GENESIS

GE was among the first to source tech services from India. The
volume business, brutal negotiations, processes, quality pressures, Welch's
culture of cost-cutting...helped Indian tech companies grow into adaptive and
competitive global players, creating an industry

In the
early 1800s when the rich and fertile lands lying south of the Great Lakes and
west of the Ohio river in the US were opened for settlement, John Chapman was
among the very first to explore this Northwest terrain from which the states of
Ohio, Michigan, Indiana, and Illinois were later carved out. It was not an easy
task moving across this primarily Red Indian territory-but Chapman was unfazed
as he traversed the wilderness with a bag of apple seeds on his back until he
found a likely spot for planting. He continued in similar vein for decades till
the wilderness was blossoming with apple trees, orchard after orchard of
carefully nurtured trees, whose fragrant blossoms gave promise of a fruitful
harvest for the settlers.

Though there is no way
to estimate how many millions of seeds he planted in the hundreds of orchards he
created, Chapman became a legend, and came to be known to history as Johnny
Appleseed. But what has this story got to do with the Indian software services
and BPO industry? The answer lies in the starring role played by GE in stoking
India's outsourcing boom. A role that prompted the Wall Street Journal to
anoint GE as the Johnny Appleseed of India Inc, while tracing India's software
outsourcing evolution.

The Prologue

The genesis of the GE story for Indian tech lies in a breakfast meeting the
legendary Jack Welch, then chairman of GE, had in September 1989 with an Indian
delegation that included Sam Pitroda and Jairam Ramesh, close confidantes of
then-PM Rajiv Gandhi. Welch had actually come to sell airplane engines and
medical instruments in India, but it was in this meeting that Pitroda proposed
that GE buy software from India since the country needed business for its
emerging high-tech sector. According to the Wall Street Journal which contacted
those present in the meeting, Welch asked Pitroda, “If I kiss your cheek, what
do I get in return?” Sitting in 2006, there is little doubt that not only
Welch, but the world, has got the answer.

If the 1989 meeting
sowed the seeds, GE's tryst with India started in right earnest in 1991. It
was the trio of Wipro, Infosys, and TCS who were the initial beneficiaries. Much
water has flown since then-while Wipro and Infy no longer continue their
relationship with GE, the latter still contributes nearly 15% of TCS revenues.
Down the years, several other Indian software service providers jumped onto the
GE bandwagon-Patni, Satyam, Infinite Computer Solutions, i-Gate Global
Solutions, MindTree Consulting, Birlasoft... It's difficult, today, to
determine the comprehensive list of Indian players servicing GE, as most of the
information is considered confidential.

The Tributes

Sample a few of the eulogies: “GE championed an idea that changed the
whole meaning of globalization.  It
was the pioneer in starting the outsourcing revolution in India at a time when
no one was even close to contemplating it,” says Upinder Zutshi, CEO, Infinite
Computer Solutions. “GE has helped seed the growth of the entire Indian
software services and BPO industry,” says Mohan Sekhar, chief delivery
officer, iGate. Adds V Chandrasekaran, CEO & MD, Aztec Software and a former
president with Wipro, “Though the revenues GE brought in for Indian companies
are incidental, its real credit lies in defining the paradigm and starting the
whole process. GE's contribution lies in its ability to take risks with
vendors who had not yet proven their credibility then.”

And there's the
long-term learning GE imparted to Indian companies. Having once taken this risk,
it must be said in GE's favor that it never looked at outsourcing as a
project, rather it was always looked at as a program. Explains Chandrasekaran,
“The program is considering the vendors as partners, investing long-term in
them and believing in the vendors despite initial hiccups. GE came here with
that mental attitude having even designed what type of projects to outsource to
India.” In some cases, US clients have outsourced first the most difficult
projects to India and when the Indian vendors failed, have refused further work.
GE, on the other hand, outsourced the easy work first and trained Indian
companies up for future difficult work.

GE had also given
Indian companies access to all their training methodologies, both technical and
management related. The initial projects mainly involved mainframes and a few in
the client-server space. That required a kind of process, a knowledge transfer,
and training since India was not a mainframe country. Other than big
organizations like the Tatas, nobody in India had mainframes and GE took the
leap of faith with tiny companies, such as a Rs 5 crore Infosys, and invested
patiently and well in developing the capability of its partners.

Even on the management
front, GE had a lot of programs internally-how do you solve a problem, how do
you conduct brainstorming sessions, how do you conduct meetings, how do you set
up measurement systems. All these learnings were imparted to their Indian
partners.

GE had 13 units like
medical instruments, aircraft engines etc, and each one of them was a huge
business. It formed a core team by taking members from all the units and they
came to India every two years to negotiate. Some vendors already having a
relationship with GE were continued with as partners, some were blocked out and
new ones introduced. The chosen partners could go and pitch in with their
capabilities with different GE units. The core GE team put certain guidelines on
issues like pricing and beyond that, the units were free to outsource to
whichever partner they wanted to. The advantages of working with such a global
conglomerate offering multiple business lines were many. Indian companies
benefited tremendously from the rich exposure to cutting edge technology and
business process, and in turn could re-orient themselves. GE's thrust on
superior quality heralded the phenomenon of Quality Certifications in the Indian
IT industry. Never before had any industry in India shown the zeal and
determination to improve quality, processes and customer-service levels. More
than 80% of the companies who are certified at SEI CMM Level 5 across the world
today come from India. GE had some role there.

When GE was beginning
its India sojourn, only TCS had some scale, while Infosys and Wipro were in the
nascent stage. Not surprising then that most of these leading Indian IT
companies had significant engagement with GE and grew leveraging GE's
experience. Association with GE gave them access to cash and a credibility and
exposure, which they could successfully leverage to fuel their global ambition.
The global community got confidence in the ability of Indians to manage their
outsourced process, once they saw them working for GE. Thereafter, they had
little hesitation in outsourcing business to India. Subsequently, with GE moving
up the value chain, targeting higher-end processes, exploring more options in
the services arena, the Indian service industry also started gearing up for its
next phase of evolution.

Raising India's brand
equity as the world's premier outsourcing destination, then, should perhaps be
counted as GE's biggest legacy. No doubt its prime motivation was driven by a
simple rationale about leveraging India's skilled English speaking, educated
workforce to run a low-cost business operation, but that should in no way
diminish the effects of the benefits it brought along. GE's action was an
eye-opener for other companies and they soon set out to replicate the GE model.
This undoubtedly was the trigger for the boom of services industry in the
country. Not only did India witness a boom in terms of domestic firms setting up
software businesses but also global service providers and outsourcing vendors
latching on to the opportunity. Therefore, though Welch made significant savings
for GE along the way, a strong case can be made for him to be included in
India's Padam list of awardees. Especially, considering that people like
Norman Borlaug and Linus Pauling have been similarly feted for their
contribution to the Green Revolution. Perhaps it is time to recognize an
architect of the Tech Revolution?

Negative Vibes?

While acknowledging its contributions, vendors can't forget its culture of
cutthroat negotiations that often had an impact on billing systems for Indian
vendors as well as the general perception that it played one Indian firm against
another in order to drive down costs. True, even some of these attributes
inversely had a positive impact on Indian vendors by toughening them up, but
they also probably led to the commoditization of the sector.

A simple story
illustrates the point. After the first five years of outsourcing when it
perpetually tried to reduce costs, a GE corporate team came to Bangalore for a
second round of negotiations with different vendors they already had
relationships with and also with a few new ones interested in working with them.
They set up shop at Windsor Manor and created what an insider calls “a big
tamasha”. They put up different Indian vendors in different rooms and did not
allow communication between them for the next couple of days because of the
negotiation process. Their terms and conditions were aggressive and, at times,
'unreasonable'.

One sample conflict,
with Infosys, was regarding IP ownership. GE did not want to share the IP even
for the tools Infy developed. Then, it wanted Infy to quote for CAD/CAM
engineering, a line of business the Indian behemoth was not keen to enter.
GE's philosophy was to get the best cost advantage and so it refused to listen
to the Infy argument that since it understands GE's business well, has
improved its productivity and its service levels, they should be offered better
rates. GE refused, saying it allowed Infy to learn from its site. All this led
to the subsequent exit of Infosys from the GE relationship in 1997.

Wipro followed suit two
years later and the reasons were not difficult to fathom. The general impression
from Infosys is that if you are looking for a healthy bottom line, which Infy
was keen on, it is tough to do business with GE. They really commoditized the
whole outsourcing game, Indian vendors got good volumes, but the cost structure
was tough on them. Infosys exited GE at a time when the latter contributed is
about 15% Infosys' revenues, but those who continued with them had bottomlines
badly hit, including Wipro. Azim Premji is reported to have once visited Infosys
and remarked, “You people are smart. You did the right thing in exiting GE.
Our bottom line is severely affected, mainly because we accepted their terms.”
Well, Premji too took the exit route in 1999.

However, such pressure
tactics taught Indian vendors many important lessons. Reminisces Chandrasekaran,
“When you are asked to deliver at the lowest cost, you better find out way to
make profits. On one hand we had GE pressure us to deliver at lower costs, and
on the other was Premji's pressure to produce profits. The way to be
successful in a maintenance project was stability of the team, and to do it with
low cost resources.”  Result:
introduction of the Wipro Academy of Software Excellence where a four-year
program with BITS Pilani was devised. BSc graduates were hired for just Rs 6,000
and after four years, they got their MS degree from BITS Pilani. During these
four years, they worked in live projects-not very complex ones, but the
routine maintenance projects. That was one innovation influenced by GE that
reduced Wipro's salary costs.

Indian vendors also
learnt making some tough calls from GE professionals. When the difficult
situation following the slowdown hit the solar plexus of the software industry
in 2000, these were the learnings that tremendously helped. Though GE may or may
not have had much to offer in terms of corporate ethics, it taught in terms of
managing the show, how to assign tasks, how to be ruthless in getting some
things done, creating a boundary-less feeling-GE was more worried about
performance than creating walls like Indians did earlier. This culture got
ingrained once the Indian companies started working with them. GE was ruthless
in the quarterly reviews where they only wanted to see progress and, therefore,
Indian vendors were always under pressure to produce results, and not have
excuses. Agrees Zutshi, “GE was amongst the hardest bargainers when it came to
pricing while demanding significant productivity gains.”

However, it has been
quite successful in getting the deal it wanted by rightly optimizing the
contracts within the competitors. Yes, it sometimes played one Indian vendor
against the other. But early investments by GE in India for outsourcing its
businesses worldwide were primarily to cut costs while leveraging the Indian
people's capabilities. Therefore, it was quite justifiable for them to have
the right mix of vendors that would eventually drive down the costs and lead to
productivity gains. GE had such confidence in its capabilities that even if they
got rid of one vendor, they could transition the project to a second vendor
smoothly. Most customers were afraid of switching, but not GE. It had the
confidence in its management ability and processes.

Zutshi further argues
that Indian vendors rather benefited from the exposure to Jack Welch's culture
of cost cutting. “It helped us gain insights into radical management concepts.
When you have a visionary like Jack Welch at the helm of affairs, change is
bound to percolate down in the value chain and, as a result vendors and partners
including IT and BPO providers benefit from them. Welch's philosophy of
managing cost while achieving operational efficiencies and bottom-line benefits
has had a very positive impact on our business.” Even in defining billing and
delivery related models, the GE association paid off for Indian companies.

The way GE's business
lines are structured and the way GE operates globally are exemplary. GE's
approach of localization coupled with integrated value chain comprising
partners, vendors and service providers has helped them in creating an optimized
and highly efficient business eco system, which is typical to GE. In the process
of creating such a business eco-system, they have rationalized the way the
partners conduct business. They have not only advocated new concepts, but have
definitely changed the perspective of organizations that are associated with
them. In the process they have helped service providers and partner
organizations create new billing and delivery models, which are flexible,
scalable and globally deployable. While this has definitely helped GE's
business interest as these models were aligned to them, it also helped the
vendor and partner organizations. These organizations could now enhance the
scope of their business by successfully leveraging working relationship with GE,
and replicating these models in other engagements.

The Potent Combo

A balanced view of GE's positive contributions and negative vibes leaves
little doubt that it can be regarded as the driver of Indian outsourcing, though
some might argue that Texas Instruments and Nortel came earlier as offshore
customers. However, it would be naive to only focus on GE and ignore the impact
of Y2K on Indian software exports. If GE nurtured the childhood of Indian
software services till it attained puberty, Y2K helped it mature and attain
manhood. GE and Y2K are two important milestones in the evolution of Indian IT
industry, and, both in their own ways, ushered in the software revolution in
India. While Y2K helped Indian companies to open doors in the US, which was
hitherto inaccessible, GE helped Indian companies gain critical experience and
expertise.

Explains Chandrasekaran,
“After Y2K, it was easy for Indian companies to open a new account. In the
initial years, more of the outsourcing was done by the customers visiting India
and taking a decision to outsource, than an Indian vendor going abroad and
selling as it happens now. The selling process started to happen actively only
after Y2K. It was a significant period that fueled the growth of the outsourcing
industry.” Another often missed out facet is that GE contributed significantly
in terms of experience and knowledge and served as a breeding ground for several
entrepreneurs and senior leaders in the industry by virtue of their business
associations. Chandrasekaran is one example: the list would include several
other luminaries like Ashok Soota, Subroto Bagchi, Raman Roy, Phaneesh Murthy
and more.

Rajneesh
De & Goutam Das  

rajneeshd@cybermedia.co.in  

goutamd@cybermedia.co.in