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Indian IT Service industry has been at cross roads for almost half a decade and it is still struggling to come to terms with the current reality in the market place. It has lost its inherent advantages that brought it to lime light in the global IT industry. During past few years organizations have tried various options to revive their performance. There have been attempts to change leadership style, organizational structures, market segmentation, value chain positioning, organizational diversity, locational ownership etc, but organizations have not met with much success. One by one, companies have been restating their growth numbers on the lower side.
Increasingly IT Service organizations realize that the days of high margins and locational advantages are over. They also feel that in order to deal with today's complex and chaotic environment, they must improve their operational performance to return to their historical growth. Not for any other reason, more and more organizations are taking steps to make operational excellence central to their core strategy.
This caselet is an application of the concepts covered in the just released book 'The Path : Leveraging Operations in a Complex and Chaotic World'. It the first part of a series of caselets aimed at revealing dramatic operational improvements in IT Industry without making too many trade-offs and without causing too much burn-outs. This caselet describes how an IT Service organization in the business of providing consultants, can promise better availability of consultants with a leaner bench. By doing so, it will be able to develop a decisive competitive edge that simultaneously improves Revenues and Profits even in an ever more complex and chaotic business environment (the New Normal).
1 Operational Booster for Reviving IT Service Industry Part-1: Solving Availability and Cost Issue of Resources Dr. Shridhar Lolla Coach - Organizational Effectiveness email@example.comFirst DraftPrefaceIndian IT Service industry has been at cross roads for almost half a decade and it is stillstruggling to come to terms with the current reality in the market place. It has lost itsinherent advantages that brought it to lime light in the global IT industry. During past fewyears organizations have tried various options to revive their performance. There havebeen attempts to change leadership style, organizational structures, market segmentation,value chain positioning, organizational diversity, locational ownership etc, but organizationshave not met with much success. One by one, companies have been restating their growthnumbers on the lower side.Increasingly IT Service organizations realize that the days of high margins and locationaladvantages are over. They also feel that in order to deal with todays complex and chaoticenvironment, they must improve their operational performance to return to their historicalgrowth. Not for any other reason, more and more organizations are taking steps to makeoperational excellence central to their core strategy.This caselet is an application of the concepts covered in the just released book The Path :Leveraging Operations in a Complex and Chaotic World. It the first part of a series ofcaselets aimed at revealing dramatic operational improvements in IT Industry withoutmaking too many trade-offs and without causing too much burn-outs. This caselet describeshow an IT Service organization in the business of providing consultants, can promise betteravailability of consultants with a leaner bench. By doing so, it will be able to develop adecisive competitive edge that simultaneously improves Revenues and Profits even in anever more complex and chaotic business environment (the New Normal).Key Words: IT Industry, IT Service, Software Development, Operations, IT Consulting,Resource Management, Operational Excellence, Bench Management, OperationalImprovement, Organizational ImprovementThe Core of IT Service IndustryThe primary model of Indian IT industry is about providing technical resources (also calledconsultants) to its clients. The largest chunk of its revenue comes from supplying resourcesto work on clients projects or systems.Copyrights 2013 © CVMark Consulting. All Rights Reserved.
2In medium to large IT organizations, there would be a yearly forecast, which is broken downinto quarterly and monthly targets of resource pool. The resource pool consists of differentspecializations, and within specializations different level of maturity (experience) and skills.Further, these resources also vary from generic skills of testing, coding, designing, analysis,requirement management to business analysis, infra management, applicationmaintenance, project management and program management.All round the year, the front ending teams scout for resource requirements from clients andplace request on the resource management team to supply relevant resources. It is theresponsibility of the resource managers to ensure that they have enough pool (Bench) ofresources across categories so that the clients can be served or shipped with theseresources well within the tolerance time of the market. Failure to show or make readyavailability (bench strength) of resources in a desired category could mean losing a businessopportunity and dissatisfaction of clients. Thus far, high margins and low cost of resourcesallowed organizations to keep fat bench.Judging the Bench by Availability or Cost?With the growing complexity of business environment, organizations face a core issue inmanaging resource pool which if not paid adequate attention, it adversely impacts businessresults.The resource management team builds the bench well in advance based on the forecasting.However, as engagements and projects enter into execution stage i.e. on boarding,assigning or activating resource to a committed project, it often finds the actualrequirements vary significantly from the forecast and plan. In fact often, some of theassigned resources are not free from previous engagement or diverted to some otherurgent project or just not yet available. In fact, the priorities of resource assignmentchanges several times across different engagements. As a result, on an ongoing basis, in anumber of cases (more than 30%), assignment of resources to the committed engagementsare delayed to the extent that it affects clients ROI as well as potential revenue opportunityfor the organization. IT service organizations need to maintain Bench since the clients place orders only when they are sure of the availability of sufficient resources. For example, ET reports a bench of 20% in Infosys. But this is just a unidirectional solution. In order to ensure ready availability of resources (and not lose any opportunity to earn revenue), organizations therefore tend to over bench themselves. However, gone are the days when IT resources were cheaper and margins were fatter. The same article of ET mentions 30% idleCopyrights 2013 © CVMark Consulting. All Rights Reserved.
3resources in Infosys and Wipro. Immediately, we see pressure on the management toreduce cost by lowering the bench. Thus, the mismatch between demand and supply(which is inevitable) leaves resource management in a paradoxical situation of over benchwhere there is no or weak requirement and empty bench where there is an urgent need.Chaos in Resource ManagementWhen mismatch between demand and supply happens, what do you expect in theorganization? There is a regular fire fighting. For resource categories where there is poorBench strength, Managers start fighting for scarce resources and priorities getmisrepresented. The sales or project manager who have good connections and who shoutsthe loudest gets the resources. At the same time, managers try to favor long waitingresources and try to create projects or over staff projects to show better utilization. As aresult, priorities keep changing, a lot of chaos is created, everybody seems busy and everyrequirement becomes red hot. But in reality, nothing moves ahead. Suddenly, the completeorganization becomes resource centric and managers take sides to get favor. And theresources that are in shortage enjoy the limelight as managers fight with each other. Peoplesitting on the bench live in anxiety for their turn.It is not the problem of IT Industry aloneThe description as given above is written w.r.t. IT industry. In reality, it is a genericsituation. This situation of chaos, occurs in every organization that deals with placement ofresources, consultants, specialists or staff, whether it is in for profit business or not forprofit.In fact, it also happens in organizations that sell things. Take for example, when you areprescribed a brand of medicine by your physician or you want to buy a specific brand ofgoods in a store. When you visit the pharmacy or store, you realize that some of themedicines or things from your buy-list have run out of stock and you see a nicely writtenregret board stock out. At the same time, you know that a vast majority of medicines orthings nobody wants are flooded in the pharmacy or store. So, those things the consumerswant are not available but others which the consumers do not want are over stocked. Thismeans a loss of sales for the store while its money is stuck in the non moving things. And ofcourse, this also means loss of future sales as the consumer will most likely go to anotherstore or buy another brand during the next shopping trip.This is exactly the situation in IT organizations, you often do not have the resources withskills your clients need NOW but you have over crowded bench of resources for which theclients has no requirement or perhaps have long enough time to wait. Like in IT industry,most of the organizations want to keep high inventory to ensure availability but at the sametime are scared of huge investment in inventory, space and management. Thus, we see aclassical dilemma of Have high inventory to increase availability and therefore revenue,versus have low inventory to reduce cost.Copyrights 2013 © CVMark Consulting. All Rights Reserved.
4Direction to SolutionThis nature of the problem is solved by using conflict resolution tools. Because one part oforganization says that we need high inventory while the other says keep lower inventory.The solution is not in having more or less inventory i.e. short or long bench.The solution to the problem is in having a mechanism that ensures having just enoughbench that provides an excellent availability of resources across categories at lower cost.And this mechanism must also help in managing the resource bench more effectively andefficiently on an ongoing basis.Solving the Core ProblemHere is what happened during past 3 months of pilot we did in one of the largest ITcompanies. I was asked, "How many resources we must have so that we neither over benchnor under bench."I was told, "We cant choose between higher revenue due to better availability of resourcesand lower cost due to smaller bench. We need both." Essentially, in todays New Normal,my client wanted no trade-off.The client accepted that demand variability in not in its hands. And then, it believed thattrying to manage (operate) bench purely on forecasting is not a good approach althoughforecasting may be good for budgeting and longer plan. With this, the team gave away longterm forecasting as the basis of daily, weekly and monthly plan of recruitment and projectallocation. Thus, we were talking about operations, i.e. how do we manage the bench onday to day (weekly) basis so that high availability of resources is ensured at lower cost ofthe bench.The first step was to estimate the size of the bench. The client adopted a simple calculation:Size of bench Time to deploy the resources (leadtime) x demand of resources per dayThis calculation was worked out for each category of resources.But this calculation is just one time calculation required for installing the bench. It must alsofactor reassigned resources, attrition rate and uncertainty. But it need not be highlyaccurate.Once the target bench strength was calculated, it became very clear where the bench wasunder staffed and where over staffed. The immediate action was to speed up therecruitment or assignment of resources to under staffed category of bench. In fact, severalresources were found good from the overstaffed benches and moved over to theunderstaffed benches.Once the benches of different categories were normalized, the complete resourcemanagement team was aligned to fill those benches that were still under staffed. This was ademonstration of aligning operations of resource management team to the marketdemand. Incidentally, at the end of the exercise, there were more overstaffing than understaffing, which led to correction of several assumptions held by the team for long time.Copyrights 2013 © CVMark Consulting. All Rights Reserved.
5After aligning the operations with the market demand, as the front ending team comes outwith requirements of resources and they are assigned resources from the respective bench(just like a consumer picks up an item from a rack in the super store). As a resource fromthe bench is assigned to an engagement, it would create a demand on the resourcemanagement team for replenishing the bench. In order to fill the empty places in thebench, the resource management team will look at the schedule of the returning resourcesfrom previous engagements or activate other processes of assignment.However, at a given moment of time, the resource management team will be flooded withrequirements of several resources across categories. It became important that it didnt runinto fire fighting and create chaos. A clear priority system that aligned its activities with theactual requirement in the market became important.The resource management team started looking at the level of bench per categoryperiodically and looked into the unfilled level of the benches. The bench that was least filledand was closer to zero bench level started getting higher priority in the resourcemanagement team. Using such a priority system helped streamlining the process ofresource management and improved the availability of the resources across categoriesdramatically in a very short time. At the same time, the categories that had enoughresources continue to be given lower priority, which meant that the resource managementdidnt need to act on them THEN. This as a consequence has dramatically reduced thesituations of over bench.Following the management of resources based on bench status and following a singlepriority system has thus improved availability of right resources at right place at right time,giving opportunity for the organization to increase revenue while reducing cost.Bench design needs ongoing reviewWith time, the demand pattern has been changing and also there have been innovations inthe recruitment, training, skills and deployment of resources. Hence, the size of benchneeds to be updated on a regular basis once in a quarter.What does it mean? The client has created a new role called The Bench Controller whouses a logic to increase the desired level of bench where evacuation of the bench is fasterthan the supply of resources and reduce or reallocate resources of a bench where desiredlevel of bench is higher than whats required.Now all the recruitment and training of the resources depends on the status and rate ofdepletion of the bench. There is no other criterion for adding resources on a bench.Achieving Excellent Availability of Consultants Cost EffectivelyHere are the simple steps for an IT Service organization to ensure high availability ofresources at lower cost. 1. Designing: Set the initial bench strength per category of resources. 2. Restraining: Stop all recruitment for benches that are over staffed. 3. Resource Leveling: Shift and cross train resources from overstaffed benches to under staffed benches.Copyrights 2013 © CVMark Consulting. All Rights Reserved.
6 4. Aligning to market: Align all recruitment and assignment activities to the under staffed bench only. 5. Following a Single Priority System: In day to day operations, priority must be given to filling of benches that have more vacant slots than others.These 5 steps together can give a midsized organization up to 10% higher availability at 10%lower cost in resource management.The above generic description and steps will need to be contexualized and as one gets intoexecution there are several other factors that come into play and must be taken intoaccount.….To know more about leveraging operations to deliver better business results, download a 72page free preview to The Path - Leveraging Operations in a Complex and Chaotic World athttp://www/time2change.co.in. To know more about implementing quick improvementprograms that give superlative results, call +91 94480 70081 or write firstname.lastname@example.org.Copyrights 2013 © CVMark Consulting. All Rights Reserved.