The Hindu Business Line : Shun `culture of waste

Pat comes the reply from Rahul Patwardhan (Pat), CEO Global Service Delivery (GSD) India and Director - Application Services, LogicaCMG, thus: "The Indian IT (information technology) industry is currently resting on its laurels. It has to think ahead and move away from the current unipolar thinking."

Indian IT companies need to look internal to their business and see how they can reduce manpower on the bench (currently at average of 30 per cent), adds Pat, during the course of a rapid telephonic conversation with eWorld recently.

"The industry needs to strive for utilisation that is similar to the manufacturing sector. IT seems to have gotten used to a `culture of waste' and productivity has taken a backseat," he rues.

"Unless there is introspection, external variables such as the rupee appreciation will continue to plague the industry and we will always be in a panic mode. What IT requires is industrialisation," Pat elaborates, over a subsequent e-mail interaction.

Excerpts from the interview.

First, a fact sheet about GSD in the company, its growth, share in total headcount, revenues; and also the larger picture, about LogicaCMG, its other divisions and the company's place in the global IT map.

LogicaCMG is a major international force in IT and business services. It employs around 40,000 people across 41 countries. The Global Service Delivery (GSD) organisation is close to 10,000 people with 2,500 of them based in India.

India as a market is of strategic importance to us. One of our key objectives is to have 30-40 per cent of group revenues to come from value-based outsourcing. Our focus is on service delivery and marketing our India capabilities to the global markets, and for the same we will, therefore, ramp up our capabilities at GSD, India.

Our solutions and services span consultancy, design, systems integration and valuebased applications and business process outsourcing. Our business is structured around five core vertical market sectors, viz. energy and utilities; financial services; industry, distribution and transport (IDT); space and defence; and telecom and media and public sector. Such industry focus means that our services and solutions are tailored for the challenges that our customers face in their specific markets. Headquartered in Europe, LogicaCMG is listed on both the London Stock Exchange and Euronext (Amsterdam) and traded on the Xternal List of the Nordic Exchange in Stockholm.

How has GSD evolved over the years?

Though the concept of offshore delivery is over a decade old, GSD is relatively new. It has evolved in the industry really over the last five years. The industry is still perfecting the model and it will be crucial during the consolidation phase that the IT industry will face. The pure offshore model followed by many companies involves large-scale delivery centres in low-cost locations with very minimal presence on site. In this model, the on-site location is considered as a cost centre and is staffed quite often with people who are not familiar with the local culture. This results in challenges to address the cultural and communication gaps especially in Europe. `Blended delivery' is a unique model where delivery is provided through an optimal mix of on-site, near-shore, and offshore resources to deliver a seamless and consistent service, which is in compliance with client requirements, cost factors and skill sets required.

When customer complexity or risk is high, the service is delivered on-site, and as the complexity and risk becomes lower, near-shore and offshore delivery locations are utilised. The blended delivery model perfectly addresses the unique requirements of the European outsourcing market. This approach helps ensure that the right degree of customer intimacy is retained onsite and that quality services are delivered from the right global sourcing location to meet the client's service delivery requirements at an acceptable price.

What is different in your model of GSD?

Some of the key differences in our GSD model are as follows: Integrated, common window to access whole of global services production facilities for a sales person in any country. Country units do not need to deal with multiple offshore units directly.

Deliberately globally distributed (not over-weighted on one country). Adopts shared services model for all activities by organising all competencies globally as a single unified global "plant" for each competence, fully tooled to act as one plant. Blending on the fly across locations. Output service unit pricing rather than input effort based pricing.

Third generation industrialisation of IT services production - ahead of industry. Paradigm differences in factory management: such as, low bench (less than 10 per cent instead of 30 per cent bench prevalent in industry), and daily capture of production statistics unlike the prevalent monthly- and project-based metrics capture in the industry.

A success story that showcases the best of your potential.

Let me tell you about our work for InBev, the world's leading brewer active in over 130 countries and employing more than 86,000 people worldwide. The company is transforming itself into a leading global business: a strategy that implies more streamlined and centralised IT services. To help realise its vision, it sought out suitable external partners. LogicaCMG's close understanding of InBev's business, its flexible approach and a previous successful relationship in Germany were all cited when InBev made LogicaCMG its strategic partner for application management.

InBev wanted to focus first on its regional capabilities. It signed a 70 million euro fiveyear contract with LogicaCMG in June 2006 to manage its Western Europe and global headquarters business systems. Six months later, the contract was extended to cover Central and Eastern Europe. Under the agreement LogicaCMG manages InBev's core applications, including a new SAP-based ERP system. It also supervises subcontractors and other service providers. LogicaCMG also took on 110 InBev employees. The result was an application service environment that harmonises operations in 17 countries spanning 12 time zones from County Cork to Bering Strait. A significant amount of the delivery solution involved an India component. InBev has reduced operational costs, improved service levels and is gaining broad business benefits.

Was there a trigger for the innovation in GSD that you talked about?

The main trigger for innovation in GSD is the need to shorten the time to market for our products and services and gain competitive advantage in the marketplace. Innovation in LogicaCMG is considered as `the growth engine for future revenue streams and basis for sustainable development of the business of our clients and our own'. As a global organisation, we believe in leveraging talent on a global basis to meet the business requirements. The GSD organisation has a key role to play in leveraging innovation across the centres we have in the UK, the Netherlands, India, the Philippines, the Czech Republic, and Morocco. We leveraged the product engineering talent available in India, to manage some of the key products in our portfolio. The Innovation Centre established in India is responsible for the creation of knowledge-based assets in futuristic technologies, which can then be converted to commercially viable solutions for our customers. This Centre is working on technologies in the areas of intelligent transportation systems, collaborative work environments, next generation networking, biometric and mobility based solutions. These technologies have a high potential to deliver solutions, which will be of great interest and demand in the market.

Why `industrialisation' in IT? How would you define the word? Are there also other lessons that the IT industry can usefully learn from manufacturing?

The IT industry is poised for a sea change. Most Indian companies and MNCs (multinational corporations) follow a linear growth path between revenue and headcount. No one is talking of productivity or efficiency.

Industrialisation is really about improving productivity, increasing efficiencies, reducing costs and automating as much as possible. The profit margins in our industry have blinded us. For companies to stay in business they will have to take a close look at their business models.

The manufacturing sector does not have high margins and has been forced to manage its processes and production to a near 100 per cent efficiency and productivity levels. It is time for the IT sector to take a page from the manufacturing and automobile sector.

At LogicaCMG we are going the industrialisation route. We are lucky that our people numbers are manageable and spread across 41 countries. The key challenge to industrialisation is really rolling it out to large workforces and it will be difficult for many IT companies to do this.

Industrialisation in the IT sector is really about how you can measure productivity, increase it and translate it to customer satisfaction. If you walk into any manufacturing plant, you will see dashboards displayed, measuring productivity, first yield quality and a host of other parameters on a daily if not hourly rate.

We have taken this concept and have started measuring our productivity on a daily level. These are still initial stages and we are rolling this out unit by unit. In our Application Services and ERP (enterprise resource planning) business we have already attained a plant-like efficiency.

Unlike popular belief, the IT worker will welcome the concept of industrialisation and productivity measurements. The blocks are really in the management's minds.

In what ways is Europe different from other markets, from the perspective of an IT services vendor?

The European market is diverse and fragmented especially when it comes to outsourcing IT and business services. The multi-country, multi-language, and multi-culture composition of the European market, along with the diversity of business practices around accounting standards, risk management, labour regulations and social legislation make outsourcing a very complex proposition.

The European countries except for maybe the UK have always been risk-averse and do not offshore completely. They take into consideration various social and political dimensions.

Workplace regulation is extremely complex in the European Union. France, for example, is the only country to have a 35-hour legal workweek. There are several labour union contracts that need to be understood and managed. The Transfer of Undertakings (Protection of Employment) law mandates that the employment terms and conditions of employees will have to be protected if they are forced to be laid-off due to outsourcing agreements.

Despite the intense pressure faced by European companies to cut costs to remain competitive, they are severely constrained from outsourcing their IT and business processes to achieve the desired cost reductions.

On rupee appreciation and its impact on IT companies. How have you been tackling the rupee rise?

No doubt, the rupee appreciation has taken its toll within the IT and ITeS (IT enabled services) industry with 9 per cent appreciation against the US dollar and 5 per cent against the Euro. If an IT services company is here in India for the cost advantage primarily, then it would be a bit out of luck, of course, not taking away the gravity of the concern. The rupee appreciation has really triggered the battle for Europe and we will see a lot of action in this market.

LogicaCMG is a pan European player and has been one since its inception. The rupee appreciation is not a concern for us at this point of time and we are focusing on strengthening our leadership in this market.

What are the exciting projects you are currently working on? Are you on the lookout for acquisitions? Any specific issues in integrating the earlier acquisitions?

We have quite an interesting and varied portfolio. To start with the oil and gas sector is extremely promising for us in India and we are working closely with SAP on this. Together we have created the first SAP `proof of concept' (prototype) of a solution that spans the entire natural gas transmission and supply process.

You may be aware that we are highly acknowledged for our offering in the BFSI (banking, financial services and insurance) space, which is primarily focused on financial crime solutions. We are already implementing RTGS (the Real Time Gross Settlement System) for RBI.

Logica is also developing an eCall system for the European Union (EU), as part of the `intelligent transport systems' initiative. The eCall is a pan-European in-vehicle emergency call system that uses the European emergency number 112 in the event of an accident. This system aims to provide immediate rescue services to victims in car crashes anywhere in the European Union member states.

It is estimated that the eCall system could save up to 2,500 lives a year in the EU and in particular, could significantly reduce the severity of the injuries sustained in 15 per cent of cases.

If you look at our history, our growth has primarily been through mergers and acquisitions. Currently, our focus is to consolidate the recent acquisitions and leverage the strengths we now have in key markets.

Do you perceive a shortage of any specific skills in the industry? Are there ways to make more people employable?

Employability is a bigger crisis than unemployment itself. This is also why companies are investing heavily in continuous professional development programs for employees as well as turning to methods like e-learning to make people employable.

The issue of skill-sets is more at a fundamental level and the onus to align education to industry rests with decision-makers within the industry, academia and government circles. Potential beneficiaries should be able to start learning as early as their high school days.

Can you explain the process involved in a typical engagement, along with the time taken at each step? Would it be possible to reduce the lead-time?

A summary of the process involved in a typical engagement is as follows: 1. Review and analysis of the existing applications. 2. Review the support arrangements and resource requirements. 3. Define the blend and the delivery centre from where the service will be delivered. 4. A transition plan and a knowledge management plan are drawn up for each application. 5. If they are in place, the transition process of the applications takes place. 6. If not, we set up a factory-based process, which conducts further analysis as the first stage of an industrialised process. 7. The support regime for the application in the steady state is established. 8. In parallel, the factory process is established. 9. When the steady state has been established, the transition takes place. 10. There is a sign off process for each application.

Time taken varies depending upon the number, size and complexity of the applications. Improving the productivity in each step of the engagement can reduce the lead-time.

Is customer churning a major issue in the industry? What are the key drivers?

Customer churning is once again a reality, driven by several factors. However it boils down to - not having a strong in-country presence, lack of domain knowledge and bandwidth in managing development work, unclear/ undefined processes, inexperienced staff, and lack of support from the right competency centres.

How do you groom leaders, nurture talent, and promote innovation?

Being `an employee-friendly company' may sound like resorting to a clich‚ within the IT industry, but the truth is that, it's the very basis on which any company survives and progresses. As people become differentiators, investments in employees become extremely important.

So right from providing a platform to work on niche and interesting portfolios for inculcating a product culture that furthers innovation, to spending a huge proportion of time and effort to build Gurucool and Gurlabs, which are dedicated to employee growth management and learning, we are an extremely process-driven company.

It can be perceived externally as being a painful factor but we are very proud of that because it actually helps us to measure the outcome of our efforts to the last detail.

Bio:

Rich experience

Rahul Patwardhan (Pat), a production engineer from Mumbai University and an MBA from IIM Calcutta, has more than two decades of experience in a wide range of senior management roles, such as strategic planning, new market entry, joint ventures, acquisitions, strategic alliances and operations, and business unit management.

Prior to joining LogicaCMG, Pat was President, Europe/Asia-Pacific at one of India's leading IT solutions and services provider, NIIT. His area of responsibility included the UK, Continental Europe, Greater China and Australasia amongst others.

Pat functions as a key member of the company's global delivery team. In addition to heading the India GSD operations, he is also responsible for all the application management, maintenance and support work undertaken by LogicaCMG in its offshore, near-shore and onshore locations.

LogicaCMG's GSD centre in India is the SEI-CMMI level 5, PCMM level 3, BS 7799 and ISO 9001:2000 TickIT accredited global delivery arm of LogicaCMG plc, and is a strategic global sourcing location for the group. The Indian operations are the fastest-growing unit of the group.

dmurali@thehindu.co.in

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