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Operational Booster for Reviving IT Service Industry

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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).

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          Operational Booster for Reviving IT Service Industry
                               Part-1: Solving Availability and Cost Issue of Resources

                                                       Dr. Shridhar Lolla
                                             Coach - Organizational Effectiveness
                                                  lolla@time2change.co.in


First Draft

Preface

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).
Key Words: IT Industry, IT Service, Software Development, Operations, IT Consulting,
Resource Management, Operational Excellence, Bench Management, Operational
Improvement, Organizational Improvement

The Core of IT Service Industry

The primary model of Indian IT industry is about providing technical resources (also called
consultants) to its clients. The largest chunk of its revenue comes from supplying resources
to work on clients' projects or systems.




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In medium to large IT organizations, there would be a yearly forecast, which is broken down
into quarterly and monthly targets of resource pool. The resource pool consists of different
specializations, 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, application
maintenance, project management and program management.
All round the year, the front ending teams scout for resource requirements from clients and
place request on the resource management team to supply relevant resources. It is the
responsibility of the resource managers to ensure that they have enough pool (Bench) of
resources across categories so that the client's can be served or shipped with these
resources well within the tolerance time of the market. Failure to show or make ready
availability (bench strength) of resources in a desired category could mean losing a business
opportunity and dissatisfaction of clients. Thus far, high margins and low cost of resources
allowed organizations to keep fat bench.

Judging the Bench by Availability or Cost?

With the growing complexity of business environment, organizations face a core issue in
managing resource pool which if not paid adequate attention, it adversely impacts business
results.
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 actual
requirements vary significantly from the forecast and plan. In fact often, some of the
assigned resources are not free from previous engagement or diverted to some other
urgent project or just not 'yet' available. In fact, the priorities of resource assignment
changes several times across different engagements. As a result, on an ongoing basis, in a
number of cases (more than 30%), assignment of resources to the committed engagements
are delayed to the extent that it affects clients ROI as well as potential revenue opportunity
for 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% idle


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resources in Infosys and Wipro. Immediately, we see pressure on the management to
reduce cost by lowering the bench. Thus, the mismatch between demand and supply
(which is inevitable) leaves resource management in a paradoxical situation of over bench
where there is no or weak requirement and empty bench where there is an urgent need.

Chaos in Resource Management

When mismatch between demand and supply happens, what do you expect in the
organization? There is a regular fire fighting. For resource categories where there is poor
Bench strength, Managers start fighting for scarce resources and priorities get
misrepresented. The sales or project manager who have good connections and who shouts
the loudest gets the resources. At the same time, managers try to favor long waiting
resources and try to create projects or over staff projects to show better utilization. As a
result, priorities keep changing, a lot of chaos is created, everybody seems busy and every
requirement becomes red hot. But in reality, nothing moves ahead. Suddenly, the complete
organization becomes resource centric and managers take sides to get favor. And the
resources that are in shortage enjoy the limelight as managers fight with each other. People
sitting on the bench live in anxiety for their turn.

It is not the problem of IT Industry alone

The description as given above is written w.r.t. IT industry. In reality, it is a generic
situation. This situation of chaos, occurs in every organization that deals with placement of
resources, consultants, specialists or staff, whether it is in for profit business or not for
profit.
In fact, it also happens in organizations that sell things. Take for example, when you are
prescribed a brand of medicine by your physician or you want to buy a specific brand of
goods in a store. When you visit the pharmacy or store, you realize that some of the
medicines or things from your buy-list have run out of stock and you see a nicely written
regret board 'stock out'. At the same time, you know that a vast majority of medicines or
things nobody wants are flooded in the pharmacy or store. So, those things the consumers
want are not available but others which the consumers do not want are over stocked. This
means a loss of sales for the store while its money is stuck in the non moving things. And of
course, this also means loss of future sales as the consumer will most likely go to another
store or buy another brand during the next shopping trip.
This is exactly the situation in IT organizations, you often do not have the resources with
skills your clients need NOW but you have over crowded bench of resources for which the
clients 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 same
time are scared of huge investment in inventory, space and management. Thus, we see a
classical dilemma of 'Have high inventory to increase availability and therefore revenue,
versus have low inventory to reduce cost'.




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Direction to Solution

This nature of the problem is solved by using conflict resolution tools. Because one part of
organization 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 enough
bench 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 and
efficiently on an ongoing basis.

Solving the Core Problem

Here is what happened during past 3 months of pilot we did in one of the largest IT
companies. I was asked, "How many resources we must have so that we neither over bench
nor under bench."
I was told, "We can't choose between higher revenue due to better availability of resources
and lower cost due to smaller bench. We need both." Essentially, in today's New Normal,
my client wanted no trade-off.
The client accepted that demand variability in not in its hands. And then, it believed that
trying to manage (operate) bench purely on forecasting is not a good approach although
forecasting may be good for budgeting and longer plan. With this, the team gave away long
term forecasting as the basis of daily, weekly and monthly plan of recruitment and project
allocation. Thus, we were talking about operations, i.e. how do we manage the bench on
day to day (weekly) basis so that high availability of resources is ensured at lower cost of
the 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 day


This calculation was worked out for each category of resources.
But this calculation is just one time calculation required for installing the bench. It must also
factor reassigned resources, attrition rate and uncertainty. But it need not be highly
accurate.
Once the target bench strength was calculated, it became very clear where the bench was
under staffed and where over staffed. The immediate action was to speed up the
recruitment or assignment of resources to under staffed category of bench. In fact, several
resources were found good from the overstaffed benches and moved over to the
understaffed benches.
Once the benches of different categories were normalized, the complete resource
management team was aligned to fill those benches that were still under staffed. This was a
demonstration of aligning operations of resource management team to the market
demand. Incidentally, at the end of the exercise, there were more overstaffing than under
staffing, which led to correction of several assumptions held by the team for long time.


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After aligning the operations with the market demand, as the front ending team comes out
with 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 from
the bench is assigned to an engagement, it would create a demand on the resource
management team for replenishing the bench. In order to fill the empty places in the
bench, the resource management team will look at the schedule of the returning resources
from previous engagements or activate other processes of assignment.
However, at a given moment of time, the resource management team will be flooded with
requirements of several resources across categories. It became important that it didn't run
into fire fighting and create chaos. A clear priority system that aligned its activities with the
actual requirement in the market became important.
The resource management team started looking at the level of bench per category
periodically and looked into the unfilled level of the benches. The bench that was least filled
and was closer to zero bench level started getting higher priority in the resource
management team. Using such a priority system helped streamlining the process of
resource management and improved the availability of the resources across categories
dramatically in a very short time. At the same time, the categories that had enough
resources continue to be given lower priority, which meant that the resource management
didn't need to act on them THEN. This as a consequence has dramatically reduced the
situations of over bench.
Following the management of resources based on bench status and following a single
priority 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 review

With time, the demand pattern has been changing and also there have been innovations in
the recruitment, training, skills and deployment of resources. Hence, the size of bench
needs 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' who
uses a logic to increase the 'desired' level of bench where evacuation of the bench is faster
than the supply of resources and reduce or reallocate resources of a bench where 'desired'
level of bench is higher than what's required.
Now all the recruitment and training of the resources depends on the status and rate of
depletion of the bench. There is no other criterion for adding resources on a bench.

Achieving Excellent Availability of Consultants Cost Effectively

Here are the simple steps for an IT Service organization to ensure high availability of
resources 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.




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           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 into
execution there are several other factors that come into play and must be taken into
account.
….
To know more about leveraging operations to deliver better business results, download a 72
page free preview to 'The Path - Leveraging Operations in a Complex and Chaotic World' at
http://www/time2change.co.in. To know more about implementing quick improvement
programs that give superlative results, call +91 94480 70081 or write to
lolla@time2changec.o.in.




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