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BW Businessworld

A Roughly Cut Diamond

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I wish I could say this is an important book about the Indian offshore IT services industry. Unfortunately, it fails to achieve this and remains, at best, a useful book. The authors get too involved in the how, rather than the why and why not.

The book is divided into thirteen chapters, with a foreword and a prologue. The prologue sets the tone, describing IT/BPO work as "unnatural" while at the same time claiming that "This is the future of work."  Each chapter proceeds to ask some questions, most of them the right ones. It then proceeds to provide answers or rationalisations, not necessarily very convincingly.

The first chapter quotes the Financial Times "…The industry has become a symbol of the 'New India' — self confident, ambitious and independent." But immediately afterwards provides the counterpoint; the BJP's 'India Shining' campaign which left the voting masses largely unmoved. The authors unequivocally state that low wages and the resulting labor arbitrage are the "most" (sic) important factors in the success of the industry, with English language skills a close second. The industry is not prejudiced but the 'most important' factors exclude the mass of Indians.

The second chapter is hubristic. It compares Mahatma Gandhi's Dandi March and its impact on the independence movement with the impact that the offshore services industry has "…in creating hope for India's poor…."! It also discusses the issue of availability of trained engineers and the impact of the returning NRI.  But this reviewer is not too sure that this returning mass has the business skills required by the Industry, a few exceptions apart.

The title of the third chapter says it all "Is offshore good for the world?" Trade is good, offshore IT services are trade in services, hence offshore is good. Where one disagrees is the possibility of services being offshored as much as manufacturing — a majority of services have to be delivered locally: you cannot offshore haircuts or restaurants or health care!

Factor Analysis
Chapter 4 onwards is the real useful part of the book. The authors explain the working of the industry in some detail.  But they continue contradicting themselves. Here's a gem: "It is a common misconception that offshore-based companies have a business model that depends on relative cheapness of Indian (…) workers" (page 56). Have they forgotten what they wrote in the first chapter (page5)? They give a rather iffy example of savings due to Offshoring. They do provide a lucid description of the process of service delivery from offshore. One cannot but draw parallels between Taylorism and the 'processes' that they detail.

Chapter 5 is a very interesting chapter where the authors try to define what makes a company an "Indian" company and generally do a good job of examining various arguments. But finally, they leave the question half answered. They do answer a commonly asked question: why do we not see the presence of these companies in Indian industry and government projects (with some exceptions)? Because selling in Europe and US is much easier. Chapter 6 delves in to the history of the industry, no surprises here. There is recognition of the support given by the government in the form of the facilities provided Software Technology Parks of India (STPI) and the tax holiday — an implicit subsidy. Secondly, the role of subsidised engineering education in making trained manpower available is also recognised. Chapter 7 describes the role played by non-Indian companies setting up owned ('captive') delivery centers. The pioneering role played by General Electric Company (GE) and Texas Instruments in setting up BPO and IT services capabilities cannot be underestimated.

In the next chapter, the authors describe the challenges faced by the industry in hiring and training the required manpower. What they fail to talk about are two key issues: why does every employee have to be an engineer and why is the attrition (employees leaving the organisation) so high? This failure to understand the attrition issue is a serious one since it is not just a supply/demand mismatch situation. If it were so, then why is attrition in industries with similar manpower demand so much lower? Is it because of alienation of the young employee from the work process?

The ninth chapter details another industry process — increasing revenues by new sales vs. more sales from returning customers (hunting vs. farming in the industry jargon). The authors recognise that relationship selling is not the same as selling to your relations; it requires the vendor to understand the customers' business intimately. Unfortunately, Indian software companies have no 'real business' experience.  One place where they could have gathered this, at relatively lower risk and cost , is the domestic market. The few honorable exceptions such as TCS, HCL and Wipro have leveraged their domestic experience in the international markets, not so the 'new generation' companies like Infosys. In fact TCS built its powerful Securities Industry practice based on its work at NSDL, NSE and SHCIL. If IBM and EDS (now HP) find the Indian market attractive, why is it that the 'Indian' software service industry sees no revenues and profits here? The Indian companies do not have the audacity or the expertise to take on complex end-to-end system integration deals that Indian government and industry require.

Chapter 10 attempts answering an oft asked question — why do we not see software products being produced out of India. Here the authors are being lazy; there is significant product work being done and it is successful; only it does not come from the big players. One ready example is Tally , another is  the web hosted suite Zoho.  But the point that the products and services business are fundamentally different is well made.  The reviewer would be more concerned with the way the looming threats to the industries' business model such as rising wages and competition from other countries are dismissed. Have they forgotten the migration of the voice based BPO business to Philippines? Chapter 11 does not really need to be here, current business technology trends are much better discussed elsewhere.

Chapter 12 addresses the issue of improving margins. However, as size increases, risk taking ability will decrease. Hence new lines of service may not be possible. And if the service itself is a commodity, account management or service innovation, however great, is like lipstick on a pig. Solutions, Frameworks, Platforms, and Consulting:   all require much deeper understanding of the customer business than what the industry has. And if the driver continues to hourly billing rates, the reviewer does not see much coming from here.  Chapter 13 is at best a tutorial on P&L management, rather banal: what it really says is "we are making money, and it is not difficult to make money in this business". But the real question is again left unanswered: how come the service providers are making money when the customers are floundering?

The book tends to be repetitive and could have been better with significant editing and reorganisation. (If you are in a hurry, I would recommend skipping the first three chapters and jumping directly to the fourth.) The style is staccato: more suited to Powerpoint presentations than a 215 page book. The authors could have made it more interesting by interviewing more people from outside the Infosys eco-system. Overall, a useful book, but definitely not insightful.

Nirmalendu Jajodia, chief of technology and operations, NCDEX

(This story was published in Businessworld Issue Dated 23-04-2012)