The Hindu Business Line : Mix `n match talent

Strategy in the classic military sense is deploying your forces to achieve a competitive advantage, says Kenichi Ohmae in his celebrated book, The Mind of the Strategist. Though it is now 25 years since the publication of this seminal book, Kenichi's (often branded as `Mr Strategy') description of the 3Cs - the company, the competition and the customer - and their integration continues to hold the key to sustainable competitive advantage in any business. In its bid to maintain competitive advantage, the offshoring industry is, at this point in time, caught between two strategic stools. On the one hand, it is faced with a virtuous cycle of large deals, plethora of new service opportunities such as consulting or infrastructure management and an expanding footprint into geographies such as Europe/Asia. At the same time, it has to manage supply side challenges such as training and talent retention, move aggressively into other low-cost destinations such as Eastern Europe or Latin America and handle intense competition from multinational vendors. Keeping these variables in mind, we walked into the offices of Satyam Computers at Hyderabad recently to interact with Shailesh Shah, Director and Senior Vice-President, Corporate Strategy and Consulting and Enterprise Solutions. He has brought over two decades of consulting experience to Satyam, which spans PricewaterhouseCoopers, The Strategy Consulting Group and the Hay group, apart from his last assignment as Managing Director of Watson Wyatt (India). In the first part of this interview, we focus on how the industry can handle talent management and build non-linearity into the business model. Excerpts:

How can the industry build non-linearity into its business model? Is the current model of employee base growing in line with revenue growth sustainable in the long run?

Recently, we showcased a few numbers in a presentation that showed the index salary cost - with the US at 100, India at 16 and China at 17. The game has not run out of steam.

If you were to build this model from $2-3 billion to $10 billion, we are talking of five players gunning for that spot...

Seven players - you have to include IBM and Accenture. They are playing our game. All of us are trying for that spot, with each of us having in excess of 50,000 people. We (Satyam) will reach that headcount shortly.

In trying to extrapolate the employee requirement, do you think the growth is unsustainable?

One of the biggest follies that the industry has committed is to recruit only engineers. In a hot market like today, we are asking him to do application maintenance work. We are going to be smart about this now on. About 40 per cent of our revenues are coming from areas where 40 per cent talent required is not necessarily engineers. This completely opens up a new Pandora's box. Positive Pandora!

Even with the current batch of engineers we talk about lack of quality, and inadequate quantity...

We are changing that by at least 25 per cent. We are now talking about 40 per cent becoming something like 15 per cent. So we create 25 per cent capacity. India absorbed 1,25,000 of engineers last year. It is huge. The number required in IT services will be 1,75,000. Out of 5,00,000 engineers, it is still a doable proposition. It is not an impossible one. For the top 10 players I don't think the quality of talent is likely to suffer in the next five years for sure, for, the number of engineers you will take in will come down, from a sigma perspective. Having said that, the game is going to change from now in the marketplace. What is going to happen is a lot less application work, including legacy applications; instead a lot of transformation will happen. Therefore the kind of work we did in the past will either stagnate or start to come down a little. I don't think it is coming down in substantive strength in the next five years because there are companies in insurance or banking, where the security, quality and accuracy at which legacy applications are responding to clients requirements is so high that they don't want to mess with it. There are places where COBOL programs are still running. It is not going to run away. There are places where old legacy - 25 or 30-year-old applications continue to run, so there is opportunity to be had for companies such as us. So while we see a stagnation or slight downfall, it is not going to be substantial.

How would this game change...

What would change is the amount of work we do in the enterprise applications space, the amount of work we do in the managed services space or in higher value adding BPO space or in pure play business transformation and functional risk management, which is outside of IT services. The kind of talent for that would be different from the past. Satyam's Consulting and Enterprise Services (CES) division has at least 75 IIM graduates. Gut number is about 500 from the top 10 schools in the country out of 4,000 people in this division. If I look at the number of people engaged in the enterprise applications practice, it wouldn't be too far off. Across those 10,000 people in the entire enterprise applications space - SAP and CES work, it's driving 40 per cent of revenues.

That talent has not been leveraged for that capability - because there was such good growth anyway that you didn't need to. Now, that's the talent that would help create the offshoring component of onsite consulting. That talent will help determine how RIM (Remote Infrastructure Management) is managed differently. That is the talent that would work with the few copper sulphate crystals we add into our solutions from other consulting firms of the world that would create future consulting solutions - what would traditionally have been a 100 per cent onsite solution. Two things I am saying here. One, I can't afford to start looking at the future seriously if I have to focus on each quarter. As long as my quarterly progress is safe, I can focus on the quality, and quantity of talent pool, how will I rejig the talent pool, how will I change the pyramid of my talent pool? What is possible in India, in addition to what is possible in China? A $50-billion services market is what China and India together present. I should have huge strengths to service these markets. Besides, the world of manufacturing is in China. Which means they would have their R&D in China. Which means I need to be a serious player in China. Talent quantity is not a challenge. As long as I can go into Tier II cities smartly, we will start to reduce the pressure on salaries as well, even if not remove it completely. I have used empirical data from economies in the past - Singapore and HK in the '80s, the Philippines in the 90s, China during its big bang, salaries grew at inflation plus 10 per cent. They were all playing catch up. We will have to get smart. We will get smart. We will be able to bring down attrition rates as well as pressures on wage inflation. The bottomline is, today's game can be played for five years, not a problem. The game of the future will be: infrastructure, engineering, BPO, legacy transformation requiring sufficiently lower headcount. They would be consulting led versus follow on consulting. If you want to play smart, you will have to create KM (Knowledge Management) in your repertoire, as well as a decent, well-oiled back office in India or China.

The Global Delivery Model remains strong. But if we break it down into margin components and the operational levers such as onsite-offshore, SG&A (selling, general and administrative) expense, new service offerings and billing rates, do you think you have enough leeway to build on this element?

Last year, we were playing catch up. This year we may not need to catch up, but cruise along with the rest of the industry. That's fine. As to SG&A, the S part would only increase. It has to. It is scale and that is what we need to manage. Getting non-engineers into our strength, potential to recruit before graduation, which would change the nature of what you need to pay initially. We also need to create scope to go to Vietnam, Nanjing, Bangladesh and Sri Lanka . In terms of the quality engineers we would be happy in those economies.

maverick@thehindu.co.in

To be continued

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