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

Is it that matured IT and Consulting firms often loose track during difficult times?

Probably yes.

To understand this lets define what qualifies Maturity:
1. Differentiated Services to client - Creating multiple offering in the continum between Fixed Price deals Vs T&M deals
2. Sound business practicies: Sales, Financial, Contract/legal and economic factors....
3. Strong culture: Behaviors and attitudes deeply ingrained in its employees..

A mature firm exhibits some of the above qualities stretched to the extreme that has defined their success in good times. (It reminds of the book Good to Great by Jim collins that I referred to see if there are anyother tenets we can include for the same, but lets keep it simple for discussion purposes as too many people critize a good work of Jim collins anyways saying it has a very high statistical bias......).

The whole premise that they did well and matured to a certain level in providing goods and services in the past itself become their nemesis...they tend to stretch the qualities even in bad times when the context in which they operate has changed. Take for instance what we are going through under current economic conditions, everything: Inflation, Forex, COLA, employment, etc has become so volatile that for a large MNS/TNC it is almost impossible to meet their forecast with any reasonable probability....

One very interesting insight I had too, is that some of these firms carry around the business with the same best practices even in circumstances like this without realizing how complicated their ways and means to profitability have become...This goes to an extent that they forget their past journeys on how simple, nimble and flexible their operations have been in the past....When the current environment requires them to really go back to the basics they had almost forgotten them or despise them as old habits that they believe are irrelevant! In the process they also become irrelevant in the market and forget what the customer/client really wants...

One can Live through this nightmarish experience to understand the frustrations or learn from others insights...what has been your experiences?

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

There is the amazing trend of democratizing innovation carried out by Open Source Software..remember a blog I had written on the same topic fome time back....it seems the abstraction of the thoughts there has finally leading me to understanding the idea of democratizing innovation...thanks to great open source book by Eric Von Hippel and the book by MS Krishnan and CK Prahalad in their book "New age of Innovation"...


Interestingly, we are seeing more user initiated innovations shared freely and openly off late. It seems the key motivation for sharing the innovationa re:
1. The purpose of sharing innovation to benefit the society... Great example generics in the market by developing countries like India...I know pahramaceutical companies will hate this, but who cares! other example include wikepedia
2. The value of getting back refinements to the innovative idea by user community that leaves the product or service richer than it would have been otherwise..Great example is Linux...other example include the custom Semiconductor development kits by Xylinx
3. The motivation one gets by merely sharing their learning experiences to wider audience out there....Great example Innovation community portals (i've written about these earlier)

Now lets look at it from the financial angle:
we know that innovation leads to sunken cost for the innovator...there can be the direct costs or several proxies to these costs such as invested time, effort, and so on...We all know from our business experience that sunken costs are always unavoidable and unrecoverable unless some greedy accountant out there capitalizes it and amortizes it over the the life of the innovated product/service so he can avoid paying additional taxes ;-)...so whats the big deal in not being too obsessed with recoverability of the cost...the benefits of sharing openly that I listed above far exceeds the sunken cost for some....

So now lets come to the entire idea of having patent and copyright laws preventing/limiting the wider commercial benefit of an innovation...what it really means for the commercial benefit is to exploit the common need of the large community of users by the manufacturer/service provider to make money...in the process what really happens is the innovative product/service focus is to not only recover the sunken cost but also to generate more benefit to satisfy the greed of the organizations....The product/service meeting mass-market needs is not good enough for some users of it, who have either found better use for it by innovating more on the product...good example here is the surf board holders innovated by surfers to enable them jump over waves pointed in the book by Eric von Hippel...or alternate uses for the product :-) Benadryl used as a good substitute for chep intoxicating agent....

Atleast in the 21st century of consumerism we will see more users and the communities will start creating more innovation on the product making the product more of a commodity....the patents and copyrights then naturally becomes futile either by filing new patent over the base and completely altering it...well some of the TRIZ fans would love this.....Net-net what it will do is displace the manufacturer from the Product-Development/Engineering and Service development domains. They may only survive in the realm of Manufacturing or Service execution spaces purely due to the benefits that can accrue due to scale economies...

So what does it really mean....i've really argued (may not be a very erudite one) for futility of patents and copyrights and favoring the open source innovation as long as I'm not a manufacturer of the service provider with huge sunken costs :-)....Whats your view...

Cloud Computing & SOA - Hype and Hoopla

There is so much hype and hoopla about Cloud computing and Service Oriented architecture....as I had earlier mentioned in my earler article that these are going through the peak of Inflated expectation (thanks Gartner for this nice terminology other than the Magic Quadrant)....

If you have been long enough in the IT career say 10-15 years you can see through it nothing differently than Inflated expectations...

Remember the great hype and Hoopla created at every phase of an Innovation:
a. Midrange computers challenging the Mainframes: The SUN & HP of thw world giving the IBMs of the world the run for their money...it all seemed to be a great hype on midrange as Intel based servers today are giving the midranges run for their money...
b. RDBMS challenging the Network and Hierarchical DBMS: Remember the Oracle/Ingres/Sybase/Informix/DB2s of the world giving the DEC and IBMs databases run for their money...we also brefly saw Object oriented Databases momentarily sending sparks and fizzling out
c. Client server architecture challenging the Mainframe screens/C cursors/the Windows SDK fat clients: Remeber Oracle, Powerbuilders of thw world giving the gargantuan and complex Windows SDKs run for their money...all to be challenged again by the internet thin client frameworks...we saw a full circle here...

What is a pattern we see in all the above...it seemed that they are really reinventing the wheel or coming a full circle...I'm unable to articulate this much better, but let me try and give this simple analogy...its like the earht going around the Sun year after year in a clocks precision...I dont really see the Cloud computing any different from retracing the Mainframe era....and the SoA going back to the very fundamentals of what the technologies and methodologies exit for to run a business with what you have rather than buying new technology to support the existing business....

So whats so great about the SoA and Cloud Computing...not coz' i', not chasing them this time...it all seems to be a good marketing gimmick...what has to be innovated in the technology space has really been innovated and it is just about putting the old wine in a new bottle or just plain message in a bottle ;-).... it seems its all about the context and not really the core....

What do you think? Just a hype and Hoopla around cloud computing and SOA...Whata the big deal?

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

Lets define what is Core and the Context first.

The core is the raison-de-etre of an organization, and/or
the purpose for which a going concern/organization exists,

Good examples of core:
a. IT Service Organizations: Wipro, Infosys, TCS, etc. exist for the purpose of providing IT services to clients
b. Tiger wood brand exists so he plays Golf :-)...
c. Shahruk Khan/Amithab Bachan/Angelina Jolie brand exists so he acts in Movies


The context is every other things that supports the functioning of the organization:
a. For IT Services: Company laws, GAAP/IAS/India AS rules, Brand, Marketing divisions, etc.
b. For Tiger woods: His clubs, his golf gears, turf, Gillette ads, golf balls, :-)...
c. Sharuk Khan/Amithab Bachan/Angelina Jolie: Loreal, Inox, Paramounts etc.

In the earlier post I had discussed about the ideas I got reading "Dealing with Darwin"....Thinking further on it, I realized that most of the innovation 15-16 different innovation types were really in the core of the organization...nobody talked about innovation at the context....

Imagins a new innovation of Titanium metal used in making golf clubs it may give our great Tiger woods an extra fillip of performance on the turf...maybe even a minor edge in his core to win more matches...

Now I realized that some of the Operational excellence zone innovations: Value engineering, Value migration, Integration, and Process innovations actually performed on the context of IT service industry can infact give the IT services industries the extra edge....Imagine applying lean principles, 6-Sigma, and good accounting policies, excellend financial controls within the organizations can provide great reputation for the service industry and infact contribute to winning more deals for them in the market...guess what the innovation at the context really translates directly into providing experential innovation in the customer intimacy zone...clients would love tow work with organizations that are nimble, flexible and provide a great reputation when associated with....That is the case of some of the Indian Pure plays like Wipro, Infosys and TCS (for its Nano...god one client manager in US remembers only one name TCS not coz it provided IT services coz thee guys make lorries and also sell Tetley tea :-)....

So what I really think is that the different innovations mentioned by Moore in Dealing with Darwin are indeed highly interconnected and one feeds into another....it seems to me that great organizations in the world (not just IT services companies) have infact know these interconnectedness and play the innovation nodes so well that one feeds into another leading to growth...For example I dont think Toyota has just been known for just operational excellence through its lean principles that is leading it to be Numero Uno in the Automobile industry it is far greater than that!

What do you think!

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

In Dealing with Darwin book Geoffrey A. Moore brings a great menu of innovations types that can be applied by organizations operaing in different market/growth phase of their respective industry...

Let me trace the growth of Indian IT Services Industry and the innovations that were so effectively applied over 2 distinct phases:
Early 1980-2000: The Indian IT Industry was in the growth phase and if we look at the dominant innovation themes was that of Disruptive innovation of Offshoring. The primary participants here were TCS, Wipro, Infosys, PCS, IBM, and HCL-HP
2000 onwards the IT Service industry is quickly become that of a mature market: The dominant innovation themes used in customer intimacy zone were: marketing Innovation and experential Innovation. The marketing innovation was to provide different types of services AM, & AD and within them Fixed price, capacity and T&M models. The experential innovation was to provide services to client businesses on SLA and KPI. The participant in the industry were still TCS, Wipro, Infosys, IBM, HCL-HP and we saw new emerging MNC like Accenture :-)...
On the operational excellence zone it was a combination of Process Innovation and off late Value engineering and Migration innovations. The process innovations were the ISO, CMMI and so on. ALl participants in the industry have adopted this innovation which resulted in these cores actually becoming the context. Very few organizations graduated to the value engineering and Value migration innovation like TCS and Wipro by adopting 6-Sigma and Lean management practices....But there are some fast followers..

Now all the above innovations have actually been adopted and replicated very quickly by other resulting in these cores actually becoming the context...Now every client looks for their service provider to have adopted and assimilated these innovations. Hence performing on Quality, offshoring etc. only gives a neutral or negative outcomes to service providers and definitely not positive :-)...

The question of what is really the core of the services offered by IT services companies...I really dont know....I've been struggling to figure this out myself...the core it seems really lies in the unique culture of the organizations and in specific domains of IT service like in embedded engineering etc. we'll dvelve on this topic later...but you can reach me through the comment section if you are interested in discussing this and application of the 5 model core-context repurposing strategy...

It is also interesting to understand what will a new player getting into the market operate on in the mature market. It definitely has to be a disruptive innovation...where will this disruptive innovation come from:
1. Marekting innovation/Experential innovation in the customer intimacy zone: For example: Cost, price innovations like outcome based pricing, variable margins, etc.
2. Integration, Value Engineering, Value Migration/Process Innovation in the Operational excellence Zone: Usage of automated tools or operating model to provide a unique benefit to the client....

Or a combination of the above two...It would be good to think about this
Interestingly we see that the market has not gone into Declining market yet...so I'll reserve discussing this for later...however we have seen some organizations may soon reach this phase if they are in niche/commoditized service areas like AM where only the bigger players can survive the challenges by sheer scope and size....

Well my thoughts are flying in a zillion directions right now....maybe i'll structre it better with more insights....watch out this space for more....

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

I read the excerpts of the book Starship and Spider and really loved the power of Starfish - Network of decentralized decision making...

Its quiet amazing how the author narrates the difficulty faced by Spanish in decimating the Apache tribe in the US, while the same decimated the Incas and the and other tribes of New mexico....

It seems it was difficult to decimate the apache coz it was a tribe which shared decision making in decentralized groups....the network of the groups were linked up by a Nantes where ideals, and beliefs are shared consistently among the Apache tribes...quier amazing..this is exactly what we with the evolving terror modules of Al Qeda..The interesting part of such society is that whenever it is attacked the society becomes even more open and decentralized...

No doubt the Americans have not learnt their lessons in dealing with the Talibans in the Afghan and Pakki borders...


Now imagine large MNC or Transnational organizations operating a network of delivery center...do they really run it as a decentralized empowered network node that runs their organization...not exactly they are strongly controlled by the Headquarters either as a cost center or as a profit center with control over common functions like marketing, branding, corporate finance..etc. they have some function that limits and subserves the node to the headquarters....look at countless organizations in this sphere, P&G, Unilever, Pfizer, J&J, Dell, etc. But, do these MNC/TNC really achieving their mandate of successfull growth in the regional nodes they operate in...Not really they are also ran...



Just look at the IT Industry, the Indian Pure Plays are gicing a run for money to the large MNC/TNC like IBM and Accenture....How do they manage to do that so effectively...it seems the MNC/TNC always in a reactive mode when it comes to competing with the Indian Pure plays...almost to an extent that the Indian nodes of the organization grow only coz clients come to indian pure play....would they have really grown and pursued a strategy of India growth otherwise...

My perspective is a BIG NO...coz there are certain paradoxical and conflicting Performance gaols that drive the organization. For example Revenue received by using the India node is much less when compared to using the local workforce...the challenges of economic factor and their management: Inflation, Forex, etc.

What do you think? Any other whacky conspiracy theory????

Exiting a large IT service contract and its implications on companies

IF a large IT service contract is terminated midway in the deal there are implications to the IT services vendor financials...lets try and understand this a little bit more..

Whenever a client terminates a large IT outsourcing contract due to extraneous circumstances (for example when Satyam like episode occurs) the effects of the annulment of the contract has implications on the company financials. As we saw in the earlier post in this blog that revenue recognition and the expense incurring is amortized on a Straight line proration basis. The extraneous event will result in realizing all the expenses in the year the contract is annulled. Now the revenue recognition depends on whether client has already been billed and paid for or is deferred. Either way there is going to be Operating margin impact on the IT services firm margins negatively.

So when some of the financial companies went belly up in the last 6 months and annuled their contract (TCS/Infy) or when client annuls some of their contract with Satyam their margins will definitely get impacted....

But inspite of these challenges companies like TCS, Infy and Wipros have reported a great run with revenue and margin growths for the recently ended Q3...Whats really going on...have their revenues been increasing when the entire market is down and new deals are few and far between...or is it some accounting gaps...

I would love to see their annual reports for FY'09 to really figure this out...For now be sure not to go long on these IT companies...you maybe in for surprise