Two Faces of “Moving Up The Value Chain” (MUTVC) Syndrome

Face-1:

If you are an ICT (Information & Communication Technology) services company headquartered in India, chances are high that you want to “move up the value chain (MUTVC)”. Sometimes you will talk about solution accelerators, other times it will be building a consulting practice or you may be even developing products. In all likelihood “innovation” is one of the core values of your organization. If it is not there already, there is a good chance it will be added in your next value-vision workshop. As the Economic Times article titled “On Cruise Control” says: Today’s globalized businesses are caught in cat-and-mouse game between value and cost.

At this point, it is good to take a step back and see why this sudden fascination for “moving up the value chain (MUTVC)”. Headcount driven time-and-material model has worked well for the past decade and half. And you don’t undermine such a model easily. To quote Mr. Azim Premji from this interview in Knowledge@Wharton, “The mundane business is also extremely profitable. It has a tremendous annuity value, and you don't ignore businesses like that. For example, maintenance of software and hardware are tremendous annuity businesses. If you build strong efficiencies into execution, they make very good margins. It is like a yin-and-yang situation: How do you build these strong annuity businesses and at the same time build other businesses that will establish certain differentiators in the marketplace, so that your image as a partner takes on a different dimension? That is the question.”

As the Economic Times article points out, there are 3 main drivers today for MUTVC. 1) Higher expectations: Customers are no longer satisfied with cost and quality, they want more, speed, end-to-end ownership. 2) Talent shortage: Linearity of the model (for every 1 percent growth add 1 percept to headcount) is making it difficult to scale especially in the context of high attrition and rising salaries 3) New architectures: Emergence of architectures such as SOA (service oriented architecture) which is making building re-usable components a reality (also called solution accelerators).

The ET article concludes by saying that “IT companies will employ more domain experts as well as those who can understand both business and technology”.

Face-2

Scene-1: I am meeting a BU head along with his direct reportees (Director Engineering) and the topic is “Need for technical leadership in the BU”. We project the number of domain/technology specialists side by side the managers in the BU. There is 1 BU head, 4 Directors and 15 Program managers on one side. And there nobody at the same level as even the program managers on the other column. The question was: Do you really need anybody there? Suddenly there was chaos in the room and it was concluded by the directors “We don’t know what to do with such a senior technical person”.

Scene-2: I am meeting a service line head one-on-one in his office. He was excited about discussing technical leadership. At the end he said “Look, when I have a person with Rs.15 Lakh salary, (s)he is becoming an overhead for me. I don’t know how to convert his expertise into business”

For us to move up the value chain, we need to establish clarity about (a) how we will create higher value (b) how we capture an appropriate share of the additional value we create. Perhaps solution accelerators is part of the solution to (a) and for (b) as the ET article says, pricing will have to become more value-based than resource-based.