Solving India’s technology industry woes –Clues from Gerstner's IBM turnaround

If you are old enough to have been associated with India’s technology industry in the 1990’s, you would recall experiencing a mixed feeling of excitement and worry then.

Excited because in the newly liberalized India (circa 1991), the tech industry then was THE sunshine industry, providing the restless youth a path to realize their dreams. Double digit growth rates, unheard of valuations, ESOP’s and US travel opportunities were just a few of the exciting opportunities facing middle-class Indian workforce, otherwise accustomed to a life of compromise and sometimes penury.

Shrouded in this excitement was a tinge of worry – THE technology organization back then, IBM a.k.a. BIG Blue known for its consistent blue-chip performance – was in doldrums losing billions of dollars and was on the verge of being broken into baby blues.

The present

Fast forward to 2017 and the picture is turned on its head. India’s now $150 billion showpiece technology industry that employs three-million people directly and at least an equal number indirectly is struggling whereas IBM is in the pink of its health. Although India’s technology industry isn’t losing billions yet, it is struggling to find its mojo and is besieged with problems - slowing growth, reduced margins, unfavorable visa policies, layoffs, changing technology landscape - the list is serious enough to make it appear like a crisis of mammoth, perhaps existential, proportions.

What happened in 25 years - 1992 to 2017 – that led to IBM and India’s technology industry exchanging positions at the end of the corporate success totem pole?

IBM

Back in the 1990’s when IBM was in deep trouble, IBM’s board made an unusual decision. Instead of choosing a stalwart from the technology world to turnaround IBM, it appointed a non-technology-savvy low-key Louis Gerstner as its CEO - the rationale was that IBM challenges were a result of strategy rather than technology failures. In hindsight, hiring a rank outsider like Gerstner made all the difference to the positive outcomes at IBM.

Absent any historic or emotional attachment, Gerstner made several decisions:

1.      He shut down the technically superior but financial failing initiative - OS/2. In the process, he ushered in a culture focused on results (technology that produced desired results than technology that merely led to technological advancement).  

2.      He steered the focus away from internal competition to external clients and promoted team work.

3.      He changed the success metrics, infused a culture of execution and brought an analytical rigor to decision-making.

4.      He laid enhanced stress on organization success as opposed to functional unit success, in the process strengthening the focus on group vision and the big picture.  

5.      He was careful not to undo everything: instead, he reinforced positive aspects of IBM’s culture – its technological finesse – while simultaneously eliminating the unproductive ones like its consensus-driven bureaucratic decision making.

6.      Gerstner did lay off people but wisely identified and retained selective key advisors from inside and leveraged internal expertise. 

Without getting too deep, what Gerstner realized essentially was that IBM’s woes were driven less by technology or strategy failures and more by its culture. With a fresh pair of eyes and no baggage of past, Gerstner overhauled IBM’s culture radically and led one of the greatest turnarounds in corporate history. So central was culture to the turnaround at IBM that Gerstner later said,

"The thing I have learned at IBM is that culture is everything."

India’s technology industry

There are several parallels between India tech story and IBM.

 The technology industry started as a services business to handle outsourced work from Western organizations. Over the years, the entire organization ecosystem and its culture was optimized to meet that outcome.

1.      Training: Since India’s education didn't produced adequately skilled engineers, a huge training machinery was setup to build a quality workforce from ground-up. The thrust of the training was primarily to help fresh engineers come up to speed with the existing technologies and secondarily to train top-class engineers to innovate on cutting-edge technologies.

a.      This led to a workforce focused on current than on future technologies.

2.      Rigid Processes and training programs were introduced to make the entire delivery operation as repeatable and duplicatable as possible. Given the high attrition in India, this was clearly a wise move.

a.      The focus on duplication obviously reduced the focus on innovation. Disruptive innovation was non-existent.

3.      Due to a high Dollar rupee exchange rate (and a periodically depreciating rupee), high margins and dizzying valuations resulted more from labor arbitrage than from research in new technologies.

a.      This led to reduced incentive to move up the low value chain.

4.      With top tech organizations’ workforce ballooning to thousands of engineers, a rigid multi-layer hierarchy was set up to provide enough growth opportunities to staff. Apart from slowing down decision making, this structure led to one major undesirable consequence:

a.      Smart engineers found it financially more beneficial to move out of technology and into “higher” managerial roles: the structure produced the equivalent of athletes incentivized to “grow” away from athletics.

5.      Rigid focus on costs and margins led to actions and decisions with a short-term focus on project EBIT (earnings before interest and taxes) ignoring long term benefits of engagements.

a.      Cutting-edge technologies got cold-shouldered in favor of money (EBIT) spinning old technologies. Over years as customers advanced to new technologies, Indian tech companies fell behind and were left playing in low-margin businesses, in the process eroding their stock price and valuations.

b.      With top talent already lost to MNC’s or senior non-technical roles, technology organizations were left with an army of techies trained in older technologies. As a result, moving up the value chain become a costly catchup game.

Twenty-five years of services business led to India’s technology organizations becoming a low-innovation, high process-driven, top-down hierarchy-conscious setups designed for repetitive services work. The resultant culture has now become an impediment to progress in a changed business landscape as these organizations move up the value chain. Despite difference in strategy challenges, the culture challenge at India’s technology industry now appears eerily similar to the one at IBM in 1990’s.

Fixing Culture

Falling revenue growth rates, depleting margins and depressed stock prices of technology organizations might appear like strategic failures – but deep-down, it is the culture that appears masked as a strategic failure. Every successful strategy needs a compatible culture base and any solution that addresses strategy without a cohesive approach to fixing the underlying culture will be cosmetic solution. Unfortunately that is what some Indian technology organizations appear to be doing. Chasing business in new business segments like AI, robotics & analytics and rapidly re-training millions of staff members still steeped in services culture will only help the lumbering technology elephant run quicker towards profitable areas, it wont make the elephant dance –the true expectation of customers.

For a successful transition to occur, the key is to identify a leader who can bring a fresh pair of eyes without being tied to the umbilical cord of the past and bring about a radical overhaul of the culture without destroying what is working, a la Gerstner. A competent external individual fully empowered to take actions will be more helpful in such turnaround situations than a trustworthy insider.

Summing it up

So is it all doom and gloom for the India’s humongous lumbering technology elephant? There could be challenges in the short-term but India’s tech industry elephant has weathered many a storm in the past. The elephant is running but the million-dollar question is can it dance? The answer could lie in Louis Gerstner’s famous lines:

Who says Elephants can’t dance?

Raja Jamalamadaka is a technology veteran, an entrepreneur, mentor to startup founders, coach to senior industry executives and a board director. His primary area of research is neurosciences - functioning of the brain and its links to leadership attributes like productivity, confidence, positivity, decision making and organization culture. If you liked this article, you might like some of his earlier articles here:

How to become a leader

How to overcome stage fear

Dont stanf on your Oxygen pipe of Success

How to be an effective leader without being a people pleaser or pleader?

How to be in the Right Place at the Right Time

How to use your brain effectively for success

How to stay relevant in a dynamic job market

How to sustain professional success

How to be Happy in Life

How to become an effective communicator