Global CIO: Satyam Scandal Isn't The End Of Indian Outsourcing

The company's misdeeds should be a wake-up call to CIOs, but not an indictment of the Indian outsourcing industry as a whole.

By M.S. Krishnan,  InformationWeek
Jan. 13, 2009
URL: http://www.informationweek.com/story/showArticle.jhtml?articleID=212900112

The recent confession about inflated revenue, profits, and accounting fraud exceeding $1.5 billion by Satyam Computer Services chairman and CEO Mr. Ramalinga Raju has put everyone linked to the Indian software industry in total disbelief and frustration. Only a few weeks back, Satyam was considered as one of the four pillars of the success story of the Indian software industry in the global economy. Along with Infosys, Tata Consultancy Services, and Wipro, Satyam was known for its coveted Fortune 500 clients, innovative software projects, capacity to train thousands of software engineers, and best-in-class certification of software engineering practices.

The irony is that last year Satyam won the "Golden Peacock" corporate governance award from the London-based World Council for Corporate Governance (although that award was revoked late last week). It is understandable that this major accounting fraud in the background of such accolades and credence has formed a cloud of uncertainty and doubts about credibility in the entire Indian software industry. There is no doubt that the fraud committed by the management at Satyam under the certification of internationally reputed audit firms is unforgivable and has created a black mark on corporate governance in India.

In that context, the disclosure of the misdeeds at Satyam is certainly an alert call for any CIOs who have exposure to Indian software firms as partners in their global resource network. However, I believe it would be shortsighted -- and probably harmful -- to taint the entire Indian software industry based on the Satyam fiasco.

Not Every Mole Is A Cancer
We do not conclude that every big mole that bleeds is a skin cancer; obviously, we collect data and investigate further before drawing our conclusion. In a similar way, I believe for several reasons that this major failure of corporate governance at Satyam is not a structural problem with the capabilities of the Indian software industry as a whole, or with that of software talent in India. And I would thereby urge global customers engaged with outsourcers in India or elsewhere to not act too hastily based solely on the malfeasance of Satyam's founder.

First, despite the corporate governance problems at Satyam, none of their global customers had raised any concerns related to the quality of operational delivery and performance in their projects. In fact, there has been an increase in the size and scope of projects delivered to global customers by the major Indian software firms over the last few years. Hence if it had been a problem related to inability to execute large projects, we would have heard this from the market loud and clear.

Second, it may be interesting to note that of all the major software groups in India, only at Satyam had the top management shifted its attention away from its core software business in the last few years. The real-estate business controlled by Satyam owners had expanded substantially with projects worth nearly $10 billion last year. As in other developing economies, the real estate sector in India is known for structural problems related to transparency, accountability, and ownership rights. While the answers to the questions on how Mr. Raju managed this fraud and why he did it will be known only when the regulators and government complete their investigations, it is not a surprise that some media reports are claiming that the accounting fraud at Satyam may be linked to the real-estate business of its owners/promoters.

Finally, the operational implementation team at Satyam has recently won several accolades from global IT vendors such as the Pinnacle award from SAP in June 2008 for excellence in customer experience and accelerating innovation. Similarly, Satyam received two prestigious shared-services excellence awards last year from the International Quality and Productivity Council. Unlike the corporate-governance awards cited above that are based on subjective judgment, these operational delivery awards are based on actual customer experience. In addition, anyone who has visited the EMRI (Emergency Management and Research Institute) facilities in Hyderabad set up by Mr. Raju can vouch for the excellence in operational process discipline and delivery metrics followed.

These collective reasons indicate that Satyam's failure in corporate governance is not a structural issue about any significant delivery risk from Indian software houses. In saying that, I do not mean to diminish in any way the fraud committed at Satyam, or to try to portray it as any smaller sin. It is one of the biggest corporate governance scandals for India and it leaves lessons to be learned for all. It certainly calls for, at a minimum, a new layer of due diligence and checks by CIOs within their IT strategy for dealing with governance of their global resource partners. Moving Ahead
The swiftness with which the regulators have approached the Satyam case in the last few days underscores the significance attached to this far-reaching situation. It is very well known that the success of the software industry and exports in particular have been a catalyst in creating new jobs and the growth of the entire Indian economy in the last two decades. Hence, it is mandatory for the government and the regulators to maintain the transparency and swift action in the investigation of this case right through to conclusion. This is one way to instill confidence among global organizations currently outsourcing to Indian firms and among foreign investors, two groups who will be certainly be tracking the case very closely. It also is anticipated that PWC, the main auditors of Satyam, will be made answerable and possibly accountable either for negligence or collusion. We may recall that Arthur Andersen went down with Enron. Accordingly, it is expected that regulators and government will move on structural changes and in the Satyam reorganization with all appropriate haste.

In its strategy for pulling Satyam from this hole, the company's newly constituted board needs to balance carefully the interests of employees, customers, and investors. And while each of those groups' interests must be given all due consideration, the board must be sure not to short-change the Satyam employee base, a group of more than 50,000 who had absolutely no connection whatsoever to the financial scandal. The board must recognize clearly that the most important source of competence and knowledge in the software business is the people, and that for Satyam it is particularly critical to sustain current project teams so that they can avoid any major disruptions for the company's global customers.

In a historical context, Satyam follows other major cases of accounting fraud such as WorldCom, Parmalat, and Enron, indicating that this not about a specific industry or country. In the earlier cases, we did not adopt a global philosophy of questioning the performance of all telecom firms, food industry, or energy companies. While CIOs and their teams will need as noted above to re-evaluate governance policies toward outsourcing partners, we also should be very hesitant to question the validity of the entire industry because there is no evidence now telling us to do so. Indeed, what all these examples of accounting fraud have in common is that they came about for two reasons, one of which is personal -- greed -- while the other is institutional -- our capitalistic system's relentless focus on short-term quarterly financial performance.

Satyam serves in that regard as another reminder that while one can fool the system for some time, the problem will only intensify in the long term and the truth will be out eventually. This calls for more transparency in the system and processes, particularly as it relates to corporate boards. These examples expose how little boards of directors know about the actual details of their companies' operations. While no system can help guarantee integrity and values, perhaps corporate boards need to get closer to the reality of their businesses by looking at real-time system dashboards of company performance and cash balances, rather than being limited to static PowerPoint presentations decorated by management. While such steps might not eliminate such frauds, they will certainly leave an audit trail in systems and make investigations easier. It is clear that in infusing greater rigor into the systems, CIOs and IT have an important role to play in facilitating this much-needed increase in transparency and corporate governance. Should that come to pass, then perhaps Satyam's shameful experience will eventually lead to something good.

M. S. Krishnan is professor of business information technology at the Ross School of Business, University of Michigan. He also is co-director of the Center for Global Resource Leverage: India at the Ross School of Business. He is the co-author with C.K. Prahalad of The New Age Of Innovation (McGraw-Hill, 2008). He blogs about transforming business models on the New Age Of Innovation blog.

Copyright © 2007 CMP Media LLC

Print  Close Send workers home... Tejaswi Shekhawat And Virat Markandeya January 8, 2009   Mornings are particularly busy for Simone Premji, 34, Manager, HR, Tata Consultancy Services (TCS), Mumbai. It's a race against time to complete household chores, but Premji is in no hurry to leave for office—simply because she works from home. Premji joined TCS in 2002 and worked from office for three years until she had her daughter, Aliya. She initially took a year off and then wanted to get back to work. As a working mother, she was better off with a flexible working option. She got more than that; TCS gave her the option to work fulltime from home. Now her daughter goes to school, but she continues to work from home. "Something that started on a need basis has become a policy and way of working now," she says. TCS does not have a work-from-home (WFH) policy, but extends the same to employees who need it. Mumbai-based Sameer Deshmukh's daughter Richa thinks her father has probably lost his job. What else could explain his presence at home when he should be in the middle of meetings in his office? The answer to Richa's confusion lies in the 'Work from Home Pilot Programme' at IT and BPO company MphasiS where Deshmukh, 42, works as Delivery Leader of the banking vertical. Deshmukh says he can't wait for this pilot programme to become a fulltime policy. "With e-mails and phone, there are no issues of connectivity. We are in a world where face-time is not required. Everything, including appraisals, can be done on e-mails," he says. Simone Premji Manager, HR, TCS Why telecommute:"Needed to balance out work and family" Challenges: "Sometimes connectivity and a sense of dis-engagement" Premji and Deshmukh are part of a growing number of employees opting for virtual workplaces or telecommuting, with organisations increasingly putting in place fulltime work-from-home programmes. The objective is two-pronged—to retain the talent pool and cut costs. But, that's not all. Says Shanthi Naresh, Principal Consultant, Human Capital, Mercer Consulting (India): "WFH policies have a great impact on employee engagement… while many organisations explicitly position WFH practices as part of the company's total reward strategy and use it as a great attraction and retention tool, the impact of WFH practices on employee engagement is often underestimated." The trend of telecommuting may strengthen with organisations looking at reining in costs. "Today, when most organisations are trying to enforce cost-cutting measures, telecommuting is one of the most effective. From an employee's perspective, though, people may think twice. They will not want to move out of office. The employees may worry along the lines of— out of sight, out of mind," says Elango R., Chief Human Resource Officer, MphasiS. Lower cost, higher productivity While the jury is still out on the benefits of work-from-home, costcutting is clearly one of the drivers. "This policy seems to be working well for both the company and the employees. The productivity of our employees has gone up by 20 per cent," says Elango. Elango does some numbercrunching to drive home the point. "On an average, a company spends Rs 22,000 per person only on the seat cost. When he is working from home, all his needs like AC, food, transport etc., are taken care of." Elango would know because he works from home as well. "We as an organisation have to look at this as a policy and not a privilege because it probably benefits us more than the employee," he says. IT major Cognizant, too, is actively adopting WFH. It is providing the option of telecommuting to people engaged in production support activities to avoid commute at odd hours. Says T. Sridhar, Chief People Officer, Cognizant: "Our belief is that if a fifth of our employees becomes part of this new arrangement, over a period of time, we would have effected a 20 per cent saving in investments in real estate, a 20 per cent increase in productivity of our employees and a 20 per cent improvement in customer satisfaction levels when these employees remain available to them on demand." Vandana Arora Assistant Manager, Quality, Genpact Why telecommute: "I have a small kid so I opted to work from home" Challenges: "No major challenges": Genpact sees telecommuting benefits in terms of employee satisfaction and thus, retention. Says Rajeev Sharma, Vice President HR, Finance and Accounting, Genpact: "We are rapidly moving towards the world of virtual organisations. The work-from-home policy helps us in talent pool retention. Re-training cost and loss of knowledge gets taken care of." At Genpact, there is only three per cent attrition among employees working from home. Currently, the company has 500 employees working from home and it plans to increase the number to 5,000 by 2010. No weak links According to a white paper on Changing World of Work by Manpower Inc., by 2016, 63 per cent workers globally want to work flexibly and 84 per cent employers recognise this as a significant benefit in terms of retention. Vandana Arora, 30, Assistant Manager, Quality, Genpact, Gurgaon, is a recent convert to work-from-home. She has been working from home (which started on a need basis) for the past eight months. "It started because of my two-and-a-half-year-old son, but now I love it," she says. Arora is part of a five-member team and two more members of the team work from home. "It's a perfect team at work with deadlines and deliverables," she says. Are the work-from-home members of the team weak links? "I don't think so. I have even got a promotion in the past six months," she says. Companies want results. Whether you come to office every day or work from home, at the end of the day, it's the output that matters, say HR heads. "An employee's performance should be calculated on what he delivers, rather than how many hours he spends in office," says Elango. TCS sets goals for its workfrom-home employees and tracks their performance and achievements based on which their performance assessment and appraisal takes place at the end of the year. "Meeting the deliverables of the job assigned is the key measure of performance," says Ajoy Mukherjee, Vice President and Head, Global HR, TCS. Sameer Deshmukh Delivery Leader, MphasiS Why telecommute: "My company wants me to. I am liking it" Challenges: "The family needs to cooperate and be serious about the whole affair The limitations Telecommuting is not free from its share of challenges. For starters, it can only be offered to employee profiles that have no security and privacy issues involved. "If you are working on a client basis, then it is critical that your client is comfortable with your employees working form home," says Elango. Work-from-home may not work well where working together in a team and using a common pool of physical resources to deliver results is essential. Examples of this are in product engineering type functions where physical collaboration is vital for innovation. Mercer's Naresh points out: "This is, however, changing with a number of collaboration and knowledge management tools proliferating in the market." On the flip side, WFH is sometimes a challenge because of unreliable power supply, lack of private working space at home, and a constantly ringing door bell. If employees make provision to tackle these issues, then WFH is very convenient. Apart from this, there are execution challenges, too. According to Subash A.K. Rao, Director, Human Resources, Cisco India, work evaluation and absence of external motivation are two of the main challenges. Those working in teams might feel isolated and miss the interaction with co-workers. Many employees find they can get more work done without the distractions of a corporate environment, but some others find themselves unfocussed without other people around to motivate them. Cisco is implementing a work-fromhome policy on an ad-hoc basis, which is a carry-over of its worldwide policies. HR heads say that it helps to have clear rules of engagement. "Telecommuting is a good option once certain pre-requisites, like a structured performance management approach, are in place and the employee's bonus is mapped onto productivity," says Rao. Print  Close URL for this article : http://businesstoday.digitaltoday.in /content_mail.php?option=com_content&name=print&id= 9463   @ Copyright 2008 India Today Group.