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The True Story Behind High Profile Exits at India's Top IT Companies

The True Story Behind High Profile Exits at India's Top IT Companies

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Published by Amit Prasad
For the last few years we are witnessing high profile exits from the top IT companies. We don’t know what does the future hold for the entire segment of this industry. These are the result of wrong policies being followed by the companies for years.
For the last few years we are witnessing high profile exits from the top IT companies. We don’t know what does the future hold for the entire segment of this industry. These are the result of wrong policies being followed by the companies for years.

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Published by: Amit Prasad on Apr 20, 2011
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04/25/2011

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Page 1 of 4
The True Story behind 
HIGH PROFILE EXITS
in 
India’s Top IT Companies
 
In many countries around the world, they say that an evil eye can drown the fortunesof the individual or company. In India there is a huge industry manufacturing productsto help ward off the evil eye too. If one were to give a cursory look at the Indian ITCompanies over the last couple of years, you could almost conclude that the bad eyedid indeed befall the entire industry. Worldwide the India success story in informationtechnology was appreciated, envied and copied by many other countries. While wecould not do what China had done in manufacturing, we were able chalk an aggressivegrowth path in IT Services.So, what is going wrong today? Why did Satyam collapse? Why did Wipro CEOs getfired? Why did Mohandas Pai quit Infosys? Why did Ashok Soota leave the companyhe founded? Why are margins collapsing at all next level companies in the industry?And what does the future hold for the entire segment of industry? If you had all thesequestions in mind, and more, read on below because these are not isolated incidents,these are not one off cases.
These are the result of wrong policies being followed by companies 
for years. This is the story of resources that lost track of their basics -of building a good skill based either on technology or on business sense.The pain areas and the challenges are listed in the following paragraphs.All the above developments over the last few quarters are not an isolated incident orsomething that has happened overnight, this was a disaster waiting to happen. As atechnical person in the operations department you have a very different perspective ofyour role and that of your client. When you upgrade to a management role sometimesthe perspective broadens to include other client activities but in most cases it ends upgetting more documentation oriented. Finally as a sales and marketing person is thefirst time when reality hits you, and you realize the need to actually focus on the
client’
s objectives, the end use of the work that you are delivering and the need to be
very closely ingrained into the client’s requirements.
So, the period of evolution fromone role to another is something IT companies need to track very closely, andbe quick to identify those who are not measuring up.
 I had been running my venture since early 2000 as part of a larger organization. Istarted independently in 2004 because I foresaw the current situation 5 years downthe line.
I am on record since then, with various media, when I said that Services companies will drop profit margins into their mid-teens in future so I wanted to get into IT Products and in Intellectual Property based work.
 
My logic was due to the percentage level that multinationals who set up base in Indiawere charging for their work. Today all top IT companies are facing the brunt and whenCEOs churn at companies like Wipro, and a leading organization like Satyamcollapses, you can be sure that there is a lot of turmoil that is happening down the line
 
 
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in big companies and also in the other companies which are significantly smaller insize.
Margin reduction has begun to hurt the industry since even multinationals likeIBM and Accenture today have a large captive employee base in the country.
 Often, they treat the India operations as a cost center instead of a profit center, so theyare willing to work with margins of as less as 8% too is what we hear from industrysources. So how do homegrown companies compete against that, and meet marketexpectations, markets have earlier seen 40% margin businesses initially and now arenot comfortable with 15-20% margin ones! End result, unreasonably high salariesmaking IT industry employees the darlings of every consumer focused company, but atthe same time making it a low margin business for the companies, in what was apremium industry earlier.The period between 1999 and 2008 has been very unfortunate for the Indian ITworkforce in terms of
cost versus value parameters of a professional
. That was theperiod of aggressive growth which should have been capitalized on by the industry andby the professionals to make themselves invaluable and to find ways to deliver bettervalue for the money they were earning. However, what really happened is that in therush to increase turnover and manpower, each company had been falling over theother in getting resources to join them and this took salaries to unrealistic levels. They just considered it as a replacement of a 50$ per hour resource in a developed countrybeing replaced with a smaller cost one here. For them, even a 100% or 200% jumpwas the norm of the day when hiring laterally.The net result was that by just switching jobs from one company to another theseresources grew rich not in skillsets but in salary. The practice of linking skillsets anddeliverability with salary was given the boot. Intra company too, raise was given toprevent attrition. Deliverability and skill development because non issues. From anindustry perspective the average salary went up and the output remained the same.To his credit, Mohandas Pai actually tried to stem this trend and make Infosysdifferent, he moved from his CFO role to HR and Education almost 5 years ago, whichI feel was to help the company solve the biggest problem it had coming up. His newmodel to increase the number of professional bands and to fix people on lower bandsis rumored to have been linked to various skills that he wanted his people to imbibe.But unfortunately for him, and even more unfortunately for the industry which wouldhave benefited if he succeeded, the markets again changed in 2010 and hiring is backagain in India so the backlash started hurting the company and the scheme gotwatered down. I for one, was not at all surprised at his news of exit this week from thecompany he served for 17 years, it was in the coming for a long time. Net result, theperiod of abnormal hikes is being seen again, though thankfully, with some moderationbased on earlier experience in the last round.Finally, the
growth of turnover and manpower led to a huge need for managersand in most companies the number of freshers was so high, that anyone witheven three years experience started mentoring the newcomers.
There is nothingwrong with the approach and actually it is very apt. However, this led to a sense ofcomplacency among manpower resources at a very early stage into their career. Noneed to do hands-on work after becoming a module leader is the attitude. This made
 
 
Page 3 of 4
them lose touch with most of the technologies that they started working with. Theyconveniently forgot that technology has been changing so regularly over the past fewyears that there was a huge need for every technical resource to keep learning all thetime, attend training programs and get additional skills with certification.Employees did not realize the importance of this since they were anyway getting goodsalaries and good offers from the market even without increasing their knowledgebase. Neither were in-house training programs in large companies filled. The businessteams never had free time to attend those programs and it was difficult to get people tofill those classes except when they come from college and take their inductionprogram.
From an industry perspective the skill level across all levels ofprofessionals went down significantly. There is a huge need for all technicalresources to actually build their skills technically as well as in managementroles before they start handling key responsibilities
which affect a client’s
deliverables and ultimately his business.
The above scenario granted promotion on the number of years. But the quality of theaverage Manager due to this strategy has dropped so much that it is important to nowonly have those people in management roles that have a good business approach. Ibelieve that the two have unfortunately been seen as separate issues in our countrywhereas in reality the overall perspective of every single technical lead or managerneeds to be a well rounded and 360 degree one.During a recent lunch meeting organized by an industry association with Consulateofficials of a leading country, the representative told me offline that India has a bigproblem of employability coming up because the educated ones are not easilyemployable and those who are employed are not capable of becoming businessleaders and adding value to the companies they are expected to contribute to. Onprobing further, he added that companies tell him the ability of middle level managersto execute tasks given to them is so limited that it is becoming very difficult to find rightpeople to actually deliver results. Nothing could be closer to reality was my immediatethought when I heard those words. It would be a very big mistake if the professionalsin our country at Management level did not see the correlation between what ishappening at the CxO level in both Top and mid-sized companies and the issue ofquality of manpower.
Every individual needs to realize that they are going to make or break their company’s
fortune in the end so anything they do to understand the business objectives of theirown company and of their clients, will help everyone in the ecosystem. Else the effectswill show up either as a Satyam collapse, or as a CEO of Wipro getting fired, or as thekey team at Infosys and Mindtree leaving the very company they gave their best togrow. Because the good days of high margins, reasonable salaries and fast growth arenow replaced with low margins, abnormally high salaries and stunted growth, sosmiles are being replaced by frowns, summer of discontent is brewing in mostorganizations and it is just a matter of time before a major upheaval happens.Once again, looking into the crystal ball in the coming 5 years, I feel there will be threedistinct types of managers.

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Sunny Srivastava added this note
The companies then have to find someone to take on the responsibility

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