The History Of The Hcl Business Model Information Technology Essay
The purpose of this dissertation is to evaluate the use and effectiveness of IT Strategy. For analysis Information Technology strategies implemented at one of the leading IT companies in India, HCL Technologies are compared with the IT strategies of other Indian IT companies. The reason behind selecting HCL for the research was that it is IT Services based organization, has very complex organizational structure, is large in size and spread across much geography in the world. The Researcher has discussed the different elements of business strategy, strategy frameworks and analyzed those with the HCL IT strategy. For the research, researcher has used the qualitative research methods. Researcher feels that the quantitative methods would have strengthen the analysis of the IT strategies. In the end, the researcher has made recommendations for the improvement of HCL IT strategy.
Hindustan Computers Limited (HCL) is $5 billion leading global Technology and IT Enterprise. Shiv Nadar founded the HCL in 1976 in Delhi. HCL is considered as a pioneer of modern computing, and a global transformational enterprise (HCL-about us, 2010). Mr Shiv Nadar is the founder and the chairman of HCL whereas Vineet Nayar is the CEO of HCL Technologies. Vineet Nayar is the man behind the successful strategies and transformation of HCL technologies. At the organization level, HCL is comprised of two companies – HCL Technologies & HCL Infosystems. HCL Technologies operates the global IT services business and is into the IT, BPO services and targets global markets whereas HCL Infosystems runs ICT, Hardware and Managed ISP Services for Indian customers.
Figure 1 below shows the Business Model of HCL (HCL: Pioneers of Modern Computing, 2010). HCL operates through three segments (Data Monitor, 2010):
â€¢ Software Services – generated 72.7% of the total revenues of HCL during FY2009.
â€¢ Infrastructure Services – generated 16.3% of the total revenues
â€¢ BPO Services- generated 10.9% of the total revenues whereas.
In the International Market, America being the largest market for HCL accounted for 54.4% of the total revenues in FY2009 (Data Monitor, 2010).
Figure HCL Business Model
According to the HCL Corporate website, the HCL group offers services and products in the areas of Product Engineering, Custom & Package Applications, BPO, IT Infrastructure Services, IT Hardware, Systems Integration, and ICT products(HCL- about us, 2010). These products and services are provided across major industry verticals as mentioned below (HCL- about us, 2010). HCL workforce has over 62,000 professionals with different nationalities who work from 26 countries. HCL’s global partners are leading Fortune 1000 firms which are into IT and Technology.
C:Documents and SettingsBhagyashreeDesktopHCLhcl-snapshot.jpg
Figure HCL- A Snapshot
The Industry verticals HCL focuses on are (http://www.hcltech.com, 2010) –
â€¢ Aerospace and Defense
â€¢ Energy and Utilities
â€¢ Life Sciences
â€¢ Transportation and Logistics
â€¢ Financial Services
â€¢ Independent Software Vendors
â€¢ Media and Entertainment
â€¢ Servers and Storage
â€¢ Travel and Hospitality
â€¢ Consumer Electronics
â€¢ Industrial Manufacturing
â€¢ Retail and Consumer
The major competitors of HCL Technologies are as below (Data Monitor, 2010):
â€¢ Infosys Technologies Limited
â€¢ Wipro Corporation
â€¢ Tata Consultancy Services Limited
â€¢ Patni Computer Systems Ltd.
â€¢ Hewlett-Packard Company
â€¢ International Business Machines Corporation
â€¢ Cognizant Technology Solutions Corporation
â€¢ Genpact Limited
â€¢ Tech Mahindra Limited
â€¢ WNS Global Services
Indian IT Industry
The Indian information technology services (IT services) industry had seen the growth in revenues since year 2000. In 2000, it was $4 billion industry but by the year 2008 it became worth more than $40.8 billion aiding to software and services export. Also, the average compounded annual growth rate (CAGR) for Indian IT sector in 2003-08 was 30% (Gajulapalli, et al., 2008).
Low-cost offshore delivery model and compliance to international quality standards such as Capability Maturity Model Integration (CMMI) Level 5 processes have attracted customer to opt for Indian IT industry over other countries. The need to keep customers remain attached to Indian IT sector has made it essential for IT companies to apply IT strategies aligning with business strategies. As the Indian IT industry is seeing growth, it is also facing the challenges like retaining talented employees, managing attrition rate and continuous up gradation in skills of the employees. These factors have made defining HR strategies critical for the business success.
The Indian IT companies strategies are forcing MNC IT companies such as IBM, HP to rethink their operating strategies in India and take into consideration local as well as international factors while planning the strategy.
Now-a-days Information Technology is the most important pillar of any IT based organization. IT plays an important role of delivering the organizational goals and objectives to become world-class organizations. Such organizations need to think that IT is the key driver for business. Because of its wider spread across industries and geographies IT offers organizations unique opportunities to expand business and generate more revenues across the world. But to take advantage of these opportunities, organization must link their IT strategies with business strategies.
The main objective of Information Technology strategy is to make sure that there is strong as well as clear bonding between IT development decisions and the overall strategies for organizational objectives and main goals (M. Earl, 1993).
Figure Framework for IT strategy
The best Information Technology strategy should concentrate on achieving the business values from the business investment done in Information Technology, and not the other way round by figuring out by how to deliver the business values (R.M Grant, 2005). The interesting thing to understand is that even though an organization is not completely Information Technology based, there are some departments in the organization which in one or other form expect IT to provide service that meets all their needs (Hofer C. W. & Schendel, D., 1978). IT strategy is generally expressed in the form of a IT strategy document that clarifies how technology can be used to link organizations general corporate strategy and every business strategy. The Chief Technology Officer (CTO) of an organization or other equivalent person formulates the IT strategy and is liable for implementing it.
As shown in Figure 3, IT strategy should also consider the external as well as internal factors which can impact the organizational growth and try to use the Information Technology to use the opportunities available. According to M.Greg (2001) & R. Waterman (1980) IT strategy sets out the board strategic directions that are supposed to be chased to close the gap and to balance the information technology capabilities with opportunities and risks.
IT Strategy of Mahindra Satyam
Mahindra Satyam is the main competitor of HCL technologies. The researcher has referred the IT Strategy implemented at Mahindra Satyam to compare the IT strategies implemented at HCL Technologies and identify any gaps in these two globe leading Indian IT companies. In order to help clients to enhance business value and transform their organizations into world-class businesses, Mahindra Satyam created the Technology Strategy group which helped clients to leverage Information Technology to gain the business values.
Figure Mahindra Satyam IT strategy
Figure 4 explains the Mahindra Satyam IT strategy (www.mahindrasatyam.com, 2010) which is based on the 4 layers of IT strategy – Knowledge, Information, Software Systems, Technology & Service (Link J.A., 2008).
Technology Strategy group oversees the following areas –
IT Strategy & Planning: Gives big picture and direction to achieve the organizational goals.
Application Portfolio Optimization: Helps to decide the applications which need to be replaced or shut down. The factors used in evaluation are criticality of the applications, expenses, technology, etc.
Transformation Strategies for Shared Services: the focus is on setting up business and IT shared service organizations. It tries to transform organizations into competitive businesses.
Right Souring & Offshoring Analysis: This area focuses on cultural differences and employee reaction.
Enterprise Architecture: Focuses on achieving the long term and short term business and IT objectives.
Infrastructure Consolidation & Optimization: Cost reduction while keeping in mind the long term goals and optimizing the performance of the portfolio.
Post M&A IT Integration: The responsibility of this group is to identify and eliminate inefficiencies in the organizations after the mergers. The focus is also on keeping costs down and standardizing the IT process. Standardization of IT process helps manage the integration management and change management issues.
IT Governance: It ensures that business strategy is aligned with IT strategy and the business value is achieved. It also oversees the resource allocation, risk analysis and mitigations.
IT Maturity Analysis and Benchmarking: It helps to indentify the maturity level of the organization in terms of processes and IT capabilities. The improvement areas are addressed and best practices are implemented to meet the world class benchmarks.
Information Management Strategy: It supports the overall business and IT objectives by identifying the various facets of information such as information security, accuracy and integrity.
ROI & Business Case Analysis: ROI (Return on Investment) is important for any investor. This area does the analysis of the value for money for any technological implementation in the IT.
Project Portfolio Analysis & Management: Identifies the project risk, does project management & governance.
Figure Framework for Satyam Mahindra IT strategy
The Mahindra Satyam Technology Strategy group has defined the framework (www.mahindrasatyam.com, 2010) These Frameworks help Mahindra Satyam-
â€¢ To create IT strategies which help to solve complex business issues and drive the business growth.
â€¢ To simplify the complex IT systems and IT architecture.
â€¢ To reduce IT costs and minimizing risks of failure.
â€¢ To define standardized processes to streamline the operations and service management practices.
â€¢ Improved customer engagement
Strategic Goals of HCL
IT strategy supports the direction as well as goals of the organization (Stonehouse G., 1994). As on 31st March 2010, the consolidated revenues of HCL Technologies, along with its subsidiaries was US$ 2.6 billion (Rs. 12,048 crores) (HCL- about us, 2010).
Researcher has observed the strategic goals of HCL as below (HCL- about us, 2010)
To offer customers unique value proposition as HCL has expertise in implementing and maintaining IT systems.
Working with clients in the areas that impact and redefine the core of their businesses.
‘transformational outsourcing’ which is underlined by innovation and value creation.
Offering the integrated portfolio of services including software-led IT solutions, remote infrastructure management, engineering and R&D services and BPO.
To provide holistic, multi-service delivery in key industry verticals including Financial Services, Manufacturing, Consumer Services, Public Services and Healthcare.
‘Employee First’ to create a real value for the customers.
HCL IT Strategy methodology
“Strategy means making clear-cut choices about how to compete.”- Jack Welch (Former CEO, General Electric).
The best strategy decreases threats, exploits opportunities that are available, capitalizes on weakness as well as strengths. Please refer to Figure 6. The strategy is interlinked with business values of the organization and the key strategic drivers.
Figure HCL IT Strategy Methodology
(IT Strategy, 2010)
HCL IT Strategy Methodology –
1. Assessment of Business and IT needs – helps to create overall organizational IT strategy which takes into consideration both the short-term and long-term business goals.
2. Assessment of IY Portfolio – is used to do the gap analysis of the current and future state IT architecture.
3. Solutions & Options Analysis – with this analysis organization can mitigate the risks and fufil the identified gaps with suitable option.
4. Strategic Planning and Tactical Solutions – strategic planning helps organization to be ready in advance to mitigate the business impact because of ever changing trends and technologies.
IT strategies of HCL-
“The process of developing superior strategies is part planning, part trial and error, until you hit upon something that works.” -Costas Markides (Professor, London Business School). The following sections analyze the strategies implemented as HCL (Zhang, C., Z. Douglas, et al. 2009).
Employee First, Customer Second (EFCS):
In July 2005, Vineet Nayar launched the Employee First, Customer Second (EFCS) program. This program was implemented over the period of five years. The main objective of this program was to keep employees at the centre of every strategy. By helping employees in achieving their professional and personal growth, HCL was able to get employees active participation in the organizational growth. In IT industry, employees should be able to interact with customers very effectively. Because of HCL Corporate Strategy focus on employees, its employees were able to help customer with innovative and unique services.
HCL EFCS strategy was so successful that within the three quarters after launch of the EFCS program, HCL’s worrying attrition rate significantly dropped from 20.4 percent to 17.2 percent and sales rose substantially. Harvard also produced the case study on EFCS strategy. Even in the recession (year 2009) HCL revenue grew by 23.5%. The list of key clients has grown three times in the past four years (Tan S., H. Huntley, et al, 2010)
Other initiatives of EFCS strategy are –
360- degree feedback:
In order to make managers accountable to their direct reports, HCL launched 360-degree feedback mechanism. The key feature of this mechanism at HCL was that the feedback was made voluntarily public. All the feedbacks received were posted on the corporate intranet. After making the feedback public, employees accepted the feedback and tried to change themselves. This is very bold step and requires trust in the organization. The unique feature of 360-degree feedback mechanism shows that HCL is open to try innovative ideas to reach the full potential of employees.
Smart Service Desk:
Departments such as admin, HR, finance, accounts etc. are also accountable to resolve employee grievances. Organization can be more effective if the time taken to resolve employee queries in these areas are addressed at the earliest. To achieve this, a ticket-based online system was implemented at HCL called as Smart Service Desk (SSD). Smart Service Desk also provided more transparency as the order progress against the ticket was tracked and would be escalated to the next level if the query is not resolved in the certain time frame. Employees were able to decide if the complaint resolution was up to their satisfaction or not.
HCL introduced Trust Pay policy which allowed the employees receive the full bonus even if the project is not completed. It is an alternative to the performance based bonuses.
Opinion polls to increase senior management engagement with the employees. Such initiatives bridge the information gap between employees and senior management.
An annual company-wide event “Directions”:
An annual event “Directions” whose goal was to have employee interaction with the CEO and the leadership team the. The CEO and leaders discussion on the company strategy, revenues, etc.
U & I is an online forum where employees can directly interact with the CEO & were able to ask any question. The CEO tried to answer upto 100 questions every week.
Under the CEO Blog, the CEO posted questions or information on the blog and employees tried to answer or comment. This approach was exactly reverse of the U&I Initiative. This way HCL top management had two way interactions with the employees.
Idea generation portal -iGen:
HCL launched an idea generation portal iGen. The aim was employees can think innovatively and post their ideas on the portal. This strategy aimed to promote value creation in the organization through learning- and knowledge-management. These ideas were then used for internal organizational improvement or designing the strategies.
Launched innovation contest ‘[email protected]‘. The aim behind this strategy was to recognize the innovative ideas implemented by employees in their projects. In 2008, HCL launched another initiative “Be the CEO of Your Idea”. Under “Be the CEO of Your Idea” initiative, employees identified the gaps within the organization and were motivated to suggest innovative high-impact solutions which were important for business growth.
1) To analyze current strategies of IT department and give recommendations.
2) To review IT strategy literature.
3) Analyze the internal/external environment of the company and then evaluate the technical aspects of the company
4) Analyze and evaluate the HCL IT strategy and different elements of business strategy.
5) To understand the outcome of three levels of strategy.
Until July 2005, like other Indian IT companies HCL was focused primarily on the volume growth. But later on HCL’s top management decided to focus on employees and generating the value for customers (Transformation Frameworks, 2010). HCL used the processes to make employees more efficient in so that they can meet the client expectations. Most of the competitors of HCL had the business model based on volume growth. The volume based business model was susceptible to external threats such as recession, retaining employees, attrition rates, competitors luring employees with higher salaries. HCL defined the new framework which was value-centric. It gave strategic direction to the HCL business growth. The value-centric strategy was based on larger multiyear, multiservice, and unique customer-value propositions. The same framework was later on copied by HCL’s competitors like Tech Mahindra. HCL was bold enough to walk away from deals that did not fit into that framework. HCL struck the first multimillion-dollar deal with DSGi which is a European electrical retailer.
Vineet Nayar executed the transformation in three phases:
1. The first phase focused was given on employee empowerment and engagement through EFCS program (please refer section IT strategies of HCL). HCL stressed on the importance of employee wellness as employees are the face of the organization.
2. In the second phase, importance was given in forming the strategic partnerships with vendors and other IT companies. Through the partnerships, HCL offered the customers value for money and end-to-end services which improved customer’s time to the market.
3. In the third phase, HCL focused on generating the revenues from services where HCL did not had existence. It was a big shift in core of HCL business model. The 50% of revenues in 2010 came from services that did not exist in 2005 (Technology Transformation Services, 2010).
HCL has implemented to two sets of Transformation Frameworks. HCL frameworks are very strategic as they take into consideration wider scope of strategy as mentioned in various literatures on strategy.
1. Step-Up IT Transformation Framework
If observed carefully, the HCL’s Step-Up IT Transformation Framework is based on the Self-Funding Approach. Almost all the IT transformations in HCL are executed or started with this approach.
Figure Step -Up IT Transformation Framework
(Technology Transformation Services, 2010)
As shown in fig 7, in Phase 1 the customer is engaged in defining the Sourcing Strategy which includes Process, Applications and Infrastructure strategies. Engaging customers from the beginning helps to meet the customer expectations and significant time and money savings. This phase helps in identifying the quick-wins based on detailed Sourcing agenda. In a nutshell, rationalizing operational costs is the focus of this phase.
Based on quick-wins, a strategy is placed around to figure out the savings (cost, infrastructure, etc). HCL then re-invest the savings which are identified in Phase 1 to build the transformation initiatives of Phase 2. The Phase 2 initiatives are around Consolidation of Application Portfolio, IT Governance roadmap definition and IT strategy formulation. Basically the outcome of Phase 2 defines the long term strategic IT roadmap. The outcome also helps to align IT portfolio around the projects with business requirements. HCL focuses on achieving the business process flexibility through Phase 2.
HCL re-invests the savings derived from Phase 2 in to Phase 3 for strategic transformation activities like Application Portfolio Optimization, Architecture Engineering, Knowledge Management, etc. In Phase 3 the focus is on Business-IT alignment.
As seen in Figure 7, IT governance puts together the structures which help to align organization IT strategy with business strategy. IT governance also ensures that these structures stay on track to achieve their organizational objectives, in addition to implementing ways by which IT performance can be measured and optimized. IT Governance is a subset discipline of corporate governance that ensures all stakeholders interests are taken into account and that processes provide measurable results. Every organization irrespective of its size and type needs a way to ensure that its IT is aligned with business. The level of granularity and sophistication of IT Governance may vary according to size, industry and applicable regulations (IT Governance, 2010).
IT Governance solutions helps organization to tackle (IT Governance, 2010):
â€¢ The regulatory compliance.
â€¢ Misalignment between business activities, IT activities and its limited connection to business and strategic objectives
â€¢ Prioritization of initiatives, resources and assets across the project portfolio
â€¢ Productivity goals are not met
â€¢ Reducing costs while delivering on-time, on-budget, and on-quality
â€¢ Portfolio Management – Scenario comparisons, what-if analysis, portfolio lifecycle
â€¢ Performance Measures – Balance score cards, KPI metrics, project health indicators
â€¢ Resource Management – Allocation/ De-allocation, managing capacity vs availability
â€¢ Financial Management – Budgets, charge backs
â€¢ Time Management – time entry, approval process, actuals roll-up
â€¢ Deployment Management – Roll-outs, configuration management
J. A. Link (2008) states that the most effective IT strategies comprises of four layers –
3. Software Systems (development and Integration)
4. Technology & Service
However the implementation of all or some of the layers in organization depends on the complexity, size and type of the organization. This four layered IT strategy could be most effectively used in HCL as HCL has varied set of stakeholders (external and internal) and complex IT organization structure. For organizations like HCL a top-down, requirement driven approach to define strategy is most effective.
Figure Top-down, Requirement Driven Approach to Strategy Design
As shown in figure 8, requirements gathered from various stakeholders contribute to knowledge strategy. Knowledge strategy plays very crucial role in shaping Information Strategy and also provides inputs to Software Systems, technology and service strategies.
The top-down, requirement driven approach has following advantages –
â€¢ Improved knowledge sharing across the organization.
â€¢ Service Deliveries are improved.
â€¢ Higher customer satisfaction levels.
â€¢ Stakeholders are the decision makers to choose the technology.
â€¢ Supplier contracts and SLAs are defined properly.
â€¢ Robust IT governance.
â€¢ Reduction in organizational costs.
2. Vision to Value Framework
‘Vision to Value Framework’ of HCL is fully focused on IT Consulting engagements. (Technology Transformation Services, 2010)
Vision to Value Framework
Figure Vision to Value Framework
(Technology Transformation Services, 2010)
While defining the IT strategies, the IT strategists should ask themselves the questions such as –
1. Are these strategies contributing to profitability of the business?
2. With this alignment are we able to take the benefits of Information Technology
3. What are the risks of misalignment between business and IT?
4. Are organizations various functions linked to IT Strategy?
5. Would it reduce the operational costs in the long run?
6. What about ROI?
7. Are vendors going to support organization’s IT strategy?
According to J. A. Link (2008) strategies define the organizations future intentions. Strategist should ask questions such as – what, why, when, whom and how while defining strategies.
Figure Key Strategic Drivers and Inter-Relationships with the IT strategy
The key drivers and their inter-relationships with each other and IT-strategy are shown in Figure 10. As seen the figure 10 above, the corporate strategy is expected to be set around the major drivers such as profitability and relationship management, supplier requirements and expectations, legislative requirements, etc. As the corporate strategy has the organizational vision and important goals, IT strategy can be evolved. In real world, it is not necessary that Corporate Strategy will take into consideration all the important drivers. Defining the IT strategy is not necessarily dependent on corporate strategy. There can be various reasons behind the failure of IT strategy.
Similar to the Step-Up IT Transformation Framework, HCL’s Vision to Value Framework is divided into three Phases:
In the Phase 1, the strategy has a key focus on business and IT alignment. The output of this strategy actually defines a long-term IT Roadmap of HCL. It also identifies the tactical initiatives required to be implemented immediately to control the risks. Thus Phase 1 designs a Vision for IT organization like HCL.
In the Phase 2, IT Governance Roadmap is designed. The IT Governance Roadmap takes into consideration associated IT initiatives, various tools to measure performance, planning of initiatives, Business Process Reengineering (BPR) and Information Architecture Design initiatives. In Phase 2 the Effective Governance Roadmap is defined by using Project Portfolio Management (PPM) tools. Please refer to Fig 11, to see the elements that ensure PPM success. The expectation from Phase 2 is to create Value for the organization. Organization is made more agile and flexible enough to meet the business needs.
Elements that ensure PPM success
Figure Elements that ensure PPM success
Phase 3 is focused more on the continuous efficiency improvement. Phase 3 involves Application Portfolio Optimization, Architecture Engineering, Knowledge Management, Security Consulting, etc.
Asymmetrical information occurs when customer has better idea of expected services than the company providing products or services. The differences in understanding the requirements create a ‘transactional gap’ (Link J. A., 2008). The transactional fold model helps to close this ‘transactional gap’ and improves cohesiveness between customer and organization.
IT and Business Alignment, robust underpinning processes, delivery mechanism and quality assurance are important for this model.
Main objective of Transactional Fold Model is –
â€¢ Close the transactional gap between customer and organization regarding customer needs; to create ‘transactional fold’ which
o Brings improvement in knowledge across the organization.
o Organization proactively identifies customer needs.
With shortened business cycles, increased competition, and rapidly changing technologies, companies need to be more nimble than ever. They must narrow the gap between strategy formulation and operation execution to guarantee success. The Strategy Gap will provide a framework that senior financial managers can use to ensure that their strategies are implemented successfully and that their corporations remain competitive. Filled with informative case studies and best practices for optimum financial processes, this valuable resource will help managers leverage information technology to successfully implement corporate strategies. Managers should eliminate surprises in poorly managed or unforeseen activities, while applying new approaches to financial management for faster and more accurate business modeling.
The business model in terms of academic study
In one of the academic journals, Fisken and Rutherford (2002) stated that the business
model outlines how a company generates revenues with reference to the structure of
its value chain and its interaction with the industry value system. The value chain has been widely used in analyzing the business strategy. The purpose of value chain varies from organization to organization. It also varies based on the products or services offered. The definition by Fisken and Rutherford indicates how the organizations use value chain and its interaction with the industry to generate revenues.
Figure Transactional Fold Model
The Researcher used the qualitative research method for studying the IT strategies of HCL and compared those with other Indian IT companies. Though the research found consistency in the strategies of IT companies, it provided little insight into the extent to which particular strategy was implemented across the firms. A quantitative research with content analysis will strengthen further the authors’ research and will help organizations and researchers to understand how often such strategies are preferred. The Research was carried out using the company websites, email surveys, journals, company briefings, research reports, etc. Please refer Bibliography section for more information. Author feels that the quantitative research method would have strengthened the research. The use of Hyper Cycle (Appendix 1) and the Priority Matrix (Appendix 2) would have strengthened the research.
Challenges for HCL