Changing paradigm: Indian IT industry needs a reboot

Published: September 23, 2019 3:59:41 AM

As IT companies revert their organisation structures from pyramids to cylinder and Eiffel Towers, they will have to rethink the staffing profile of their big bases

Rapid change seeds a bias against tenure, which is inversely correlated with niche skills. (Representative image)Rapid change seeds a bias against tenure, which is inversely correlated with niche skills. (Representative image)

By Manish Sabharwal and Supaul Chanda

Good doctors are mindful of iatrogenic risks—the unintended consequence of the treatments they prescribe. The HR adage that culture eats strategy for breakfast is under re-evaluation because of the unintended consequences of strong, or monoclonal cultures in times of rapid change, lower cognitive diversity, resistance to change, Nuremberg excuse (we were following orders), group-think (the warmth at the centre of the herd) and much else. Culture will always be important for the basics, like integrity and teamwork, but the weaknesses of strong cultures in a rapidly changing world need thoughtful organisation structures. Questioning structure is particularly relevant for India’s IT services industry, which needs transitioning from the hormonal exuberance of adolescence to the cruising speed of adulthood. We would like to make the case that their organisation structures are morphing from cylinders to hour glasses (broad at the top and bottom, but thin in the middle) as an interim stop on their way back to pyramids, but they need to target becoming Eiffel towers (very thin vertical structure with a broad base).

Good times breed their own problems; an unintended consequence of 30 years of good times for India’s IT services industry means that their pyramids have become cylinders, with too many project managers in the middle, too many generalists all over, too many legacy skills, too many people at the top, too many people in non-revenue accountability roles, time-bound promotions, and diffused performance management. But, future product, and labour markets for Indian IT service companies are very different from those in the past. The competition for talent is brutal—India’s 15,000 service companies compete with over 600 captive operations (software for non-IT companies by their own Indian subsidiaries), and 400 product operations (software being written for IT companies by their own Indian subsidiaries). The global backlash against immigration in rich countries is, so far, more bark than bite, but uncertainty over overseas visa regimes, like H1B, are set to continue. This needs moving to a blended revenue realisation per employee. Rapid change seeds a bias against tenure, which is inversely correlated with niche skills. Overall, client budgets are shifting from ‘run the business’ to ‘change the business’; this creates a scramble for people with skill adjacencies, leaving a mass of single-skilled people, and so called people managers on the bench, as work rapidly leaves the waterfall model for the DevOps model. Essentially, with their high people costs as a percentage of revenue, IT services companies need to reimagine their people-supply-chains by discarding the 80% utilisation paradigm for the differentiated made-to-stock, made-to-order, and on-demand talent ecosystems.

This has important implications for everybody. Organisations need to adopt the up-or-out threshold of the army (if you are not shortlisted for promotion beyond Colonel, you retire at 50) because the fresher-versus-experienced ratio needs continuous gardening. This will mean lower fresher hiring, and accelerating the decline of engineering college capacity (it peaked at 1.7 million per year, but may now effectively be lower than 1.2 million). Without devalued designations on offer, HR will have to work harder to sell quality of work, state of flow, quality of work relationships, and perception of fairness.

Organisations will have to invest more in re-skilling; companies can’t manufacture their own employees, but they need to invest in repair and upgrade by thinking about four campuses of learning (onsite, online, on-the-job, and on campus) at different price points, and different levels of learning effectiveness. Hiring, deployment, and skilling are no longer core activities in IT companies; they will not have an Uber-type relationship with employees for quite some time, but the past contract, or relationship, is dying, if not dead. Salaries will have to morph from the high levels of the past to basic plus deployment premium, plus skill premium, plus profit-sharing. Employees will have to take ownership of their relevance, skill levels, and careers much more than in the past. Organisations will have to rethink recognition and appraisal—the metrics for evaluation—more towards skill and contribution rather than tenure and longevity. Organisation structures are being framed more subtly—team extension models, where employees across several countries/locations work simultaneously on different facets of the same project/deliverable, depending upon their competence/capability. This moves away from the cost arbitrage model and leverages skills; it is time-effective, process-efficient, and can easily be dismantled, without much agony to team members.

As IT companies revert their organisation structures from pyramids to cylinder and Eiffel Towers, they will have to rethink the staffing profile of their big bases as a bunch of concentric circles. The core circle will always be a bunch of permanent employees, but the next circle will be apprentices—kids they are taking for a test drive. The next circle will be direct fixed-term contracts—senior people they are taking for a test drive, or alumni they are using for surge capacity. The next circle will be third-party fixed-term contracts—people they use for specialised skills, or surge capacity. The outermost circle will be freelancers.

Many people worrying about the future of jobs in India’s IT industry because of machine learning, and AI are focussing on the wrong variable. India’s IT cluster now has critical mass, and high switching costs because of a robust people-supply-chain, customer trust, and employee experience. We bet that current IT employment of 4.5 million will reach 10 million soon. What is less clear is which organisation will thrive and survive in the new world; Harvard economist Schumpeter described capitalism as a hotel which is always full, but the guests keep changing. The future winners will be those that morph their organisation structures to an Eiffel Tower.

Sabharwal is with Teamlease Services, & Chanda is with, Teamlease Digital (Views are personal)


Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.