are beyond the scope of this article and we’ll discuss this separately in another article.
Special Accounting Treatments

The general nature of accounting for transition costs signifies its importance. Transition is usually run for outsourcing deals that spans several years of service delivery say 3/5/7/10 years, resulting in annuity business for service providers. However, the initial setup of resources (people, infrastructure, assets, etc.) by the service provider requires an upfront investment that bears fruit over the duration of the deal. Hence, the initial investment is often capitalized and amortized/depreciated over the duration of the deal. This allows the client better management of their expenses. The cost heads that are usually capitalized are:

1. Payroll expenses for the Knowledge recipient (assuming that the team serves the engagement for a long duration)
2. Some assets that are procured such as the servers, connectivity equipments, etc. solely for the purpose of providing the services, and
3. One time service charges for setup of the environment (typically the charges associated with paying fees to the service providers, etc.)

Often every client can set criteria on the total expense amount that qualifies for such capitalization and amortization over the duration of the deal.

Again special consideration is rendered when the transition is paid for by the client. At the beginning of the transition, end of transition or end of the 1st year and so on. These payment milestone impacts the accounting treatment it gets at the service provider and client end if they intervenes with the reporting period (quarterly or yearly, etc.).

There are also some below the line items concerning people transfer that require special accounting treatment such as:
1. Redundancy fee paid to the employees
2. Redeployment costs
3. One-time incentives to people who are transferred

Legal/Regulatory consideration

The legal and regulatory considerations are the next critical item that makes the transition program significant to manage. The legal and regulatory constraints kick in whenever the deal has the following complexity dimensions:

1. People transfer
2. Asset transfer
3. Third-Party Contract transfer

People Transfer

The people transfer often becomes complex especially if the deal is executed in a highly regulated markets such as Europe. For example in UK the Transfer of Undertaking (Protection of Employment) 2006 popularly TUPE 2006 regulates how the people providing the services at client/incumbent supplier have to be treated when services of a business entity is transferred to another service provider. The regulation is to ensure the outsourcing is fair to the people who are currently providing this service, and avoid unfair practices that may lead to larger systemic (economic) challenges. The constraints are often on the service provider to transfer the people who are currently providing the services into their own organization under similar employment terms, unless there is an Economic/Technical/Organizational (ETO) reasons limiting them. The similar employment terms may apply critically to the following attributes:

o Work Location
o Holidays/Vacation days/ maternity/paternity leaves
o Benefits/Payroll

There is a special European Commission directive (EC Directive) that applies with regards to people who are transferred. They are popularly known as Acquired Rights Directive (ARD ). Some of the ARD directives may have to be additionally considered.

Besides, the common TUPE/ARD considerations, one needs to also check for the local employment regulations in the country where people are transferred. These regulations often trigger off certain collective bargaining clauses when the client/incumbent vendor employees are part of Trade unions.

Asset Transfer

The asset transfer clause can further make the transition complex. Typical assets that one may need to transfer in outsourcing deals are:

1. Equipments
2. Software Licenses
3. Artifacts such as scripts, codes, documentation, etc.

When it concerns tangible assets, the transfer of ownership is easy through a sale deed. Things get complicated when it is an intangible asset (considering multiple forms in which the assets can be transferred).

This is especially applicable in case of Software licenses where the licensing agreement has to be reviewed in detail to understand the rights of transfer both for the client/Incumbent vendor as well as for the supplier organization. Besides, the right of transfer one needs to also consider the export regulations for the target countries and the associated paper work. Sometimes it is easier and quicker to buy new software licenses for service and forfeiting the old licenses rather than transferring the licenses.

Last but not the least is the artifacts such as codes, scripts, documentation, etc. To understand whether these can be transferred or not, one needs to understand the existing contractual terms between the parties involved and client. This will help the new service provider understand the ownership of such intellectual properties, the ability to transfer and the cost of transfer.

Third-Party Contracts

The third-party contracts can present transition challenges under the following circumstances:
1. Third-Party contractors/organizations
2. Third-party tool support/maintenance contracts with other vendors

When the client/Incumbent vendor has engaged third-party contractors or organizations their contracts have to be reviewed for a possibility of transfer and the challenges involving them.

The Third-Party tool support/maintenance contracts with vendors may apply for packaged/ commercially off the shelf applications. In these cases, there may be exclusive support/maintenance contracts that may have to be reviewed for transfer in detail.

Operational Consideration

The most understated (probably it is not commercial in nature) and complex considerations for transition are the operational aspects. The typical operational aspects that make the transition complex are:

1. Multi-dimensional transition
2. Complex work arrangements internally
3. Multiple teaming partners
4. High Concurrency
5. Common Transition Risks and Issues

Multi-dimensional transition

The dimensions that add complexity to the transition are:
1. Multiple countries
2. Multiple languages
3. Multiple workforces

The above dimensions would present complexity in terms of coordinating a good transition program

Complex work arrangements

Outsourcing deals that involves multiple delivery centers for service delivery from the same service provider in it may present challenges based on the work-arrangements that govern their relationships. The stakes of the different delivery centers may pave the way for vested interests that may creep in, resulting in sub-optimal transition and service delivery design for a client.

Multiple teaming partners

Having multiple teaming partners to provide service may present unique challenges based on the ownership and accountability design. All partners have to work together to provide a seamless service to the client, and this often could be a single most attribute affecting good service delivery to the client and hence needs to be designed appropriately during transition.

High Concurrency

High concurrency can pose challenges during transition when there are:

1. Lack of clear scope/boundaries for the service. There could be a mixed bag of AM , AD, Testing with overlaps and high-interconnectedness
2. Multiple releases during the transition period resulting in inability to plan appropriately for transition
3. Multiple transition occurring during the same time

The above challenge poses difficulty in shaping a transition solution and laying out an executable plan.

Common Transition risks & Issues

There are common transition risks and issues that one encounters in every engagement that may pose unique challenges to delivery. A sample is identified below:

1. Hostile transition from client/Incumbent vendor
2. Client/Incumbent vendor knowledge providers are withdrawn from the project on announcement of transition
3. Lack of incentive or commitment for a successful transition
4. Lack of documentation
5. Lack of cooperation for the transition scope, approach, plan and execution
6. Different characteristics of service for the same application such as Maintenance, Development, testing, production support, etc.
7. Providing ongoing services to the client without dropping on Key Performance Indicators (KPI) during transition

Conclusion

In this article we had briefly touched upon some of the considerations one needs to appreciate during transition of an outsourcing engagement. What one achieves appreciating the transition considerations is awareness, and enables one to give adequate attention and significance to a transition program in an outsourcing deal. The question of whether the above items requires a specialist or should fall within the portfolio of a Solution Architect or a practicing Service delivery Project manager is an altogether interesting discussion we will discuss in t

Delusion of Success & Feed Forwards

2008-04-14T03:46:00.001-07:00

As we are nearing our Employee Survey, Leadership Surveys and Performance appraisal cycle for this year, I came across very contemporary articles on Human Performance change mgmt.

Delusion of Success: The article requests successful people to check the 4 beliefs that help them conjure-up their success image (others may call this self-aggrandizement if you pronounce out in open.) and asks leaders to introspect. The author lucidly describes how some of these beliefs carried too far may be detrimental for success and leads us to believe that we can move material objects on the table with our mind … Some of the interesting human paradoxes such as superstition trap, internal-locus-of control, cognitive dissonance, commitment Vs Compliance are well explained here so one can avoid it by experiencing it. However, this does not necessarily mean that one should not have a positive thinking aspiring to change things in this world lest one believes in moving objects by thinking of course! But also that ppl who don’t take these challenges are not necessarily failures. Jokes apart this is a great article and timely read to give and take good feedback.

Try Feedforward Instead of Feedback: There are many times we seek to give “downward feedback” boss always to his/her reportees or vice-versa based on past facts. Very often this can be a stressful moment for both especially when the story telling method that we often adopt had abstracted and dissipated the real facts. (Do you remember this popular story-telling psychological game where 10 ppl were asked to stand in a circle and someone tells a small fact and his/her judgment in his immediate neighbors ear as a story and when the story came back to the person it has completely changed?). The author provides 11 reasons to provide feed forward instead of feedback. Happy reading!

High Performance: Trust, Territorial games and Social Networks....

2008-04-11T04:35:00.001-07:00

Speed of Trust by Stephen Covey: This is a best seller since the “7 Habits ….” Book from Stephen Covey. It talks about how important being trustworthy is. The book goes ahead and talks of 13 characteristics by which one can build trust to improve performance. In subtle ways the author tries to impose on us that trust can help in increasing our performance and reduce the cost of doing business. J..Ironic, I didn’t want to pick this book right away to read, thinking that this is yet another Stephen Covey book on Self-Improvement (I had grown to hate such books J). But then there was these feedback sessions I got into with few people at work: well ofcourse you could imagine I initiated this discussion to articulate my observations that having trust is so important/critical at our workplace. I had been introspecting ever since not only on the feedback given to me but also my own articulated thought and chose to hit this book. I thought this is really very relevant to what we do and strive for daily: We need to trust our stakeholders and be worthy of being trusted as well. That is the only way we can perform and meet the expectations of our Stakeholders. Think about it for a moment:
who are the people/organization/social network whom you trust and who are the people/organization/social network you don’t trust and
how has been your performance in these situations?
If the above thought sparked in you distaste or a pleasant recalls then pick up this book and read. This book is meant for you J…otherwise just read the articles and book excerpts I’ve attached here.

Territorial Games: Understanding & Ending Turf Wars at Work by Annette Simmons: A very interesting book I picked up to understand the behavior of people and my reactions (I’m not promulgating my sainthood here) in an engagement that I had been a part of recently. The author very lucidly explains the territorial games that smart people play stupidly so often to make our lives grueling and affecting high-performance in organizations. The author talks about 10 type of territorial games people play to prove how strong their animal instincts are for survival in corporate world. I’m listing here these characteristics and my own experiences down below, I’m sure you have your own (this is not meant to be a vituperative attack…please treat the examples and situations as coincidental if it resembles):
Occupational Game: People playing this game stake claim to projects, information, people, relationship even if they have not been handed out such privileges. Typical scenario I’ve observed here is that the person says that this project is mine and I own it. All success on this should be attributed to me. They don’t have a feeling of shared ownership and eyes with suspicion everything/everyone. E.g. It is my project and I’m the only person interested in its success or failure.
Information Manipulation: People playing this game withhold the information. The information they withhold makes them feel powerful. They don’t even realize it is useless to withhold information from their own stakeholders J. E.g. I wont tell you who your replacement for this engagement; though I know who it will be.
Intimidation: I’m sure we have all seen this often, raising a voice or shouting in a room to make a point (whether there is one or not). This needs no examples.
Powerful Alliances: Manipulating a situation by claiming their closeness to your boss (for example). People playing this game create/use the perception of being close to someone and exploit the situation/opponents to one-upmanship. E.g. Our Manager and I went for drinks today and I told him/her everything abt. the situation
Invisible Wall: Creating an artificial block for you to achieve a certain outcome. For example: one could say you cannot accomplish this because you are not sitting in the same location as the client J
Strategic non-compliance: These people agree to follow the process you laid out in front of everyone but behind the scenes do everything to scuttle it. Sometimes they can go as mean as saying that they do not have time to act on it and prolong their compliance till the value of compliance becomes insignificant. E.g. I’ll note Vote after setting my Objectives ;-)..
Discredit: Have you faced vitriolic attacks on email or over phone from someone whereby your competence and credibility is questioned. E.g. How abt telling you that you don’t know how to speak English (Communicate!!!) and don’t know sign language J
Shunning: Subtly ignoring a person from a decision making sphere where his/her valuable inputs could give them any credit. E.g. Don’t invite him/her to this meeting.
Camouflage: Distracting someone from the core issue. E.g. Talk about how sick you were 2 weeks back when your deliverable is due today.
Filibuster: Outtalking someone…I mean keep talking so much that the other person does not get a chance to make his point noted. Needs no examples…

Also the author comes up with a brilliant, and practical ways of countering such games and disengaging them. If you have ever been in situations where you have manipulated people/situation/events or been manipulated ; you would have either admired at yourself/the ability of people to setup such games and play it. Well, of course you could even regurgitate (like I do depending on how intense those experiences have been J for you). If it evoked similar passions or emotions in you then pick this book and read it so you can learn/unlearn or atleast know how these games are played. If you cannot get your hands on this book then just print the attached excel I’ve provided here and run through this exercise. Its fun I assure you….

The Social Atom: Why the Rich get Richer and Poor gets Poorer by Mark Buchanan: The best book of all I want to read if this book is available on the pavement in Jayanager shopping complex in Bangalore….or else I would include you or remove you from the circulation list (depending on what you want) if you present me this book J…

Managing Paradoxes and True-North Leaders

2008-04-11T04:32:00.001-07:00

The Strategy Paradox by Michael E Raynor: This is a 2007 best seller under the Business & Strategy topic. I was reading and viewing discussions at some contemporary topic in Davos World Economic forum, including Mark Fosters Chief Executive of MCIM Webcast from Swiss Airport on EMM (Emerging Market Multinationals) the next spin of Multi-polar world. I thought ACN thinking on the next phase of Multi-Polar world reflects so much of what Michael E Raynor talks about in his book on how success or failure of even the best company lies in their ability to maintain strategic flexibility. For those of us who have read “The Blue Ocean strategy”, “Innovators Dilemma” and “Good to Great” ; this book seems an anti-climax. According to this author, even the best thought out and executed strategy fails, due to small changes in the industry/business ecosystem, he explains this with powerful case studies of product failures. I enjoyed this well-researched book and thought you would like it too.

Bill George – Thought Leader Interview by Amy Bernstein: Are you comfortable under their skin? Do you like yourself? Are you frustrated and exasperated with current situation? Is the leadership exhibited by you came out of learnings from your life experiences? Or coz’ you had difficult life experiences and hence bound to be a great leader? Are you just trying to emulate someone or some organization leadership style? If the questions and answers interest you, read the attached thought leadership interview with Bill George. I remember reading the book review sent by my colleague on “True North” few months back…never managed to see it on the roadside yet so I think I can’t afford to buy it yet…but this excerpt here is from the author of True North- Bill George former CEO of Medtronics. In summary, there are 5 successful leadership characteristics: Pursuing purpose with passion, practice solid values, lead with their hearts, establishing enduring relationships and finally demonstrates self-discipline. Read this and think abt it next time you hear the word “leadership”. Maybe this leads you to your epiphany..J….