Case Study: Technologically Unready
“The real problem is not whether machines think but whether men do” — B. F. Skinner, Social Philosopher
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Suvrat Bhardwaj felt constrained and restrained. Prescott India had all that was needed to be a winner but exactly where they needed to spend was where their Board was stepping on the brakes — Information Systems and Technology. Prescott had evolved as an e-commerce marketer, predominantly selling electronics, home accents, furniture, and recently groceries and school needs. Traditionally a brick-and-mortar retailer under brand name ‘Purchess’, the online business had started as a whim and then had surprised Prescott when it grew by leaps and bounds.
Purchess, in fact, began its online business some 10 years ago, testing the waters gently. Today, its online business is 15 per cent of its overall volume. The management at Purchess has been divided in its forecast for the business. One school believes it will always stay at 15 per cent; the other school of thought has been gung-ho about growth and believes that with the right investment in IT and online, this 15 per cent can become anything upwards of 50 per cent, going even as high as 85 per cent, enabling Prescott to assume market leadership.
Being a new trend, as well as seeing many online businesses go under, the Prescott Board had been more than conservative in its approach. Consequently, it did what most companies wishing to cut costs do: it circled IT spends in red and asked for 20 per cent cuts in IT budgets.
Suvrat was taken aback. How was Prescott expecting to grow cutting back on IT?
Suvrat was not just Partner at Westing Brothers, a consulting firm that was advising Prescott on its strategy; his legacy went back to Sysmosis Ltd, a super power in analytics and digitisation, where he was a senior vice-president until two years ago. He had joined Westing Brothers to set up their new vertical in retail. His joining was timely, as e-tailing had begun to warm up rapidly in India.
That was why when Prescott wanted to define its strategy with a mere desire to cut operating costs, Suvrat was surprised. “This is a waste of time,” he said. “You need to gallop onward. Don’t think cost-cutting; you are not in that league anymore. At your stage, your spends have to quadruple. Not just your industry but the entire country’s retail experience is on a high…”
But his passionate plea went unheard, unfelt.
Westing Brothers’ client Prescott looked at five years hence, and profitability, both of which were anathema to Suvrat. He wanted aggression in IT and Prescott was choosing a baby game of carrom.
Suvrat’s transformation team suggested they begin by looking at potential cost-saving areas within IT and then lead Prescott to view investment-led business opportunity.
One obvious area that stood out were the run costs in development/tests. Here, Prescott was incurring repetitive costs to set up development and test environments (across its numerous branches), and changing the configurations according to needs of developers/testers.
A routine area involving routine costs, Suvrat suggested using cloud technology, which was reasonably mature and adopted by quite a few companies. This meant using multiple options available where developers/testers have access to environment which can be accessed on tap and managed with high degree of automation while also reducing the need to invest in a larger capex.
The retailer could convert a significant capex into opex — especially in this case where it was all developmental work — and reduce the time taken for doing many manual routine tasks like setting up a test image for a certain software in a few minutes which otherwise was taking a few days.
But this also meant Prescott would invest in cloud storage not just for development and testing but even for production storage needs. Data was growing exponentially and so were the storage costs.
Uniquely, the rebound surprised Suvrat. When he kept pushing one of his own engineers said, “I am confused,Sir... you are asking us to do something that will reduce time taken to do work, so the number of people I have on my team will reduce, and I am measured on how many billable hours I contribute from my team! You are asking me to do something that will impact my own work, my targets and, of course, the firm’s topline! How is that possible?”
Suvrat took a moment to understand where this thought stream came from. Even before Prescott’s mindset, he had his own team to worry about! Wasn’t that approach old hat? We will avoid high capex even if it means uneconomic opex in the long run. The Indian approach was to throw people at the problem, and technology options are considered last. His engineer’s desire to protect earnings per person per hour was like an upper sock on the lower jaw. Suvrat wondered about 21st Century India. Because we have always had a huge population, cheap labour has been a resource for us, he thought. This is a double-edged sword: at one level, we will not evolve into technology because we find cheap labour cost effective (from our mindset of poor technological effectiveness); at another level we will not grow their effectiveness because spending on training is again not what we see as necessary. In the process we unleash an ‘untrained- people-intensive’ model upon our business.
Suvrat saw that nothing had changed since he left India 14 years ago.
That evening, when Suvrat was wrapping up for the day, Alex Rajan, his partner at Westing Bros, stopped by. Sensing there was some issue, he asked, “Prescott doing well?”
Suvrat: Not really; have had a stunning emotional setback. The whole thing looks alarmingly different from what I thought we were getting into. We are trying to enable business growth, but Prescott’s definition of growth does not seem to include technology. We have a lot of work to do to engage them in a different level of thinking business. The whole thing about what is growth has not taken roots. Everyone seems to be running with ‘this year’s bottom line’, ‘this year’s targets...’ as the path to growth.
Alex walked in, pulled a chair and sat down. “Why ‘everyone’? Looks to me there are others than Prescott.”
Suvrat: Alex, I don’t even know where to begin. If I ask you what is the orientation we have for associates at Westing, it might alarm you or confuse you.
Alex: Wait. So, the setback you talk about is not to do with Prescott?
Suvrat: As I said, I don’t know where to begin. Prescott has mindset issues, say. But what makes that worse is that it is being serviced by people with mindset issues as well.
Alex: Oh....... Ok, what happened?
Suvrat: To give you a slice, I asked our service engineering team to induct the client into adopting a certain technology, a more efficient space in which to conduct their developmental testing. What he said sent me back from 99 to 2, like in Snakes and Ladders. He saw it as detrimental to his billable hours!
His words, ‘...you are asking us to do something which will reduce time taken to do work, so number of people I have on my team will reduce, and I am measured on how many billable hours I have from my team.’ That is a serious KRA for me!
So, you see, we are all on different pages…
Alex: That same old concern about redundancy lies at the heart of this. Isn’t it? Isn’t it? Many rural and small town banks continue to be a drain on resources because of this meaningless hanging on to people. Problem is not automation; problem is not the mindset of your manager; the problem is the top management’s inability to think of technology as necessary, undeniable. They need to start developing on a vast scale, all the low-level workers to bring them up to the state of the art — in the mind. No matter how old they are — 50, 70 or 100 years of age. When the individual grows, his family grows and thus the collective grows. So, at every stage, we need to bring up the team from their bootstraps, their mindset, so that their environment picks up the comfort of new knowledge.
Suvrat: We are aggressive about marketing technology to clients, while at home we are ourselves distanced from it! As I was driving back, it struck me that the person who raised the issue of billable hours was right in his own way.
Alex: How do you mean?
Suvrat: If KRAs are pegged to profits than product penetration, then this was bound to happen. Should not Westing design its KRAs more dynamically? Westing has a clearly spelt out credo that is technology led. How did that not enter the KRAs for managers? Surely somebody should have evaluated the credo and broken it into its components and converted them into achievable result areas? We should have removed obstacles to its adoption, even rewritten the KRAs. Change-messages need to pervade all transactions, all thought, all belief.
Alex: And Prescott?
Suvrat: Prescott cannot change till we do. If technology is not how we think, then how can we enable clients to think technology for business? I see such a sharp similarity in thinking between Westing team and Prescott. The latter thinks that profit must grow and it will use tech only to grow profits — hence for cost cutting and managing budgets and targets. The moment I tell him to use it for business growth, to invest, Prescott’s Abhilash Vartak sees it as expense, as expensive... He does not think growth involves cost.
Likewise our engineers feel that selling technology to clients must result in topline growth in billings for Westing Brothers. And that billings should be via more people working, more hours being recorded, clocking time even if it is empty! But it is counterproductive to our aim at promoting technology in business!
Alex: Heck… I am experiencing déjà vu… ...just recently I read a news item that said that India ‘has climbed 16 places and ranks at 55th position in this year’s Global Competitiveness Index, signalling an improvement and recovery of its economy.’ [And Alex read out... “To improve further, India must stay the course: its overall ranking is still hampered by one of the highest budget deficits in the world (131 out of 140), the quality of its electricity supply which is still too low ( 91st) and, surprisingly for a country with so many IT champions, the overall technology readiness of its businesses, which comes in at a poor 120, up just one position on 2014.”
Clearly not only is Prescott not technology ready, but so is Westing’s team!
Or take this, this news item that said India ranks fourth in hacked servers with 3,488 compromised servers as of May 2016. According to the investigation, many of the servers host or provide access to popular consumer websites and services.
Suvrat: That, to me, shows vulnerability and stupidity as well as lack of investment in technology. If you are a consumer website and you have not invested in security all the way, if you have not anticipated hackers, that is another form of lack of preparedness for technology. One thing is to know how tech works but reluctant to spend; the other is to not know enough about how tech works which is lethal because you not only do not know but you also have no imagination for the security risks that lie before you, not to mention your poor preparedness for better business.
Alex: All these are part of the same continuum of readiness for technology. If you have understood how technology works, then Prescott’s attitude of stepping back on investments is not making sense. Unless now as you say Westing could be confusing the client.
Suvrat: All that falls in the ambit of readiness. We are able to peddle IT but unable to use it? I see that paradox in education too. The greatest minds take birth in India, yet the importance we accord to education, to even the definition of education, including controlling the risks surrounding it like poor minds, corruption such as sale of teachers, bad salary structures, disrespect, etc., is incomprehensible! Why would that happen if we are truly education-ready?
Alex: Because it is placed in the hands of people who are not educators but in the hands of people who treat education like a business, seeking to earn out of the consumer segment, students. Or like professors who strike work and refuse to assess exam papers and nobody penalises them or thinks it is immoral for teachers to hold students to ransom. (And to think these used to be the values that India used to be known for!) Why? Because they are not held accountable for the children’s future. They are not being assessed for the national failure quotient. There is no audit trail!
Alex paused, then collecting himself he said, “I am sorry I got carried away. My son is in his final year of college and his professors (who continue to be called that) have struck work and refused to assess the final year students’ exam papers. Let me tell you, Suvrat, this is at the heart of the fear of billable hours! The need to make profit without effort!”
Suvrat: And this too therefore is at the heart of why we are not a tech-ready country. Because our fundamental intelligence is held in the hands of people who are indifferent to our growth. (Then, thinking aloud, he said) and therefore we do not invest in IT?
Alex: Depends on how you look at IT. If you look at IT as a cost line item, to be reduced to increase profit, you will approach it in a certain way.
If you look at IT as a business enabler, something which could add value at top line as well as bottom line, where investments in IT could help increase revenue, could help reduce risks, could help cut business operation costs, and could help improve user experience, then you would double your IT spend to get an edge over your competitors.
Suvrat: I am not sure if that is relevant anymore to have ‘ways’ of looking at IT, as much as there cannot be ‘ways’ of looking at water or electricity. (But then neither are those a given for us!) Technology is now core to business. No IT, no business. IT is a business imperative.
Alex: In fact, there is a proven correlation between IT investments and profit, and there is a peak point where additional IT investments will give diminishing returns. If you are below that point, and still wanting to cut IT costs, chances are that you will lose out in the business competitiveness in your peer group. For example, in retail, investing in mobile apps, and mobile payments systems could help Prescott leapfrog compared to their competitors and improve user stickiness. Investing in analytics technologies could help them gain consumer insights and align their business to these relevant insights and behaviour.
Suvrat: All that you said now only energises business vivacity, its robustness, causes business to gallop and conquer. It is what businesses need to do if they are in business, for business is about consumers and markets and products and people!
Alex: So, how about we explain — not market — to Prescott how investments in security software could reduce the business risk due to card thefts and customer data thefts and such like? If Prescott can offer this as a consumer service or a sales USP, it will increase consumer faith in them! I agree, there are multiple benefits of investments in technology, which will far outweigh gains from reduction in cost of IT, no doubt; but Prescott, like many others, is on the fence and needs hand holding. They are vary of investing because they think of opportunity gain, they think they will become transparent, they fear becoming transparent... I know the numbers; in Retail, IT budgets today are <3 per cent of the revenues)
Suvrat: I don’t know what goes into measuring technology readiness of companies or countries. Those measures may not be all perfect and they need some scrutiny as well. That said assuming that it is a fair assessment, and assuming that our readiness is indeed low, tell me, Alex, why is it so, given all the hype about our technology sector and progress in IT? I am feeling a bit betrayed for I came back to India to cultivate this field of IT to make it robust for India!
Alex: I have always maintained and believed that our success in IT and strengths is primarily a “success of services” than a “success of technology”. Our core value proposition for last 20 years has been, “I can do in Bangalore for $30 what you do in NY for $100”. So, it is about the “doing”, the “labour”, the “services” that we have excelled in.
So, the mindset is about how to “do things cheaply and efficiently” as against how to leverage technology for better productivity. If our ranking is low, it is because we never really believed in leveraging technology. Our approach still is labour based, effort based, not automation based…and that will take time to change.
Suvrat: We are not spending on research, on creativity, on innovation — that is what it means. Innovation instantly means courage to break the mould and redesign, rework, abandoning fear of failure.
Alex: The reluctance to touch the current state of the art is an anxiety about toggling the current state of the business, lest the current profits too just fall and die. So we would rather remain slightly happy than perfectly happy. My fear is that we have become too fat too soon with the early bird gains we made using our cost advantages so that our courage to step out of the box has evaporated. The ‘leveraging IT in business’ will therefore happen when we become truly dissatisfied with our intelligence applications.
Suvrat: Or when we get pushed to the wall by security issues. Alex, Security is my biggest concern at Prescott, I read that pilferage and cash till losses are huge in their Purchess business too! There is some murmur about losses and hence costs need to be saved. I have tried probing. But I still think not investing is dangerous. Underinvestment in security can hit you big time because data breach can cause loss of business and lawsuits where you end up losing much more than you saved... case of being pennywise pound foolish... .
To be continued...
Read Analysis: Anirudh Joshi | Saurav Adhikari