Reflecting on wealth creation in the era of Offshoring IT Services

Topic of money dollars and fortune never get boring. Even after one thinks he has read every possible angle to a story of wealth creation there is another angle or review that knocks ones socks off.

As a shareholder, I was reviewing the invitation for the 40th Annual General Meeting of Infosys Limited this weekend, and “section 7” caught my attention (link to the report). This section highlights the aggregate shareholding of the promoters and promoter group. 

The list in "section 7" includes the famous founders, their spouses and progeny, each holding hundreds of thousands of shares of Infosys. The company’s shares have been hitting record highs and is trending at about ₹1,450 (As of June 2021). At the bottom of the list at #19 is the lowest of the promoter group who owns about 2737,538 shares worth about ₹ 397 crore (about $56.7 million).

To their credit, Infosys’ founders seem to be living by the original corporate motto “Powered by Intellect, Driven by Values.” The founders, while making immense wealth for themselves have shared their fortune with employees who signed on early. And some of us who joined later in the game didn’t do too badly either. As a former employee who spent a decade with the company in the 2000s, I fondly look back on the small fortune in ESOPs vested in stock that is accruing in my nest egg.  

A brief history of time: Wealth creation beyond Offshoring IT Services

Infosys, along with its peers TCS and Wipro defined and scaled up the business model around Offshoring IT Services. Outsourcing IT work by multinationals to lower cost nations like India really took off after 2000. Consequently, the valuation of these and other service companies skyrocketed, making the founders uber rich.

Q&A in Tech forums and social media routinely feature young techies who ask about pursuing top-dollar jobs, and a few aspire to be entrepreneurs. While software product companies in 2021 attract top talent by offering USD equivalent salaries in India for talented techies, the real wealth is still concentrated at the top of the pyramid. 

Billion-dollar valuation and millions in personal wealth is the stuff urban myth is made of. A quick review of “India’s richest tech billionaires in 2020” shows this was true for the IT services boom in 2000s, as it is for the digital waves that have followed. 

Big G's move in India: Google IT Consulting in India to compete against IT giants like TCS, Infosys

There is interesting news about the move by Google IT Consulting to expand its practice in India.

Reports claim that Google IT consultancy for large businesses will head for a new revenue source in India.  Mohit Pande, Country Head – India, Google Cloud was quoted by BusinessLine saying,

“We have invested significantly into professional services in India. These are consulting services, change management services for the customers where we work with them to solve some of their most complex problems.”

“India assumes a lot of significance for us. It is a large market where public cloud is set for huge amount of growth. I also think because of the environment in India where internet services are getting better, data are getting cheaper,” Pande said.

Given the growing importance of India, Google may also set up an Advanced Solutions Lab in India, which so far is only in Mountain View, California, Pande indicated. The lab will be an extension to Google’s Professional services in the country.

Google's parent Alphabet is worth almost half-a-trillion dollars, and the firm also generated $900 million revenue in India last year. The company has invested over $30 billion on its cloud platform in the last three years globally. This includes investments in setting up cloud data centers across the globe, one of which is scheduled to come up in India.

Google is now investing heavily in India for its cloud offerings, in particular its public cloud offering termed Google Cloud Platform wherein companies can rent compute and storage capacity from Google.  Google will offer consulting in machine learning and Artificial Intelligence to large enterprise customers. 

Small step for Google, Giant leap for offshoring IT Services

This move by big-G could pit the big-tech company against offshoring giants like TCS, Infosys, Wipro and also against multinationals like IBM and Accenture. These software services companies have been struggling to evolve business models to address the risks from visa restrictions and protectionism in the west and also need to quickly re-skill their folks on newer technologies. (Ref - my blog on reskilling).

Indian software services companies are under tremendous pressure to continue to show growth in a slowing global market that is also experiencing increased protectionism in the west. Old linear growth model of hiring more ‘freshers’ and taking larger application development and maintenance contracts has reached a plateau. CEOs and boards of Services companies are hard pressed to explain newer game-plans to their shareholders. Slowdown has and the haphazard layoffs (link my blog) also adversely impacted the morale in the Indian IT sector.

Bottomline: Software services companies have grown large 'cloud service practices' with System Integration offerings around Amazon's AWS, Microsoft's Azure and also Google Cloud and other platforms. Wonder if these offerings will take a hit when Google expands the services business. 

CEO Compensations. Case in Point: Infosys CEO compensation

The compensation packages offered to two key officers of Infosys, Vishal Sikka and U.B. Pravin Rao generated a lot of press this summer and even the co-founder NR Narayana murthy weighed in. The topic also came up a few times during the Q&A with shareholders at the recent AGM (my blog)

This is a topic I reviewed in my recent blog ("How ourfascination with CEO packages impacts our compensation"). After the AGM, I continued to reflect on the topic and decided to review the facts presented in the Annual Report. The section on "Employment agreements with Executive Directors" gives specific details of compensation offered to Vishal Sikka and Pravin Rao.

Vishal Sikka’s compensation is about $11 million

• Base Pay $ 1 million
• Variable Pay $ 3 million
• Stock compensation
• RSUs $2 million 
• Performance based equity $5 million

Mr. Sikka also has a Golden parachute that kicks off “in case of termination for other than cause, death, disability or resignation for good reason.” This includes continued payment of severance pay at rate of base pay for 24 months, COBRA / health benefits and accelerated vesting of outstanding equity grants

Pravin Rao’s compensation is about Indian rupees 13 crore (with a fixed Salary Rs 800,00,000 and performance based stock compensation Rs 400,00,000)

These numbers sound rather large but need to be taken in context. These gentlemen run a business that employs nearly 200,000 people around the globe and generates over $10 billion in revenue.

Let us compare these against packages offered to other tech CEOs:

• The software services giant, Accenture reportedly pays its CEO Pierre-Nanterme a total compensation package of about $18.5 that includes base pay of about $4 million and the rest in stock and incentives. Of course Pierre-Nanterme runs a much larger business generating about US$32.9 billion revenue. 
• Satya Nadella, Microsoft's CEO made headlines recently for his mammoth $84 million pay package. 
• According to the confidential sources, Google’s Sundar Pichai’s salary is about $50 million per annum;  and Mr. Pichai’s Net worth is about $600 million  

The arguments for and against large compensations

After the board of directors approved Infosys CEO’s package, Mr. Narayana Murthy was gunning for "corporate governance" and he took to media to voice his concerns about the package There is a bit of socialistic slant in Mr. Murthy’s assertion (reuters)

"Giving nearly 60% to 70% increase in compensation for a  top level person (even including performance-based variable pay) when the compensation for most of the employees in the company was increased by just 6% to 8% is, in my opinion, not proper,"

This is grossly unfair to the majority of the Infosys employees including project managers, delivery managers, analysts, programmers, sales people in the field, entry level engineers, clerks and office boys who are toiling hard to make the company better. 

The same arguments – pros and cons – are revived every time there is an announcement of a new CEO taking charge of a public company or a board approval of another CXOs compensation package. Corporate storytellers and journalists with an analytical bent of mind quickly knock out sound-bites like "This CEO’s package is 1000 or 10,000 times that of a Joe/Jane-line worker."

This time it is no different with business-journalist dissecting every angle of COO UB Pravin Rao’s multi-million-rupee package including – dollar-rupee disparity, lower cost of living in India (vs. global packages) etc. Corporate benefits consultants, analysts and academics are also weighing in with an academic and theoretical curiosity.

The current Infosys-COO-package controversy is perhaps a storm-in-teacup that is bound to blow over; but not our fascination with executive compensations. The next time we see an announcement of a large CxO package, similar views and counter-viewpoints will be revived. In the interim, managers will continue to use the arguments learnt from the CxO-package debates while negotiating annual raises of their organization-men (and women - ref my earlier article)

Q&A: What is the reason behind the layoffs in IT firms in India?

This was a question that came to me from an online forum. Expanding on it, the person asked: Is it related to the H-1B visa, or some other reason? What impact will this have? My response follows

Years ago, I worked for Infosys and at that time, we had an "assigned curve" based appraisal system. I think it was called ‘CRR’ (Comparative Relative Ranking) where about

• 5% a pool of employees would get an A+
• Next 5% would get an A
• Another 50% would get a B (or B+)
• Another 20% would get a B-
• Remaining 20% would get a C (or Performance Improvement Plan – PIP)

The company had about 30-40,000 employees. At any time, few hundred employees would be under the PIP.  Many who got a ‘C’ during a cycle, strived to work hard and improve and some folks banded into PIP for two cycles in a row were asked to ‘seek other opportunities.’

No drama. No news.

Of course, the Indian IT sector was booming and many employees graded -rightly or wrongly – into the bottom rungs would voluntarily find other opportunities and resign much before being told. This was done unceremoniously, without a lot of drama.

Fast forward to current day.

• Large software service companies employ nearly 200,000 people each. The rate of voluntary attrition is at historically low percentages.
• Assuming some sort of a bell-curve grading continues, and companies expect 5-10% of the bottom-rung people to ‘voluntarily’ leave, we are still looking at 10-20,000 people (each) leaving. 
• 10-20,000 people from each of the big-5 or 6 players coming into the market is a lot of churn to handle, even at the best of times.
• The global software services market has slowed down. Most of the large software-service firms are projecting slower yearly growth.
• Thanks to Trump’s Executive actions, Indian firms are promising to hire tens of thousands of American workers.
• One could include other factors like increased automation and productivity gains that are being touted by IT leaders.
• Factor in the slowdown in American work-visa (H1) issuance, protectionism in Australia, England and elsewhere that lessens global mobility of people. (2017 is not likely to see as many Indian techies moving abroad)

The media is always looking for headlines. “'Indian IT firmsto layoff up to 2 lakh engineers annually for next 3 years” is exactly the kind of headline that is bound to go viral. Simple economics at work here (more views and readership = greater advert revenue).

The stories are focused ‘layoffs’ which are just one part of the equation. They are missing the big picture – a tectonic shift in the OffshoringIT Services !

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A sampling of other headlines

• So Will IT Layoffs Really Run Into Lakhs? What The Experts Say (NDTV)
• IBM India Denies Report Of 5,000 Possible Layoffs In Coming Months (NDTV)
• IT's layoff crisis may be bigger than 2008 recession (ET)
• IT industry slows, Indian companies ready for large layoffs (TOI)
• Wipro layoffs: Here's why Indian IT sector may see more job cuts in the days ahead (Business Insider)
• Why being a techie in India is no longer cool (ET) 

$35 million Immigration Fine for Infosys: powered by intellect, driven by values?

There has been a lot of commentary in the media on the announcement that “Indian Outsourcing firm expected to pay about $35 Million for Illegal Use of Visas” (wsj). As is to be expected, the settlement comes with a legalese statement “The Bangalore-based tech giant did not admit wrongdoing in the settlement, and said in a statement that it “denies and disputes any claims of systemic visa fraud, misuse of visas for competitive advantage, or immigration abuse. Those claims are untrue and are assertions that remain unproven.” (Time)

 

As an interested Infosys stakeholder – shareholder, tech observer and former employee – I find the case and settlement with DOJ intriguing, though not very surprising. Intriguing because one would typically not settle if there is no wrongdoing. Surely a case of smoke and mirrors. What is surprising, however, is the settlement amount. The amount in question, about $34 million, “the largest immigration fine ever” from United States Department of Justice, claims “the Indian outsourcing giant illegally placed workers on visitor, rather than work, visas at big corporate clients across the U.S.”

 

$35 million fine is not small change even for a multibillion dollar company with billions in cash reserves. For years, Infosys ran an ostensibly clean business operation with tagline “powered by intellect, driven by values,” a tagline that was replaced a couple of years ago by the more business friendly 'Building Tomorrow's Enterprise'. (ET) One wonders if the tagline change was recognition of reality: a culture shift from values to an attitude of “calculated risk-taking.”

 

In early 2000s, like many of my peers of Indian descent living in the west, I was observing the offshoring phenomena. Rather than be content to observe, I decided partake in the offshoring experience by relocating back to India, to join Infosys. This was back in 2003 when Infosys was a media darling, portrayed as squeaky clean Made-in-India multinational that could do no wrong. It was lead by the co-founder Mr. N. R. Narayana Murthy who was credited with coining the original tagline and driving much of the company's values. The Indian services troika of TCS, Wipro and Infosys continued to be viewed as tech darlings, even after the implosion of another large Indian giant, Satyam (Time)

 

During my stint at Infosys, I had the opportunity to observe, experience and participate in the Global Delivery Model (GDM) and lead offshoring initiatives both from offshore in India and onsite, consulting with clients in Europe (Switzerland), Canada and the US. Based on my observations, I wrote the book “Offshoring IT services” (Amazon) which also lead to a spinoff of a popular Infosys corporate blog Managing Offshore IT that I anchored successfully for years before leaving the company at the end of 2011.
 

At the time of joining Infosys in 2003, I was already a US permanent resident (green card holder) though I also continued to hold an Indian passport. This “legal status” provided me an opportunity to experience the process of applying for travel visas and work permits to several countries including Singapore, UK, Switzerland and Canada. My relocations also came with layers of fuzzy math in offshore and onsite salaries. There were times when I felt the “process” of relocations and onsite/offshore salaries was designed to shortchange India based employees traveling overseas. The fact is employees of offshoring firms operate in an environment where an onsite opportunity is a “privilege.” Visas and offshore-onsite travel and relocations are “costs” that are extremely well “managed” by IT service firms.

 

It was obvious that the visa challenge was a recurring issue that played out over and over when teams had to scramble to meet client requests onsite. Offshoring firms operate in a visa constrained business model that requires movement of people across national boundaries. On one hand clients need IT resources onsite, and there is an abundant supply of eager “resources” ready and willing to travel to meet this demand. On the other hand, the demand has to be tempered by the highly restrictive national immigration policies, especially in western countries that place quotas and restrictions on numbers of visas of certain types that can be issues.

 

To be fair, much of the operation at Infosys, including managing the visa process was done by the book. Planning and application of visas, especially for highly coveted H1 Visas operated like a well-oiled machine. However, there were times when it felt like middle managers were pushing the envelope, especially when it came to unplanned, “urgent” onsite requirements from clients. Managers were continually expected to balance dual pressures: clamor from eager-and-willing employees asking to be “visa enabled”, while also fielding queries from visa processing specialists to adhere to all applicable requirement. The average project managers or onsite engagement managers are neither qualified nor equipped to question the intricacies of ever changing visa regulations. However, they realize that they operate in an environment where bending over backwards for client requests is a prerequisite of hyper competitive services industry. 

 

Hyper competitive industry operating with restrictive immigration laws and changing regulations on guest workers keeps middle managers, employees and visa departments on their toes. Just a couple of examples:

• Years ago, a guest worker could travel to the US on an H1 visa and move across job locations as dictated by needs of their sponsoring employer. This law changed, requiring employers to file paperwork every time there was a change in location, even when the original H1 visa continued to be valid. Same is not true of a business visa where an employee on an onsite trip can travel to locations across the country for meetings with clients (but not “work” for the client)
• A green-card petition for permanent residency filed by an employer requires several stages of processing. A few years ago, employees who had a green card petition pending were indentured to their employer till they received their green cards, a process that could take several years or decade. This has changed and employees are free to switch employment while a green card is being processed.

 

Keeping track of changes in immigration laws and following the letter and spirit of law is no trivial task. Consulting firms like Infosys have teams of lawyers and specialists focused on tracking implications of visas for individual scenarios, which in some cases do lead to room for interpretation. Engagement managers, who are generally under the gun, facing clients, are perhaps inclined to push the envelope and explore potentially risky options unless counseled by lawyers.

 

The crux of the issue in DOJ investigation: “Department found that the Indian company used inexpensive, easy-to-obtain B-1 visas meant to cover short business visits—instead of harder-to-get H-1B work visas—to bring an unknown number of its employees for long-term stays, these people say.” (WSJ) Such misuse of business visas for work related travel is a gray area that only legal experts can decipher. For instance, A US passport holder can travel to Switzerland or Canada for temporary business purposes without a visa, but would require one if they intend to work there. Could a business meeting with a client or a billable consulting engagement lasting a couple of weeks be interpreted as “work?” Sure! But then, employees for multinationals routinely travel across Atlantic for such meetings and short consulting engagements, with border and immigration officials hardly raising an eyebrow. Therefore, such cross border short term travel for “work” without visas by those holding western passports may be kosher while such travel by those holding an Indian passport is improper. Law is blind goes the old adage, but is surely not logical.

 

If jumping through the visa hoops is such a big deal, why don’t offshore firms hire more locally in western markets, you may wonder. Two obvious reasons: 

• Cost: The nature of business being such, sending Indian employees (with a base salary in India) overseas is much cheaper than hiring an equivalent full-time employee onsite, even after accounting for costs of visa and travel. The deputees typically have much lower salary base in Indian rupees, while their counterparts hired in local markets (in US, Europe etc) receive salary, allowances and emoluments which can be substantially greater.  The onsite allowances and “salaries” for deputees are typically based on complex “formula” of city/country and duration of stay determined by the companies. Service firms justify this model to buffer themselves against unpredictable durations and frequent deputation/relocation of the employees. 
• Flexibility: Years ago, management guru Prof. CK Prahlad astutely observed how eager college graduates from India were more willing than their western born counterparts to relocate oversease. (Ref case study “From Tumkur to Toronto” in my book). It is not just one time relocation but a willingness to live out of a suitcase. For instance, when an offshore deputee is done with a project in Seattle, Washington, she may be more willing to relocate to Bentonville, Arkansas than to travel back to her base in Bangalore. Would a graduate hired in Atlanta be willing to frequently relocate and live in Bentonville or anytown, USA and work on projects for extended periods of time?  It is not just offshore firms that leverage this flexibility of Indian resources: Accenture, IBM and other “western” IT service firms have also been hiring hundreds of thousands in India, and sponsoring thousands of H1 visas.

Offshoring industry experts and government policy makers are sure to spend time analyzing the implications of Infosys DOJ saga

•  Lesson for Infosys is obvious: get your house in order, which I am sure is already underway. While you are at it, why not bring back the old tagline (at least the part about being driven by values) 
• Lesson for other technology service firms: make sure you get your house in order to. This settlement is not just about Infosys
• Lesson for companies hiring global IS services firms: while you can't ensure your consultants  dot all the I’s and cross the T’s, you should expect a statement from the consulting managers  to this effect. Make sure the formal statement is recorded in your MSA and contracts
• Lesson for lawmakers and parliaments: Globalization of services is a reality. Don’t fight it by introducing bureaucracy and ambiguity in laws. Streamline it where you can.

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Links of interest

 

• Viewpoint on onsite hiring by Offshore firms
• Listing of top 100 H1B Visa Employers in the US in 2011-12
• Infosys Completes Civil Settlement with U.S. Government (Press release)

Indian offshoring at an inflexion point, yet again?

I try and periodically catch up on trends in offshoring. A few interesting trends in Indian offshoring seem to be shaping up pointing to an inflexion point (or maybe not)

• Anticipating yet another debate on US immigration overhaul debate with a bated breath: Read between the lines: while analysts, political pundits and others debate the outcome, it will probably be close to status quo. H1 work visas are too sacred and lucrative a cash cow for the US IT business and government to do a fundamental tinkering on
• Senior Indian offshoring Executive, Phanish Murthy ousted, yet again for sexual misconduct: Jury is out on whether he is being framed (again?) or just happened to follow the footsteps of former American President Clinton
• Cognizant overtakes Wipro and Infosys to take the title of second largest Indian offshoring firm (whatever that means to most of us). Bragging rights aside, it makes industry watchers reflect on how dynamic (and precarious) even the mega Indian offshoring firms are. Read between the lines: while TCS, Cognizant, Infosys, Wipro battle for title of “largest,” other global giants – IBM, Accenture, HP et al –are growing really really big in offshoring.
• Infosys brings back cofounder and Godfather of Indian offshoring, Mr. Narayana Murthy. Read between the lines: It may seem similar to what Steve Jobs did at Apple where there was little hope of a turnaround. By bringing back Mr Murthy, is Infosys admitting it is really in dire straits and that there is a bankruptcy of next generation leadership? (Indian media seems to be lukewarm to the idea. Ref Economic Times Why Narayana Murthy's comeback will set Infosys back)

Where all does all this leave the clients of offshoring firms? Status quo for now? And what about the masses of young Indian techies and wannabe techies in Engineering schools? Economist magazine recently had an interesting briefing on "India’s demographic challenge" summarizing "will soon have fifth of the world’s orking age population. It urgently needs to provide them with better jobs". Does the same apply to Indian offshoring segment too?

Looking beyond the political debate on immigration and offshoring

Infosys, Wipro, TCS in a headline on offshoring visas is sure to attract attention in a highly charged immigration overhaul debate. Therefore, it is not surprising to see headlines like the recent one in Economic Times titled “TCS, Infosys and Wipro abusing H-1B visa system: Senator” The article like many recent ones starts by saying “Amidst Congressional debate on the comprehensive immigration reform, a top US Senator has accused big Indian IT companies - TCS, Infosys and Wipro - of abusing the H-1B visa system.
"There are some specific abuses of H-1B," Senator Richard Durbin, said during a Congressional hearing on immigration reform by the powerful Senate Judiciary Committee on Monday, during which the lawmakers discussed threadbare the H-1B visa issues.”

The immigration debate and the proposed bill is focused on ensuring that companies that bring in people on H1 visas also hire a good percentage of local Americans (citizen, residents). Rightfully so, one might argue. The argument is that visas should be issued to hi-tech companies that generate value to American economy – Microsoft, google and the like - and also happen to be based in America, with a majority of employees being American.  (ref: NYT blog “New American Bill Threatens Indian Outsourcing Companies”)

Offshoring firms, many of which are headquartered in India (Infosys, Wipro, TCS) or incorporated in Bermuda (Accenture) try to neutralize the argument by trying local hiring and promising future growth with “onsite, proximity development centers.” Offshoring firms have been trying hard to hire and retain the few Americans (native or naturalized) whom they happen to employ. They also try and go the extra length to retain employees who gain permanent residency (green cards). Of course, the business model is skewed towards cost arbitrage that comes from serving clients with an offshore cost base, not being onsite-heavy.  (Personal note, in my past work-life, I joined and enjoyed the offshoring wave for nearly eight years with an offshoring major, despite being a US permanent resident. In a sense, I was an exception to the norm.)

Hiring local is an argument offshoring firms cannot win, leading to a lot of fuzzy math. For instance, NYT blog had to post a correction "An earlier version of this post said that Indian companies have invested $820 million in the United States to set up offices closer to their American clients. The correct figure is $5.9 billion." Rather than trying to argue on the exact investment - 820 million or $5.9 billion - there may be a better argument to be made in the TCO and value of offshoring

Outsourcing has long been a win-win proposition for corporate America. Sourcing non-core functions, including IT development and maintenance activities helps companies free up capital and resources to invest in other core activities that help in revenue generation. Offshoring extends the benefits of sourcing by leveraging a larger pool of resources across the globe, aided by seamless communication and technology. The fact is that much of Corporate America relies on cost benefits of offshoring. And while Microsoft, google and other hi-tech companies benefit from "foreign born" talent imported on H1 visas, rest of the corporate world also benefits by retaining the services of offshoring firms who need to import talent from offshore locations to service clients onsite.  The Microsofts and Googles may certainly be leading the technology innovation curve, but most other companies, large and small also leverage Information Technology to run their business. The "development and maintenance" of such IT systems requires armies of skilled technologists.

Refocusing the visa debate on the basic need from Corporate America is not as tenuous as it sounds.  However most logic is sure to get muffled in the rhetoric of political arguments.

Book Review : Offshore: India's Services Juggernaut

I began reading the book “Offshore: India's Services Juggernaut” wearing multiple hats, reflecting on my prior experience in sell side of sourcing before finding myself on the other side of the fence.

Written by a couple of veteran Infosys employees, the book attempts to take a broad view of the offshoring industry. The authors draw on their Desi heritage with several anecdotes from Ramayana, monkey god Hanuman, references from Bollywood movie Sholay etc etc. I guess this comes from years of practiced self-deprecating humor that Indian offshoring salesmen have to adopt with western clients in order to dispel the notion that India, besides being a land of sadhus and snake charmers is also a land of cyber coolies (moniker used by authors). Interestingly, the cyber coolies are also prone to use such references in regular interactions with client managers when transplanted “onsite”

The first few chapters dwell on extensive context setting. These are perhaps useful for someone landing in Bangalore straight from the nineteen eighties, but for the rest of us providing and consuming offshoring IT services, it reads as summary of news clippings from the past two decades. 

The chapter “what makes a company Indian?” is an attempt to create a case for us to view Indian software sourcing companies (primarily TCS, Infosys, Wipro) as transnationals. While making the argument, authors highlight the increasing Indian footprint of Accenture and IBM along with a brief analysis of captive offshoring (do it yourself). While the narrative in the section is presented logically, one cannot be sure if the arguments are conclusive.

Why mess with Success? The chapter “why can’t India produce a Microsoft” contains a candid assessment of variances in business models of software services and software (product) development.  “An IT services company, on the other hand, takes far fewer risks with its investments….. even if your company is not in the top twenty services companies, you will still be able to carry on with your business profitably”  To see senior executives of Infosys admit that it is not in their DNA to be a software firm is refreshing indeed.

The section on “Hard Slog for Account” gives a good glimpse into the business of sourcing through the eyes of offshoring salesmen. I love the candid assessment of the growth story: eating the elephant one byte at a time (pun intended). Of course, the hard slog is rewarded with a magic of geometric progression. The authors admit a pareto’s law at work: about 80 percent of revenues coming from about 10 percent of accounts. Given this fact, Anyone who has attended a quarter end financial status call is bound to be left scratching their heads over why analsyst and CFO’s make a big deal of announcing “addition of x new clients” every quarter.

The armchair investor in me was also interested the future potential: any radical business models that can replace the linear growth required by GDM and offshoring? The chapter “Most of the New, New things” left me feeling like I was gazing at a crystal ball while occasionally looking at a rear-view mirror. I guess technology forecast is an imprecise art and practitioners rarely share such insights in a book till they have successfully executed (and milked their ideas). And it is not as if I expected to be exposed to Infosys (author’s employer’s) emerging strategy.

The section on “quest for higher bill rates” explores several ideas to address the challenge of commoditization. Great account management, exploring new geographies and a shift towards consulting services are obvious approaches. The section on solution perhaps has more questions than answers, perhaps the reason offshoring firms continue to struggle in the utopian quest to sell solutions.

The authors conclude the book my musing about the “juggernaut” showing signs of slowing down. In the few years since I wrote my book on Offshoring IT Services, I continued to observe and learn a few things about the offshoring industry: especially the challenges facing the industry majors: weighed down by their own scale, lack of agility and responsiveness, the “usual” logistical issues of managing a maturing, mobile workforce, grappling with protectionism and visa hurdles in western markets. All topics that keep industry leaders awake at night but few with easy answers.

Bottomline: The book gives sufficient insights into the inner workings of the industry and a few ideas on way forward and should be of interest to marketers and wannabe’s

Five star for research, content and narrative. Overall Four stars for new insights. (Repost on Amazon.com)

Indian Outsourcing Firms Hire “thousands” in U.S. Really?!

I don’t have to tell you that it’s election year in the US. Politicians are making promises, and so are some business leaders. A recent wall street journal has an interesting article on "Indian Outsourcing Firms Hire in U.S." This follows articles of similar genera in mainstream media in recent times in the US, Europe and other western markets. This article states several obvious reasons why Indian oursourcing firms want to hire Americans

• Political reason: It is election year and economy and job-creation rhetoric is bound to veer towards outsourcing, which has already started to happen. Outsourcers and their lobby has to defend a viable business model "India's outsourcing companies also have defended themselves, saying they are creating jobs in the U.S."
• Practical consideration: With a prolonged economic slump, protectionism in western countries is bound to continue to be a stated policy. "Outsourcing companies are faced with tougher U.S. visa rules that have made it difficult to relocate Indian employees to client locations in the U.S. to carry out technology projects."

The reasons quoted in the article are obvious, but a bit aspirational. The author picks on an interesting factorid that contradicts the rhetoric; Indian firms have been hard pressed to hire locally "At the end of June, nearly 93% of TCS's 240,000 employees were based in India, compared with a little over 1% in the U.S."
In my past life working for offshoring giant Infosys, I had seen more than a few North American and European natives jumping through the hoops to get hired. The few that survived and thrived in the offshoring culture were those who brought in niche Sales and technology Consulting skills. The synergies were obvious: Those in consulting and sales are inclined to be road-warriors, willing to pack a suitcase and fly to client locations on demand: A key occupational qualification if you will. In my book (Offshoring IT Services), I had quoted the late management guru CK Prahlad who observed how the mobility of (young) Indian technologists contributed to the success of offshoring. While explaining the tenacity of Indian professionals to an audience of global managers, he alluded to the fact that the real edge of people from India and other developing economies was their cultural adaptability and ability to travel/relocate to the west to participate in global projects.

A few years ago I wrote a viewpoint on Indian technology firms hiring in North America (re: Getting Hired in a Flat World). Most of the hiring "onsite" in western regions was primarily in consulting and sales support. Not much has changed in the basic business models of offshoring firms. Consulting and sales continue to be the tip of the iceberg when it comes to staffing roles at offshoring firms. The basic DNA of Indian software service firms is to offshore work from client locations in the west, to India and elsewhere where it continues to be cheaper to hire a majority of staff.

Even with continued political pressures and immigration hurdles, it is hard to picture Outsourcing Firms turning their back on offshoring. Nearsourcing - sourcing a large development or maintenance project from a fortune 500 or a global 2000 firm in a "more expensive" city in North America to another (cheaper?) development center - turns the clock back on traditional outsourcing (minus offshoring) that companies like IBM, EDS et al had practiced in the 1980s and 1990s.

This said, I would be hard pressed to bet against TCS, Infosys, Wipro and other software service firms that have been known to beat the odds before, without altering their offshoring DNA.

Musings on body shopping, IT Service Firms, visas and the 7 Year itch

Technology sourcing companies have long struggled with the "7 year itch" but now with a few forces coming together, the problem seems to be getting magnified: Sluggish global economy coupled with continued demand for offshoring, protectionist visa policies, and IT service companies continuing to go after a slice of the same big pie. The unsung beneficiaries of this: small, mid-size body-shops (And no, in this blog, I am not adding to the debate on Whether Infosys Is a 'Body Shop')

Firstly, defining the 7 Year Itch. Many IT professionals who have grown in a service firm, especially those with an extended experience working on hot technologies in more than a few projects feel the need to explore the grass-on-the-other side. These Tech-lead/Junior-Architect level folks are also backbones of successful IT sourcing projects, and are much in demand.

Case in point. Here is a practical problem that managers of sourcing firms face. My client just awarded a million-dollar six-month contract for the next phase of eCommerce program to my firm. Most of the existing technical folks in my project are already locked into working on the previous phases. I don't have a pool of experienced IBM Websphere, IBM Portal and IBM Commerce programmers currently available in my organizational bench pool to join the team at a short notice. Flying in folks from out of US is not a practical option for two reasons: we don't have a pool of "visa ready" folks waiting on bench, and getting visas for other folks at short notice would be impossible.

What do I do? I turn to sub-contractors in the local market. The sub-con has a database of Websphere professionals working for other tier-1outsourcing and offshoring firms - possibly my competetors. These also happen to be folks either going through a 7-Year-Itch at their firm, are looking for a subcon to sponsor their immigrant visa or simply an opportunity to make a few dollars more as an IT contractor.

There are a few interesting market forces coming together here, something that the body-shops are looking to capitalize on.

• Sluggish global economy with continued outsourcing. Sluggish global economy means most companies either have a hiring freeze or a slowdown in hiring. The slowdown in hiring does not always mean a corresponding freeze in the technology initiatives, which translates to an opportunity for sourcing vendors.
• Let the big dogs fight over the slice of the same pie. A client may decide to award an eCommerce project to a Vendor A and a SAP upgrade program to Vendor B. Vendor A scrambles to put together a team of Managers, Architects, Tech Leads and Developers proficient in eCommerce technologies. Vendor B likewise does it for the SAP program. Just like organizations realize they can easily interchange and deploy resources across client programs, the ‘resources’ realize they can switch employers and continue to work on same technologies.
• Fewer Work Visas: Not wishing to go against political headwinds, service companies are applying for fewer work visas. Even the few applications are going through additional scrutiny by immigration officials, which means one thing: fewer experienced IT professionals available in any geography.

Opportunity: Body Shops promise mobility while carving out a niche. Technologists with the 7-Year-Itch are motivated and unencumbered by a baggage of loyalty and need to work for a single employer. However, their mobility is restricted by their immigrant/visa status and sluggish hiring by end-clients. Also, most large sourcing firms are reluctant to hire candidates in the US if they also have to sponsor visas for them. The body shops are stepping in to provide a bridge: hiring talented individuals who can be sub-contracted to larger sourcing firms with the only overhead of having to sponsor their paperwork.

ps: As with any opportunity, there are risks, especially for those being "body shopped." Risks include being out of visa status if the body-shopper is unable to get the right paperwork to sponsor visa extension …. but that is another topic in itself.