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Thursday, May 15, 2014

Why the IT Sector Needs ‘Positive Disruption’05-15

Why the IT Sector Needs ‘Positive Disruption’

Ganesh Ayyar took over as CEO of IT services firm Mphasis in 2009. His focus as CEO, he says, is to add sustainable business value to customers. According to Ayyar, the traditional time-and-material and fixed-price model of the IT services business will undergo a major change in the coming years. Customers, he says, will not want to buy IT services. Instead, they will want to buy business outcomes.
In a conversation with Knowledge@Wharton, Ayyar says that to remain relevant, IT services firms must be ready to cannibalize their own businesses. Mphasis, he adds, is on a transformational journey. “We want to be a positive disrupter — in other words, destroy the old value but replace it with new value in equal if not greater terms.”
An edited transcript of the interview follows.
Knowledge@Wharton: Can you give us an overview of Mphasis? What exactly do you do?
Ganesh Ayyar: We leverage IT services and business processes and work with our customers to help them solve their business problems. That has been our focus throughout. In terms of size, we are the seventh largest [IT services firm] out of India. I refuse to call ourselves an offshore IT services company because, increasingly, it is not about being offshore. It is about bringing business value to your customers.
Knowledge@Wharton: With six big competitors ahead of you in financial terms, how do you compete? What value do you bring to the customer?
Ayyar: I don’t compete with just those six players…. The customer chooses based on the value you bring, the approach you adopt, and the strategy and focus you have. Are you able to solve the business problem for them? Can you work with them in a partnership mode? Do you have a delivery which is top class, which does not let the customer fail? [If the answers to those questions are "yes,"] there is no discussion about, “Are you number seven? Are you number five? Are you number three?”
At Mphasis, we have selected a few customers and a few countries because, as a billion-dollar company, we cannot be everything to everyone. And to these customers — roughly about 75 [across] five countries — we bring the best of Mphasis. My job as CEO is to make sure that the best of Mphasis is better than what anybody else can provide to that customer.
Knowledge@Wharton: Could you give a specific example?
Ayyar: I’m fairly certain that many people can do something similar to what we do. The question is — are they better than us in that? Are they focused on that customer? Are you able to demonstrate a track record with that customer? What we specialize in is not the technology. It is not the services. It is about knowing the customer and ensuring that technology [and] services together becomes a solution in enabling the business outcome for our customers.
Knowledge@Wharton: You became CEO of Mphasis in 2009. What was your mandate and what was your vision for the company?
Ayyar: It has evolved over a period of time. Traditionally, if you are a listed company, every CEO will start saying that “My job is to create shareholder wealth.” We adopted a slightly different approach because shareholder wealth is an outcome. It cannot be the objective for the CEO. My focus as CEO is to create value for my customers, a value that is sustainable. It changes with time. It changes with technology. A solution that was good in 2010 would not be good in 2014; the business model that was good in 2010 would not be good in 2014. What I needed to ensure is that we are in tune with our customers and our customers’ customers and the changing market place.
Knowledge@Wharton: You talked about creating shareholder value. Your biggest shareholder, Hewlett Packard (HP), also used to be your biggest customer. But HP has basically cut Mphasis loose and you have had to re-invent yourself. How did you navigate this particular challenge?
Ayyar: I will give my answer in two parts. The first part is our relationship with HP. We have two types of relationships with HP, one as a shareholder and second as a customer. These two relationships are not mixed because HP, as our biggest shareholder, doesn’t want to see any dilution in corporate governance and we don’t want to see any dilution in corporate governance. There is a complete meeting of minds there.
As far as [HP as a] customer is concerned, in 2009 when we looked at the data we saw the concentration risk had gone up because 72% of our revenue was coming from HP. That was a trigger for our transformation. Many times companies transform based on certain triggers, certain events. Some of them are external and some are internal. Our trigger was that we felt that the concentration risk was very high and our direct business was not growing. These were the two triggers that caused us to step back and ask, “What do we do?”
That started the first wave of our transformation. We said, “We want to bring the value of hyper-specialization to our customers.” We pegged two industry verticals — banking and capital markets and insurance. [At that time] we were operating in 16 different countries. We said, “We will focus on eight countries.” We started building value in terms of knowledge and depth. There were lots of good things going for Mphasis. Arguably, we were the birthplace of BPO from India. That was our heritage. We had a very budding and growing practice around applications and infrastructure. That was our first wave of transformation. Now, we are onto our third wave.
Knowledge@Wharton: What was the second wave?
Ayyar: In the second wave, we basically said, “The marketplace is changing. Can I change the marketplace? Absolutely not. We are too small to change the marketplace. So, how can I become of more value?” We adopted a strategy of named accounts. We said, “We want to focus on select accounts.” Initially, it was select industries, select countries. Then we went further and focused on select accounts, whether existing customers or new. We created a salesforce that is compensated only if it is able to get business from these customers. We also created a solution-specialized salesforce.
In our third wave, we are now focused on being a positive disrupter. In other words, bringing the value of the new world to our customers, re-inventing ourselves, challenging the status quo and defining that new world in the context of value creation. Disrupters are somebody who will take the value out of the system. We want to be a positive disrupter — destroy the old value but replace it with new value in equal, if not in greater, terms.
Knowledge@Wharton: Give us an example of positive disruption and how you have implemented that for your customers.
Ayyar: If you see the newer model of IT services consumption, what is very popular is anything-as-a-service. The traditional model in which offshore companies have operated is time-and-material and, in some cases, fixed-price. Now, the moment you move to anything-as-a-service model what it does is it brings variability into the cost from the customer standpoint. And they are not looking at offshore. They are looking at transaction-based pricing — it could be a business transaction or it could be an IT transaction. When you do that, it has the potential of disrupting the traditional model of providing people to a client or just doing traditional offshoring. So, you are destroying that value. But by bringing anything-as-a-service you are replacing it with a higher IP, higher knowledge, higher partnership with the customer. This is a classic example of disrupting the old value chain, replacing it with a new one and creating new value. You should be prepared to cannibalize your own business.
Knowledge@Wharton: What is your assessment of the global IT services market today? What kind of opportunities and risks does that create for Mphasis?
Ayyar: I have a controversial point of view on IT services. I believe the way IT services are being sold and consumed today may cease to exist in the coming years. In fact, I will go to the extent of saying that in five to six years’ time people may not buy IT services. They may be buying business transactions, business outcomes. Automation and innovation will eliminate human intervention in a significant manner. If you are in IT services business what do you do about it? When all this happens, how do you exist and how do you survive? How do you thrive? How do you prosper? How do you excel?
That’s the roadmap that we have developed for Mphasis. Our belief is that IT services in itself will grow, but not in its traditional form. As part of our third wave of transformation we have prepared the organization to take us toward being a positive disrupter, to enter the arena of the new range of services. We are leveraging our named accounts strategy because we want to do this in collaboration with our customers. Being focused on select customers gives us the opportunity to do so.
Knowledge@Wharton: Can you explain a little more about what your strategic vision is, especially in the area of positive disruption? And what lessons can other companies learn from Mphasis’s experience in this regard?
Ayyar: Positive disruption, as I described it, is to create a new value chain by ensuring that you’re taking your customers along with it. I also want to highlight one more thing. We operate at the confluence of people, planet and profit. It is extremely important for all corporates, including us, to be a responsible citizen and ensure that we take the community along with us. We are ensuring that we are balanced between profit and doing the right thing.
[Regarding] sharing the lessons with others — to think that transformation will end is probably a myth, especially if you’re a technology company. Because by the time you believe that a transformation has ended, you will have to do something new. So, instead of saying, “I have transformation one, two and three,” we say that we are on a transformational journey. We did wave one, we are doing wave two and we are onto our wave three. As CEO, my job is to ensure that these waves are interconnected and leveraging each other rather than acting in conflict.
As part of transformation, the most important challenge is changing people’s mindset. Changing organization structure, measurement system, incentive schemes — these are all easier. Not easy, but easier. The physical aspect of transformation is easier. The chemical aspect is extremely tough. And to be honest, successful transformation requires you to manage the chemical transformation, which is around people, well. Initially I thought by changing the measurement system, the incentive scheme, it works. Actually that’s a myth. A CEO has to be leading from the front. He has to be an enabler for the rest of the team to leverage their transformation. He cannot expect that the teams will change automatically. Workshops, communication and just changing the measurement system alone won’t do the trick.
Knowledge@Wharton: How do you bring about a chemical transformation?
Ayyar: First of all, by personifying the transformation yourself as CEO and ensuring that your customers are with you, your employees are with you and your board is with you, by actually demonstrating success. You have to work on a few such cases, make them successful and be a learning leader yourself. In a small percentage of cases you will have to make a U-turn and reset the direction. You should be prepared for that because you are staring at the future without having all the data at your disposal and deciding that this is where you want to head. One of the ways in which I get assisted by my direct reports is that they are authentic, they give me feedback. I should be prepared to listen to them as to what is working and what is not working, including to the person who is right at the field level. That’s how I keep myself motivated. I have made many mistakes in this journey in the last five years. I’m certainly not proud of them, but I am not afraid to commit mistakes. If I become afraid of committing mistakes, I wouldn’t try something new.
Knowledge@Wharton: What’s the biggest mistake that you have made? And what did you learn from it? Also, what’s been your biggest accomplishment and what did you learn from it?
Ayyar: I have committed enough mistakes. I don’t know whether I can rank them. One of the things which I have learned is that many times your biggest strength is your biggest weakness. I love working with people. People are my strength, and at the same time, my weakness. I struggle to come to terms with the fact that somebody needs to be taken out. So I have a team which advises me on that. I make sure that my weakness is covered by having a good team which is able to advise me on these things.
My biggest accomplishment is to have a very capable, trusted, authentic team reporting to me. They have been instrumental in many ways in taking us from where we were. At one point of time our direct business stood at 28% of our total revenue. Today, that very same business stands at 63%. And, most importantly, as CEO of a listed company, you need to have a board which challenges you but is supportive of your strategy. I’m blessed with members who come from diverse backgrounds. They keep me honest. They challenge me. But they are completely supportive of my strategy. You have to take all these stakeholders along in your journey of transformation.
Knowledge@Wharton: What do you think should be the role of a CEO in re-imagining strategy?
Ayyar: I don’t know whether I can comment on the role of a CEO but I believe I keep myself young by learning. Being present at Wharton, I will get an opportunity to talk to the students. I spoke to some of the faculty members. Similarly, talking to my employees. I visit schools and talk to students. When you listen to all these things, you realize what is happening in the real world. I spend a lot of time with startups. They share how they view the world. Being a listening leader, I believe, is extremely important to be successful. And if you’re a CEO, you have to demonstrate that ability to listen, learn and then lead.
Knowledge@Wharton: As a CEO, what would you say is the greatest leadership challenge you have faced, how did you deal with it and what did you learn from it?
Ayyar: The first challenge was when I was appointed CEO. This is my very first role as a CEO…. You think that what you have done and what has earned you the role of CEO prepares you well. I was in for a shock because the role of a CEO is very, different from being a senior business leader in a company because of the multiple dimensions of this role. Today, 36,000 employees are counting on me to ensure that their future is bright. There are a number of customers who look at me as “Mr. Mphasis.” And then you have shareholders who have expectations from the company.
So, first of all, the stakeholders change dramatically and you think you are prepared because you have been successful in previous roles. To me, that was the biggest eye-opener. I adopted an approach that some people found strange, but I found very useful. After completing about three years as CEO, I said, “I’m going to assume that I’m the new CEO now and I’m going to assess the performance of the previous CEO. I’m going to ask my team, ‘What did the previous CEO do well and didn’t do well?’” I went through a very structured, formal process of doing that assessment. And then I published, “What is this new CEO going to do?” I made it public to my team members. I sent out an e-mail [saying] that these are the behaviors I’m going to show, these are the objectives I’m going to achieve, these are the changes I’m going to make. When you publish it you have no choice but to change. Otherwise, you face public embarrassment. And CEOs are actually very afraid of public embarrassment. I was ready to be embarrassed if I didn’t do it. I published it. My team was supportive. In fact, some of them loved it so much that they did it themselves….
Knowledge@Wharton: When you did your mid-term assessment or three-year assessment, what sort of a grade did [you as] the previous CEO get — A, B or C?
Ayyar: I gave myself three out of five. My aspiration is — over a period of time, can I score six out of five? It’s a tough journey and I’m not cocky about it. What I’m trying to do is to be relevant with the times, to work with my team members, to listen to youngsters who are creating a very vibrant world and to be in tune. So, I would like to stay young forever — a teenaged CEO if I may.
Knowledge@Wharton: One last question: How do you define success?
Ayyar: Success is not what you do when you’re around. Success is how people rate you after you have left the scene. It is about leaving behind a legacy — leaving [behind] something that sustains. To ensure that you have done succession planning and your successor comes from within your own ranks. To have a strategy, an execution, which people talk about. To me, that is success. Many people say it is reaching [a particular] share price, this kind of total shareholder returns. To me, those are all outcomes. To me, success is leaving behind a very positive and sustainable legacy.

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