Thoughts on Business Management

Performance of Indian IT Service Providers

2013-01-14T23:52:00.001+05:30

Here’s another motion chart mapping the performance of Indian IT Services providers. Data is from FY08 – FY12. Barring Cognizant, all companies listed on NSE/BSE. PLay around with the chart to see performance on different metrics.
Also refer my post on "Interactive R&D Spend Analysis".

Few Observations

TCS (nearly $10B), Wipro($7.5B), Infosys($6.7) and Cognizant (2012 results awaited) clearly emerge as market leaders. HCL Tech is significantly behind with $4.1B. Rest of the pack is way behind in <$1B club.

TCS puts up a stunning performance managing 11.3% topline CAGR and 14.1% bottomline CAGR since 2008. It is commendable for a company of its size.

Cognizant posts an unmatched revenue growth and operating profit growth of 32% and 22% respectively. (since 2008). It has emerged as one of the market leaders.

Infosys and TCS continue to impress with unmatched consistent operating margins of over 30% . Only Persistent comes close with around 22%. Rest belong to the sub 20% class.

TCS, Cognizant and Mindtree were the top 3 companies with the highest employee growth rate (CAGR) of 17%, 16.5% and 14.3% respectively.

Wipro and HCL Technologies have the highest cost per employee as of FY12 of $44K and $40K respectively.

Few Inferences

1. Cognizant seems to have got its execute ion perfect. It aligned employee growth, revenue growth and growth in employee strength for maximum business impact.

2. TCS performance indicates that their operational & market strategy too is driving towards sustainable growth and profitability. They have one of the lowest per employee costs @ $29K.

3. Infosys still seems to be in some state of consolidation. It has posted a flat 10% CAGR across revenues, profits and employee strength. We’ll have to wait and watch the kind of fruit current CEO’s “Infosys 3.0” strategy, bears.

4. Amongst the smaller players, Persistent seems to be positioning itself for larger things. It has posted CAGR of 13.5% and 14% for revenues and profits. It has one of the lowest costs/employee @ $23K and the only player have operating margins of more than 20% , except Infosys and TCS. I think this would be an interesting stock to follow.

Please share your comments, observations & inferences.

Interactive R&D Spend Analysis Tool

2012-12-22T17:36:00.000+05:30

Presenting the “Interactive R&D Spend Analysis Tool”. The motion chart, as used by Hans Rosling, is an extremely effective data visualization tool. I’m using the same to bring into perspective the business performance of technology companies.

As of now, the tool covers 27 companies spread across the following industries: Aero, Auto, Medical, Telecom, Consumer Electronics, Industrial/Heavy Equipment Manufacturers, ISV’s, Storage & Semiconductors.
I'll keep adding data points for other major companies to make this tool more effective. Comment on the companies that you would like to see in this tool.

How to use the chart:

Default settings:

Y-axis plots the R&D Spend

X-axis plot the Net income

Size of the bubble indicates revenues

All figures are in USD Millions.

Data source: google finance & Annual Reports.

1. Clicking the play button traces the movement of the companies since 2008.

For example, with the default settings you can see Toyota’s bubble running to the left indicating a sharp dip in profits.

2. The smaller play button controls the speed of the playback. Scrolling it down makes the playback longer and easier to follow.

3. You can select the Y-axis parameter by clicking the small arrow on the top of the axis label. Similar selection can be done for the X-axis.

4. The parameters for size and color of the bubble can be selected on the right side of the chart.

Play around and have fun.

In pursuit of growth

2012-10-06T19:38:00.001+05:30

Did you know that 65 of the world’s largest companies (Fortune 500) are all more than $100B in revenues? I was more amazed to find that the top 3 companies (“Royal Dutch Shell”, Exxon Mobil, and Wal-Mart) are more than $400 Billion. Wow, that’s huge! I decided to do a quick analysis on the Top 200 and this is what I found:

1. 45% of the companies are in the range of $70B - $130B, with 99B as the overall Top 200 average revenue size.
2. Average profitability of Top 200 companies is 5.89%. 3. 112 (56%) companies have less than 5% profit margins.
3. 38 (19%) companies have profit margins of more than 10%.
4. Only 13 (6.5%) companies have a net profit margin of more than 20%. (The minimum company size in the set here is $48 Billion). Data Source: http://money.cnn.com/magazines/fortune/fortune500/

The chart clearly indicates that irrespective of the industry sector or economic factors some companies clearly break away from the “commoners” in terms of net profit margin achievement.. Another trend that can be spotted clearly is the move towards the right as companies grow larger and larger in size. For most of the companies more than $100 Billion, the margins are about 5%.
These stats raise a few questions:

1. Are companies inadvertently sacrificing profitability in search of growth? 2. How are those few companies managing a profit margin of more than 20%?

I think that companies, in pursuit of growth, add complexity exponentially to their businesses. Diversification into multiple industry segments, thousands of products and services with regional localizations, significant investments in Engineering and R&D, hundreds of global partners & vendors, global acquisitions etc. are some of the fall outs of the “growth pursuit” which make sustainability of profits extremely challenging. I believe that a “Portfolio” view to business management and operations brings the much needed discipline in execution and decision making. It is critical to effectively manage the

a. Portfolio of businesses

b. Portfolio of products / services

c. Portfolio of Programs / Projects

in an enterprise and deliver sustained profits to shareholders.
The following are 5 critical questions that business leaders must have answers to ensure that growth and profitability objectives and initiatives stay aligned:

Reference: EPMC

Portfolio Management helps you to answer these questions and helps organizations build a disciplined approach to sustained growth and profitability. I request readers to share their experiences & challenges with Portfolio Management @ chinmay.kale@hcl.com.

References:
1. Fortune 500 Rankings: http://money.cnn.com/magazines/fortune/fortune500/
2. Enterprise Portfolio Management Council : www.theepmc.org

Gary Hamel on the Future of Management

2012-04-28T00:55:00.001+05:30

This is a beautiful presentation where Gary Hamel argues on the need for “management innovation”.
Video Summary

The way we manage organizations hasn’t changed much in the last 50 years.
Why do we need a “management change”

we are the first generation to face an inflection point in the “pace of change”

Exponential growth in CO2 emissions, # of internet connections, # of Data Storage devices, # of mobile devices connected to web, genes we have sequenced …..

Creative disruption is forcing forcing companies to innovate day in – day out
Knowledge is becoming a commodity. Companies must “CREATE” new knowledge to differentiate

Companies must become : ADAPTABLE, INNOVATIVE & ENGAGING to succeed.
Challenge “Management” dogma to be a management innovator
WEB: the operating system for innovation

Do you know the “Effectiveness” of your Research, Development & Engineering?

2012-04-25T11:43:00.001+05:30

A couple of questions that have plagued most RD&E managers and decision makers are:

a) How effective is my RD&E?

b) What are the returns from my RD&E investments?

The Booz Global Innovation 1000 Survey points out that the top 20 R&D spenders of the world spent $128 billion in 2009 alone; an average of 8.3% when expressed as a % of sales. Apparently there is no correlation between spending huge amount of money and financial success in the market place. Apple, considered as one of the most innovative companies, spent 3.1% of sales on R&D and churned out phenomenally successful products while Microsoft spent almost 16% of its sales and wasn’t as successful.

The point is that decision makers are essentially blind while navigating their R&D ship. They are missing out on identifying the true levers within their RD&E function that are most critical towards achieving their business objectives. Worse, they are possibly misdirecting available funds.

RD&E Effectiveness can be expressed as a ratio of the value (in $) generated by RD&E over time to the RD&E investments ($).

Stanley Black and Decker Inc.’s DeWalt division is a maker of power tools for professional contractors. They observed their customers (carpenters) in action and came out with a 12-inch miter saw. It was a best seller! Google keeps coming with innovative products time and again. We all know how: It allows engineers the freedom to work on projects of their choice for 10% of company time. But does that mean any company that allows 10% of company time to its engineers be as innovative as Google? Unfortunately, NO! Think about DeWalt again..many companies spend a fortune on “identifying consumer needs” but then does every product hit the sweet spot ? NO! Dewalt did it because not only did it correctly identify the pain of its customers; it also channelized its resources and learning into engineering projects which delivered the exact product that the market always wanted.

The key to maximizing RD&E effectiveness is the capability to channelize diverse inputs into most relevant projects that produce outputs which deliver business results. To be able to derive sustainable extraordinary returns from their RD&E investments, organizations should make an effort to

Establish the linkage between its strategy, projects, outputs and business targets
Determine the value created by RD&E : IP, Knowledge, products and services
Identify the high impact levers of effectiveness

(Blog also posted on: http://ers.hclblogs.com/author/chinmay-kale/)

Is your Research, Development & Engineering Strategically Aligned?

2012-04-20T00:13:00.001+05:30

How much and what does the Research Development & Engineering contribute to your organization? I’m sure people will have a lot to say about it but I doubt that anyone will provide a crisp answer articulating the true benefit derived from RD&E. RD&E sucks in millions of dollars towards new product & feature development. It is also the first to face budget cuts in an economic downturn. RD&E doesn’t produce cash directly and hence becomes an easy target to derive short term cost savings. Further, engineering managers have a hard time articulating investment returns since the benefits can accrue over a period of 2 years or more; depending on the product lifecycle. These benefits are in terms of improved market share, higher product returns, IPs, Patents etc. RD&E is the spine of product development organizations. Not knowing how exactly your R&D projects and innovation initiatives contribute to the organization and not knowing the “true” investment returns will lead to blind decisions, undefined losses and waste and most important of all, reduced competitiveness in the market.

A Mckinsey survey of global companies points out that increased performance accountability & spending, use of global resources and portfolio decision processes have been some of the focus areas of change within R&D since 2009. (http://www.mckinseyquarterly.com/RD_after_the_crisis_McKinsey_Global_Survey_results_2576)

To be able to make change initiatives within RD&E and product and project portfolio decisions effective, we need accurate answers to questions like: (a) What is the purpose of R&D initiative? (b) For whom is this needed /beneficiary? (SBU, CEO, Shareholders etc.) (c) What needs to be measured, how do we measure it and how often? (d) Which processes are needed for this initiative to succeed?

To be able to answer these questions, an organization needs to be truly strategically aligned. By this I mean that instead of being “budget controlled”, organizations need to be strategy controlled. The highest level corporate strategy should be translated and cascaded to RD&E strategy and objectives. Based on the RD&E strategy a plan for relevant products, projects and budgets should be made which needs to be followed up with an “Execution Plan” defining the required processes and functions and their KPI’s. Only then can RD&E be truly aligned and be an effective contributor to organization’s profitable growth and sustainability.

Can your KPI’s help you innovate?

2012-04-13T21:48:00.000+05:30

“Key Performance Indicators” is a universally understood term in business but commonly underutilized. KPI’s are a tool that can help align your employees & Business Units to the planned strategy. Alas, the tool is only as good as the craftsman. A global survey by “Advanced Performance Institute” indicates that 38% of CXO level respondents felt that a common vision of performance management does not exist in their companies. Another survey by API indicated that only 15% of respondents from 1100 organizations believed that all of their performance indicators were linked to the strategy of the organization.

As an example, let’s say that the objective of an organization ‘X’, which is a telecom service provider is to improve customer satisfaction. Let’s assume that the customer service department has a KPI: “Customer calls handled per day”. A troubled customer calls up and is put on hold for a minute and then is answered by a help desk executive who is unable to understand the customer’s issue or help him The customer hangs up.

Is the customer serviced? Definitely not. Is the department’s KPI met? Well, the call was handled. Will it lead to higher customer satisfaction a.k.a organizational objective? Don’t think so. So a measure of 5000 calls managed in a month would actually mean nothing for the organization towards achieving higher customer satisfaction. So would complaint resolution time be a better measure for ‘X’? What if the customer service process doesn’t facilitate the customer to register a complaint? (as seen in the example).

Organizations may have a bunch of KPI’s which they may be proudly measuring but what needs to be questioned is “are the KPI’s reflecting the true picture” and “what is it that they are hiding”?

Global product development processes are essentially complex and only organizations which innovate their way through the maze of competitors, consumers and market dynamics will be sustainable. One of the ways organizations can force themselves to innovate, in line with its strategic objectives, is by evolving KPI’s which are most relevant to them. The business algorithm to evolve and innovate using KPI’s is

1. Cascade organizational strategy down to individual goals for each functional unit

2. For each functional unit, brainstorm and identify KPI’s which will help towards achievement of the goals

3. Roll up the KPI’s up to the organizational level.

4. Create/Update dashboards at each level

5. Identify gaps in KPI achievement (goal achievement)

6. Innovate and improve across product, process, technology and business model to bridge the gaps

7. Do a re-check on strategy : Goto Step 1

Program Management Office: It’s only as good as you want it to be

2012-04-09T10:04:00.000+05:30

Is the PMO function in your organization a powerless function managing mundane administrative & project management tasks? Is it treated as a mere data collector? OR is it powerful enough to help execution teams and line managers decode the strategic goals and translate them into executable project goals? Does the PMO actively manage strategic aspects like the project portfolio? Does it enable the senior management team to understand the grass root performance issues?

It would be heartening if your answer to the last three questions is a “YES”. Most organizations struggle to establish a strong and a strategic PMO. I think the main reason for this is ambiguity of the purpose of the PMO in the organization and lack of CXO level sponsorship.

As per the survey by PMO Executive Council Research, the top 3 reasons why organizations invested to build an enterprise program management office were:

I think that there are more long term benefits to be reaped by making your PMO a “Strategic” function: For e.g. Achieving strategic alignment of operations (project portfolio management), deeper and broader visibility into business performance and health, Business Context based governance and resource planning. Therefore I think that ideally organizations should look at the strategic PMO owning and facilitating the following activities:

Now how do organizations empower their PMO’s to be more effective and drive the necessary momentum in the execution – the answer to that is the following high level transition process which can take up to two years to achieve a steady state of operation. The transition is not an easy process and requires serious commitment and sponsorship from senior management.

I believe that senior leaders are continuously looking for ways to improve the efficiency and productivity of the organization, but their focus largely rests on improving the technical aspects of product development and the efficiency of management operations is mostly overlooked. I think that transitioning the PMO into a strategic role offers immense potential benefit in terms of higher efficiency and reduced costs over a longer term of operation. The question is how many organizations are really willing to look at their PMO seriously.

How to Build an Effective Business Dashboard

2012-04-04T17:45:00.000+05:30

Sometime back I was working on an assignment to conceptualize and design an engagement level dashboard. That was when I came across a very relevant dilbert comic strip where “Dogbert the Consultant” says that the business requires a dashboard application to track metrics, so that the management will have more data to ignore and the business can go ahead and take decisions on “political compulsions”. I think the dashboard story in most product and service organizations is not much different. Despite acknowledging the need and importance of a performance monitoring dashboard, organizations, business units, programs and projects consistently fail to create and maintain an effective performance dashboard. A survey by the PMO Executive Council concludes the following:

Although the survey is dated 2006, my experience leads me to believe that the effectiveness numbers won’t have changed much. Despite increasing time being spent on reporting, the effectiveness of the dashboards remains low. So, let’s address the important question: How to make dashboards effective?

Some of the critical steps are the following:

1. Establish a Strategic PMO

(More on this in my next article)

The program management function becomes the pivot which establishes the governance and performance mechanisms and provides relevant data input to decision makers to steer the business engagement in the right direction. Strategic PMOs are not influenced by “Power Politics,” but create a culture of trust and transparency.

Source for Graphic : Report by PMO Executive Council: “From Data to Decisions: Influencing Portfolio Outcomes Through Target Dashboards”

2. Metric Selection

Identify relevant KPIs for the business engagement. Cover a mix of leading and lagging indicators. Identify relevance by understanding the impact of the metric on strategic objectives. If a metric doesn’t help you decide a course of action toward an objective, it is useless.

3. Data Collection

Data owners need to be onboarded onto the dashboard development and aligned with the PMO team. They need to be educated on the importance and need for the data and about the data collection process. They also need to have tools to help them collect the data.

4. Engage Stakeholders

Always design the dashboard with the audience in mind. It is difficult to miss decision makers, but more effort is required to engage the ground level teams. It is important to help them identify metrics relevant to them and help them visualize their overall impact on the business. This will help build credibility and support for the dashboard across the organization. This is critical, because most of the time people fail to provide timely data because they do not see its value.

5. Data Presentation and Analysis

Representation of the metrics in an easily understandable format is very important. Decision makers want “real time” relevant data to help them make decisions on future courses of action. Some of the standard data elements required are metric trends, actual vs. targeted values and associated analysis of what worked and what didn’t.

6. Continuous Realignment

This is a primary responsibility of the strategic PMO team. They need to ensure that metrics, data owners and data analysis reflect the current context of the business. If you allow the data to be out of tune, the purpose of the dashboard is defeated.

The dashboard in your car gives you real time data on operational performance. You are able to refuel in time because the fuel indicator gives you a current indication of the fuel level. The indication itself is possible because of a nice little sensor feeding real time data. The effectiveness of the dashboard in one’s car is the best inspiration one can take. Businesses need to get their “meters” and “data sensors” in place if they really don’t want the drivers of their businesses to run out of fuel midway on the road to profitability and growth.