The Hindu Business Line : Running together

At the end of the day, what matters is the bottomline. That's why IT companies are increasingly tying the two Ps together — by making the Project delivery people also responsible for the Profit-and-Loss account.

KNOWING to drive a car is one thing, having one's hands actually on the wheel is another.

IT companies, constantly battling wage inflation, pricing pressure, and numerous other challenges to the bottomline, appreciate this difference. And are applying this logic to sharpen their strategies.

That's why, they are making their project delivery personnel co-responsible, along with the business manager, for the overall profit-and-loss (P&L) account.

Traditionally, project delivery set-ups have always been treated as cost centres. But as times change, it's time to change the way one manages one's operational finances so as to give that bottomline a healthy glow.

"Two factors are driving this trend that's set to become `the future operating model for IT firms'," says N. Krishna Kumar, President and Chief Executive Officer of MindTree Consulting's services business.

As the nature of services delivered becomes more dynamic, managing the scope of services too becomes important. In such a context, "Putting financial numbers to the delivery persons helps them to be more sensitive to managing additional scope," says Krishna Kumar. Moreover, with prices being stable but with increases in manpower and other costs, there is a need to drive operational efficiencies that, in turn, can improve the bottomline. "Making the delivery team drive this efficiency makes huge business sense," he says.

IT biggie Infosys Technologies has an organisation structure based on industry and geography verticals and each business unit (BU) has its own delivery and sales capabilities, says the chief financial officer, T.V. Mohandas Pai.

"The business units have P&L responsibility. They are responsible for their business plans and attainment of customer-related performance metrics and financial metrics," he says. This structure is primarily to empower these units.

This kind of a structure "will not only help ensure a closer alignment with business goals, but also help facilitate the execution of project," says Lokesh Bhagwat, Senior Vice-President at Patni Computers.

"At Patni, we are moving towards tracking project and account-level profitability. Thus the responsibility lies both with the business delivery owner and the project manager," he says.

"For IT firms," says B.V.R. Mohan Reddy, Chairman and Managing Director, Infotech Enterprises Ltd, "customer delight is key to ensure sustained growth and profitability. This is possible only if a vendor provides his customer with solutions of the highest quality, on-time delivery, at affordable cost, which can be achieved only through a team effort of the sales, marketing and delivery people in an organisation."

"High customer satisfaction turns our customers into advocates, which helps in generating new business," stresses Bhagwat.

Companies like iGATE Global have made delivery leaders co-responsible for revenues as well, whereas firms such as Infinite Computers, which see merit in this structure, are in the process of re-orienting themselves towards this.

"Margins were always a delivery responsibility," says Elangovan Kulandaivelu, Vice-President, IT services delivery for North America, at iGATE.

"Even in the past, delivery leaders would push back on taking up certain engagements unless they met certain margin targets."

Elaborating on iGATE's model, Elangovan says "We have made a portion of the variable pay of delivery guys dependent on the revenues. The reason being that we believe, at the end of the day, the company cannot reach its revenue goals unless the delivery leaders are also held responsible for revenue targets and work as a team along with their sales counterparts."

Implementation

MindTree has moved to a model where project managers are responsible for the gross margins realised from a project. "Even in the project bidding stage, we assess the gross margins from a project. Once the deal is finalised, the project manager tracks the gross margins on a month-on-month basis. Meeting gross margin goals is a key parameter in the assessment of the individual," says Krishna Kumar.

Reddy says this concept definitely brings about a disciplined approach to delivery. "Bottom-line responsibility doesn't rest on the senior management alone; it is the onus of the line managers also."

Project managers play a crucial role in customer satisfaction, as after a sale is made, they typically become the interface between the customer and the vendor. They, therefore, have responsibility for the profitability of the organisation, Reddy says, adding that his company has set up parameters to evaluate project managers.

These include: Revenue; Absolute Profit; Percentage Profit; Cost of Quality (internal to the organisation); Cost of Re-work (external to the organisation); Percentage on time of delivery; Market feed back analysis (MFA); Attrition percentages in high performers and Forced attrition for low performers.

All project managers at Infosys, says Pai, have P&L responsibility for their projects. This is one of the criteria in their performance evaluation and reward and recognition scheme. Their responsibilities span time and effort estimation, training and motivating their team, maintaining quality standards, customer satisfaction and also importantly working as per an approved budget, he says.

Infinite Computer Solutions, which started a re-orientation this year, has not yet made the delivery organisation a P&L entity, says the Chief Operating Officer, Upinder Zutshi. "However, we have started making project managers responsible for cost and schedule management. The key result areas of project managers now not only include adherence to schedule and delivery within stipulated budget and time, but also managing cost and improving process efficiency."

Zutshi adds "This also has a lot to do with mindset change. As an organisation, we strongly believe in empowerment and we have empowered the Delivery Organisation to help them become more responsive to the organisation's needs.

Having realised that they are responsible for the bottomline, project managers today are driving a series of change initiatives within the organisation to achieve higher efficiency. The whole initiative is driven through performance-linked bonus."

iGATE's Elangovan feels that unless the delivery leaders have a skin in the growth game, it will be difficult for the company to grow. "Otherwise, delivery leaders will keep refusing engagements citing low margin as the reason," he says.

iGATE has given project managers visibility to project-level P&L.

"A budget is created based on the price quoted and the estimated effort. We are making project managers accountable for deviations from the budget. We can hold them responsible only for the deviations as in most cases they will not have the final say on the price quoted. Managers may have agreed to a discounted price. Where there is no discount, we hold project managers directly responsible for P&L," Elangovan says.

More agility and discipline

Industry players feel the project-profit dovetailing will make IT companies more agile.

"I think more than agility, it brings financial discipline and prudence to a wider group of people across the organisation. It brings in speed because delivery managers are empowered to take decisions that are financially viable, and make business sense.

Delivery people take a more business-focused view and add value by improving the company's bottom line," says Krishna Kumar.

"With P&L responsibility, delivery folks are adding more value to the business.

In contrast to a centralised function, a decentralised business unit set-up with P&L responsibility allows them to focus relentlessly on their segment of the business, grow it and manage risks," says Pai.

"We are a portfolio of services and the strategy of P&L responsibility for business units is enabling us to manage the portfolio much more effectively," says Pai.

The process designed at Infotech provides consistency to ensure that decision-making processes continue to be fast and precise, says Reddy.

Of course, elaborate evaluation parameters can trigger minor conflicts but so long as they are consistent, they can be managed, he adds.

Patni's Bhagwat feels with this structure, the decision-making process is shortened. Zutshi feels it makes delivery people more responsive and agile.

Elangovan captures the consensus, saying that earlier sales folks would run from pillar to post for approval to take up a business at lower than targeted margins.

The time-zone differences used to make their job tougher.

Now, because the delivery leaders have equal responsibility for the revenues, they lobby equally hard internally for the necessary approvals. "As typically the sales and delivery folks are in different time zones, there is a round-the-clock chase to get the necessary approvals through a good handshake between sales and delivery."

Changing profile

With these new strategies, the role and profile of delivery chiefs is beginning to see a change.

"The delivery chief's profile has undergone a transformation — from that of a delivery role to a business manager. We have seen this in businesses that are global and are seeing this now in India," says Pai.

Delivery chiefs need to be a lot more business-focused and also need to be good negotiators to work out win-win deals with customers, says Krishnakumar.

"We could have a scenario where people from business roles move to head delivery functions and vice-versa," he says.

Reddy feels delivery chiefs will have to be more customer-centric. "Increasingly they will need to have prior client-facing experience so as to be able to really appreciate the pain points of the customer. This experience will allow them to not only understand client needs, but also look at how best to balance the needs of the project and the cost/profitability issues."

Infinite's Zutshi sees no call for a radical change. "In today's context, it is expected that the delivery head must be a techno-commercial person, with strong understanding of technology and customer requirements. The delivery heads have to align themselves to the organisation's business goals. In future, it will be expected that the delivery head functions as a business manager with expertise in technical and process knowledge."

Elangovan sees the roles of sales and delivery converging. "We have made a single person responsible for sales and delivery in existing accounts. It could be someone from delivery with sales/relationship skills or it could be someone from sales with delivery/execution skills."

So, delivery leaders need to acquire selling/relationship-building skills to succeed. The need for financial/business acumen is a given in such roles.

Impact on bottomline

P&L responsibility creates leadership, enhances accountability and improves the bottomline, says Pai.

Krishna Kumar stresses that "as markets become mature, operating efficiencies and focus on improving it will separate the men from the boys. Successful companies will be the ones that have made financial prudence a theme across various functions of the organisation." Reddy strikes a slightly different note, saying these initiatives are mainly to preserve, not improve, the bottomline.

"Managers with P&L responsibility are directly responsible for whether their division and/or the company as a whole makes or loses money.

Simply managing a budget does not mean a manager has P&L responsibility. A manager has P&L responsibility only if he or she oversees an aspect of the business that generates revenue.

Delivery is a revenue-generation function and making the people responsible for delivery manage P&L will yield tangible results," says Zutshi.

In the past, there would be a sales person as well as a delivery person managing an account.

By moving to a single touch point, the S part of the SG&A (selling, general and administrative) cost should come down for companies, leading to better bottomlines, sums up Elangovan.

vishwa@thehindu.co.in

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Spotting new pastures

Informal gyan

The fibre of `contention'

Quiz

Lessons on how the Net works

Cartoon