The “Organizational Structure” of Indian IT firms due

to Internationalization.

Executive Summary
Title: The “Organizational Structure” of Indian IT firms due to Internationalization

Purpose: The general purpose of this capstone project is to describe how companies in
the Indian IT service firms(Infosys, Wipro, TCS etc.) managed to structure themselves
since early 2000 to cope with the Internationalization of the firms. The thesis first
describes the challenges posed by the internationalization that lead to the restructuring
the firms.

Research question: Illustrate the next level of internationalization challenges that the
Indian IT firms would face in the near future and what “organization structural changes”
may be required to meet the challenges.

Methodology: The thesis is performed in an exploratory way, with the theoretical

framework (Understanding the theory and Design of Organizations, Richard L. Daft) as
a foundation to analyses the empirical studies.

Conclusion: The thesis concludes that it is a mix of taking advantage of the

globalization and the economic features of India that has influenced the
internationalization process of both Infosys and Wipro. Taking advantage of the
globalization includes taking advantage of the interlinked global economy with web like
characters of multiple networks is one of the key factors that has made it possible to
succeed for Wipro and Infosys on the global market.
 Acknowledgement

We would like to thank our mentor/professor, Abhishek Goel, for giving us valuable
guidance and recommendation and approach to work on this project.

Thirunarayanan Sampath

Dr. Nanda Karthik

Prashant Hosahalli

Raghavendra M

Avinash Adit

Rupesh Pasupuleti

Arnab

Date: 15/12/2018
The Indian IT Firms

India has emerged as a major exporter of software services in the last thirty years. This
has been possible through the astonishing growth of the software industry in India.
According to Arora & Gambardella (2005) sales in the software industry in India grew by
a compound rate of over 50 per cent between 1995 and 2000.

The sector is becoming an important contributor to India‟s export earnings. The amount
of software export compared to the amount of merchandise export grew from an
insignificant number in 1990 to 18 per cent in 2002-2003. Connected to the software
sector is the IT-enable services (ITES) sector, which grew with remarkable 70 per cent
between 2001 and 2002 and employed 106 000 people (Arora & Gambardella, 2005).

In the new digital economy, software is a centre intermediate good and is comparable to
therole played by capital goods sector in an economy based on mechanized
technologies. The software sector is characterized by a large number of specialized
suppliers. Of all software development effort, over two third of the capacity is spent on
maintaining and enhancing the existing software code instead of producing new. (Arora
& Gambardella, 2005)

The initial growth of the software industry in India was due to the possibilities for
companies to outsource significant parts of activities related to software. Software
production suits the resource endowments of India‟s economy, which has an
abundance of labor and a relative scarcity of capital and physical infrastructure.
Software service is intensive in the use of skilled labor while it requires relatively little
capital. The Indian software industry has primar-ily specialized in relatively low value
activities. (Arora & Gambardella, 2005)

At large, India‟s software export is a product of domestic firms and the Indian software
growth was led by Indian firms rather than foreign, as in the case of Ireland. The
Industry in India retains a competitive structure wherein the top five companies
accounting for almost a quarter of total industry revenue. According to Heeks, who
provided one of the earliest expla-nations to India‟s successful software industry
growth, argued that India‟s software workers enjoyed a wage advantage and as a result
there was a rise in exports(Heeks, 1996). According to Heeks argument, it suggests that
India had an absolute advantage over the rest of the world in terms of software wage
costs and that explains the large software export from India (Heeks,1996). The wage
differences, during the early stages in the industry development, were central to explain
the profitability of software firms. Between 1995 and 2000 there was a boom in software
exports and the growth were more than doubled compared with observations from other
countries (Arora & Gambardella, 2005). At the same time Indian software salaries rose,
although remaining low compared with US, UK and Ireland. If the only advantage had
been wages, the boom would not have happened, the absolute advantage would be
reduced when relatively scarcity increased and that would lead to less profitability for
firms and reduce India‟s export of software to make way for other countries with lower
wages. One can also consider the wage rates in other Indian industries such as
manufacturing and agriculture, and look into why these sectors with almost the same
wage rate not has enjoyed a similar export performance. The explanation would be that
productivity in the software industry sector is relatively high compared to the
manufacturing and agricultural sector in India, although productivity levels in the
software industry remain low compared with other parts of the world.

To understand the growth within the sector, it is important to understand how the sector
responded to the change in the external environment. The external environment
changed on two main parts during late 1980s and during 1990s. On one part, Indian
economy changed from regulation to deregulations, liberalization and post liberalization.
The second part was the change in world demand for software as computerization
blossomed and business administrative processes became increasingly automated in
the West (Arora & Gardbello, 2005). Between 1991 and 1996, a substantially policy
reform took place in the form of a transformation to a broadly market determent
exchange rate system, substantial reductions in India‟s high custom tariffs rates,
gradual removal of quantitative restrictions on imports and a liberalization of foreign
investments (Dyson, Cassen & Visaria, 2004).

The impressive growth would not have happened without a certain organizational
capability in resource management and in software process management, as the
outsource business model demanded just that to ensure reliability of the service
product. Many software firms had problems with attrition that created different kinds of
threats such as, losing knowledge to competitors and performing poor to clients. In
order to thwart this, companies had to take various actions, including investing in
education and training, implementing employee stock option, and other organizational
practices and innovations in order retain employees‟ loyalty.
 Traditional Functional Organization:

Why has functional organization persisted over the years despite the drawbacks

described above? The traditional motivation for specialized teams can be traced to a

legitimate desire for:

• Efficient utilization of specialist resources across a line of products: Rather than

dedicate, say, two specialists to each of four products with an average specialist

utilization of say 60%, it is more efficient to create a shared activity-oriented team of

five (since 2 * 4 * 0.6 = 4.8) people available on demand to any of the four products.

This is also an attractive option in a situation where supply of the said specialty in

the market is scarce.

• Standardization: As members of a single specialty team, say, a marketing content

team, it is easier to standardize templates and formats, achieve consistent

messaging across product lines, and coordinate product releases.

• Nurturing the competency by localizing it: When people of a common specialization

sit together, it is easier to share knowledge and help each other with

troubleshooting, think through a solution, review each other’s work, etc. It is also

easier for the team manager to ask for a training budget and other resources.

The traditional model has come under question because of the increasingly shorter

time to market and time in market.4 Software products have a very short window

available to monetize new features or capabilities. We can no longer take for granted

an entrenched customer base; it is likely their patience will wear out unless they see

a steady delivery of valuable capability. Even in the case of enterprise IT, being
responsive to the business is more important than minimizing cost per function (or

story) point. The traditional model of activity-oriented teams may be good for cost-

efficiency, but it is bad for end-to-end cycle time. It is therefore worthwhile to trade

off some efficiency for the sake of responsiveness.

 The challenges of Internationalization facing the Firms

a) Problem of Millennials: The attitude of Millennials has had a great influence in

the way the Indian IT firms had to structure its organization in the last few years.

The Millennials are more ambitious and respect the culture of learning, sharing

and collaborating, have tendency to respect the talent and not the hierarchy.

Infosys has started to introduce the Matrix structure in the organizations

throughout the organization to woo the millennials. The matrix structure is

organized to imbibe the flatter structures (called Horizontals). They realise that

innovation is key for companies to survive in today’s environment. A big enabler

of innovation is empowered Millennials. Within the Horizontals there are fewer

number of managers between employees and the senior executives.

About 15% of the pay is dependent on the performance to motivate the

Millennials to contribute and be rewarded based on the performance.

b) Agility to meet ever changing business : A cross-functional team (also called

multifunctional, poly-skilled, or interdisciplinary) is one whose members belong to

different specializations and work together toward a common outcome. They are

a necessary consequence of organizing for business outcomes rather than

activities. The realization of any outcome is bound to involve many different

activities. This calls for people with widely different skills to be part of the same

team. For example, a cross-functional product team may consist of people with

all the skills listed in Section 5.2.

The top half of Figure 5-2 shows a conventional stratified IT organization. The product

owner is quite removed from daily development. The term development team is only

applied to a minimally cross-functional team of developers, testers, database, and UX

people. Sometimes it is worse—development team just refers to developers. In either

case, the team is not equipped to own a business outcome.

Figure 5-2 Moving from a stratified setup to a cross-functional setup

The lower half of the figure depicts what it would take to own an outcome. The inner box

represents a well-equipped cross-functional product development team. Architects,

business analysts, deployment engineers, and product owners join the team. Some

parts of IT operations, marketing, and sales are also folded in. For example,

Operations-A provide a virtualized platform that Operations-B uses for test and

production deployments. Field sales and inside sales (Sales-A) may sit outside, but

sales engineers (pre-sales) could very well be part of the team. Similarly advertising,
SEO, promotions, and pricing (Marketing-A) may sit outside, but social media and

content (Marketing-B) would do well to be part of the team.

Cross-functional teams aren’t a new idea. Only the proposed extent of cross-

functionality is new. Agile software development teams have always been cross-

functional with respect to architects, analysts, developers, and testers. With DevOps,

cross-functionality expands to include deployment and some IT operations people. At

this point, the cross-functional team is capable of agility in delivery. For full IT and

business agility, the circle needs to expand further to include dedicated product owners,

UX people, sales, marketing, and support.

c) COMMUNITIES OF PRACTICE/Centre of Excellence: Infosys has reorganized

itself in last 2 years with many CoE/CoP group like ( Legacy Modernization,

Program Managers, Project Managers, System Testing etc) with an attempt to

pool the specialised experts which can be leveraged across all the vertical or

Business Units. This org structure ensures that the Silos created within the

Business unit can now leverage the experts when required.A community of

practice (CoP) or Centre of Excellence (CoE) is an alternative solution to

nurturing a competency in the absence of a functional organization. A CoP does

not require its members to be all part of the same team. It functions like a loose,

professional association of specialists with mechanisms for online and offline

interaction and knowledge sharing. A lead is usually elected, nominated, or

appointed per CoP. The lead comes from the same specialist background and is

someone with people and organizing skills. The CoP lead is by no means a full-
 time role—she continues to work as a first-class member of some product team

while devoting maybe 20% of her time to CoP work. CoP leads sponsor brown

bag sessions, training programs, internal conferences, and sponsor members to

participate in external conferences. They weigh in on tools and modes of

collaboration within the community. They are accountable for the health of the

community.

d) Strategic Partership between Vendor and Product Organizations: