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