Slow Down : A boon part 3

We had a new product release in our company and hence been quiet for some time.

Continuing from where I left last time, the biggest beneficiary of the slow down is the Engineering education system in India.

The last decade saw mushrooming of engineering colleges all over. Parents thronged to admit their children to these colleges as long as these colleges could show placements. To accentuate the problem the colleges started thinking only reason of its existence was to help students get a job. With an easy job market, it was not a tall order. They turned into a vocational institute and had lesser esteem in student's eye than a low end trainers like NIIT.


Typical expectations from a college :- building value system of their students, helping them develop a rationale problem solving based approach, enabling a smooth transition from student to professional life etc ; were no longer talked about. Most of the colleges did not have functional play fields or basic support for extra curricular. Forget things like research or publishing papers.

To accentuate the problem, the faculty after years of experience used to earn less than starting salary of graduating student. Only the dedicated few would not get tempted by higher salary or corporate world. As a result majority of the faculty was sub par.

How are things changing? With fewer jobs, college managements are forced to be progressive. This includes encouraging the faculty to persue post graduate and doctoral programs. Next given the poor job market ample amount of experienced professionals are now available to do faculty jobs. Last but not the least: - with fewer jobs, students are trying to take their studies seriously.

Signing off with a hope that we shall soon see a golden dawn for India

Slow Down : A boon part 2

I received three cute emails in follow up to my previous article, wondering who were the other beneficiaries of slow down. Hence I am breaking away from blogging only on weekends.

This is the SME sector of India. I spoke to handful of folks who own a manufacturing companies / units. These are very progressive folks. They believe in leveraging technology. However they had a problem while the boom was on, any respectable vendor was prohibitively expensive. Rightly so. Why should a company of the league of Infosys look at sub $2000 realization per man month in domestic business. To complicate it further, most of the work being outsourced from US was pretty low end and hence easy to deliver. The Indian SME segment would have wanted solutions built grounds up and require competence. Its human nature to take the path of least resistance and hence most of the companies worth their salt focused on international business.

The slow down has brought sea change. Suddenly companies like TCS is big on SAAS model and Infosys licensing its IP to Airtel DTH. Everyone is looking at domestic market. The refrain that Indian market is tough and dirty is gone. For lot of medium sized software companies India is suddenly a focus market.

Hence we have a sweet spot where in Indian manufacturing segment is becoming efficient and on the other end Indian software companies are moving up the value chain.

Will soon write on next beneficiary ... India's engineering education system

Slow down : A Boon for India??

I just came back from a marriage in Delhi. No one really cared about slow down. But in Bangalore it is big. Whether its media or whether a chance meeting with an old pal (ex colleague), slow down is the topic. Everyone thinks its bad for Indian IT. Let me introduce you to few folks. They gave me a different perspective. They rather have slowdown every now and then (though not permanently).

I met Rohit a passionate co-founder of a technology company. He is big on IT products targeted at SMEs. Their service offering is both SAAS and the conventional ownership model. Rohit loves the slow down. He could hire six youngsters whom he thought were excellent. He had not got to interview a reasonable guy in the last 2 years of boom (since co-founding the company ).

I had a brief chat with them. All of them were freshers (2008 batch engg graduates). They were extremely happy. Each one had a campus offer from "large companies". In a regular boom year, their parents and peer pressure would have forced them to join these companies. They took advantage of uncertain market conditions to convince all around to join this start up. Today when they exchange notes with their seniors working in the "large companies", they can only pity them because of extremely poor work content of their seniors.

However the curious side of me asked Rohit why did he not choose to recruit laterals when so many of them are available. He said, most of the laterals at 2-4 years experience level were one trick ponies who just knew how to perform a single job well repetitively. They were wasted and were no use in an environment where they need to provide solution every day.

Any nation in world becomes rich when backed by inventions (intellectual properties or IPs) of its citizens. Most of the Indian IT is not creating IPs but just doing repetitive low end work. This model can work only if exchange rate favours the dollars. That can happen only if US keeps creating new things and India keeps supporting the old ones. That is as a nation we are condemned to being stooge of outsourcing nation.

Given the nature of business and its history, an offshore service provider can easily out compete an innovation driven but domestic market focused company (for talent). Slow down is ensuring talent availability for IP driven companies (typically small). They are the ones which will get India leadership. Outsourcing industry can survive only if India is a step behind.

My second take away (though on a very small sample set of 6 freshers) is that some of the bright freshers are not going to waste their life being with one of the top IT services company which have only flashy offices to show for.

Will soon writen on the other beneficiaries of slow down .....

Satyam gone..... Wipro next

Satyam will not exist ... the question was never if but always when. Only the suddenness and the reason of demise caught people by surprise. It was given that consolidation will happen in IT industry. Everyone concurred on Satyam not making it.

I differ with the masses on the second name amongst big 5 - Infy, TCS, Wipro, Satyam and HCL. People think its HCL but my vote is for Wipro.

Lets examine weakness of Wipro

1. Exceptional leader at helm -
Mr. Azim Premji is best amongst all top IT CEOs. I am a big fan of his. I do not idolize anyone more than him in IT industry (minus FC Kohli). It took 6 exceptional people to do the equivalent in Infy what he did single handed in Wipro (TCS had still larger management bandwidth). To execute his vision would require exceptional leaders like Vivek Paul. Its very difficult to be lucky two times over. So we have a situation where in there will be a significant skill gap between number 1 and number 2. I have learnt things the hard way in life and this can be lethal even for a small organization , forget a giant like Wipro.

2. Succession planning
We never knew who after Ashok Soota or after Vivek Paul. The problem runs down the ladder. Most of the senior people give me an impression that their growth into a role or their passing on the baton was never planned. Most of the time progressions are rewards for previous job well done rather than ability to execute the new assignment. Last but not the least who after Azim Premji.

3. HR loosing imagination
For me Wipro's senior HR constitutes of folks who would do very well in an MNC. These are folks who could impress you in a short meeting but shall not be able to steer their organization to leadership. I could go on forever writing about the shortcomings. A glaring example would be that a friend of mine in Infy has 40% variable component in salary while his contemporaries in Wipro have just 20% variable.

4. Loosing out in campus recruitment / wrong philosophy in entry level hirings
Wipro does not get premier slots in engineering campus viz a viz its competitors. There are geographies where it even looses out to lower rung players like Cognizant. Its lower compensation than its competitors does not help. To make matters worse, entry level guy is not hired predominantly on potential but ability to answer questions which require rote.

5. Weak entry level training program
TCS and Infy have dedicated centers for training their entry level. Wipro significantly outsources the same. Also training is more vocational where in focus is on teaching individuals tools rather than fundamentals (however their WASE program for BSc folks is an exception). I know it will be strongly objected to by Wipro folks but I suggest they do a quick poll . This constraints them in hiring students from few engineering streams (Comp Sc/ Electronics etc).

6. Not walking the talk
Mr. Azim Premji ... no doubt is a very strong proponent of ethics. I have no doubt about Wipro's commitment to ethics. But down the ladder I feel there could be a disconnect. While bad apples are always there, the key question is when cornered are these principles the governing corner stones for people holding positions of responsibility. My personal opinion based on very limited datapoints is no. Besides I have heard of instances of team not being fair to new recruits (I suspect that it could be because recruiters get a better review if they are able to man a position at lower salary). I know of folks in mid management of Wipro who were not given a fair deal at time of joining few years ago and are today paying a price (slower than deserved career growth). Are they highly motivated .... answer is no. Ironically they have huge admiration for Wipro. So you have people about to move into leadership positions who are not going to quit because they like Wipro but are demotivated. The other glaring example dates back few years. There were a set of people I had interviewed and figured out in first 5 minutes that they had faked up their CV. Next I know they land up in Wipro. The recruitment could be a genuine error or just short cut to meeting target number of 2yrs experienced hires. I would not want to speculate but the scale and frequency of it in Wipro makes me asks "Is it systematic?".

7 . High stock ownership of Azim Premji
This according to me is a very positive point (and even for any investor). But lot of employees see any cost optimisation technique benefiting Mr. Premji rather than making the business (Wipro) competitive. I know lesser mortals will have limited thinking but unfortunately lesser mortals constitute 99% of any company.

Compare this with HCL. Shiv Nadar has found Vineet Nayar. As long as the marriage lasts its a deadly combination. HCL is overhauling its HR (has done leaps and bounds on that count). They have done huge internal PR on how they are not firing people. No recent exodus of senior management. However their campus program is managed by a guy who is very average (comes with disclaimer that I could be wrong on this count). But this is insignificant and transient. Its sad that in an industry where your biggest differentiator is manpower and campus the largest source of acquiring it, best folks are not put in charge of campus recruitment (across majority of IT services companies).

The last question is when do I expect Wipro to fall. In October 08 I was speaking to CFO of a semi conductor company who had previously worked with Wipro. He was shocked at my prediction of Satyam and Wipro. I gave it 2 years for Satyam and 4 years for Wipro. I was wrong on Satyam ... lets see how Wipro shapes out ....

As an investor, the best value I would get for Wipro is 2 quarters into the recovery.

Disclaimer : At no point of time I have worked with Wipro. My opinions are based on my experience including interacting with hundreds of individuals who have been (or are) part of Wipro. entire opinion is limited software services (export) business.