JPMorgan:: Importance of organization structure & accountability mapping in Indian IT grows with size; mastering trade-offs the name of the game

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Importance of organization
structure & accountability mapping in Indian IT grows
with size; mastering trade-offs the name of the game


• Notable aspects of organization structure are increasingly common to
larger Indian IT companies. These include (a) verticalization at the front-end
(or the sales and marketing specialized along industry lines) (b) clear
segregation between hunters (business from new clients), farmers (mining
existing client accounts) and practice sales specialists (e.g. BPO sales
specialists) and (c) explicit P&L ownership resting in account managers only
(hunters, practice sales specialists largely measured on generated order
book/revenues booked). Service-line/geography heads have become relatively
more subservient in the evolving org structure (TCS the only exception on this).
• However, other aspects will be different necessitating more discernment.
This includes issues of whether (a) delivery should be completely verticalized
as Infosys 3.0 envisages (which is how it has been at Cognizant for long). TCS
takes a somewhat different view believing that some offerings are fairly
horizontal in nature, (b) all strategic accounts should be sufficiently multi-tiered
with dedicated business architects and technical architects (we believe so), (c)
there is sufficient fungibility and cross-leveraging of resources (especially at the
junior levels) and (d) dedicated organization resources and carve-outs are
needed for strategic initiatives (such as offerings for the SMB as TCS has done).
• Complete verticalization of delivery (as at Cognizant) improves customer
responsiveness but also entails some duplication of shareable overheads/cost
elements across business units, which is absorbed in Cognizant’s cost & margin
structure. Complete verticalization of both S&M and delivery (Cognizant and
Infosys) contrasts with the judicious horizontalization of service-lines (TCS).
• Breadth of responsibility that senior managers handle in roles versus depth
in managing dedicated P&Ls exceeding USD 1bn. Breadth is inappropriate in
larger companies. Managing a vertical (P&L) is quite different in its dynamics
from managing a horizontal or service-line (important KRAs for service heads
relate to cost & productivity management, solution and Centre of Excellence
development as opposed to P&L). We like split in leadership of verticals and
horizontals (seen in Infosys 3.0) which was not there in the prior Infosys
structure. That said, Infosys 3.0 is now more vertically concentrated.
• What else do we discuss in this report? We dwell on the key emerging aspects
in the theme of organization structure and weigh the pros and cons of each.
There is no single best organization structure but a good organization structure is
one that addresses trade-offs to the best extent – (a) centralization (shared
services, central pool of technical resources, sharing of best practices, common
engineering platforms) versus de-centralization (autonomy & responsiveness in
decision-making) (b) exclusivity of delivery resources for verticals versus their
fungibility across verticals, (c) creation of country-specific structures (Germany,
France etc.) for greater geography focus vs. added costs of such customization .
• Investment conclusion. Infosys and Wipro today are veering towards the
organization structure of Cognizant (complete verticalization of both sales and
delivery without the joint P&L that Cognizant has so well instituted and
executed). TCS distinctively prefers to retain a valuable horizontal component to
its offerings. TCS (OW) and Wipro (OW) remain our key picks in the sector.