On Technology Strategy and Management – Michael Cusumano

I normally don’t write about outsourcing or management. Being Diwali weekend, and for some reason  didn’t enjoy the fireworks, I decided to peruse through my ACM journal archive and hence this posting. [Unrelated to Broadband or Telecom]

In October-2006 Issue of Communications of the ACM[Oct issue not yet available online], I read an article, “Technology Strategy and Management” by Prof. Michael A Cusumano. I agree with Prof. Cusumano’s findings on most issues except the following two.

True, India has nearly an unlimited supply of people and graduates thousands of engineers each year. But, India does not have an unlimited supply of experienced people in software engineering and project management and everyone’s wages are rising.

Sir, I am positive that the demand and supply can easily converge when you are in lookout for “experienced” folks. The rise in wages will adjust over the next couple of quarters and was mainly because of unexpected surge in outsourcing and the deadline pressures have made IT companies lure and pouch employees at higher wages. In the very same issue of the magazine, you should read the News Track column and the Outsourcing Twist article, which says, Infosys has 58,000 employees and plans to hire another 25,000 this year. Most of the hiring is at entry level because these engineers have the capability to undergo rigrous Training and they come upto the speed in no time. To remind you, these engineers work at 1/8th the pay of their Western counterparts without the need of hefty insurance benefits. Now try to model this with large number of talented engineers at the bottom of the pyramid being mentored by third or fourth of equally bright engineers and managers and move up the hierarchy. The Special Economy Zone Act is a blessing in disguise for the IT companies who will continue to enjoy tax concessions for next 5-10 years.

On Strategic Differentiation  – Infosys has invested 120 Million dollars in a Training Campus at Mysore which can train 4,500 engineers and managers at any given time with worldclass infrastructure. All IT majors have invested and will continue to invest aggressively in Multi Million Dollar Training infrastructure.

In the third problem, Prof. Cusumano talks about other emerging countries for the outsourcing pie,

Not many IT services firms have the scale of the Indian firms, which can handle projects of just about any size. But these non-Indian firms will grow, and offshore competition from other low-wage high-skill areas of the world will continue to intensify.

Sir, I was of your opinion as well and had placed my bet on few midcap/smallcap IT companies. But I was wrong. I remain invested in 8-10 top IT companies in India since 1999-2000. After my graduate studies and work in the US between 2001 and early 2006, I returned home and found Infosys and Wipro were the top gainers in my folio while Satyam, HCL-Tech and others lagged behind. I had an opportunity to discuss this with one of the top fund managers in the country and his opinion was Infosys and Wipro reached Billion Dollar sales mark and that helped them bag larger and mega outsourcing orders while Satyam and others lagged behind. So it is impossible for a startup based on outsourcing model to bag large IT orders with few exceptions where the outsourcing company itself opts for equity participation. (For example, Citigroup in Polaris, Progen, i-flex. British Telecom in Mahindra BT/Tech Mahindra etc.) Also to test the fund managers opinion, I bought more HCL-Technologies as it will decisively cross Billion Dollar sales this fiscal and so far the company results have been encouraging and the stock may get re-rated.

I am no management graduate but stock market is the barometer for every company’s performance and philosophy. Just track it 🙂