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Operational Booster for Reviving IT Service Industry

Part-1: Solving Availability and Cost Issue of Resources Dr. Shridhar Lolla Coach - Organizational Effectiveness lolla@time2change.co.in First Draft

Preface
Indian IT Service industry has been at cross roads for almost half a decade and it is still struggling to come to terms with the current reality in the market place. It has lost its inherent advantages that brought it to lime light in the global IT industry. During past few years organizations have tried various options to revive their performance. There have been attempts to change leadership style, organizational structures, market segmentation, value chain positioning, organizational diversity, locational ownership etc, but organizations have not met with much success. One by one, companies have been restating their growth numbers on the lower side. Increasingly IT Service organizations realize that the days of high margins and locational advantages are over. They also feel that in order to deal with today's complex and chaotic environment, they must improve their operational performance to return to their historical growth. Not for any other reason, more and more organizations are taking steps to make operational excellence central to their core strategy. This caselet is an application of the concepts covered in the just released book 'The Path : Leveraging Operations in a Complex and Chaotic World'. It the first part of a series of caselets aimed at revealing dramatic operational improvements in IT Industry without making too many trade-offs and without causing too much burn-outs. This caselet describes how an IT Service organization in the business of providing consultants, can promise better availability of consultants with a leaner bench. By doing so, it will be able to develop a decisive competitive edge that simultaneously improves Revenues and Profits even in an ever more complex and chaotic business environment (the New Normal). Key Words: IT Industry, IT Service, Software Development, Operations, IT Consulting, Resource Management, Operational Excellence, Bench Management, Operational Improvement, Organizational Improvement

The Core of IT Service Industry

The primary model of Indian IT industry is about providing technical resources (also called consultants) to its clients. The largest chunk of its revenue comes from supplying resources to work on clients' projects or systems.

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In medium to large IT organizations, there would be a yearly forecast, which is broken down into quarterly and monthly targets of resource pool. The resource pool consists of different specializations, and within specializations different level of maturity (experience) and skills. Further, these resources also vary from generic skills of testing, coding, designing, analysis, requirement management to business analysis, infra management, application maintenance, project management and program management. All round the year, the front ending teams scout for resource requirements from clients and place request on the resource management team to supply relevant resources. It is the responsibility of the resource managers to ensure that they have enough pool (Bench) of resources across categories so that the client's can be served or shipped with these resources well within the tolerance time of the market. Failure to show or make ready availability (bench strength) of resources in a desired category could mean losing a business opportunity and dissatisfaction of clients. Thus far, high margins and low cost of resources allowed organizations to keep fat bench.

Judging the Bench by Availability or Cost?

With the growing complexity of business environment, organizations face a core issue in managing resource pool which if not paid adequate attention, it adversely impacts business results. The resource management team builds the bench well in advance based on the forecasting. However, as engagements and projects enter into execution stage i.e. on boarding, assigning or activating resource to a committed project, it often finds the actual requirements vary significantly from the forecast and plan. In fact often, some of the assigned resources are not free from previous engagement or diverted to some other urgent project or just not 'yet' available. In fact, the priorities of resource assignment changes several times across different engagements. As a result, on an ongoing basis, in a number of cases (more than 30%), assignment of resources to the committed engagements are delayed to the extent that it affects clients ROI as well as potential revenue opportunity for the organization. IT service organizations need to maintain Bench since the clients place orders only when they are sure of the availability of sufficient resources. For example, ET reports a bench of 20% in Infosys. But this is just a unidirectional solution. In order to ensure ready availability of resources (and not lose any opportunity to earn revenue), organizations therefore tend to over bench themselves. However, gone are the days when IT resources were cheaper and margins were fatter. The same article of ET mentions 30% idle

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resources in Infosys and Wipro. Immediately, we see pressure on the management to reduce cost by lowering the bench. Thus, the mismatch between demand and supply (which is inevitable) leaves resource management in a paradoxical situation of over bench where there is no or weak requirement and empty bench where there is an urgent need.

Chaos in Resource Management

When mismatch between demand and supply happens, what do you expect in the organization? There is a regular fire fighting. For resource categories where there is poor Bench strength, Managers start fighting for scarce resources and priorities get misrepresented. The sales or project manager who have good connections and who shouts the loudest gets the resources. At the same time, managers try to favor long waiting resources and try to create projects or over staff projects to show better utilization. As a result, priorities keep changing, a lot of chaos is created, everybody seems busy and every requirement becomes red hot. But in reality, nothing moves ahead. Suddenly, the complete organization becomes resource centric and managers take sides to get favor. And the resources that are in shortage enjoy the limelight as managers fight with each other. People sitting on the bench live in anxiety for their turn.

It is not the problem of IT Industry alone

The description as given above is written w.r.t. IT industry. In reality, it is a generic situation. This situation of chaos, occurs in every organization that deals with placement of resources, consultants, specialists or staff, whether it is in for profit business or not for profit. In fact, it also happens in organizations that sell things. Take for example, when you are prescribed a brand of medicine by your physician or you want to buy a specific brand of goods in a store. When you visit the pharmacy or store, you realize that some of the medicines or things from your buy-list have run out of stock and you see a nicely written regret board 'stock out'. At the same time, you know that a vast majority of medicines or things nobody wants are flooded in the pharmacy or store. So, those things the consumers want are not available but others which the consumers do not want are over stocked. This means a loss of sales for the store while its money is stuck in the non moving things. And of course, this also means loss of future sales as the consumer will most likely go to another store or buy another brand during the next shopping trip. This is exactly the situation in IT organizations, you often do not have the resources with skills your clients need NOW but you have over crowded bench of resources for which the clients has no requirement or perhaps have long enough time to wait. Like in IT industry, most of the organizations want to keep high inventory to ensure availability but at the same time are scared of huge investment in inventory, space and management. Thus, we see a classical dilemma of 'Have high inventory to increase availability and therefore revenue, versus have low inventory to reduce cost'.

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Direction to Solution
This nature of the problem is solved by using conflict resolution tools. Because one part of organization says that we need high inventory while the other says keep lower inventory. The solution is not in having more or less inventory i.e. short or long bench. The solution to the problem is in having a mechanism that ensures having just enough bench that provides an excellent availability of resources across categories at lower cost. And this mechanism must also help in managing the resource bench more effectively and efficiently on an ongoing basis.

Solving the Core Problem

Here is what happened during past 3 months of pilot we did in one of the largest IT companies. I was asked, "How many resources we must have so that we neither over bench nor under bench." I was told, "We can't choose between higher revenue due to better availability of resources and lower cost due to smaller bench. We need both." Essentially, in today's New Normal, my client wanted no trade-off. The client accepted that demand variability in not in its hands. And then, it believed that trying to manage (operate) bench purely on forecasting is not a good approach although forecasting may be good for budgeting and longer plan. With this, the team gave away long term forecasting as the basis of daily, weekly and monthly plan of recruitment and project allocation. Thus, we were talking about operations, i.e. how do we manage the bench on day to day (weekly) basis so that high availability of resources is ensured at lower cost of the bench. The first step was to estimate the size of the bench. The client adopted a simple calculation: Size of bench Time to deploy the resources (leadtime) x demand of resources per day

This calculation was worked out for each category of resources. But this calculation is just one time calculation required for installing the bench. It must also factor reassigned resources, attrition rate and uncertainty. But it need not be highly accurate. Once the target bench strength was calculated, it became very clear where the bench was under staffed and where over staffed. The immediate action was to speed up the recruitment or assignment of resources to under staffed category of bench. In fact, several resources were found good from the overstaffed benches and moved over to the understaffed benches. Once the benches of different categories were normalized, the complete resource management team was aligned to fill those benches that were still under staffed. This was a demonstration of aligning operations of resource management team to the market demand. Incidentally, at the end of the exercise, there were more overstaffing than under staffing, which led to correction of several assumptions held by the team for long time.

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After aligning the operations with the market demand, as the front ending team comes out with requirements of resources and they are assigned resources from the respective bench (just like a consumer picks up an item from a rack in the super store). As a resource from the bench is assigned to an engagement, it would create a demand on the resource management team for replenishing the bench. In order to fill the empty places in the bench, the resource management team will look at the schedule of the returning resources from previous engagements or activate other processes of assignment. However, at a given moment of time, the resource management team will be flooded with requirements of several resources across categories. It became important that it didn't run into fire fighting and create chaos. A clear priority system that aligned its activities with the actual requirement in the market became important. The resource management team started looking at the level of bench per category periodically and looked into the unfilled level of the benches. The bench that was least filled and was closer to zero bench level started getting higher priority in the resource management team. Using such a priority system helped streamlining the process of resource management and improved the availability of the resources across categories dramatically in a very short time. At the same time, the categories that had enough resources continue to be given lower priority, which meant that the resource management didn't need to act on them THEN. This as a consequence has dramatically reduced the situations of over bench. Following the management of resources based on bench status and following a single priority system has thus improved availability of right resources at right place at right time, giving opportunity for the organization to increase revenue while reducing cost.

Bench design needs ongoing review

With time, the demand pattern has been changing and also there have been innovations in the recruitment, training, skills and deployment of resources. Hence, the size of bench needs to be updated on a regular basis once in a quarter. What does it mean? The client has created a new role called 'The Bench Controller' who uses a logic to increase the 'desired' level of bench where evacuation of the bench is faster than the supply of resources and reduce or reallocate resources of a bench where 'desired' level of bench is higher than what's required. Now all the recruitment and training of the resources depends on the status and rate of depletion of the bench. There is no other criterion for adding resources on a bench.

Achieving Excellent Availability of Consultants Cost Effectively

Here are the simple steps for an IT Service organization to ensure high availability of resources at lower cost. 1. Designing: Set the initial bench strength per category of resources. 2. Restraining: Stop all recruitment for benches that are over staffed. 3. Resource Leveling: Shift and cross train resources from overstaffed benches to under staffed benches.

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4. Aligning to market: Align all recruitment and assignment activities to the under staffed bench only. 5. Following a Single Priority System: In day to day operations, priority must be given to filling of benches that have more vacant slots than others. These 5 steps together can give a midsized organization up to 10% higher availability at 10% lower cost in resource management. The above generic description and steps will need to be contexualized and as one gets into execution there are several other factors that come into play and must be taken into account. . To know more about leveraging operations to deliver better business results, download a 72 page free preview to 'The Path - Leveraging Operations in a Complex and Chaotic World' at http://www/time2change.co.in. To know more about implementing quick improvement programs that give superlative results, call +91 94480 70081 or write to lolla@time2changec.o.in.

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