An opportunity for India and the US to come together

Steve Hamm

India faces a slew of business challenges, including its infrastructure deficit, salary inflation in the IT sector, and high attrition rates in IT and BPO. But perhaps its biggest HR challenge is developing and deploying the next generation of middle managers. With the top Indian IT companies growing into sprawling global behemoths with 60,000 to 80,000 employees, large numbers of middle managers are needed to keep these huge organizations running efficiently. Right now, most of these managers are grown on the job. But, for the industry to continue to flourish, India will need to graduate far more high-quality MBAs than it does now.

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The next step in outsourcing: Math

Steve Hamm

If you want to find out what’s going to be the next trend in outsourcing, it pays to visit Bangalore. I dropped in on a 2-year-old startup that’s delivering analytics as a service. It’s Mu Sigma, with offices in Schaumberg, Illinois, and downtown Bangalore. Founder and CEO Dhiraj Rajaram, who spent time in the US at Wayne State (MS in computer science) and University of Chicago (MBA), and Booz Allen as a consultant, is in the process of moving back to India with the goal of managing his 120-person company to the 1000 mark in the next couple of years. His idea is that it doesn’t make sense for many companies to outsource their entire analytics department, but they can do a lot more analyzing at affordable prices if they augment their handful of high-priced math PHDs with teams of people in Bangalore who are adept at using the latest analytics software tools to spot opportunities in marketing, risk analysis, and supply chain optimization.

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Tech services research underway in Bangalore

Steve Hamm

I got briefings from Infosys and Accenture R&D bosses in the last couple of days that show how much they're thinking alike. (Because of scheduling glitches, I won't be able to meet with IBM researchers.) What’s underway is a radical change in the way tech services are conceived and delivered.

At Infosys, Deependra Moitra, associate vp of the company's Software Engineering and Technology lab, has 320 people focusing on assessing emerging technologies to see how they can be harnessed for services customers and looking for ways to squeeze more productivity out of services. Ten months ago he set up a business transformation lab that helps the company create blueprints for clients showing how Infosys' assets and offerings can be used for business transformations, and how outsourcing can be used for transformation projects. The company uses a tool it created, called InFlux, which captures a client's business requirements and transforms them into an IT plan. The company last May started holding day-long customer innovation workshops, one-on-one with a customer, where it listens to what the customer wants to do with its IT and business processes and then tries to come up with projects where the two sides can co-create solutions for the customer.

It was amazing to me how similar the thinking was at Accenture. It has been conducting those customer innovation sessions for years, and it's just now establishing a research outfit in Bangalore, its fourth research lab worldwide. Lin Chase, who heads up the lab, arrived in Bangalore in March, has hired 25 scientists, and plans on hiring more. She showed me a bunch of tools Accenture has created to make IT services more productive and efficient. One of them, with the ungainly name of Application Ecosystem Instrumentation, was created by her crew in Bangalore. It’s being used when Accenture takes over a client’s IT and starts the process of transforming it to make it more efficient. The tool draws pictures for clients of how their business processes and underlying technologies work now, so they can spot efficiencies. They can do what-if exercises, for example sizing up the impact and investment required in adopting a particular software application. .

Classic services don’t scale. As you get more work, you have to put more people on the job. But with these new technologies, these companies are changing the services business model. Once they do, anybody who tries to play by the old rules of the game will get wiped out.

Heading for India Economic Summit

Steve Hamm

I'm heading for the India Economic Summit in Delhi early next week. They asked me to blog the summit ahead of time, and here's what I came up with. I think a revolution is coming in Indian retail and agriculture.

One of the things I’m looking forward to at the India Economic Summit is finding out more about what’s going on in the retail market. India has an incredibly inefficient retail supply chain now that contributes to the poor performance of its agricultural economy, which, I believe, is actually shrinking. Right now, most retailing is handled by small independent shops, and there are as many as eight layers of middlemen between farmer and consumer. That, and poor logistics, contribute the fact that about 40% of India’s fresh produce rots before it can be sold. Plans by a bunch of the Indian industrial conglomerates could bring a revolution to retailing—and to agriculture.

Reliance Industries, for instance, earlier this year created a new company, Reliance Retail Ltd., which will sell food, apparel, shoes, home improvement products, electronics, and even farm implements. The company plans on creating a new supply chain around its retail initiative that will cut out middlemen and bring food to market more rapidly. It recently opened 11 stores in Hyderabad and plans to have stores in nearly 800 cities by 2011.

I had a quick conversation on Friday with Mukesh Ambani, chairman of Reliance Industries. He told me: “Our objective is to make sure the Indian farmer is connected to the urban consumer and ultimately to the global consumer. We’re trying to leapfrog many generations to put in the latest distribution system from the farmer to the consumer.”

Ultimately, Ambani thinks he can do with Indian agriculture what the Indian tech companies have done to the global tech services industry—undercut the market with lower costs and lower prices.

That’s going to be one incredible act to follow. Indian tech exports went from about zero 15 years ago to $25 billion annually today. If Ambani and the other new Indian retail pioneers can do as well, it will do a lot to bridge the huge gap between the country’s sizable middle class and the huge mass of poor people.

IBM, an Indian company?

Steve Hamm

One of my first stops in Bangalore was IBM, which has nearly 50,000 employees in India now and his growing so fast that it might soon have the largest employment level of any tech company in India. TCS has about 80,000, so IBM still has a ways to go, but, if it doesn't overtake TCS it won't be for lack of effort. In addition to stationing an army of people in Bangalore, IBM now has a bunch of people in Hyderabad, Delhi, Chennai, Pune, Kolkata, and Gurgaon. This way, it casts a wide net for talent and avoids the worst of the recruiting wars in Bangalore.

It's in the middle of a major HR push aimed at lowering costs and retaining top talent. On the cost side, it's moving from a 60/40 mix of hiring experienced people versus fresh graduates to something more like 50/50. On the retention side, it's giving Indian employees more opportunities to have overseas assignments, working with employees practically from day one to map career paths and line up the appropriate on-line and classroom skills training, and improving the abilities of employees to move around within the Indian business units. The HR bosses have even appointed a staff of a dozen or so "royal ambassadors" whose job it is to keep track of new hires and make sure they're assimilating well.

Person after person at IBM told me today that India's woeful infrastructure isn't their big problem; it's recruiting, training, and retaining employees. "India is the Wild West right now," says Harish Grama, vice president in charge of IBM's Software Lab in Bangalore. "There are young kids who are looking for a 20% raise a couple of years after they come on board. They're taking the short view, because they have so much opportunity. I can pay very competitively and more than most, but I'm faced with new multinationals coming in and cherry picking good people at two times what I pay."

The IBM solution is to try to convince people that a career is more important than just money. It seems to be working fairly well for Grama. His attrition rate is below 10% on an annual basis, substantially lower than the 15% industry average for software programmers in India.

Back Online

Steve Hamm

After a week in India (some touring, some book publicity activities), I'm only now able to log into my blog. It's yet another signal of how far India has to go to get the basic infrastructure in place for business to be conducted smoothly. I tried to log in when I was touring in the north (Agra, Jaipur, Samode) but managed to get e-mail only on one day, and couldn't get into the blog. Other days and places, I couldn't even get onto e-mail. It's not all India's fault. Part of the problem was the AT&T dialer program that BusinessWeek supplies for traveling reporters. Most of the phone numbers for local dialing were out of date. But that didn't really matter. I couldn't get the dialer server to accept my password. Spent five hours on the phone with AT&T help desk in Romania, and a few more hours on the phone with a McGraw-Hill help desk in India. Then gave up. Thank god the place I'm staying for the next 10 days has BB.

On the road again

Steve Hamm

I'm going to be in India from Nov. 11 to Dec. 8 and will be updating the site with my impressions. But I may be a little slow in responding and getting comments posted. Be patient. Thanks.

India and "creative chaos"

Steve Hamm

It's impossible to think about India without thinking about China--and vise versa. And the contrast is sharp. China is an orderly, top-down, plan-oriented state with plenty of capitalist drive but not a lot of creativity. The infrastructure in its big cities is first rate. But, of course, it's not democratic. India's an unruly democracy--with government as chaotic as its traffic. Which system will win? China clearly has the early lead, but I wouldn't write India off. The concept of creative chaos is one reason. This language was introduced to me a couple of days ago by Leo Apotheker, head of worldwide sales and marketing for German software giant SAP. He visits India 4-5 times per year and has noticed that the top Indian entrepreneurs he meets look at business problems and opportunities differently than a lot of Western leaders--and they come up with strategies that knock the established global business players off balance. They think this way because they have to be creative to overcome the chaotic business and political environment in India. "I think that long term India will outperform China," he told me. "They have a culture of chaos. A culture of chaos and a strong education system, together, are more important than infrastructure."

US software talent shortage looming?

Steve Hamm

So says Wipro Chairman Azim Premji, who repeated the warning during press interviews on a recent swing through the United States. He says restrictive immigration policies and failings in the US higher education system are at fault. My sense from talking to US tech companies and corporate IT masters is that he's right. In high skill areas, there are talent shortages. And it could get worse.

There's an irony here. Back in 2003, pundits warned that the global offshoring trend would suck millions of software and back office jobs out of the US. One effect of those warnings was that many of the best and brightest US students promptly decided to seek alternative career tracks to software. The number of computer science degree students dropped off precipitously.

US software employment declined sharply in 2001, in the wake of the dot-com bust, and was still depressed in 2003. But by late in that year it had begun a strong month over month climb that has continued until today. In fact, software employment is back up near peak levels.

So demand is fairly strong, and supply is weak. No sooner does one bogeyman go away when another one shows up.

The Latest BPO Outpost: Guatemala

Steve Hamm

So many companies are piling on the offshoring bandwagon that it's becoming a bit like the dot-com phenomenon. It's hard to do the fresh thing anymore. Well, 24/7 Customer has managed it. In its quest to locate a new BPO call center in the same time zone as the United States, but not in a crowd, 24/7 has chosen Guatemala. The company, with headquarters in Silicon Valley but most of its 7,000 employees in India, scoped out other more commonly chosen places, too--like Costa Rica. But Guatemala fit the bill. "We wanted to be in a market where we were the first. You want an edge. It gives you a change to build your reputation and brand before you have competition," says P.V. Kannan, 24/7's CEO.

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Make that....Bengalooru Tigers

Steve Hamm

It's hard to know what to say about the fact that India's Karnataka state has decided to change the name of the country's tech capital from Bangalore to Bengalooru. Of course, this follows in the footsteps of other Indian cities whose names were changed to help erase the stain of colonialism--Bombay to Mumbai, Madras to Chennai, etc. Bangalore was an anglicized name, and Bengalooru is said to be close to the original place name, Bendakalooru, in the region's native language, Kannada. Bendakalooru means town of boiled beans. Why the powers that be didn't go all the way and change the name to Bendakalooru, I can't guess. ;-)

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Cisco's new headquarters: Bangalore

Steve Hamm

I just got the scoop that Cisco Systems in early December plans to announce that it will establish a second corporate headquarters, this one in Bangalore. Cisco, which is based in San Jose, Calif., already has a major presence in Bangalore, with about 1,200 engineers working there at its largest global development center outside the US. The company also taps into engineering and BPO help from HCL, Wipro, and Infosys. Now Cisco plans on consolidating its operations in a new campus and locating one of its top US executives there--Wim Elfrink, the senior vice-president for customer advocacy, who reports directly to CEO John Chambers. This is the first time that a major US technology company has established a corporate headquarters in India, and it's yet another sign of the growing importance of India on the world technology map.

Capgemini doubles down in India

Steve Hamm

Capgemini's $1.25 billion acquisition of Chicago-based (but Indian-centered) Kanbay is the next step in a massive move by the large Western tech services outfits to India. With this act Capgemini doubles its Indian workforce to 12,000 in one swoop. This seems like a very smark acquisition. Kanbay is a $400 million-a-year company with a roster of large clients, deep experience in the financial services industry, and CMM Level 5 certification for its software management processes.

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1 + 1 = a killer biz model

Steve Hamm

Two of the most disruptive forces in the tech industry, open source software and offshore services, are starting to combine in ways that might be explosive. Each one separately is already having a dramatic impact on the software and tech services businesses. Taken together, they could change the rules of the game for a bigger swath of techdom. Offshoring can cut labor costs by 50% to 80%. Open source cuts the cost of software packages, potentially, to zero. Put the two together and you could have a huge compression of the costs of information technology and havoc for the status quo in a $1.2 billion industry.

I’ve been watching both phenomena for several years, and, except in embedded applications, most of the big Indian outsourcing firms shied away from major open source initiatives. You can imagine why. Their bread and butter is in developing and maintaining traditional software and building on platforms established by made by the likes of Microsoft, Oracle, and SAP. Those giants are some of their key partners. Who wants to stick a thumb in your pal’s eye? Well, things might be changing.

Over the weekend, I learned of a joint project involving Red Hat, the world’s leading Linux distributor, and Satyam, the Indian systems integrator, to create an open source software/services solution for managing data communications within enterprise computing systems. Then, just today, I debriefed Terry Garnett, a partner in the venture capital firm of Garnett & Helfrich Capital, on his return from a whirlwind tour of India. Garnett invests primarily in existing companies or divisions of larger companies that have been neglected but are strong candidates to be recapitalized, reorganized, and sent off in new directions. Two of the companies in his portfolio are open source software outfits, and both of them have strong India/offshoring plays.

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China's Promise

Steve Hamm

The people who criticized my posting comparing programming skills in India versus China are absolutely right. It was a shallow exercise. Still, I thought some of the responses from commentators made it worthwhile.

Here’s some more potentially controversial data points on China outsourcing that I picked up at Outsource World in NYC yesterday. It adds to the picture of a nascent Chinese outsourcing industry that could become a serious player in the future.

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