A Surreal Recession For India?

General Motors, automobile giant and one of the most awe-inspiring companies of the world filing for bankruptcy protection just startles me on how spiteful this recession has really been. The past year has been both continually unsettling and intimidating when we have watched some of the largest companies, including a few we admire, fail in their struggle to stay alive. Through this whole recession, we have seen a lethal cocktail of mass layoffs, ailing banks and housing market slumber in the US all cascading to turmoil in financial markets world over.

I wonder how this recession would have unfolded for an average Indian? With all the first world economies in a synchronized recession, India is no exception. The brunt of global recession has not only affected the nation’s IT sector on all edges but has also severely decelerated export growth of the subcontinent. Economic pundits believe that it is the mid-sized IT companies that are hit the hardest by this recession. Almost 75% of Indian IT revenues come from the United States. While the outsourcing wave is still in favor of India, Indian service providers have had a rough few months when US counterparts are either slashing IT budgets or negotiating lower rates. With the cost of fuel globally reaching its all time high, the manufacturing sector is not doing great either. Indian export sector is perhaps the hardest hit by the global recession. Exports plunged to record levels and slid 21.7 percent in February. India’s Trade Secretary Gopal K. Pillai recently commented that “the decline in exports is likely to continue until September 2009”.

Owing to my multiple trips to India in the past year, I have had the opportunity to observe these effects in reality. Although in India the effects of recession are certainly discernible, however the severity of the slowdown is not comparable to her Western counterparts. One reason India emerged to be considerably unscathed from the impacts of the US recession lies in the fact that the domestic demand and consumption in most sector is still reasonably strong. The current RBI Governor commented “India's growth will continue and even if there is some moderation, it will only be a modest moderation. But it will not be a recession...There will only be a slight deceleration." Having watched the reaction and attitude of people in Chennai and the United States simultaneously, I should say that the RBI Governor seems right.

Leveraging Lean Times: Beating Organizational Inertia

Most organizations face cultural and organizational challenges that cause significant deployments or practices to fail or be stalled. Any new systems beyond an isolated, specific, project-oriented deployment will require adoption from multiple groups.

I reckon that uncertain periods such as the current tormenting recession may be an excellent time to forge agreements across multiple business units and win partnerships with stakeholders to implement key organizational practices or systems.

Resisting and Embracing Change: Time and Tide matters

Change is difficult. Period! It is hard for us to step out of our comfort zone and subscribe to something we know little about or consciously change our patterns of behavior for the purpose of an organizational initiative. Learning to adapt to a new system is often cumbersome and more often than not, viewed as unnecessary for the normal functioning of activities.

There are several reasons people resist adopting a new initiative, system or process. I’d like to call them objective and non-objective reasons. Objective reasons are when we do not subscribe to a change initiative because we doubt the functionality of the initiative or when we believe the new initiative is actually detrimental in some ways to the organization. For example, “the new standardized reporting template does not capture some elements or data that is critical to the business unit”.

Non-objective reasons could be our preference to maintain individual identity (“ We don’t want the same template as the rest of these units of the company. They sell shoe laces, we sell lingerie; we’d like our own identity”) or simple unwillingness to step outside our comfort zone and do something extra or different.

Nevertheless, we will embrace new initiative and lend ourselves to change with certain incentives or change in external realities; especially if the resistance was primarily due to non-objective reasons. For instance:

Normally, we’d rather get our shirts laundered than spend the time pressing it, unless our wallet is shrinking and there are more essential needs we are fighting to maintain.

Normally, we may not like switching our air conditioning off and lowering our windows in the car to reduce fuel consumption, unless we are anxious the battery might die out sometime during the ride.

Anxiety due to change in present realities could often instigate us to embrace or experiment with actions or systems that will help assuage the uneasiness, prevent further pain or bolster the current situation.

Leveraging Lean Times:

Jeanie Daniel in “Change Monster” indicates that for a change initiative to succeed the emotional and behavioral aspects must be considered along side the operational issues. The emotions and behavioral sensitivity of the people are highly critical to their adoption to any initiative. She states “A crisis can be a very useful tool for leaders who recognize that their company is in stagnation, but need proof of it to convince their stakeholders to change.”.

I suppose with the recession and ubiquitous downsizing, employees might be more understanding of the pains of the organization to reduce costs by certain standardization requirements or participate in systems or processes that will help bolster the performance of the company. The willingness could stem from an understanding of the financial woes of the company or from anxiety of uncertain employment conditions or job security.

Also, during times likes these, the financial woes of the companies are taken much more seriously and the struggle trickles down to every employee in the firm; rather than sticking to the board room or the senior managers.

Organizations should capitalize on change in the external realities that affect the anxiety and keenness of employees and revive or initiate positive change initiatives (like identifying avenues to reduce wasteful spending or look for standardization opportunities). Such periods of anxiety and uncertainty help shake-out organizational inertia and propel wider participation on new initiatives that are transparently significant to development. Employees would be much more attentive and willing to see the thinking that goes into significant decisions and participate in important change initiatives, if the change is clearly communicated and the resistance is non-objective.

Leonard George
Cquensys

What bothers the CIO?

Pervasiveness of IT Systems

It is no news that IT systems have grown with astonishing maturity and can now supplant human effort and assist in the improvement of business in much more scenarios than we had initially envisioned.

There is a host of software that will either entirely or significantly facilitate every conceivable business process. From large-scale ERP systems to disparate information management systems, inventory systems, HR systems, CRM systems, POS systems or even front desk token management systems, the “software population” and correspondingly hardware has increased exponentially and permeated every process of the organization.

We are aware that IT is required for the completion of most tasks and is “central” to the functioning of almost every firm. Once a well-designed piece of software is installed and has been imbibed in the routine of the business, there is no questioning its necessity, at least not when the organization is in good health.

However, firms are grappling to fight the corollary to this increasing pervasiveness of IT systems in business – drastic increase in cost of managing the IT infrastructure. IT infrastructure costs stand glaringly at the top of the expenses column for any firm with sizable IT operations.

The Cost Problem

With the recession being this vicious, organizations are under incredible pressure to slash costs and post even a half-decent bottom-line figure to the P&L statement. Obviously, the pressure for costs management comes trickling rather tumbling down to the IT department to review the cost allocation. CIOs and senior IT managers are grappling to find a solution to maintain the existing service levels offered by the IT department to the firm and decrease costs. Likewise, individual business units are under tremendous pressure to manage their IT needs with a reduced budget allocation. In turn, departments are required to scrutinize their IT operations and possibly find ways to reduce the charge-back costs.

Organizations are responding to cost pressures in different ways. In most cases (except in cases where the IT management is already mature and is governed using best practices), IT cost pressures are managed through a combination of one or more of the following reactions:

1. Scrapping development projects 2. Placing projects on hold 3. Lay-off development folks 4. Renegotiating vendor contracts 5. Reducing service levels 6. Outsourcing development work

Rationalizing Reactions

Each of the above scenarios gives rise to further questions.

1) If a development project could be scrapped it needs to be non-critical to the success or future growth of the organization. This begs the question on why it was being developed in the first place?

2) If projects are placed on hold, do firms typically do a cost assessment on the delayed availability of the application and hence any loss in opportunity or business cost?

3) The most unfortunate event is the lay-off of employees. In which case, the painful and unfortunate truth is that large firms do not measure and retain the best and brightest talent during these times. Or do they? Is the cost of re-hiring and nurturing talent to existing levels of competence lower than supporting them for a stipulated period?

4) Does outsourcing really derive cost-efficiency? If so, why was it not considered earlier?

In these cases, we could rationalize that while several firms do mechanically go through the above motions as a reaction to cost pressure, the “smart, well governed” firms would not do so without weighing in future consequences of the current downsizing or considering the competitive advantages to be reaped by consolidating the best systems and talent during lean times. Experts constantly state that turbulent times are best for organizations to strengthen their R&D, strengthen their value proposition and gain market share. So, the answer that presents itself to rationalize the above actions taken by firms is that “firms are forced to make trade-offs”. Sometimes excruciatingly painful trade-offs!

My interest is in learning how different organizations respond to costs pressures in the treatment of their IT or how does the treatment of IT get affected during turbulent times? How do firms rationalize and approach these trade-offs (related to downsizing IT)?

Also, do organizations open themselves more to embrace innovative processes or consider previously untested processes in the wake of cost pressures? For instance, do organizations that have not outsourced before consider outsourcing as an option?

Leonard George
Cquensys