In the past articles, we looked at the root causes and the impacts of Recession. Let us now discuss the strategies that firms can use to control the severity:
Short term Strategies -
Flexible Approach: IT companies need to be flexible in their approach towards clients. Renegotiating Deals is one of the options: In the current scenario, IT companies can look forward to deals with sticky revenues. The deals can now be renegotiated at discounted billing rates but with longer time periods which can ensure strong cash flow pipeline. Operational Efficiency: IT companies need to improve overall operational efficiency. Cost cutting should be a regular exercise and not just one time effort when there is recession. One of the ways is by reducing operational cost like spending what is directly linked to productivity or business; reducing the number of live meetings and doing them online or via video conferences, delay wasteful expenditure, removing the frills like subsidized food etc.
Employee Change Management: Optimum resource utilization by reducing cost is one of the major challenges for the companies. Communication channels should be open. Apprehensions in terms of job loss, reduced salaries should be addressed by the top management. Gossip and rumors harm the productivity and demoralize employees.
Companies need to improve the motivation levels of employees. Linking productivity with compensation and introducing variable salary is one of the tried and tested ways to improve productivity. One can no longer take his/her job for granted. Use this as an opportunity to tighten recruitment and retention processes. However, instead of a complete stop to all recruitment, the IT industry should use this period for a meaningful introspection and a substantial realignment of its hiring and retention processes. Under the pressure to cut cost, companies are heavily resorting to laying off employee in large numbers. It is true that non performer should leave and the number of people on the bench should be reduced but instead of handing over pink slips to them, they should be asked to deliver. Reducing the salaries of employees by a certain percentage is also one of the options.
Tighten the Belt: Any company can shed 10% of its cost without any real pain. This is as good an opportunity as any to remind knowledge workers that 30% - 40% raise year after year is not the natural order of things.
Medium term-
Spread Risk: As of now, for most of the IT companies majority of their revenues come from US market, the dependency on one market should be reduced. They should spread the risk. Companies need to explore other markets including domestic markets. US accounts for about 60 percent of the total IT spending. They should explore other markets outside USA.
Diversification: Sway with the flow of the times. Instead of just focusing on company’s core competencies, provide services in the next best domain for which there is demand. Meanwhile companies should arm them with other emerging technologies which will reduce its dependency on a single product or service. Companies can look for product development if there is a demand for the product
Adopt open source software: In times when companies have to work under tight budget, the open source companies will have upper hand than closed source counterparts. Unix based systems shifting to more cost effective Linux Servers. These migrations will accelerate if corporate IT budgets are cut.
Risk-Sharing: When our US client is nervous and unwilling to invest, and so puts his own expansion plans on hold, the one thing vendors can do is propose something different than the tried and tested ‘time and materials’ or even ‘price for guaranteed volumes’ proposition. It may not be enough to point out that outsourcing will save him money – when he is contemplating 100% saving by not launching that expansion or change initiative at all. Participate in the growth of their clients. In current scenario, the clients are likely to expect overall solutions from vendors. Offer him a business proposition where we share risk - share in the upside (and downside) rather than simply get a fixed revenue and manage costs (which is all most Indian companies do, even the best of them)?. For instance, IT services company need to start offering customers a fee per user (customer’s customer) or royalty models rather than ’60 man-months to build this system’. If the client does well, we do well. Needless to say, it also means we have to learn how to assess the client’s prospects in his market and learn how to actually help him sell better in his markets. It means we will have to think like venture capitalists and investors rather than suppliers.
Business Processes: Need to take a re look at the business processes. This is the time to redefine and strengthen business processes. In recession times companies shy away from R&D, they are in a dilemma whether to invest or no. Hire black belt Six Sigma employees or encourage employees to go in for Six Sigma certifications which will streamline processes and reduce the overall cost. Studies indicate that companies save up to 30% cost by hiring black belt six sigma employees
Employee skill development: Address the skills shortage and train the resources into multi skills.This quiet period needs to be used to get the existing resource pool ready for the next big wave. Most programmers are too caught up in the daily tasks to catch up on the latest technical advances, and appreciate breakthroughs that will sweep the IT world. To address this gap, workshops and technical trainings to educate the workforce should be held at regular intervals. Similar sessions on soft-skills and cultural orientation programs should be conducted to make the people more customer-centric. Look for internal mechanism for soft skills training of employees. Invest in employee development. Employees can go in for certifications for skill enhancement which will help in personal and professional career growth. Look for internal mechanism for employee development like web based training. Change HR policies.
Long term Strategies:
Innovate: The Indian government and IT/BPO industry need to focus on moving up the value chain by cultivating deep and enduring innovation across three dimensions - a) Business model innovation; b) Knowledge innovation; and c) Ecosystem innovation. The innovation needs to be done in three areas that are connected to the information technology industry of India such as business models, ecosystems and knowledge. The trick is to innovate - not necessarily do different things, but do things differently. Create a culture of innovation.
Collaboration with the industry and academia: Create an environment for innovation that could be carried for a long time: The IT sector has to expand to other countries and tap new centers of emerging demand and expand not only in terms of quantity but also in terms of quality of its skilled labor by introducing appropriate changes in the system in collaboration with the industry and academia. This calls for a transformation of Business Process Outsourcing to Knowledge Process Outsourcing (KPO) units. Figures suggest that only 25 percent of the total graduates in India have employable 'production-worthy' skills.
Build Brands: One great business value of brands is that they are relatively immune to economy-wide downturns. The emotional hold they have on customers is such that they can make the customer forget their hard times when they buy them. Indian companies have stayed away from building brands abroad because it is enormously expensive to do so. But increasingly, it is within the reach of Indian companies today
SUMMARY:
This is indeed a tricky time for the Indian IT industry, but there's no real reason to panic. The IT guns showed great character and resilience during the years following the dot com bust. They are wise enough to read the signs and realize that change is in order. With a slight course correction and an unswerving view on the long-term, the India IT industry can emerge stronger and bigger.
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