4.2 Case narrative
Witech Systems is a part of Witech Infotech that was set up in 1981 as a key business within Witech Limited, a large Indian conglomerate established in 1947. Witech Limited deals with an extremely diversified set of products and services including oils, soaps, toiletries, lighting products, medical systems, fluid power, pneumatic cylinders , financial services and computer hardware and software. In 1996, the Witech group of companies overall had a turnover of US$450 million. Witech Infotech was the biggest contributor to this turnover, with US$300 million. Witech Infotech is primarily in the computer business, focusing on hardware and software. It was the second-ranked computer company in India in 1987, second in software and first in peripherals. Prior to 1988, Witech Systems was catering nearly 100 per cent to the domestic market. However, since the domestic market was seen to have a much slower growth rate than global markets, Witech Infotech, like many other Indian software firms, started to internationalize and entered into a number of tie-ups with MNCs for both the manufacture and marketing of computer peripherals. A conscious decision was taken to try and move away from products to system integration solutions.
On the software side, Witech Systems (which we refer to as WS) included three business units including one in telecommunications. It was this business group that entered into the GSA relationship with GlobTel in 1991 and is the focus of this case analysis. WS focused on systems integration projects for an international client le. It was described by the Group Vice President as being ˜very strategic and our whole management watches what we do very closely . The WS “GlobTel relationship is described in three phases of initiation, growth and acceptance of the legacy route.
Initiation (1991 “1996)
The relationship was initiated in 1991. Recollecting it about eight years later, participants have varying opinions on GlobTel s motivations for entering into it. Tom Short, a GlobTel Manager who was a key actor in establishing the WS relationship, described the main motive to be a resource one. Scott, a Director of a GlobTel lab in the UK with which WS was closely aligned, also described the major reason in resource terms in order to develop ˜headcount flexibility in the UK. While WS saw the relationship as a means to ˜go up the value chain , Barry, the MD of the UK lab, believed this expectation of WS was not realistic:
I don t agree with your analysis that when we started we looked at India in any other way than for cost reduction. We never saw it as a place for development of new technology. At that time [in the early 1990s], the strategy was to take the Digital Switching Product (DSP), a technology which was relatively well established in the UK, to Europe by taking advantage of the deregulation of markets over there, and to make DSP the preferred switch in Europe. The idea for us was to free up people and money over here given the constraints and conditions of the market by moving some development to Bangalore. So, the basic strategy was opportunistic .
WS was involved in switching and broadband projects, which L. Krishnan (the WS CEO) believed represented GlobTel s core activities, and into which they had entered by chance rather than design. Tom Short described the initial work in WS as being ˜independent without requiring too much everyday interaction between GlobTel and WS. Krishnan also described the initial projects to be small and stand- alone, without the support of independent communication links. Initially, a group of WS engineers went to GlobTel s North American office for six months and returned to Bangalore with memory reduction and regression testing projects that could be done by the Indian engineers logging into GlobTel s server in North America. With growth in technical expertise, WS started doing feature development projects, which Reddy, a senior WS manager, described as a movement from ˜peripheral to ˜ core activities. Infrastructure upgradation facilitated this movement. Communication links were first provided in 1993. The WS Technical Manager Ram described this as an event of great significance because with the links in place the volume of work increased significantly and the number of WS developers increased from twenty-five in 1993 to 220 in 1996. In 1996, the GlobTel account was worth about US$8 million, WS second-largest account and contributed about 16 per cent of their total software exports.
The relationship started to take on an exclusive status within Witech Infotech in a few years from its inception. The operation was housed in a separate lab (with restricted access) and employees wore GlobTel “WS logos on their badges. Mutual investments by GlobTel and WS into infrastructure reflected the growing intimacy in the relationship. While GlobTel made significant investments (to the tune of about US$ 1 million) in communication links and switching equipment for simulations, WS reciprocated by setting up an independent lab in 1995 and acquiring the required workstations. These mutual investments, despite the absence of a formal and legally binding long- term contract, were described by Krishnan as signifying a relationship in which ˜the spirit goes much beyond the terms of the contract .
WS goal was to be designated as the ˜preferred lab where ˜anything which they [GlobTel] want in India can be achieved through us (Krishnan). WS did not see this relationship as a cost-cutting exercise because there was a continuous evolution in work, moving from testing to feature development. Ownership, a desired end-state, implied becoming fully responsible for the maintenance, enhancement and support of particular sub-systems transferred to WS. Under conditions of ownership, WS owned the architecture, the code and did all the approvals for any change in code without any backup from GlobTel. ˜It is all with us (Krishnan). However, ownership did not imply (as the term may suggest) control over IP, which was 100 per cent GlobTel owned, a clause built into the initial contract.
From the start in 1991, it seemed that GlobTel had consciously selected WS to be the ˜hub for their four Indian relationships. For example, GlobTel routed their telecom links through WS to the four partners , and WS conducted , on GlobTel s behalf , training programs for the other partners over videoconference to other GlobTel employees in NorthAmerica and Asia. GlobTel located four of their expatriates on WS premises, three specifically to support WS activities and the fourth (Arvind, of Indian origin) to oversee GlobTel s India wide operations. Joe, one of the expatriates , described his mandate as to ˜help them [WS] understand what GlobTel s expectations are . As the unofficial hub, GlobTel consciously tried to integrate the WS group into their activities. Tom Short placed his group s annual operating plan on his web page so that could be accessed by WS in India and contributed to their sense of ˜inclusion . On their part, WS consciously attempted to replicate GlobTel s office environment and management style “ for example, the manner in which they held project meetings. Krishnan remarked, ˜Operationally we work as GlobTel and there is no difference. We have a similar set up to GlobTel. To give GlobTel the necessary confidence in their long-term commitment, WS established a new telecommunications division in their organization structure and set up management levels that could be mapped to those of GlobTel. As Ravi, a project leader in WS said, ˜The styles of management, the division of the hierarchy we are following is exactly like GlobTel. We have the same kind of structure.
WS considered learning and adapting best practice models from others as central to its culture. It was therefore open to learning from GlobTel. Krishnan did not see copying as an issue and argued that ˜the world over people compare, and there was no reason to be upset if they adapted best practices from GlobTel like their competence model . He gave examples of how they had in the past adapted global best practices such as GE s Six Sigma methodology. However, in this process of adoption, some WS managers like Reddy felt that WS might be getting compromised as ˜my people move more towards GlobTel than to WS and our identity is more with GlobTel . She was concerned with the way in which ˜the GlobTel identity has seeped into everything . The identity was influenced through various mechanisms employed by GlobTel to disseminate information about themselves including General Information Sessions (GIS), newsletters, bulletins and access to their Intranet. As a result, people working on GlobTel projects ˜were keyed into and better informed [and also curious ] about events at GlobTel .
Gradually, but decisively, through the efforts of both GlobTel and WS, a number of GlobTel s technical and management processes were introduced into WS. These helped to provide GlobTel managers with a sense of comfort that their processes and quality levels were being standardized in India, including systems for planning, reward and recognition and training. Some quotes describe the nature and mechanics of these management standardization efforts:
We plan out in detail, there are elaborate plans for each of these individual projects the way GlobTel plans. (Krishnan, the WS CEO)
I go to GlobTel once or twice a year, two “three weeks. We get exposed to and get to know their planning systems, and after working with it for a while, you get to know what to do and what not to do. It is the exposure and you get to know a lot of things. I think that is how I got to learn my management skills, looking at them, how they do, try to get their feedback, and then try to adopt it here if possible. (Reddy, a senior WS Technical Manager)
Actually, for appraisal we have a specific thing, what we say is project management, which includes client and project management. We have a similar appraisal program as they, and we fill [in] the same stuff. These standards are GlobTel predominantly. (Krishnan, the WS CEO)
Actually, we also have a spot award. It is famous, the GlobTel spot award, actually it is also their initiative. (Ravi, a WS Project Leader)
These processes of standardization were not without their own tensions. For example, around quality, Reddy lamented that ˜despite being an ISO 9000 certified company, with excellent internal processes [we] cannot apply them since GlobTel does not accept them. Reddy saw GlobTel as an extremely large and structured bureaucracy that was often overbearing on WS. She felt:
This bureaucracy often becomes a dictatorship. That is where the problem starts when they start saying: ˜this is what I think you guys have to do. I don t want you guys to take up anything more. I want him to work two years on this job and I don t want him moved.
While Reddy saw this tendency to dictate to be paradoxical when compared with their normally ˜open way of dealing with people, GlobTel felt this ˜micro-management was required since WS did not understand their expectations. As a result, as Al (an expatriate) remarked:
There was a need to get involved in the details of the way that individual deliverables are being run as well as the details of what we call people management, so whether this person is productive or not, whether that person should develop the feature, or [be] moved to another group.
Initially, the WS staff resisted the presence of expatriates, who themselves were also rather frustrated by the lack of progress. However, with time, the WS staff started seeing the value of expatriates in solving problems and became more accepting of them. The expatriates also became more realistic about what could be achieved. Fred, an expatriate, felt an initial source of conflict was the different standards in expectation levels. While an Indian designer would be happy to be given an independent phone, even if it might not work nine times out of ten, a North American would see an unreliable phone as similar to not having one. Fred found it frustrating to explain such contextual differences to his bosses in North America who could not understand, for example, why it takes so long to send a fax or for a decision to be taken by a WS manager. Gradually, a shared understanding was developed through the expatriates, and the frequent travels of WS managers to North America and vice versa. The resulting increase in the replication of GlobTel s practices and style in WS made some Indians slightly apprehensive. They felt this could erode their traditional strengths arising from the ˜community style of working as contrasted to the more individualistic North American style.
In trying to become GlobTel s ˜preferred lab and show commitment to telecommunications, WS consciously recruited people from the telecommunications industry. However, the issue of attrition continued to plague the relationship, as was the case in most firms in the Indian software industry. WS was experiencing an annual attrition of some 20 “25 per cent. The temporal frames of reference used by GlobTel and WS to interpret attrition were different. While a person with 7 years experience in WS was considered a ˜relic , it was quite common to have 20-year ˜ veterans in GlobTel. As a result, even though WS felt that it had effectively dealt with attrition to the greatest extent possible, GlobTel felt this was not enough. Over time, WS implemented a number of (mostly) GlobTel inspired initiatives to deal with attrition and developed a strategy of ˜planned attrition whereby additional resources were continuously created in anticipation of gaps caused by the departure of developers.
Larger industry dynamics also contributed to evolution in the nature and volume of work in WS. There was an increasing confidence worldwide about the level of expertise in Indian firms, which were now moving from the initial focus on maintenance as defined by customers to higher-value work where they had some degree of input in defining the project parameters. Another source of influence was the increasing introduction of packages in firms, for example Oracle and SAP. GlobTel, like many other firms, started to show a preference for standardized packages over doing in-house development, causing some uncertainty in WS about future opportunities. Within this context of growth and uncertainty, we describe the phase of growth in the relationship.
Growth and associated tensions (1997 “1998)
After working together for 5 “6 years, both WS and GlobTel felt that they had developed a level of mutual understanding and appreciation of each other s weaknesses and strengths. Increasing investments from both sides contributed to an evolution in work and also introduced various tensions. Reddy described GlobTel s increasing concern with attrition and low retention as unfair since GlobTel had many decades of experience in telecommunications, whereas WS was only a recent entrant. While she felt that GlobTel should clearly define their parameters and let WS take control of the process, GlobTel saw workforce instability impeding the upgrading of the relationship from a tactical to a strategic level. Venkat, the CEO of Witech Enterprise Solutions, saw GlobTel s concern as justified because of the situation of dependency of GlobTel on WS. The instability of the workforce exacerbated the problem.
WS was extremely sensitive to the need to develop a stable workforce, which was now about 250 “280 strong. To retain them, WS developed initiatives such as the ˜threeyears and ˜five-years policies whereby a WS employee on completing three years could spend a year in North America and after five years be given an option to become a GlobTel employee. In an interesting and radical move, GlobTel appointed Chandra, the Witech HR manager, on a two-year secondment as their India Prime reporting primarily to GlobTel. Chandra s mandate was to create common training programmes for all GlobTel s India partners and to standardize the skill sets of Indian managers to fit the mould of a ˜uniform GlobTel manager . Chandra expressed excitement:
I think it is a brilliant model been made by a top consultant and it specifies the level you are with respect to your competencies and what you are required to achieve. This way everyone speaks the same language. So, at the same level whether you are in Company A or B, there is the same level of skills required. There is standardization. By developing a ˜Global manager , GlobTel can leverage it for different contexts because the cultural framework they are using is quite the same.
This move to secondment of Chandra was a crucial attempt by GlobTel to deal with HR issues like attrition within a common management framework. We discuss this further in the analysis section.
To cope with the pressure of developing new Internet-based technologies rapidly , GlobTel embarked on the strategy of acquiring start-up technology companies (for example, from Silicon Valley) rather than investing heavy amounts on in-house R&D. A proper response to these changes needed WS to attempt to enter new technology areas and develop patents, instead of passively waiting for GlobTel to transfer technology. Such a reorientation was difficult for reasons of proximity, as WS would need much greater exposure to the end-users primarily based in North America. In the light of worldwide uncertainty about the future of R&D in software development, Barry (the UK lab MD) felt WS expectation of gaining IP ownership was unrealistic . It had been hard enough for GlobTel to give new technology work to their own UK lab, and so the possibility of Bangalore getting such projects was remote indeed. Venkat differed from Barry on these implications as he felt that although earlier projects involved proprietary knowledge about GlobTel s switching technology where control rested with GlobTel, the Indians had better possibilities with the open Internet technologies:
So on this telecom side this was really causing some kind of concern whether we will really be able to do it. But the good thing now is that telecom and datacom technologies are merging. Whereas telecom was more proprietary software, proprietary languages, etc., the datacom side is more of the Internet and more open languages or objects and similar technologies. It gives us an open field now to really come out with some kind of a chance.
The implications of GlobTel s ˜right-angle turn were beginning to show as the new budgets favoured new areas of wireless, and projects in switching were being cancelled. WS realized the pressing need to develop independent solutions, rather than waiting to be told what to do. GlobTel felt this could be difficult, as WS was not ˜proactive enough. In contrast, Reddy described ˜proactive as a much-abused term because it was not discussed in a context of a mutual flow of information for which both sides were responsible. WS thought it was difficult to be proactive since the intentions of GlobTel were unclear. GlobTel itself found it difficult for GlobTel to define long-term goals in the state of flux in the industry.
To deal with these changes and problems of attrition, GlobTel proposed setting up their own software development centre in India called GlobTel Software Overseas Development Centre (called GSODC). This move was met with obvious resistance from WS who saw this proposed centre as direct competition since it would mean that all ˜crown jewellery work would be done there. They would be given the legacy ˜crumbs . Venkat felt the GSODC proposal, if justified solely on the grounds of cost and attrition control, would not be effective because it would need to be managed by expatriates relocated to India at North American salaries, and problems of attrition and distance management were not going to disappear. He said: ˜If you look at the whole Indian context, I don t think they can do better than we and hold back people from leaving. Venkat also commented on the changing nature of work and the resulting pressure on the pricing basis of work:
My own feeling is that the current model is dying, maybe within two “five years. It is a very simple equation, if the cost goes up at the rate of 30 percent and the prices do not go up and it is only dependent on the rupee depreciation of 5 “6 percent, no mathematics is required to find out whether in the third or fourth year you would be profitable or not. People are going to pay more dollars for higher value-added work, and how you are to provide that is the big question. We need a different model wherein we get value for money rather than based on counting the number of people.
On one hand, the existing pricing basis was being questioned as the legacy model was expected to die and a need was felt for models that could support ˜small teams producing incredible value products (Jim, a UK lab manager). In WS, even alternative business models were being suggested including risk and reward, turnkey and profit sharing. On the other hand, the situation in the industry and GlobTel made such changes difficult to bring about. For example, since the GlobTel lab in the UK, with whom WS was aligned, was itself facing uncertainty and downsizing, it was impossible for WS to expect a growth rate in excess of that of their ˜parent . The ˜right-angle turn route was placing additional pressure on GlobTel to change their technology strategy to acquisition rather than in-house development. Jim cautioned:
The right angle turn till now has been about acquisitions. GlobTel R&D is as much under threat as WS. James Brown [GlobTel CEO] has told the labs that if they do not come out with product announcements regularly, he will periodically come out with announcements about acquisitions. If they don t do that, I think their workload may move to zero by 2000. The same scenario is also applied to this lab, and so is not unique to WS. WS have to wake up to what everyone is facing.
It is within this context of uncertainty and change that the final stage is described.
Acceptance of the legacy route (1999 “2000)
A key question in 1998 for GlobTel was whether WS would be used for legacy systems or for ˜right-angle turn development? Related issues were pricing, attrition and future expectations. GlobTel decided to use WS primarily for legacy system work rather than provide support for the ˜right-angle turn . GlobTel made a number of changes of personnel who were responsible for the India relationship, including Ravi the new head of the Indian operations (who took over from Ghosh). Reddy felt this move would give a stronger business focus than the earlier relationship-building efforts:
But with Ravi taking over, he has proved himself very well. He has a very good track record. He is coming here for a different purpose. He appears to be mainly business oriented where Ghosh [the previous in-charge] was primarily relationship oriented. He individually relates to a person, lots of feelings take place there. Ravi is very different. Different in the sense that nothing goes by perception or anything like that. I think it is a good change over from Ghosh to Ravi.
Through some unpredictable circumstances, WS benefited from GlobTel s ˜right-angle turn . Arising from a political process within GlobTel, projects from one of their labs in North America (with which another partner was aligned) were transferred to the UK lab with which WS was aligned. As a result, while in 1998 the other three partners experienced a decline in their business with GlobTel and a need to cut developers, WS increased their numbers of developers from about 275 to 350. The majority of the new projects for WS involved the legacy digital switching product (DSP) technology and outsourcing to them which would free the UK staff for new product development. Even though DSP represented legacy technology, WS saw this transfer as a solid future business opportunity since DSP already had a significant market presence. Maintaining it would provide steady ˜bread and butter work. Reddy rationalized:
I think the right-angle turn has helped us a lot. They [GlobTel] realized that they have to move on, they cannot hold on to a product hundred years old or whatever. The CO 24 [pseudonym for GlobTel switching products] is making US$ 500 million today. And SM 50 [another pseudonym] is also making a lot of money. So it is not going to go away. But they [GlobTel] may not stick to this because if they do their market opportunities in 10 years will go down. So they have to do more work in the packet and data area. So they need a place to give the existing products. It really is a good technology for us to understand; definitely it is not in the data area or other fancy areas. We realized that there is a business case.
A key challenge in accepting the legacy route was in trying to retain the young talented programmers who wanted to work on state-of-the-art technology rather than DSP. Another challenge was that DSP technology represented a ˜shrinking pie from which budgets would be constantly redirected to the ˜right-angle turn . So, although DSP legacy work might guarantee a certain level of work for future years, there was constant pressure that work would have to be done at reducing cost. Even though WS had accepted the legacy route, it was uncertain how long they would be able to sustain this work given the ongoing challenges.
In the next section, we analyse the process of evolution of the GSA relationship using the theoretical lens of ˜standardization .