Great post by Gurudev
Look at the rate of rising IT salaries in India.
In 2006 there was a salary rise of 14.4%. In 2007 it was 15.1%, the forecast for 2008 is 15.2%. More importantly, this is the fifth consecutive year of a salary rise of above 10%! Going at this rate, and considering the weakening US dollar against Indian Rupee, considering an impending US economic slowdown, etc the cost advantage of offshoring IT services to India would disappear by 2015! What next?
Well, the companies would then prefer to offshore their services to other cheaper destinations or to Europe and other American countries instead of India, since it doesnt make any big difference then. Also, growing number of automated software, concepts like Software as a Service (SaaS), etc mean there would be little left to offshore in terms of backoffice works to be offshored.
Wasting
Why are the salaries rising? One major reason is because once the IT boom set in we started spending unnecessarily, buy unnecessarily, waste unnecessarily. Look at the amount of food wasted by our IT folks in their canteens, in restaurants, in parties. After every party in a restaurant, be it a project party, be it a team lunch or a birthday celebration, look at the amount of food these idiots waste.
On the one hand we have people in the country for whom God can appear only in the form of a piece of bread, and on the other hand we have these stupid people wasting food like this. The IT culture in India has become a wasting culture.
I am not saying dont eat too much. Eat how much ever you want. But PLEASE DONT WASTE. Before wasting even a spoon of rice just think for a moment about how much efforts have been put in by the poor farmer to grow the same, just think about the difference the same spoon of rice would make in the lives of the millions of poor in this country. If you hadnt wasted it, it would have been affordable to the poor. By wasting food, you are denying food to millions in the country. Our attitude towards food should be
‘Annam Na Nindyaat, Annam Na Parichaksheeta, Annam Bahu Kurveeta’ - Do not abuse food, Do not discard food, Grow food in abundance!.
IT guys who get salaries of 30-40K per month simply dont reaize that there are also people who get less than 1K per month, that there are people who lack the most basic necessities of life, and the least we can do to them is NOT to make basic things unaffordable to them by we paying more than what it costs for the same. How many IT guys are really involved in any kind of social service? Just Me, Myself and more Myself.
Coming back to unnecessary purchasing - more purchasing means, more demand, more demand leads to inflation, rise in the prices, less affordability by the poor, growing social divide in the country. More inflation also means you need more salary to afford things. Increase in salary at this rate means - companies offshoring their work to India lose the advantages of doing so. Which in turn means, less jobs, and that leads to lower salaries because then there will be more people willing to work for a smaller package, which in turn mean no more overspending, less demand, prices come down again….. 
Now, have a look at things like Coffee Day. Why do people make a fool of themself by paying 50 Rs for a coffee which shouldnt be costing more than 5-10 Rupees? What is the cost of a liter of milk? A plate of vegetable biriyani costs 150 Rupees in one restaurant, and the same costs only about 40 Rupees in the other restaurant. What the heck? Why do you go to those multiplex theatres and pay 600 Rs for a movie ticket when it shouldnt be more than Rs 100? They have priced it so much because they know that there are fools to pay for it. I was one such fool 2-3 times in a multiplex. Now I buy DVDs and watch at home in my wide flat screen surrounded by audio from high quality creative speakers - for a fraction of the multiplex cost 
Home Loans
I have a simple question to ask to all IT folks who have bought homeloans of duration between say 15-20 years. What is the backup you have for paying the installments in case of an IT slowdown? How will you pay those hefty monthly installments if there is a mass layoff?
Have you calculated how much exactly you will be paying overall for the flat? It will be atleast 4 times more than the actual value of that flat. An intelligent calculation would show that instead of a flat, buying a plot for reasonable rate in an area which is poised for a good growth in the near future would pay off much more returns. Take my case, I didn’t go for a home loan for I dont believe in buying beyond my current purchasing power, instead I bought a reasonably big plot 2-3 years back for a low price (since the place was a remote area then) by paying whatever cash I had, and today the place is poised for a good growth and my plot value has increased about 4 times! Now isnt that a good ROI for me?
As the rupee becomes stronger and stronger due to booming economy, say 5 years or 10 years down the lane, 15000 rupees would be a very big amount, and those who have bought long term home loans would be paying so much more then, when you could as well get a villa for that price! Its not just the total amount of rupees that you pay for loan that matters, its also the value of that rupee at the time of paying installment that matters too. 10 years down the line, a very strong economy also means a very strong rupee, if you are paying an installment of 20,000 rupees per month today, and say you get goods worth X for that 20,000 rupees today. Now 10 years down the line, you will be paying the same installment of 20,000 rupees where as due to a stronger economy the same goods X which cost Rs.20,000 10 years back will now be only say about 10,000 Rs!! When an economy is poised for a boom, I dont think it makes any sense to commit for long term loans like this where you will end up paying more and more in the long run.
Now imagine if you had bought a plot for the same money instead of a flat. Just the booming economy would ensure you greater returns as the land prices will never come down, for land is available in limited amounts. Flats might get less priced due to aging, availability of more flats, etc, but not land
What will be the value of your flat by the time it really becomes your own on completion of your loan payment? A 15-20 year old flat. I have seen my friends buying flats where merely after few months they bought it, the weldings in the kitchen came off, the sewage lines clotting, sliding doors getting stuck and so on. The quality of the construction material matters the most. Many of these two bedroom flats have their bedroom just half the area of my bedroom! I can show you houses where in one floor you have a single bed room house, and on the floor above, covering the same amount of area is a double bedroom house, and those who stay there say that they live in a double bedroom house!
To summarize what I mean is before commiting yourself to long term loans, especially homeloans, especially while buying the flats, please consider the following
1.What is the actual cost of the flat today? By actual cost I mean cost of total carpet area+actual construction cost, not the cost for which it is being sold. Look for the construction material used, for the construction quality, do a survery and you will be surprised to see the actual cost.
2. How much more will I be paying than the actual cost in the longer run. Consider inflation, interest rates, etc
3. Going by the projected economic growth what will be the amount that I might end up paying? Of course 10 years down the line, you dont want to look like a fool coughing up 20,000 per month to the bank, when a similar loan for a similar plot then would cost say only 5000 rupees!
Overspending
Dont overspend. It doesnt matter even if the finance minister has not increased the tax benefits for savings beyond 1 lakh. The government wants you to spend more. But does the government pay you in case of a job loss? I am not saying dont spend, all I am saying is dont spend without having minimal sustainable savings for the future.
Credit Cards
One simple way of knowing whether you are overspending or not is by looking at your credit cards. Having more than one credit card is an indication of overspending. It simply means the greed to buy more than what you can really afford. Even if you are having only one credit card, if you are not paying before the due date every month, it again simply means you are buying more than what you can really afford.
Warren Buffet, one of the top 5 richest persons on this planet, has this advice to the youth - ‘Keep away from credit cards’ I am strictly following his advice, have given back all my credit cards, except one with a bare minimum credit value just in case I have to buy something over the internet. Everywhere else and whereever possible, I use my debit card for transactions, because debit card means my own money, credit card means loan - not my own. For me, its a matter of shame to buy using a credit card if I am not sure about paying the credit bill before the first due date.
Also be aware that the amount you owe in your credit card also increases the country’s debt status. Country is finally made of its citizens, right? If there are 10,000 people in the country with a credit card payment of Rs 10,000 each pending, then it simply means that the people of the country have a direct debt of rupees 10 crore! Is this how you contribute to the country’s economy? By increasing the debts! This is a vicious cycle where you spend more and then to pay back that extra amount you borrow more and so on, and the cycle continues.
Simple logic boss, if every person is buying more than what he can afford, who is going to pay for that extra purchase? Somebody has to pay right, else how will the banks lending you a credit card profit?
All those who are paying their credit card bills with a late payment fee are paying for in advance for those who are paying their credit card bills on time, and they are also paying for the immense profits of these banks because very few people pay back their complete credit card bills before the first due date. In other words, your greed of not being able to wait to make a purchase till you actually earn that money is enabling these banks to make profit, and making you to spend more than what it actually costs (because of the late fee for your credit card bills). No bank would be able to offer credit cards if every card holder pays back on time before the due tate.
Also note that most vendors charge you a 2% fee for credit card transactions which they are NOT supposed to. In other words, just by buying using your credit card you are paying 2% more than what it would have otherwise cost you. Ever since I gave back all my multiple credit cards and decided not to buy anything beyond my affordability, I have started earning more than what I used to, save more than what I used to and more surprisingly also buy more than what I used to! Logically obvious because I dont have to pay those late fee of credit cards any more. Also, I dont have any hefty monthly installments to pay. Obviously I consider myself to be more smarter than others
So are credit cards really bad? Definitely Not. Its your commonsense that matters, dont blame it on the credit cards or banks, they are just encashing your foolishness. Its really good to have credit cards in case of an emergency. But if you start using them just to show off at places like hotels, parties, to prepone luxury buying just because you have a credit card, etc then blame yourself not the banks
Coming back to the IT industry in India, can anybody name a single world class software product that has come out of India. Indian IT has always had a service oriented mindset. Are there any world class reknown frameworks, operating systems, compilers, databases, server software, etc from India? Here is a question to everybody in the Indian IT industry including myself. What is our contribution in creating a “product” oriented IT industry in India? As I said earlier in Stronger Rupee=Stronger India, the only way to avoid an IT slowdown is to create a product orietned IT industry in India.
Look at a recent speech below by Anand Mahindra, vice chairman and managing director of Mahindra & Mahindra at the Nasscom leadership summit on February 13 2008. This is a beautiful constructive logical criticism of the Indian software industry by a leader not from IT, but from an old economic industry. The industry represented by Mahindra, has been definitely more innovative than the Indian IT industry.
Beautiful Speech by Anand Mahindra at Nasscom Leadership Summit
One of the tasks we at the Mahindra Group have set ourselves is to aspire to be recognized as the most customer-centric organization in India, and why not, in the World!
In order to walk the talk, every time I’m asked to speak at a conference, I have made it a default option to ask what the audience–my customers–might expect of me.
And so I found myself wondering what this conclave of IT wizards expects from a predominantly right-brained character like myself. You certainly haven’t called me here to deliver a sermon on technology. And I wouldn’t even risk doing that with Nandan (Nilekani) and Kiran (Karnik) sharing the dais!
Of course, I might have been able to do that by getting one of my IT colleagues to write this speech, but then it would have been comprehensible to you, but incomprehensible to me!
And although the title of this session is ‘Building a Knowledge Economy for Growth’, I believe that a) All of you out there have helped build the foundations of a knowledge economy, so again, you don’t need me to pontificate to you about that and b) I think there are some urgent pressures and imperatives the industry has to deal with at this point.
So, I’m going to talk about something completely different: I will talk about the Trimurti.
Most of the Indians in this audience will know the Trimurti - the trinity in Indian mythology of Brahma the creator, Vishnu the sustainer and Shiva the destroyer. There is a wonderful depiction of this in stone, just ten kilometers across the bay, at Elephanta. Both as a businessman, and as someone who tends to see life in visual images, the Trimurti reminds me of India’s IT industry. Think of it.
You people have gone through a stage, where like Brahma, you created something out of nothing. You created a new and global industry. You created a service sector that is today, a major pillar of our GDP. But most importantly, you created a perception of a new India, both in the world and in Indian hearts and minds.
CK Prahalad once told me that in universities in America today, there are almost unfairly high expectations from Indian students, because there is a huge perception that all Indian students are brilliant, outstanding. You created that perception. And within India, what you created was self-belief. You showed us what Indians could do, and now the rest of India believes that Indians can do anything. Brahma created a physical landscape; you sowed the seeds of a new mental and psychological landscape. In that sense, you are truly the Brahmas of the age of liberalisation.
But creation is only the first phase. You then have to move on to the next phase of sustaining that creation - to the realm of Vishnu the preserver. Creation is a one-time affair. Sustaining that creation is obviously a longer haul, subject to many attacks and crises. Perhaps that is why Vishnu comes not in one, but in ten incarnations.
Every time there is a new danger, he changes his avatar to a form best suited to meet that danger. At various times he has come as a fish, as a tortoise, as a dwarf. But his most interesting avatar came when he had to fight the demon Hiranyakashyap. Hiranyakashyap was a bad guy, who had obtained an amazing boon from the gods. Neither man nor beast could kill him; he could not be killed by daylight or at nighttime, within his home or outside it, on the ground or in the sky. All this made him pretty invincible - he went on a rampage, and only Vishnu could tackle him.
The IT industry today faces challenges every bit as complex as those Hiranyakashyap posed for Vishnu. It is hit by a macroeconomic tsunami of adverse currency changes, rapidly escalating costs in both salaries and infrastructure and inadequate talent pools below the tier 1 and 2 institutions.
At the Company level, firms are begin to feel the penalties of poor differentiation and lack of focus (trying to be all things to all people); and an over-emphasis on high volumes and price competition.
Suddenly, the industry seems to have fallen off its pedestal; You are facing your very own Hiranyakashyap.
It’s interesting to see how Vishnu dealt with him. How do you destroy someone who can’t be killed by man or beast, inside or outside, by day or night etc etc. The demon pretty much had all bases covered. So Vishnu took on the Narasimha avatar to bypass the boon. Narasimha was a hybrid creature, half man half lion, and therefore neither man nor beast.
He killed Hiranyakashyap at twilight, which is neither day nor night. He killed him in the courtyard, which is neither inside a house nor outside it. And he killed the demon by placing him across his knee and tearing him apart, thus circumventing the terms of the boon that he could not be killed either on the ground or in the sky. Now that’s what I call an innovative algorithm!
So what are the lessons for the IT industry in this story? Well, the first thing Vishnu did was to reinvent himself. It was not the gentle and contemplative Vishnu who fought Hiranyakashyap - it was the fearsome Narasimha avatar. Vishnu reinvented himself to suit the circumstances. The circumstances have changed drastically. Reinvent yourselves.
Do I have all the answers on the modes of re-invention? No, obviously not, otherwise I’d be out there filing patents, although I can suggest two broad approaches.
First, why don’t we design business models that challenge traditional industry approaches and then transform our organizations, people and processes to execute. If we simply keep knocking on the doors of clients with our traditional offshoring options, we’ll meet the fate of hearing aid salespersons: our best customers won’t hear the doobell!
For example, software-on-demand and open source models changed the rules of the software game. Can we not try to change the rules of the game this time around? Why didn’t we invent Zoom technology or Virtualisation? Thus far, India’s brand of innovation has been identified with the IT industry, but is it truly innovative. Is it really game changing? Ironically, you can now look to the old smokestack industries for inspiration.
A few weeks ago, an Indian car company made a game-changing move. Maybe the Nano will ultimately not retail for a hundred thousand rupees. Maybe it won’t have great margins, or replace as many motorcycles as it would like to, but it was a game changing move; it fired a shot that was heard around the world. Can the IT world make any such claim?
There was an old saying, apparently adopted by the IT industry, that the secret of success is to jump every time opportunity knocks. And how do you know when opportunity knocks? You don’t, you just keep jumping!
So when are we going to stop simply jumping every time a client seems to sneeze, and actually create products and IP that become their own opportunities?
Let’s look at new areas where India may have natural advantage. I remember C.K Prahlad telling us that we didn’t realize how important it was to leverage emerging innovation ecosystems in our country. He gave us the example of how, due to a fortunate coincidence, India’s IT and automotive industries were situated in roughly the same geographic clusters. So why wasn’t, according to Michael Porter’s competitive theories, a world beating automotive telematics industry taking shape here.
Why aren’t IT companies using the massive potential of India’s soft power, the film and TV business to exploit technological dominance of what Telco’s call the ‘last mile’ but is actually the ‘first mile’ in the brave new interactive world?
Secondly, why don’t we try to focus on a vertical industry (e.g., telecom) or horizontal domain (e.g., supply chain management) selecting the key dimensions of competitive differentiation - product vs. service, breadth vs. depth, speed of delivery, customer service responsiveness, fixed or outcome-based pricing, proprietary technology or intellectual property, and so on.
And let’s be prepared to make hard decisions along the way - change people who don’t fit, walk away from businesses that doesn’t fit.
It’s essential, while attempting this, however, to recognize that focus, differentiation and brand building require time and investment. Selling value or doing business differently than the norm tends to elongate sales cycles, which tends to put pressure on cash flow and we need to resist the temptation to broaden our offerings or slash prices just to win the business and keep people busy.
Along with re-invention, during the course of reinventing himself, Vishnu figured out the loopholes in the boon, and regrouped his physical and mental aspects to take advantage of these loopholes. That’s something the IT industry can do as well. Its often been pointed out that in the Chinese word for crisis is also the Chinese word for opportunity I love that mindset.
I truly believe that the adverse rate of the dollar can be viewed as the glass half empty or the glass half full. Sure it affects margins. But it’s also a chance to take advantage of the loophole and buy yourselves what you don’t have, so that you can regroup your structure to meet the challenge.
To me the fact that our currency is more valuable and our price earnings ratios are still higher than average, means that we can acquire the front-ends and the large IT businesses that we never thought we could before. And the bigger the better. If people are egging us on to leapfrog, then they should also cheer as you bid for companies that seem bigger fish than you. It’s happening all the time today in the manufacturing sector-Tata Corus being the stellar example-and we at Mahindra, while starting from scratch, have inorganically compiled together a portfolio of acquisitions that make us the fourth largest steel forging company in the world today.
This is not without historical precedent. If you look at Japan and South Korea, both of them went through a phase of enduring the worlds’ skepticism, then painstakingly building strong and competent domestic businesses, and then on the back of global liquidity support and strong price earnings ratios, compressing time by acquiring global firms and their customer credibility.
In effect, by acquiring the strengths and skill sets you need, you will regroup your profile and create a new entity, which can vanquish your challenges as effectively as Vishnu vanquished Hiranyakashyap.
And finally, while reinventing yourselves, you will have to bring in some of the aspects of the third element of the Trimurti - that of Shiva the destroyer.
Destroy for example the premise that cost arbitrage is the way to go. Recognize that the low cost, high volume offshore outsourcing battle has already been fought and won. Often, when strategic frames grow rigid, companies, like countries, tend to keep fighting the LAST war. If you are not already on the winners list, you need to think of other ways to compete on value and differentiation, rather than price and scale.
Destroy the premise that success comes only from size, and desist from comparisons with other Indian companies. There are still many IT companies in India who define success as “we want to be one of the top ten Indian IT companies”. Why not, for example, “we want to be the world’s #1 banking back office solutions provider”?
And lastly, perhaps the time has come to destroy the notion that the world may be your oyster but India is not. There is a huge domestic market in middle class and corporate India that has not been plumbed. Even selling to the bottom of the pyramid is profitable today. But it needs a creative destruction of the current mindset and a re-think on many of the assumptions we hold dear.
So, in conclusion, perhaps there really isn’t that much distance between avatars in the mythological sense and avatars in the technology sense. Perhaps they are both symbolic expressions of the same reality. In their different ways, they both underline the same message - that it is necessary in any situation to reinvent, regroup and re-think our way out of whatever challenges confront us.
I’d like to close with one of my favourite quotes-such a favourite, that I can’t even remember where I first read it:
My father thought the world would be same;
My children, however, wake up EVERY day thinking the world will be different.
Let’s begin emulating our children. Time to wake up and make the world different.
