Tuesday, June 30, 2009

IT / ITES Companies: Margins Management - A personal view

During these recessionary times, every small or big business / company is looking to save their margins. When their top line is coming down at a high speed, it is becoming difficult for them to maintain their margins with the expenditure still rising or at best being stagnant. With this at the back of their mind, each company is looking forward to cost cutting and IT budgets are the prime targets. In such a scenario, with every Jack in the market looking to slash their IT budgets, then how do IT / ITES Companies maintain their margins or bottom line?

Let’s start with the major cost heads at an IT company. I would say it to be manpower, infrastructure and operational. Manpower costs include salaries, training and knowledge management and other allied activities. Infrastructure can be both the IT and immovable like Land, building etc. Operational would include travel expenses, facilities at office, electricity, water, etc. Out of these, I believe if we can target manpower and operational expenditure, we should be able to bring handsome reduction in the net expenditure in the profit and loss account.

Salaries demand more than 40% and manpower costs around 60% of the net expenditure pie of a typical IT company. If we can somehow target this segment, we can achieve some justice in our endeavours. Some major areas that constitute manpower costs as a whole are: Employee Salaries, Employee benefits like paid holidays, ESOPS, other perks, etc, Training Costs, Knowledge Management Costs, etc

I will target each of these heads separately and give suggestions as how these can be targeted. Salaries are a major cost head in the profit and loss account of a service based industry like IT. We can look to rationalise the constitution of a project with respect to its resources in the manner of their seniority and their cost and earning capacity. Senior members in the team should be moved to high revenue earning roles, so that margins improve. This will give double benefits: seniors would enjoy and cherish a new and challenging role which warrants people high on experience and worth and this will allow us to bring parity to the margins as well.

Another most common way this is being tackled with this year at most of the major IT companies in India is: NO SALARY HIKES. This is working well in the short term for the company as the employees are looking to tide the bad economy and even the management wants to tide the bad phase and get a fresh start with a better economy. However, I feel this approach is fraught with a lot of problems in the longer run. Once the economy turns for good, the employees who are feeling betrayed at no salary hikes (in the times of inflation and high prices), will look for greener pastures and change loyalties. This way, the companies may loose good employees whom they have trained over a period of time and were well attuned to the company and its ways and the ways of the clients they were dealing with. Starting a fresh with new employees would be tough when we are reeling under pressure from all the sides.

Optimising employee benefits would be another important area to touch, because I believe due to high margin cushion in the olden days, companies and their managements were able to maintain such lucrative and tempting employee benefits like ESOPS and other perks. However, during these bad times, which will allow bad processes to die their natural death and lead to optimization in every area possible, I think, rationalising such benefits would be a good thing. The companies should not stop these benefits at one go, because again it may lead to bad tastes with the employees. I would suggest taking these steps gradually and optimising them step by step.

Managing onsite – offshore composition would be important. Keeping a high number of onsite employees is very costly and can turn the balance against you. Hence, managing this ratio carefully on the basis of complete cost-benefit analysis is important. One can look to reduce the senior management of the project form onsite client locations and have only the actual ground workers working from such locations. Even the number of dormant executives like those from sales, marketing and other such allied functions can be recommended to go back home and work from there. Even having common heads based on common locations instead of having one for each project can be important. The idea of having common technology experts as common heads for projects can also be looked into. The client may not allow this kind of restructuring, however, this can be discussed with him and taken up.

Training and knowledge management is very important in an IT organisation. Proper team wise gap analysis can lead to significant improvements in this field. Trainings should be dealt in house, where company employees proficient in a particular are of expertise can come and do knowledge transition and give hands on experience to those in need. More and more web based webinars, knowledge repositories, white papers, articles, etc should be made available to enable on demand knowledge management. Certifications – technical, process, management, etc should be made mandatory. Article, knowledge document, etc submission should also be made mandatory as part of the performance review.

Reducing bench strength can be an important factor in improving margins. I agree, as a part of CMMI, companies have to maintain a particular level of bench strength; however, they should look to maintain only that particular level and not exceed it in anyway. They can also look to hire project wise, or requirement wise, which will reduce bench strength significantly.

Rationalising employee usage should also gain importance. Companies should check over employment in teams and projects. Wherever possible, the number of employees should be reduced and moved to other revenue generating activities.

Managing and optimising operational costs is also very important. We can see huge amounts of electricity costs with 24X 7 electricity usage. Instead of this, companies should take proper care of handling electricity misuse. They can look to go for smart lighting, where as soon as the last person is out of the room, the lights are automatically switched off. Better handling and management of other common resources like coffee vending machines, water can lead to significant expenditure reduction.

Better managing the recruitment and HR practices can also return good results. Instead of going to each college and hiring, companies should look to arrange for a common hiring at a common place. They can arrange their recruitment teams and give them specific colleges, if need be, though at a common place at a common time. Or else do common hiring for a group of colleges located at a place.

Managing travel policies can help improve margins too. Only selective travel plans, that too prior approved ones should be paid by the company. And travel plans should be left to the discretion of the project management team.

Managing infrastructure well can also add some percentage points to the margins. Proper software licence policy and management should be in place. Improper use of computer infrastructure should be brought to light and remedial actions should be taken immediately. Other infrastructure needs like office space and land can be managed well. Large business complexes can be taken on long term lease and lease rates should be negotiated till the very last.

I think, there could be specific areas of improvement for teams or projects which can be looked into from their individual perspective. It is the collective effort of the management and other employees to see the company margins improve and sail through these tough times. The best approach would be to make those changes which affect the employees directly, gradual and arrange for open discussions and spread the word on the impending changes. The management has to look forward to first changing the attitude of the employees towards the changes and make them understand the importance of such changes. There are other areas of improvement as well, which I may not have dealt with here. However, I am open to suggestions and recommendations and would love to make amendments wherever necessary.

All the Best!!

Monday, June 29, 2009

Can we say Wolfram Alpha it Or just Google it?

Some internet geeks would know what I mean by this title. Yes, I am talking about http://www.wolframalpha.com – the new search engine on the block. It was released to the public in May this year and has already started making waves in the computational knowledge search.

Though this search engine is not that stealthy or robust as google, however, believe me, it gives some excellent search results when you are looking for some statistical comparisons or factual data. The company goes by its long term goal to make all systematic knowledge immediately computable and accessible to everyone.

Right now, if just type in WIPRO and search, we get a host of statistical information – latest trade price of the stock, financial overview, recent returns from the stock, its price history and performance comparison with major indices and a correlation matrix with them. Then we do get a daily returns analysis histograms, projections, daily returns scatter plot and some basic company information. Which other search engine would make handy such information for us and make it possible for us to down take it from there and start our analysis.

Try out say WIPRO with ICICI Bank, you will get a stock price comparison over a period of time, latest trade prices for each of them, financial comparison for them, relative price history, daily and annual performance comparison, volatility and annualised returns plot, projections and mean-variance optimal portfolio and expected volatility versus expected returns for these stocks. Try it out to experience it and enjoy the fun.

One would say that we can get all this information through other search engines too. But my dear friend, don’t forget that wolfram is making it so easy for us that we don’t have to trouble ourselves of even handling excel sheets and other softwares. Wolfram has kept all sought after information readily available and easily accessible.

To enjoy the fun, do try out say, type in your date of birth and see the results. I tried out mine – January 7, 1983 and got the following search: Time difference from today, official holidays or major observations on that day, notable events for that day, daylight information for that day and the phase of the moon on that day. Woah!! I am going mad at the pool of information made available!! Try out searching a city. I tried with my home town of Meerut and got result set containing information like present day population, metro area population, coordinates of the place, current local time, current weather, approximate elevation and a nearby larger city and its directional location.

Doesn’t that sound great and you fell like trying it out to delve into the deep waters of wolfram alpha sea or ocean, if I am allowed to call it so.

Happy searching!!

A new journey starts…newer avenues await…

That was the day - May 12th 2008 when with a lot of excitement and anxiety I reached IGIA, New Delhi to leave for Dubai. It was 4 AM in the morning that I reached the airport for my 8 AM flight. I waited there to look for my dear friend Raghavendra Mishra aka Raghu whom I knew for the past 7 years, thanks to my Engg. College, NIT Rourkela that I was able to share a bonding that had stood more than 8 years now and looks to continue till eternity.

Raghu came and we met like never before (we haven’t met for years now, though only chatted or talked on phone). And we moved in to find a motley crowd travelling with us to Dubai to fulfil their dreams and achieve more in life. I met Manuj at the airport and a few others as well.

We touched down at Dubai international airport and got out quickly. The fear and anxiety of landing and travelling to a new place, a new country was going through most of us who were travelling outside India for the first time. Gradually we reached the Immigration queue and came to know that all we students have to get into a separate queue for retina scanning and we rushed through to the counter, only to be stopped in our motions by a local Arab who spoke some very interesting English and asked us to maintain silence and discipline as we tried to break loose :)

Immigration done and we rushed to take a local sim card and made calls back home to announce our safe landing. We were 15-20 of us together who rushed to the DU mobile counter to buy the sim card and get going. In these days of mobile comm. it feels so irritating and frustrating to be without a working and running mobile even for 10 minutes and we had sat for almost 4-5 hours without a ringing mobile. That was shameful for each one of us who call themselves the doyens of the 21st century and yet were without a mobile for such a long duration. Here we went and got ourselves mobiled!!

After the travails for getting sim cards and calling back India were over, we started looking for S P Jain representatives at the airport to take us to the hostel. We found him; however our wait to travel on the roads of Dubai and reach the hostel were not over yet, as the rep. told us that we would have to wait some more time till the other flight comes in and those students get ready to move out. We all waited with gasping breaths as now each one of us was feeling hungry.

Not been able to handle the pressure of a hungry stomach, I and Raghu sneaked out and moved to a Cafe and had burgers and coffee to get some respite. Meanwhile, we could see the group getting bigger gradually by the minute as more and more starting flocking and started introducing each other. Sooner than later, our time to move out came and moved into the college buses standing out in the parking to travel to our hostels.

Reaching hostels, another kind of confusion started, no one knew how to get a room made available to you. We waited and waited till our dear warden; Dev Anand sir came in and started the process. Each one of us was called one by one and we started moving out to our respective rooms after getting our set of keys. I was allotted room on the 3rd floor and started moving in quickly.

Having reached the 3rd floor, I started looking for room 320, which was located on side of the floor. I opened the door and moved in, looking around in the room to find that I was the first person to get that room. I kept my luggage on one side of the room and started unpacking it so that I could change and freshen up a little.

After some time, Raghu came to the room looking for me to go out for Lunch and came in Sourabh, Raghu’s room mate. He came to help us out with a restaurant where we could get a decent meal.

After the meal, we moved back to our rooms and started connecting our laptops and getting ready for 24X7 home internet. We rested for a few hours as we were to go out to in the evening as the college had planned a visit to the market for those who wanted to purchase their laptops. I too moved out with Raghu (he had to purchase a new lappy).

After spending some hours at the Al Ain Center (Computer hardware centre of Dubai), we got back to the hostel as the new notices were awaiting us at the notice board. As we read them, we interacted with a few other fellow mates and started bonding with them.

As I reached back my room, I could feel the disturbance inside, only to know that I have new room mates and I was no more alone in the ladies den at C-11. A broad smile came to my face as I acknowledged my new roommates, Vaibhav and Upendra. We made friends quickly and started bonding easily as we talked effortlessly on our favourite topics and liked to talk seamlessly :)

We were talking like we used to do, and suddenly came in guys looking for me. I knew it was Biswajeet Mohanty, as knew him through a common friend of ours (though we had never met, only talked about on phone) and the other guy, I was sure was Sharad, about whom Biswajeet had told me he knew as he was his engg. college senior and was joining SP Jain with us. We sat together and chatted and laughed for hours and started a different kind of bonding between us, which each one of us knew would stand the tests of time. Biswajeet and Sharad left us in peels of laughter and we decided to sleep as we had to get up early to leave for our first day at college. Though, I laid on my bed, I could not sleep properly and I am sure many of us had gone through the same, as many thoughts rolled in and out of my mind.

I got up in the morning only to see the latest and last addition to our room, in the form of Sumit Agarwal, he was looking for something in his bag and the screeching noise of his poly bag woke up others too :) We got ready, bolted the door of the room and moved quickly towards the elevator, only to meet a few others from our floor. On moving downstairs, we met another set of people and got into the bus, feeling happy that there were so many of us who took the same bold decision to leave their happy paying jobs for a course of this order to get ahead in life and in profession. Congratulations guys!!