Ganesh Natarajan Leading Innovation & Organizational Change Zensar Case Analysis summary the case which is attached, what happen about the case and give yo

Ganesh Natarajan Leading Innovation & Organizational Change Zensar Case Analysis summary the case which is attached, what happen about the case and give your opinion.not too professional, just give your feeling.1.5 to 2 pages, double space, around 700 ~ 800 words. 9 -4 1 2 -0 3 6
REV: OCTOBER 21, 2014
MICHAEL TUSHMAN
DAVID KIRON
Ganesh Natarajan: Leading Innovation and
Organizational Change at Zensar (A)
On a hot Indian afternoon in February 2005, 47-year-old Chief Executive Officer Ganesh Natarajan
was about to meet with his top management team to discuss changes to the organizational structure
of Zensar, a Pune, India–based IT software firm with $76 million in annual revenues. The team had
been planning to consolidate staff and resources into three business units: Application Portfolio
Management, Business Process Outsourcing, and Enterprise Application Services.
Natarajan was going to suggest a fourth business unit, a proposal that he knew would be
controversial. He believed this additional business unit would enable the firm to explore new
markets for the company’s most promising innovation, Solution BluePrint (SBP), a software
development framework that, among other things, automatically generated software code. Zensar
project teams had already used SBP to improve productivity by as much as 25% on some projects.
Although SBP was a process innovation, which helped software developers produce higher-quality
code—it also promised to transform Zensar’s service offerings, interactions with customers, and the
firm’s positioning in the global IT market. SBP had also helped Zensar acquire new customers and
was playing an important role in ongoing negotiations for a new multimillion-dollar account with a
large British retailer.
Natarajan anticipated that some would resist his proposal. Zensar’s U.S. sales executives were not
yet comfortable with the stability and scalability of the current version of SBP. Existing customers
were less than enthusiastic about experimenting with an unproven technology. And, the person who
had led SBP’s development efforts and would likely lead the new business unit, Chief Technology
Officer Dilip Ittyera, was widely viewed as having managerial instincts that were no match for his
technical skills.
Even so, Natarajan was anxious to place SBP technology in the field as quickly as possible.
Nothing else seemed more likely to spur adoption of SBP than having a dedicated business unit and
no one seemed better equipped to sell the new technology than Ittyera. Natarajan explained that
Zensar’s future was inextricably tied to growing SBP-related business activity:
For the past four years, we have been trying to develop something that will give us a
“different point of view” in the market. At the start, it was not clear SBP would be that
difference maker. But now it’s clear. We just need to figure out how to organize ourselves to
make this a commercial success. Some executives may object to making a business unit out of a
________________________________________________________________________________________________________________
Professor Michael Tushman and Senior Researcher David Kiron, Global Research Group, prepared this case. HBS cases are developed solely as
the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective
management.
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Ganesh Natarajan: Leading Innovation and Organizational Change at Zensar (A)
group that is basically part of the chief technology officer’s department, has no revenues, and
has limited sales experience. They will have a point. However, we cannot risk moving too
slowly with this innovation. Others will surely follow us. I can’t allow SBP to wallow away
inside one of the other business units and dawdle away our most precious growth
opportunity.
Industry Background1
The Indian IT industry climbed onto the global stage during the 1990s, expanding from $150
million in 1991 to $5.7 billion in 2001.2 Spurred by the availability of a young, highly educated,
English-speaking technical workforce, India became a global technology and outsourcing hub. In the
latter part of the 1990s, an expert reputation for fixing the Y2K, or “millennium bug,” that threatened
the world’s computers accelerated industry growth.
With the dot-com crash and the end of the Y2K problem, growth continued but at a slower pace.
Spending slowdowns in the U.S., the industry’s largest market, and competition from other low-cost
countries in Eastern Europe and Asia were among several factors plaguing the industry.
By 2005, the Indian IT industry had three broad segments. At the low end were services such as
“body shopping”—supplying overseas firms with information technology workers and contracting
out their services on a short-term basis to take advantage of India’s low labor costs and large pool of
engineering talent. Business process outsourcing, in which operations and business functions such as
customer service were fully provided in dedicated centers, was a second, more costly set of services.
At the high end of the industry were the most analytical, value-added services such as consulting and
research and development.
Many Indian software companies were beginning to move upmarket into consulting, business
analysis, and systems integration, the traditional domains of global consulting companies such as
IBM, Accenture, and Capgemini. Six players—Tech Mahindra, Wipro, Infosys Technologies, Tata
Consulting Services (TCS), Cognizant Technology, and HCL—dominated the Indian IT industry.
They were known collectively as the TWITCH companies. Each had annual revenues in excess of $1
billion. As a group, the TWITCH companies managed, because of scale and reputation, to attract the
best talent and win the largest deals.
A second tier of Indian IT companies had yet to breach the $500 million revenue mark. (See
Exhibit 1 for a market breakdown of Indian IT companies.) Most Indian IT Tier 2 companies were
based in Bangalore or Mumbai—e.g., MphasiS, Hexaware, L&T Infotech, Patni, Mindtree, Sonata
Software, and Syntel. Some industry experts believed that these midsized, Tier 2 companies were
“too late” for the big leagues, while others believed that they could compete only through lower price
or by focusing on niche segments. Some observers, for instance, claimed that lower overhead and
agile decision making enabled Tier 2 companies to offer more competitive prices on some projects
than Tier 1 competitors could.3
1 This section draws from David Garvin and Rachna Tahilyani, “Zensar: the Future of Vision Communities (A),” HBS No. 311-
024 (Boston: Harvard Business School Publishing, 2010).
2 http://www.indianembassy.org/indiainfo/india_it.htm, accessed April 15, 2011.
3 Adapted from Amneet Singh et al., “‘Survival of the Differentiated’—The New Mantra of Success for Tier-2 Service
Providers,” Everest Research Institute Report, 2010; and Garvin and Tahilyani, “Zensar: the Future of Vision Communities
(A).”
2
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Ganesh Natarajan: Leading Innovation and Organizational Change at Zensar (A)
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In 2005, two trends were forcing the Indian IT industry toward another inflection point.
Macroeconomic conditions were increasing the risks of relying on a single IT vendor; in response,
many larger companies were mixing Tier 1 and Tier 2 providers. “Many IT customers are looking to
‘de-risk’ their portfolio,” said Vivek Gupta, Zensar’s head of U.S. sales. At the same time, an
increasing number of customers wanted their IT vendors to be close by—to handle on-site
emergencies, be more readily accessible, and be more easily held accountable. As a result, near-shore
outsourcing was a budding phenomenon that encouraged industry participants to establish human
resource networks beyond India.
Company Background4
Zensar was founded in 1922 as a tabulating machine manufacturer and eventually became a
subsidiary of International Computers Limited (ICL), a U.K. firm specializing in mainframe
computers. ICL was later taken over by Fujitsu. In the 1980s, the RPG Group, an Indian
conglomerate, acquired a stake in the company, and in the late 1990s, a software subsidiary was
established. In 2000, the hardware business was sold off, and the software subsidiary, after receiving
additional private equity funding, was listed on the Indian stock exchange. With its 30% stake, RPG
retained management control of the new company, renamed Zensar, or “essence of knowledge.” At
the time, Zensar had 850 staff; most were Pune-based software engineers under the age of 25.
Software Business
Similar to other software firms, Zensar had a service delivery model that relied on a pool of
software engineers who were put onto projects on an as-needed-basis, then returned to the pool
when their part in the projects wound down. Understanding, estimating, and managing the flow of
software engineers on and off projects were important to pricing and extracting profits from a given
project. To price a given project, sales managers worked with delivery managers, who managed the
engineers responsible for executing a project. Most contracts—especially those for maintenance and
support—were based on estimates of time and materials. With some of its larger customers, such as
Cisco, Zensar had annuity-based contracts and allocated engineering resources to these accounts on a
long-term basis (rather than a project basis).
Zensar’s engineering groups had expertise in applications (e.g., Oracle or Microsoft) and software
languages (e.g., Java or C++). Software engineers included software developers, typically younger
programmers skilled in several programming languages, and more experienced software designers
with five to eight years of experience writing code. Software designers and architects were able to
write code at a higher level of abstraction than basic software engineers. Other software engineers
included project leaders, program managers, and sales representatives.
Poor Timing
The focus on software was poorly timed. Natarajan explained, “At the time we were listed, the
industry inflexion point, which came with the millennium bug, was over. Customers already had
their dance partners lined up.” The “Pune-centric” firm quickly began to suffer severe financial
problems. The company’s CEO, chief financial officer (CFO), chief technology officer (CTO), and head
of delivery soon quit—all on a single day. One manager recalled, “The culture back in 2000 and early
2001 was complacent. People were confused by the rapid turnover in senior management and lacked
4 This section draws from Garvin and Tahilyani, “Zensar: the Future of Vision Communities (A).”
3
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412-036
Ganesh Natarajan: Leading Innovation and Organizational Change at Zensar (A)
a sense of purpose and direction, since the mission at the time—‘Nothing short of everything’—was
vague.” Although Zensar managed to retain a few good customers and even acquired several new
ones, revenues and profits had both fallen significantly. With the company reeling, the Zensar board
recruited Natarajan, who had recently earned a “CEO of the Decade—Knowledge Award” from
India’s Ministry of Information Technology for transforming a small Indian computer training
company into a global leader.
Natarajan arrived on the last day of February 2001. He discovered that many employees in the
delivery centers, the bulk of Zensar’s staff, had nothing to do (51% utilization rate). Several senior
team members were underperformers, including the head of U.S. sales. The company had not paid a
dividend to shareholders in 16 years. A month into his new job, Natarajan began to recognize the full
scope of the internal issues he would need to address. With only $5 million left in Zensar’s cash
reserves, Natarajan asked himself, “What have I gotten into?”
Ganesh Natarajan
Natarajan grew up in a small village in eastern India near Ranchi, Bihar. His mother was a
teacher, his father a scientist. On weekends, Natarajan helped his father run a volunteer milk
program for less advantaged families. His early schooling was, with the exception of an English
teacher, “terrible,” according to Natarajan.
Natarajan’s secondary education began at a second-tier Indian engineering school. He earned top
marks while obtaining a mechanical engineering degree from the Birla Institute of Technology, which
was shut down for six months, in the midst of his studies, by a political movement. He later earned a
postgraduate degree and a gold medal in industrial engineering from the National Institute of
Industry and Engineering (NITIE) in Mumbai. In 1991, Natarajan headed a small, unprofitable, Indiafocused computer training company. He grew the firm’s revenues from Rs. 1 billion to Rs. 50 billion
(roughly $1.1 billion), transforming it into a profitable firm with a leadership presence in 45 countries.
Leadership qualities Natarajan, one Zensar manager observed, was a leader with a “very
high emotional quotient” who knew each individual “360 o.” She recalled that when her mother was
ill and she wanted to resign, Natarajan refused and suggested that she take as much leave time as
necessary, a period that ultimately amounted to two months. A senior manager added, “Ganesh has a
genuine interest in the people, in their families, and in what their non-work talents are.” Another
noted, “He has the ability to connect with people at all levels of the organization. He is comfortable
sitting with management trainees, and equally comfortable interacting with the board.” A third
manager observed, “Ganesh is a connector—he is the glue that ties together the organization.” An
accomplished singer, Natarajan hosted a karaoke event on Friday nights at his home that included 10
to 15 staff.
Several managers emphasized that Natarajan was very performance oriented, and toughest on
those with the strongest connections to him. “After many years working with Ganesh and being a
friend,” said one manager, “I still dread review meetings with him. He is very tough during
interviews.” Another manager added, “Ganesh is a visionary leader who gives you lots of space. But
he has a front-end style and a back-end style. When things are going well, he is participative, but
when things go wrong, he can be dictatorial.” A member of the senior team added, “Ganesh has zero
tolerance for political shenanigans, or anything that might hurt our reputation or is disrespectful.
Once, a senior manager was making a female staff member feel uncomfortable. When she complained
4
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Ganesh Natarajan: Leading Innovation and Organizational Change at Zensar (A)
412-036
about his behavior, Ganesh fired him. You know where you stand with him.” 5 “The people who
succeed at Zensar are those who reach out to others,” observed one senior manager. “Ganesh says,
‘Trust is zero or one.’ Either you have trust and work with him or you do not.” Another executive
added, “He will not accept the status quo. If things stabilize, he starts asking questions. He is always
pushing for change.”
Growing the Organization (2001–2005)6
Soon after he arrived in early 2001, Natarajan created a 12-month turnaround plan that focused on
cost cutting. He fired 120 people (14% of the workforce) and replaced three members of his sevenperson executive team with veterans from multinational IT firms. He hired new sales executives with
sector expertise, rather than technical expertise. Natarajan personally spent much of his time
cultivating relationships with existing customers and improving support processes (such as
invoicing).
Natarajan implemented a management approach, successful at his prior firm, which set a new
tone of participation and involvement. His 5-F framework emphasized Focus, Fast, Flexible, Friendly,
and Fun. He called each employee individually and asked, “Tell me what is so good in this company.
What should we throw out and what should we keep?” Focus meant a new business model
concentrated on industry verticals—i.e., retail, telecom, and utilities, as well as banking, finance, and
insurance, and near-shoring activities, which also encouraged fast and flexible responses to customer
demands. The shift to near-shoring activities dramatically increased the number of staff based
outside Pune, and gradually shifted the revenue mix in two ways. In 2001, 90% of revenues came
from body shopping, the business with the smallest margins. By 2005, body-shopping revenues had
been lowered to a more manageable 60%. In addition, most 2001 revenues were generated by Punebased staff. By 2005, 70% of revenues were coming from Zensar staff based in other countries, a much
higher percentage than Zensar’s traditional competitors. As the total number of employees topped
2,000 in 2005, new staff came to outnumber veterans by a wide margin. HR policies to retain and
develop key employees were put into place. Innovation-oriented incentives were also implemented.
Some of these were explicit financial rewards; others were tacit.
The annual Vision Community (VC), a volunteer forum in which Zensar staff met outside work
hours to generate ideas about the company’s direction and discuss new ideas about products,
services, and processes, provided an additional way to integrate old-timers and newcomers. In 2001,
Natarajan led the first VC, which involved 60 to 70 people in middle and senior management
positions and helped Zensar’s new leaders set a goal of $100 million in revenues by 2004. Eventually,
VCs became a companywide platform for idea generation that gave even the most junior employees a
say in the direction of the company. “If you want to advance in this company, you have to participate
in a VC,” Natarajan said. “You won’t get promoted unless you show interest.”
The sales function was reorganized. Top sales executives focused on growing “platinum”
accounts, while sales teams were divided into two groups: “hunters” focused on obtaining new
accounts and “farmers” focused on managing existing accounts. In the first year alone, the new
division of labor helped add 34 new clients, including U.K.-based United Utilities, Ingersoll Rand of
Hong Kong, American Insurance Group, and Credit Suisse Private Banking, among others. Over this
5 As in other Indian businesses, subordinates referred to the Zensar CEO as “Boss.” This term was also used up and down the
management chain. By custom, the term conveyed a sense of both friendship and deference.
6 This section and the next draw from Garvin and Tahilyani, “Zensar: the Future of Vision Communities (A).”
5
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