Oct-Dec 2009

Adapting to New Paradigms

Lakshmi Narayanan, Vice Chairman of Cognizant, the youngest Information Technology (IT) services company to reach a billion dollar revenue milestone, talks to Deepak Chandra, Associate Dean,  Centre for Executive Education, Indian School of Business (ISB) and Amit Mehra, Assistant Professor, Information Systems, ISB, about leadership, challenges and opportunities in the IT industry, education and the role of philanthropy.

Deepak Chandra: Let us start with your experiences as a business leader. You have seen Cognizant grow into a major player in the IT space. Did you see distinct stages of growth? What were some of your leadership challenges and lessons in each of these stages?

Lakshmi Narayanan: At first, Cognizant was captive to one large customer; we did not have to focus on selling because the business was right there. We needed to focus on delivering, on making promises and making sure that we delivered on the promises. So the focus was on getting the best talent, and making sure that the work was of the highest quality. It was a singular focus. When you are in that kind of a position, the leadership tends to focus on the details.

The next stage is instead of serving just one customer, you go out and serve the market. This means that you have to acquire two skills simultaneously. First, you have to go out and sell and second, the time for delivery is limited. So you have to let go, you cannot continue to micro-manage. Behaviorally, this is a very challenging stage because you have to start believing that the people around you are better than you, cleverer than you. Not that they are, but it is a belief that you have to develop, so that you can let go and empower.

If you want to project the image of a rapidly growing large organisation, the leader has to immediately display a mindset of size and scale, and act as if he or she is the leader of a very, very large company.

In the third stage, you start looking at market recognition. You need to define what you want the market to perceive you as. For a business leader, the challenge is to live that, day-in and day-out. If you want to project the image of a rapidly growing large

organisation, the leader has to immediately display a mindset of size and scale, and act as if he or she is the leader of a very, very large company.

The last stage is continuing the established message, sustaining that growth and letting the organisation’s leadership develop.

Chandra: How did you go about these four stages?

For the last two stages, we needed a fresh perspective from outside the context of the IT industry, to get a sense of what it means to lead a large, global organisation. Such a requirement can be fulfilled by an external mentor who has that perspective. In our case, it was Ram Charan.

In the earlier two stages, the transition was helped largely by the customers that we worked with. The way to do it is to identify about four or five customers with whom you have been extremely successful and have built a relationship. You take their advice on why they work with you; what they find different about you that they don’t get elsewhere. This can help you focus and strengthen your advantages. Internally, there is often a reluctance to share your problems with customers but that is the best source to get the most innovative ideas.

Chandra:  With the global market becoming multi-polar, will we see different market characteristics and leadership capability requirements?

Over the last few years, emerging markets have really been growing in size but innovation still happens predominantly in the developed world. The application of innovation happens in both worlds, but perhaps far more rapidly in the developing. So strategically, we look at both markets. But for developing the corporation’s capabilities, you need to have one foot firmly in the markets where innovations take place.

Amit Mehra: You talk about little innovation happening in emerging markets. But one can think of the telecom industry, for example, which is actually bigger and more developed in China and India than in the US. So can one expect more innovative activity in this sector from emerging markets?

In terms of the market size, yes, India and China etc are big. This is not to say that it is uninteresting to look at the telecom market here, but from a new applications perspective, it is a good idea to look at developed markets. I have to be in the developed markets to understand Android and Google phone. This will then set the stage to apply them here.

Second, the type of innovation provides the opportunity. For example, GE has developed a new ECG machine and they say it costs Rs 19,000-20,000 per ECG and Rs 25,000 for the machine. The key opportunity for companies like us is if we can develop software where ECG-generated images can be shared on a global basis.

Mehra: The IT industry in India is seeing increasing competition from China and Latin America. They have better infrastructure than India, and English-speaking educated people are available. It has also become more costly to operate out of India. So how do you actually maintain the growth of the business in the face of this competition?

In the face of competition, the one advantage that India has in the model of outsourcing is innovation itself. If you look at the evolution of the outsourcing industry in India, particularly the IT sector in the late 1970s and early 1980s, it was staff-linked. The demand was for the talent to be physically present at the client site.

Over the last few years, emerging markets are really growing in size but innovation still happens predominantly in the developed world

The next stage of evolution was offshore development, where things would be kind of thrown over the wall. Texas Instruments setting up in Bangalore is a great example of that. Then it became onsite and offshore, with teams there and teams here going back and forth. Next it became a very collaborative onsite offshore, thanks to the availability of improved communication systems.

Now the next stage people are talking about is even more collaborative. The customer works with four or five partners and wonders why the partners can’t collaborate and provide solutions based on a common knowledge platform? The customer doesn’t want to be worried about who is doing what.

All this is predominantly driven by the Indian offshore industry, not by the developed world or China etc., because we have the history and the experience of this evolution. So as long as we continue to innovate on the model, we will have a significant advantage that will outweigh any cost, location or other parameters.

Mehra: The current state of evolution of the IT industry, with vendors collaborating for clients, is very interesting. I can think of multi-sourcing deals in the recent past where multiple vendors signed up to work together, for example, ABN Amro’s multi-sourcing deal. What would be the operational challenges in executing such relationships?

Multi-sourcing happened earlier but in a more hierarchical manner. There would be a prime contractor who would sub-contract. Now clients pick up different vendors, and divide up the work based on their specialisations.

However, models and tools are still emerging for effective operational collaboration between multiple vendors. Once this happens, multi-sourcing will be far more efficient. It is only a question of time. The key thing you need is a common knowledge base on which vendors can work with a set of common tools.

Right now, each vendor has their own toolset to sculpt the project, as it were. Once they have to use this common toolset, this common knowledge base, the differences will go away and they will collaborate much more.

Mehra: Do you foresee vendors collaborating at a strategic level, too, for example, alliances of vendors bidding for contracts in order to maintain the competitive edge?

At a strategic level, it is possible if the companies are very differentiated. For example, if company A is fantastic in defining the requirements and consulting, company B is terrific in development, company C is a great testing company and so on, then it is possible for them to strategically collaborate with one common programm. But generally, this can happen only if the customer involves strategic consultants like McKinsey’s, BCG, Bose Allen, or Bain, and says, not only will I buy your consulting report but I want you to be responsible for the implementation. Strategic collaboration can happen only if it is driven by the market.

Mehra: You alluded to innovation being driven by social collaboration. The homepage of Cognizant showcases a collaboration platform. Can you talk a little bit about that and about Web 2.0? What opportunities is this technology creating? How can Indian industry tap into it?

This is a platform that we developed purely for the purposes of collaboration on the model of 2.0. We call it Cognizant 2.0. The primary idea was to build a knowledge management system. The philosophy was that it was okay to make a mistake, but not okay to repeat that mistake. This means that any lesson learnt has to go some place where it is available for every other employee in the collaboration. That was the idea on which this whole platform was built.

The customers came along and saw our developers working on this Cognizant 2.0 platform. They wanted their teams to use the knowledge base and collaborate. Then, that also expanded. The customer has captives in Philippines and in India. They want those people also working on Cognizant 2.0. So this is almost like a social network, in a development context.

There is still a barrier in adoption. It is OK for customers to use it, but the fear is the customer might be working with other vendors. What if one company’s intellectual property goes into the other? I would like to break that barrier. If you don’t allow others to use the technology, they will develop it anyway. Then you can get stuck fighting in this area. Instead of that, why don’t we focus on the next Cognizant 3.0, which gives us some unique advantage, and open 2.0 for everybody, including competitors.

Chandra: Moving on, what can an IT services company do in India to gain access to better quality human resources?

One way is to focus on students after they graduate and enter the company, and then train and develop them. But we have not focused on the training and development of teachers. A majority of the IT teachers in engineering colleges don’t know what this industry is about; they don’t know what is happening in IT companies. And yet we are asking them to develop people who are company-ready or employment-ready.

I believe that if you get the teachers to visit good campuses, and good companies, get them to look at

good projects, and equip them with better skills, then they will be far more confident and will develop better students, than if you bypass them.

Chandra: There is a lot of discussion about creating a world-class education infrastructure in this country and the regulation to support this vision. What are some of the things that such regulation needs to look into?

The lesser the regulation in the area of education, the better. No regulation would be ideal. It is like a market. There are students who are willing to pay to get skills, and acquire some talent. And as long as the student has some ability, the institution can provide that talent at the right price and so on, there is no need for regulation, for somebody to come in and talk about exploitation. I would say the government should get away from the business of education and allow much greater freedom.

I believe that if you get the teachers to visit good campuses, and good companies, get them to look at good projects, and equip them with better skills, then they will be far more confident and will develop better students, than if you bypass them.

Chandra: Let us talk about the role of philanthropy in education. Indian levels are certainly not comparable to what you see in the US or internationally. How can such philanthropy be facilitated? What should philanthropists expect? What can education institutions do to position themselves?

If you want to do new research, or set up a centre to research a new area, no student is going to pay for it. The government may not be willing to pay for it either. The people who will benefit from it and may fund it is industry. So philanthropy can work in areas where the highest level research and new innovation in unchartered waters happens. And the next level higher education will have to be in a neutral area. It will have to be paid for by the recipients, with perhaps some government funding.

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