Why IT companies lose money in government projects?

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After Infosys co-founder NR Narayan Murthy said that 'Infosys had not made any profits due to on government projects due to red-tapism and other issues,' two IT consultants Abhishek Bhatt and Rakesh Malik have responded to NRN's statement.

Here is what they had to say:

Why Govt projects do no good to IT?

"With my limited experience of Govt IT projects through direct involvement and after discussing with senior colleagues with long experience in the field, I have certain observations on the issues relating to challenges in IT project implementation:-

Before we even start to understand the pain areas in IT Govt Projects, we need to understand the two key stakeholders in the project. One is the implementer other is the customer.

We further need to understand the story of implementers with some facts. All of us proudly proclaim India being an IT power house and companies like Infosys have set a benchmark.

The underlying fact, which one must accept with pinch of salt, is that entire Indian IT industry was propelled at a supersonic speed during mid 90's end early 2000 due to abundant low cost English speaking engineering graduates (now even this is doubtful with mushrooming of so many private colleges) coupled with once in a life time seismic changes like internet (precursor was laying of undersea optical fibres) and geographical blessing of different time zones.

The context of putting this known fact in this article is to corroborate that while Indian IT industry propelled from few thousands to lacs workers, but the basic nuts and bolts, processes are still at infancy stage and aligned to meet the requirement of International client, whose primary driver is to minimize cost.

In the process, Indian IT industry further contributed and evolved the process like dual shore delivery. However, the delivery model ensures that key technical decisions are taken by client themselves and outsourced partner is to meet the manpower requirements against specific needs as per requirements.

Accordingly, Indian IT Industry defined their measurement matrices. To highlight it further, even today the key parameter of project monitoring in any IT company is billing rate ( $ per hour) and utilization ratio i.e. number of employees getting billed. The growth thus becomes linear viz a viz number of employees.

Measurement is not in terms of project value. A simple arithmetic tool to approximately understand is turn-over of most IT company is utilization factor X employee strength X billing rate. It has got no connection with parameters associated with non-linear growth like project value, product value, innovation value and business outcome.

Today when IT industry is staring at stagnation, the pain is further accentuated by the fact that most of the middle to senior management in IT companies comprise of resources who have grown by virtue of being there.

They have grown as the organization has grown by adding more and more employees. The entire learning and experience of such middle-senior management people can actually be telescoped into few years, since they have only done actual work during initial years .

Subsequently, they became "people manager" by counting heads and respective billing. The focus is to minimize cost by getting employees of minimal salary level in the project while maintaining billing rates and maximizing margins.

IT in any domain is an enabler and if IT fails to view and understand the domain/business side and remain constrained to technology, it becomes the source of project challenges.

Irony is even today most of the revenue and maximum profit of the IT biggies comes from T&M (time and material) projects which is akin to labour supplier in a construction industry, who is least bothered if the bridge has been built or not, if its quality is ok or not, if it serves the business purpose or not.

All that matters is one is paid for the labour deployed. And most of the middle-senior management folks in IT industry are nothing but people managers keeping track of hours spent.  The industry is required to understand the areas of improvement internally before blaming all the challenges from other party and quickly needs to define the processes.

Some of the key challenges generally quoted by IT companies, particularly while working for Government projects in India can be summarized as below.

Low price : The context of price needs to be understood. Is it the project price or price of the resource. If it is referred to project price, then it reflects the ability of the organization to understand the domain requirements in pre-sales cycle.

It gets derived from competitive bidding and is market regulated, which itself is dominated by biggies like Infy and TCS. On the contrary, if it price of resource, then it again underscores the fact stated above, that IT companies focus on resource and not on project

Not accepting software on time: This is a broad term, acceptance is based on certain parameters as per RFP and can't be forced upon. The project has to follow certain conditions and in absence of strong project Management (Not the people management) skills, most of the projects that have delayed acceptance is due to contractual reasons.

Changing requirement mid-stream: To some extent, this also relates to the earlier point regarding non acceptance of the software. The primary reason for this is IT resources come with the understanding that some-one will tell them (SRS term is used for this is IT) what to do, very much akin to instructing the building contractor to build stairway in certain way.

However, since I am not a building expert of architect, so in such scenario, even the building contractor adds value by advising customer of pros and cons of decisions. Similarly software being wild tiger and to be dreamed, IT professionals need to add value and hand hold customers in advising them on right decisions while taking requirements.

This would require such resources to have experience and domain knowledge. But this impacts the project margins. Thus this leads to change in requirements mid-stream, since one is responsible to deliver services to its business users and not to IT or e-Gov department.

Government projects has it's own challenges, if laws/rules change. Project have to be implemented to meet the requirements. For example, in one govt project customer gave its requirement and IT team built the software.

Clicking the submit button one needs to have mouse, since the software doesn't accept "SUBMIT" button on keyboard. Now when customer gets complains, pat comes the reply that it was not given in the requirement !

One very critical point, which may be analyzed by IT Industry, is that the project requirement changes, since most of the projects gets into large delays and business requirement changes. Business can't be expected to follow the IT, the enabler.

Not allocating enough time:  Even though, lately e-Governance projects try to define the project team right upto highest level, this is true to an extent and Govt should also try to improve by building a cadre to address this need and maintaining continuity. Till such time, IT Industry has to devise processes to fill the gap in the mutual interests of the stakeholders.

Issues like delayed payments are likely to get likely to be addressed, if some or all of the above issues can be addressed. Introduction of electronic payments in any way is helping in improving on this count.

Lastly one fact which all of us are privy of is government working/business is not same as corporate working/business and this is true across the world.

The government projects are funded by public money and decisions are under scrutiny under various agencies like CVC, CBI, court, media et al. This will continue to slowdown thee decision making in government.

But it is known to all and same set of business rules, which Indian IT companies are exposed to working for corporates in USA/Europe, can not apply when doing business with government.

Further in government contracts, legal documents are sacrosanct it's not easy to bring transactional change in contractual requirements in the middle of the project. The IT industry needs to absorb that enough efforts need to be made during pre-sales cycle to mitigate such risks.

In summary, It is largely the IT companies which have to re-define their processes to working to improve the success rate of the e-Gov projects . Blaming other side will not lead it anywhere. This should happen slowly and steadily, with both sides taking baby steps with every learning."

(The article is written by Abhishek Bhatt and Rakesh Malik, IT consultants working in the field of E-Governance, who have Industry experience and Govt experience.)

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