IT’s not just the CEO :: Business Line

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Some industries foster institutions that become self-sustaining, while others remain very person-dependent. It appears that the IT sector belongs to the latter, barring a few exceptions.

Those who follow great investors such as Peter Lynch and Warren Buffett would know that they particularly like businesses that are so wonderful that even a modest leader could run them successfully. On the face of it, offshore IT service definitely seems like one such business.

The model appears fairly simple — procure work from developed markets and execute them in low-cost countries, thereby providing a cost savings to the customer while making a profitable margin from the arbitrage.

DIFFERENT CHALLENGE

Due to long duration of projects, annuity business, high repeat clientele and low capital requirements, even the smaller companies in this industry chug along profitably, provided they don’t drop the ball on quality of service and talent.

It is also natural to assume that the larger companies would have it even better, given that they have deeper pockets for acquisitions, can hire and retain better talent, have access to larger accounts, have stronger portfolio to showcase and the ability to win and execute much larger engagements.

However, it appears that some of our large home-grown giants in the IT services industry such as Infosys are facing a different kind of challenge — leadership. The kind of changes that the top echelon of firms such as Infosys and Wipro have witnessed in the last few years makes me wonder — Is the Indian IT industry so dependent on the man at the top for sustaining growth?

Given the size that these companies have managed to attain over the years, shouldn’t they have built a strong brand presence externally and a robust organisational structure internally that can drive them forward pretty much on auto pilot mode with minimal guidance? Apparently that’s easier said than done especially in the technology sector.

TOO MANY FORKS

Observing the cross-sectoral trend over many decades, one can’t help but feel that there are certain sectors such as technology or banking, where the person at the top can make or break the firm, and there are others such as consumer staples, which are relatively less sensitive to the idiosyncrasies of the top man (or woman).

Take global tech players such as AOL, HP, Yahoo or even Apple — all these companies have been derailed in the past due to CEO leadership related issues. I am not sure if the same can be said about Coke, Pepsi, P&G or Colgate.

One potential explanation is that there are too many forks in the road that technology companies need to face over time. The right turn could redefine the future of the industry and wrong turn could essentially render one obsolete. This is not the case for an industry like consumer staples, for example.

So where does that leave IT services or consulting? I would think that it is somewhere in-between hi-tech and consumer staples, because at the end of the day IT solutions providers are a lot more predictable than businesses such as Google or Facebook — in fact I would call IT services ‘industry staples’ — all companies eventually need them one way or another despite the changes in underlying technologies.

THE BOTTOMLINE

What’s heartening is that some of the large players in the IT services/consulting business such as IBM, Accenture or even TCS seem to have built stronger institutions that have weathered the test of time and shown signs of self-sustenance.

Although HCL and Cognizant have also displayed good performance during turbulent times, the verdict is still out as to whether the real credit goes to the CEO or the power of the institution.

The bottomline is that good companies may just be as good as their CEOs, but great companies are built to last and work despite the CEO.