And Vijay Says...

IT Services Industry in 2015

After a couple of years away from services business, I am back in it – albeit with a different flavor . My current services responsibility is to run consulting for a software company, as opposed to doing so in a pure services company. Nevertheless, with the new role, I have been thinking (and talking to old friends and customers) quite a bit over the last couple of months on what is changing in the IT services world. I am ignoring BPO services for now. Also, I am just jotting down six top of the mind items – there are a hundred other things which need attention too.

1. Increased demand for shorter time to value

In the 90s, I could easily convince a customer that the business requirement will take 6 months to implement. It is really difficult – but not impossible – to do so today. Customers do not have that kind of patience these days. We have both the hardware and software industry innovations to thank for that.

This is one area where smaller companies have a definite edge over larger companies in adapting to the change.

2. Business model changes

At a high level – most big services companies will continue to make a lot of money from large outsourcing deals given inertia of customers to let go of legacy, and fragmented SaaS solutions. This happens laregely in fixed scope/price as well as Time&Materials basis contracts today. But the model is changing for sure trending towards outcome based models. Customers expect vendors to provide more flexible capacity with less and less predictability. Some customers expect vendors to provide predictable TCO savings year over year via portfolio optimization. Not all vendors are equipped to deal with these though unfortunately. An increasing trend – but not mainstream quite yet, is the idea of managed application services tied to factors other than TCO.

3. Estimation needs to grow up real soon

If you look at estimation techniques – it is stuck in the 90s. Even in packaged software world, where it should take progressively less time to build something over time – estimates still show very little improvements from the mid 90s. A complex interface from ERP should take less time today compared to 1995 – but it ain’t so.

4. Talent Management needs a complete reboot

Talent management – or lack thereof – is the bane of services industry. Accelerated career progression (maybe more so in offshore centers) is one area that concerns me a lot in particular. Many midlevel managers have not had enough experience as individual contributors before they earned their promotions. This was the price to pay for the aggressive growth in last 10 years. But it also has resulted in a loss of senior level technical competency. Every company in services claim to have a technical career path – but very few actually do anything to make it work. For the most part, a rewarding career in services still exists only for sales and management jobs. Delivery skills are not rewarded anywhere close to sales and management. It is high time this changed.

5. Leadership Attrition

This is what is going to hurt established services companies the most in my opinion. The “rainmakers” in the established companies are a largely disillusioned bunch today from what I can see. Many of them will recognize that their impact is a lot higher if they join smaller companies , or even start a company on their own. This is a double whammy – this level of talent is extremely difficult to backfill, and usually they take their customer relationships with them. Coupled with the attrition at lower levels due to career and pay stagnation – this is a big area of concern. I am not convinced from examples I know personally that services companies are spending enough attention on this brewing problem.

6. Blurring of lines across software, consulting and support.

Most companies – pure services or software companies who do services too – keep software, consulting and support separately. There are good reasons for doing this from vendor point of view. From a customer point of view, this is mostly artificial. I expect 2015 is when many customers will demand more offerings from their vendors that blur the lines between software, services and support. This is a really hard problem for vendors in many ways – compensation, hiring, accounting, marketing, selling etc will all get disrupted when these two groups come together after being separated.

Happy new year, every one !

Book Review – Winners Dream: A Journey from Corner Store to Corner Office, by Bill McDermott

Today is the 5th anniversary of this blog – just got that notification from WordPress, as I was finishing this book by Bill McDermott http://www.amazon.com/Winners-Dream-Journey-Corner-Office/dp/1476761086 . It is a great read and there were plenty of little nuggets of wisdom in this book that I found very useful.

It is fascinating to read that Bill knew very early in his career that he wanted to be the CEO of a large company. Not many people I know – including many who are big company CEOs today – have had that realization of their destiny till much later in their career. Even before I read the chapter on how he met his wife and how great she has been as the CEO of his family, I knew he had a fantastic support system. For someone to have a career like him, that is a basic necessity . My own limited accomplishments in my career would not happened without the sacrifices and support of my wife. And consequently I could relate to his pain of dealing with his wife’s fight against cancer, and his elation when she successfully defeated the disease. I have never met Bill’s wife – but I look forward to meeting her one day, hopefully with my wife.

Bill is a sales machine and he is a master of corporate theatre – that is a good combination for a CEO. He is impeccably groomed at all times and the book clearly tells me that is his DNA. He feels comfortable in formal attire – and there are some former bosses at IBM I know who are like that. It clearly works for him – it is part of how he earns and shows respect. I can clearly see how this has influenced the people around him – for the most part, they are all impeccably groomed too.

His penchant for pageantry is something he is unapologetic about throughout the book. This is one area where I am not convinced that it is a sure shot strategy for success, especially at SAP where a lot of staff is of the non-sales type. SAP has an annual field kick off meeting and an annual developer kick off meeting. The former is all about luxury, the latter is all about frugality. To the best of my knowledge there is no equivalent of winners circle for the good people who build all the cool things SAP salesforce sells to get to winners circle. I would seriously urge Bill to look at that side of the house too. The solution might not be a winners circle for developers – but it is something for the CEO of a tech company to spend some attention on.

I absolutely love the emphasis he puts on developing people around him. He is all about team and helping remove roadblocks in their path . That is not some hollow talk – I know this to be true first hand. Towards the end of my tenure at SAP – I emailed Bill about something I needed to discuss with him. In the weird matrix that SAP is organized, I did not report into him. I was part of the engineering side of the house. In less than two minutes – I had a call back from Bill to get into a plane and go talk to him the next Monday. That meeting was amazing – I had his undivided attention and he offered two solutions and a follow up meeting to discuss how things were progressing. Couple of months later, I ran into him at Palo Alto – and he came and asked me for an update.

When I left SAP – he said two things. First he asked me if there is anything he can do to make me stay ( there was not , and I had already given my word to my new boss). Second he asked me to get settled at MongoDB and ping him back on how SAP can work with my new company. And when I pinged him back in a couple of months – he (and my great friend Steve Lucas) made the collaboration work, resulting in Lumira and Data Services now having interoperability with MongoDB.

Bill says in the book that when he took on as President of North America, he had a condition that Germany did not micromanage him from across the pond. I am glad that they did not. But this is an area where I think SAP is not letting Bill perform to his full potential. SAP organization is all about extreme checks and balances. There are three boards – managing board, executive board and supervisory board. Bill is part of the executive board, as are the heads of sales, products, support etc. I think Bill will be way more impactful in his job if he were a CEO in a more traditional capacity, like how IBM, GE etc operate. At this point – the one person who can decide across the board is Hasso as the chairman of supervisory board. And of course there is only one Hasso – there is not another person like him on the planet. But when he retires – I hope they give Bill a traditional CEO role.

Also – prior to Bill taking over SAP Americas, he says they went through 5 leaders in quick succession. It looks like that history kind of repeated after Bill moved to bigger roles at SAP too. Just shows what a hard job that is.

I enjoyed reading about the acquisitions of Sybase, Ariba, Hybris and SuccessFactors. While I think SAP significantly over paid for most companies it bought, and the integration with the mother ship was not smooth – I absolutely think they were strategic to SAP.

Sybase was acquired as a mobility company – but mobile business never really flourished at SAP ( I think SAP should have acquired a few more companies to have a meaningful shot at mobile business, and maybe they should have tried harder to keep Sanjay Poonen to run it ). But in the bargain – they got some very talented database people which helped the cause for Hana.

Similarly I do not think that SuccessFactors changed SAP DNA all that much – but SAP never would have become a known name in cloud without buying them. Ariba is an all around fantastic buy – and probably the most strategic amongst the four. Hybris, similarly is a pretty good addition to SAP’s portfolio. In all four cases- I appreciate how Bill trusted their CEOs upfront during the M&A process, even while knowing none of them will stick around. It is a good reminder that business is always done between two people and not two companies.

Now a few things I wish the book spent some coverage on. May be there is a second biography later that will cover all of these.

1. I did expect some light to be shed on the influence of Vishal Sikka on SAP – but there were just some passing references.

2. Since Bill is all about developing a generation of leaders, I wish he spent some time talking about succession planning. There are amazing leaders under him like Rob Enslin, Steve Lucas , Bernd Leukert etc who all have what it takes to be CEO – if not at SAP, then elsewhere.

3. One issue – perhaps controversial and hence why it is not covered – is diversity in senior executive leadership levels. I would love to hear Bill’s views on diversity and what he is doing at SAP to encourage diversity, especially at senior levels.

4. SAP has an unusually large portfolio – and honestly I don’t think there is anyone in the company who knows all the products that can be sold. I would have loved to hear his thoughts on portfolio optimization, especially since he has stated that inorganic growth is a must have. With twenty thousand plus developers – it is very easy to waste precious engineering fire power by spreading everyone thin across a wide portfolio.

5. Finally, what is it that Bill himself wants to do next ? I am sure he has a long innings left at SAP. But what after that?

All said, it was a thoroughly enjoyable read and the next time I get an opportunity to meet Bill, I am getting my copy autographed.

Book Review – The hard thing about hard things by Ben Horowitz

Yesterday night, I finally managed to read Ben Horowitz’s book . If you have not read this book – you should do so http://www.amazon.com/Hard-Thing-About-Things-Building-ebook/dp/B00DQ845EA/ref=sr_1_1 . It is brilliant. Barring a few places where I don’t share Mr Horowitz’s views – I was nodding my head throughout , often with a smile or a sigh.

It is a jargon free book – which in itself is quite an accomplishment for a business book. This is a book for senior level management practitioners – although I am sure some MBA students will find it interesting too.

I have never been a CEO in my life – but I have worked closely with quite a few at my present and past employers and also at my clients. I did not quite realize what a lonely job it really is till I read the book. While the success of a CEO is defined by the team, the CEO has to make the hard decisions as an individual for the most part. If everyone starting out to be a CEO truly appreciated the loneliness of the job, I wonder how many will have CEO ambitions to begin with.

The key theme of the book is that there is no real recipe to success as a CEO, at least in a tech startup scene. Honest to god, if the book went into some “6 steps to be a great CEO” type explanation, I would have stopped reading it that instant. Horowitz comes across as credible to me instantly by saying there is no such recipe.

About 20% of Horowitz’s advice is original – I especially liked the good/bad product manager memo and differences between the working of a peacetime CEO and a wartime CEO. The rest is conventional wisdom that you can get elsewhere too. I usually tune out when I read oft repeated stuff – but this time I did not. And it is for a very simple reason – the book is written without the “6 steps” format. It has more of a “stream of consciousness” approach with many real life stories. It felt more natural. It might also be because my own blogging style is largely unstructured .

The book is definitely attractive for execs in a tech startup – CEOs probably will find the most value, but also general managers and people looking to move into the startup scene at a senior level. I am not sure if this book will offer as much value to non-tech company leaders, or those without heavy VC type financing. Not every CEO has the sheer will power or connections it takes to get a $29M company to an exit of $1.65B. So the specific applicability of the book to the larger entrepreneur ecosystem is a bit of an unknown to me.

Now to the four things where I think the book could have done a bit better

1. Right from the start, I noticed that Ben used “she” to describe the leaders . I immediately perked up thinking that here is finally a leader who has seen the value in having woman leaders developed in his company. However, I was quite disillusioned by the end of the book. He hardly has an example of an actual woman leader in the book . None of the people he called out as mentors are women. None of the people he called as his stellar executives are women (except one exception I think – Margit Wennmachers) . Even the fictitious names in examples he used were not women. It just looked as an explicit effort to come across as politically correct – which is awkward given the nature of the book which is anything but PC.

2. Ben points out correctly that there are challenges in getting a large company executive to function well in a startup. However he generalizes it to an extent where it comes across almost as if all big company execs fit a certain mould. I fully agree with the challenges he brings up – it is true that there are many big company execs who will fit the picture Ben paints . There are also plenty of big company execs who do well in startups. I would have also been interested in Ben’s views on founders who sell out to large companies but then don’t find success being part of the large company set up.

3. While I like the part of taking the hard decisions on hiring and firing employees and executives in an objective way , I was surprised that the cascading effect on their teams was not called out. Top sales teams are built on extreme loyalty – reps follow great sales managers across companies. If you hire a great sales VP, you also get a bunch of good reps in the bargain. If you fire a VP of sales, then you should also expect an attrition of reps. Same thing with engineers – developers like to work with smart developers. So if you lose your star developer – especially one that is looked up on by ecosystem as a super hero – it affects your ability to hire great ones.

4. Both the IPO and the sale to HP seem to have been done with the help of a genius VP of business development, John O’Farrell . However the book does not give any insight into finding a great VP for BD, or building a world class BD team.

I am hoping that in his next book, Mr Horowitz will go into some detail on all these topics and many others that did not fit into this book.

All said – it was an enjoyable read and I do recommend the book highly. In fact I am thinking of ordering a few copies as Xmas gifts to a few friends.