the Software Industry and its malaise

First Quarter results of the companies are coming out. While TCS reported the strongest result of all the biggies of India, others did not fare too badly. Infy's and Wipro's results may be a bit disappointing for their shareholders, but it is still not something to be alarmed about.  Irrespective of the results, all have expressed high confidence in the long term growth of the sector and the prospect for their organization, although hardly there were any mention about their future growth engines. If there is anything, there is a mention of cost rationalization in Wipro executive's statement: "We have improved our people pyramid cost. Our margins have expanded by 60 basis points because of the higher proportion of freshers." With consistent downward pressure on outsourcing pricing, it is only rational that cost of service must be brought down to maintain profitability margin. And Wipro is not alone there. Almost all Indian medium and large software companies have adopted this method of cost reduction i.e. by increasing the share of freshers and junior practitioners in its employee-base. The trend is not limited to service-based profit centres like Wipro, Infy, the trend is equally strong with Indian cost centres of large software MNCs. A casual scan on all job portals will tell you that demand, wherever there is, is almost always in 0-8 years experience bracket.
So what happens to not-so-junior practitioners? That's a question, both media and company executives would like you to not ask, which gives a perfect alibi to talk about in this blog.

Big Fame of software Industry and its blindside

Software Industry got its fame particularly on couple of accounts:

1. Spectacular company growth and
2. Spectacular increase in salary during boom time.

First one brought a lot of eager shareholders and fans and second one brought many people fresh out of college opting to join the IT industry. In US, there was another very strong incentive, possibility of a startup company making big and its employees retiring rich on its shares at young age.  Retire by 40 was the catchline, not too long ago. In India, since successful startups hardly come by, one incentive that worked for it was 'assignment abroad'. However none, if you look closely, actually are about structural strength of the industry. If one compares the industry with other engineering industries [with an obvious exception to Financial Engineering Industry], there is a stark difference. In those companies a typical growth incentive was to participate and contribute to large and complex engineering projects and thereby make one's mark in the Industry. Credibility and market value of a firm in those Industries were expected to grow only when the firm brings out better products, executes engineering-wise ambitious projects. That was good incentive to retain experiences and knowledgeable people. In Software Industry, it is generally accepted that technology changes lot faster. So organizations need people nimble and adaptable enough, who can learn fast and deliver faster. It is also commonly accepted that younger people are more adaptable and faster than older colleagues. Naturally software firms tend to bias towards younger lot. Most of the companies prefer average age to be closer or below 30.That needless to mention, helps the company in keeping the cost down. The tagline is bring more people at the bottom of the pyramid and flatten/trim the middle layers of the pyramid as much as possible. Net effect, as engineers become senior they become more vulnerable to be replaced by younger ones. If you are thinking this is only true for Indian software Industry, think again!
A recent article in Bloomberg talks about how software professional in US are vulnerable to lose job as they approach 40. The article argues that unlike legal, medical or educational profession, software engineers tend to be less desirable as they age.  The article observes,"even if the 45-year-old programmer making $120,000 has the right skills,“companies would rather hire the younger workers.”  To add to their woes, the article reports, there are young engineers from India with H1-B visa who are cheaper and easily available to American companies. The author clearly is unaware that same treatment is meted to experienced professionals in India.
'So what?', you may ask, 'if the industry prefers younger population, as long as the Industry grows? It is not that all the people above 40 are getting laid off!'
Absolutely! But is the Industry really growing? If the industry really could grow as it used to be there won't be any need to remove people. And secondly what happens when one trades experience with cost?
Let's look at each question carefully.
If we look at the results from Indian software vendors, it is fairly evident that they are struggling to maintain even low double-digit growth rate [previously average rate of growth used to be 35%] and if we follow closely executives' discourse, it is clear that they are focussing more on pushing the bottomline in order to improve profitability. Above 95% utilization of existing resources and reducing average cost/resources figure prominently in strategy-speak. Even a college kid understands that only when the topline projection flattens, people get forced to find ways to push the bottom-line further. If this is true for Indian Software vendors, let's look at IBM. One blogger observes that IBM's strategy to improve EPS [Earning/share] in next 3-4 years hinges upon reducing cost of their work-force. One may argue that it is in tune with global macro-economic scenario; if the global economy is in tatters, software industry cannot escape from that. While that statement is generally believed to be true, one cannot miss that Apple also became enormous during this time. It is those software firms that primarily look at cost arbritage for software development as the primary determinant, are particularly finding growth as challenge and that covers majority of the known software houses.
Coming to the next question, let's look at the effect of reducing senior people from rosters. Long-time customers [e.g. Walt Disney] are walking away from companies like IBM because they do not find the quality and timeliness as they used to get from IBM earlier. Many attribute that to large segment of young relatively inexperienced work-force who fill the botttom rank of IBM's cost pyramid. You can bet that other software vendors face similar challenges. Customers often complain about skill and experience inadequacies in the vendors' resources and relatively  poor (technically speaking) fixes or long fixing time for a customer issue. There is overwhelming belief in many of the software companies that Quality processes adequately take care of loss of experience. Those who have seen it from close quarter, know well that it is cultivated myth. Fact is impact of loss of experience never seriously mattered to those who matter in these firms. It is not much of surprise that Sofware engineering fares lot worse compared to other engineering stream when it comes to long-term quality [durability, scalability, maintenability] or execution success rate. Standish Chaos 2009 report showed only 32% success rate for software projects. Dr. Dobbs journal who question methodology of Standish Chaos report, report for 2010 from their own survey

Ad-hoc projects: 49% are successful, 37% are challenged, and 14% are failures.

Iterative projects: 61% are successful, 28% are challenged, and 11% are failures.

Agile projects: 60% are successful, 28% are challenged, and 12% are failures.

Traditional projects: 47% are successful, 36% are challenged, and 17% are failures.

Irrespective of which side you are, it is not a pretty picture, even though you may question about sampling universe. Any other engineering stream report lot better statistics.

So what is it really?

One can blame on many things for that bad score, like poor requirement definition or poor change tracking or poor project execution, but chances of getting it right is low. Fact is software Industry is not going to be like any other Industry. Most of the software projects, successful or not, very rarely finish the way they were envisaged in the beginning. Understanding what is to be developed, many times build up gradually. Because of this reason, the cost of repairing an error is less of a consideration in determining 'success' of a project, which for any other engineering trade, constitutes one of the primary metrics. That translates to real lack of motivation for creating objective measure of cost of losing experience and skill depth but there are both carrots and sticks to reduce the project expenses. Company managers take this advantage by stressing (quite mechanically at times) on following process at the cost of prople but that hardly solves the issue, as the scorecard shows. Quoting Steve Jobs [source], "Companies get confused, when they start getting bigger they want to replicate their initial success and a lot of them think well somehow there is some magic in the process of how that success was created so they start to try to institutionalize process across the company. And before very long people get very confused that the process is the content.” The managers forget that process is not the end goal but the product is and it is peeople who develop the product and more experienced a person is better is his output quality. Following process can be easily monitored but hardly that guarantees great product. In other words, one can keep expanding the base of pyramid but that will never give a company run-away success or high double digit growth. Having the right vision for the product/solution for the customers, getting the right people who know how to develop product and retaining them are critical for that. That needs inspriring leadership, creative passion for the products/vision, skill depth and experience which the organizations trade for lower expense today. As long as the executives are measured against the numbers but not the creative forces that they unleashed in the organization, it is very unlikely that the present scenario of the Industry will change.