ThoughtWorkers are always up for a robust debate :-) A recent one was on why India is a IT powerhouse. Some commonly offered reasons were demographics, cheap skilled labour and conformance to quality standards. I ventured that it perhaps is also because of the culture of free overtime that is very much the norm in big IT service companies here. That led someone to remark something to this effect: "The amount of voluntary free overtime a workforce is willing to put in to meet delivery promises is a measure of it's hunger for the customer's business".
Fair enough. Now, it appears that Indian IT is acting less hungry than the IT workforce in countries like Vietnam, Russia and Poland. Wage inflation and a strong rupee are threatening to make Indian IT less competitive. On the other hand, the nouveau rich IT class of India has tasted the good life and is loath to put in free overtime. This raises questions about the future of Indian IT. The "Survival of the hungriest" theory posits that the survival of Indian IT is at stake because our workforce is just not so hungry anymore. I foresee an Indian edition of the book from the Pragmatic Bookshelf, "My job went to Vietnam". This is a dismal theory (though it may unfortunately be true). Staying competitive by relentlessly focussing on operational efficiency (and free overtime) is a zero sum game. Eventually, all life will get sucked out.
There is a way out for businesses that don't want to get caught in this vortex of staying hungrier than the rest. Up your game. Innovate! Keep figuring out the next big thing. Clearly, easier said than done. But that has to be the model for a smart consultancy. A smart consultancy makes money during the first half of the hype cycle. A volumes based consultancy makes money during the latter half. Clients that engage smart consultancies typically do so for competitive advantage. Clients that engage a volumes based consultancy typically do so for reasons of cost savings. "Survival of the hungriest" only applies when all other things can be considered equal. Innovation, by definition will never be a commodity. A smart consultancy can escape the trap of this theory by relentlessly nurturing innovation.
One might argue that a smart consultancy can continue to command a premium even in the second half of the hype cycle. There is a class of large, complex business software that has always been difficult to build and evolve. A smart team can, in theory, perpetually continue to add value by writing supple code, releasing early and often, following user centric development and always thinking from the point of view of the customer. Clearly, this is a proven model.
However, I have seen this model run into trouble. The first problem is that of under appreciation. When everything is going great with a big piece of software, client executives sometimes fail to appreciate that things are good because of the smart team behind the software. Instead, they think, "Things have reached steady state and this smart consultancy is charging me a bomb to steer a trouble free ship. Let me bring in some competition or persuade them to reduce rates." This is the beginning of the downward spiral.
The second problem is that of intangible benefits. It is possible to get a quotation for rescuing an unmaintainable legacy codebase. However, it is very difficult to convincingly project the savings that accrue out of a well written maintainable codebase. So, it is a wasted effort in the eyes of decision makers who don't understand software. Also, the time period over which well written software pays off is greater than several financial reporting cycles and sometimes greater than the tenure of client executives. It wouldn't be too much of a stretch to say that paying for well written software seems to be at odds with reporting quarterly profits. These factors make it vital for a smart consultancy to constantly highlight achievements to decision makers. Just letting the results speak for themselves can be tricky.
Conclusion: A combination of a first-half business model and a highlight-achievement-savvy second-half business model can help a smart consultancy steer clear of the "hungrier than thou" spiral.
Fair enough. Now, it appears that Indian IT is acting less hungry than the IT workforce in countries like Vietnam, Russia and Poland. Wage inflation and a strong rupee are threatening to make Indian IT less competitive. On the other hand, the nouveau rich IT class of India has tasted the good life and is loath to put in free overtime. This raises questions about the future of Indian IT. The "Survival of the hungriest" theory posits that the survival of Indian IT is at stake because our workforce is just not so hungry anymore. I foresee an Indian edition of the book from the Pragmatic Bookshelf, "My job went to Vietnam". This is a dismal theory (though it may unfortunately be true). Staying competitive by relentlessly focussing on operational efficiency (and free overtime) is a zero sum game. Eventually, all life will get sucked out.
There is a way out for businesses that don't want to get caught in this vortex of staying hungrier than the rest. Up your game. Innovate! Keep figuring out the next big thing. Clearly, easier said than done. But that has to be the model for a smart consultancy. A smart consultancy makes money during the first half of the hype cycle. A volumes based consultancy makes money during the latter half. Clients that engage smart consultancies typically do so for competitive advantage. Clients that engage a volumes based consultancy typically do so for reasons of cost savings. "Survival of the hungriest" only applies when all other things can be considered equal. Innovation, by definition will never be a commodity. A smart consultancy can escape the trap of this theory by relentlessly nurturing innovation.
One might argue that a smart consultancy can continue to command a premium even in the second half of the hype cycle. There is a class of large, complex business software that has always been difficult to build and evolve. A smart team can, in theory, perpetually continue to add value by writing supple code, releasing early and often, following user centric development and always thinking from the point of view of the customer. Clearly, this is a proven model.
However, I have seen this model run into trouble. The first problem is that of under appreciation. When everything is going great with a big piece of software, client executives sometimes fail to appreciate that things are good because of the smart team behind the software. Instead, they think, "Things have reached steady state and this smart consultancy is charging me a bomb to steer a trouble free ship. Let me bring in some competition or persuade them to reduce rates." This is the beginning of the downward spiral.
The second problem is that of intangible benefits. It is possible to get a quotation for rescuing an unmaintainable legacy codebase. However, it is very difficult to convincingly project the savings that accrue out of a well written maintainable codebase. So, it is a wasted effort in the eyes of decision makers who don't understand software. Also, the time period over which well written software pays off is greater than several financial reporting cycles and sometimes greater than the tenure of client executives. It wouldn't be too much of a stretch to say that paying for well written software seems to be at odds with reporting quarterly profits. These factors make it vital for a smart consultancy to constantly highlight achievements to decision makers. Just letting the results speak for themselves can be tricky.
Conclusion: A combination of a first-half business model and a highlight-achievement-savvy second-half business model can help a smart consultancy steer clear of the "hungrier than thou" spiral.
(Hype cycle image: courtesy Wikipedia: http://en.wikipedia.org/wiki/Image:Gartner_Hype_Cycle.svg)
5 comments:
Hi Sriram, great post!
My question to you is: isn't the "smartest" consultancy also the cheapest one?
I mean, why paying a lot of developers of a "volume" consultancy if you can perhaps pay just a few from a better one?
Regards,
Francisco
>>isn't the "smartest" consultancy also the cheapest one?
In my experience this is generally not so at the time of signing up for a project. Over time, a smart consultancy delivers a lot more value by the way it engages with the customer. Hence the eventual cost per unit of value (if such a thing could be measured) will turn out to be pretty low.
I think my job will go to China or Brazil before it goes to Vietnam (or anywhere in South East Asia). Those two just seem so much 'hungrier'!
Yet another difficulty with continually innovating is getting someone to pay you to tackle the high risk associated with innovation's potential high reward. Even if you get client buy-in, I think it'll be a while before they actually pay you to be innovative, considering they just want to 'get their job done'. The alternative of internally funding innovation directly eats into your expected reward and takes you back to the operational margin discussion. Talk about your vicious circles!
Also, innovation isn't something that can be sustained in the common sense of the word. To continually innovate, you also have to continually identify/invent opportunities to innovate.
@Saager: I think it's very much possible to continue to innovate and to continuously identify opportunities all the time. I have conducted business this way, and have worked for a company that lived this very way. Sustaining innovation was then just a way of life.
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