Innovation challenges for IT firms

Tags: Op-ed
Innovation challenges for IT firms
TOUGH TASK: Satya Nadella, the newly appointed CEO of Microsoft, has decided to phase out the Nokia X series phones to promote their indigenous Windows 8 platform resulting in massive lay-offs of several thousand employees
As established technology companies become old and gear for a generational leadership change, the interesting phenomenon provides keen management insights into the challenges faced by them. Microsoft (MS), Hewlett Packard (HP), and Infosys Technologies (Infy) are clear examples before us.

All these big well-established information and technology (IT) hardware and software firms are now facing generational challenges. They are struggling to create a fresh magic potion that can augment their technological capabilities and financial performance in the medium-term. The technologies around all IT companies have changed faster than one can keep pace. New delivery platforms, 3D printing, analytics, cloud computing, big data, enterprise solutions, and internet-of-things, among others are some of the developments that are altering the manner in which the competitive game in high-technology industries is played.

MS faces dilemmas about operating systems for personal computers, tablets and mobile phones. Satya Nadella, the newly appointed CEO, has now decided to phase out the Android-based Nokia X series phones to promote their indigenous Windows 8 platform resulting in massive lay-offs of several thousand employees. HP has to keep pace not only with the revolutionary 3D printing technology but also cope with convergence issues and falling prices in the traditional printing hardware products. Infy is a typical Indian IT company which has historically exploited the cost and labour arbitrage opportunities but now faces existential issues arising from changing landscapes.

The struggle for established companies is not just about choosing a strategic direction, but of emergent questions on core values, capabilities, and resources. Out of several strategic challenges, the four prominent ones usually are: (a) exploiting opportunities within the historical (bread-and-butter) businesses; (b) exploiting opportunities in newer related areas (preventing threat of product commoditisation); (c) revisiting the core values of the firm and thinking through the repercussions of either holding on to them or changing them altogether; and, (d) stimulating strategic renewal including that of human resources, organisational structures, and compensation systems (moving up on the value-chain and participating in new value-chains).

A fundamental question before firms is: Should the company adopt a new value-system jettisoning those espoused by the previous generation leaders, or should it continue with the existing ones that has brought the company this far? A fascinating example is that of Infy: In 1996, the IT company was relatively small (with sales about Rs 150 crore), but was growing leaps and bounds. As part of our research project at that time on corporate excellence, we were pleasantly astonished that the founder-directors were taking meagre salaries (Narayana Murthy earned less than Rs 1 million, then equivalent to about $30,000). To us this exemplified frugality, simplicity, and a positive middle-class mindset of hard-work and personal sacrifice to let the company grow. It was also a signal to external stakeholders about the leadership’s commitment to company’s vision of creating an egalitarian community. Now we find that the compensation of Vishal Sikka, the incoming MD-CEO could be as much as Rs 42 crore annually. Without being judgmental, this reflects a massive shift in the core values that can result in an elitist sub-community within the company. Similarly the formal dress code reflects corporate conformity, but then the new CEO wants employees to demonstrate creativity!

It would be worthwhile to recall the rise and fall of Leo Apothekar as president and CEO of HP within 11 months of his appointment. He came from SAP having worked on the enterprise software solutions. Within a few weeks of his arrival, Leo conducted a massive reorganisation of HP’s PC business, introduction of WebOS platform to its phones and devices business, fought with business partner Oracle, and focused more on services. His short tenure also saw large-scale top-talent flight from HP. (As a word of caution, Sikka can learn from these experiences, since he too is coming from SAP).

Apothekar, Nadella, and Sikka commenced their terms with an address to employees exhorting the need for innovation within the company. In his initial email of February 4 to MS employees, Nadella said that he wanted “to change the world through technology that empowers people to do amazing things”. In his video talk, Sikka also talked about innovation and crowd-sourcing to the Infoscions. However, no two companies are similar, and each exists in its own ecosystem with its hierarchies. If MS needs radical innovation a la Nadella, may be at present, Infy needs productivity and efficiency boosts, starting with addressing the demoralisation that has set in the company after the recent Apothekar-style talent exits.

We are truly living in times that ambit the ‘paradox of innovation’ — a continuous battle between stability (continuity) and chaos (change). In an ever-changing environment where companies face challenges relating to cloud, algorithms, and networks, the questions of leveraging past learning while creating new opportunities require a fresh look at the structure, systems, and employee engagement processes. Whether the leadership is from within or hired from outside, the basic questions will remain. Strategic renewal is a challenging task that requires execution finesse, and balancing new perspectives and work values with existing ones.

(The writer is a professor of strategy and corporate

governance, IIM-Lucknow)


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