A few weeks back I wrote about attracting talent. But what's the big deal if you cannot retain the great talent you manage to attract ? Retention is today a huge issue in the Indian software industry with poor retention causing a tangible, negative impact on the bottom line and morale. So here's my two cents on retaining employees.

Define your target DNA: OK. You are a software services company. Fine. But what is your DNA ?

DNA definition: A list of the hard skills, soft skills( including behavioral traits), future aspirations and value system of your target employee.

Defining a DNA and strictly hiring for a DNA fit is critical to ensure you don't end up attracting the "wrong" candidates however "smart" the candidate maybe. If you attract candidates with a DNA mismatch, retention would become very challenging. A product company with a highly technology centric DNA would do well not to hire the top flight MBA from a services company who is great otherwise but is technology averse. DNA fit gains more importance for more experienced hires.

Lay out the facts in the offer letter: It is a mad, mad market out there and the pressure to hire can kill any recruiter. Sometimes it so happens that the offer letter does not match the ground reality especially on the monetary front. I do not mean that people lack integrity, but it is important to be crystal clear to avoid future bitterness. If a company has a variable pay component and it is known for sure that the candidate will not get what is shown in the offer letter, it is better to give the person a realistic range and also mention the previous three years figures. A friend of mine who worked for a Pune based company found out that the figure in the IT returns filed in her new company was actually lesser than what it was in her old company and the new company had actually offered her a hike! The lady in question, a top performer, quit with a vengeance.

Have a mentorship program: Mentorship is of special importance in large companies where new hires can easily feel "lost". Mentorship is also important for existing hires that are going through a career crisis and need guidance. A good mentorship program can clear misunderstandings and align expectations in an informal way and help the new hire "break in".

Services businesses have typically been paid on a "time and material" or a "fixed price" model, with fixed price being basically a risk adjusted time and material quote. Satyam's foray into R&D outsourcing seems to be a break from this. Here are the key highlights (emphasis in italics) from the report:

- Joint research and development with its customers in the automobile industry.
- Customers want Satyam to take up the full responsibility for innovation and are willing to the share revenue from the joint effort.

Here are my thoughts on this:
A moment of truth: Value based pricing is a "moment of truth" for services companies. You are paid for the market value you deliver and not for "effort".  The upside can be staggering and the down side killing. Pramod Haque had this to say on services companies: "If you look at the top four or five software services companies in India, they are all working as sweatshops, the only thing is they are charging less for that sweat.” While I do not agree with him, if this takes off, Mr.Haque might be eating his words soon.
Shared destiny relationships: Services companies will no longer be just service providers but true strategic partners whose stock would rise and fall insynch with their clients.
New risks and new skill sets: The premium will move from execution excellence to the following:
- Ability to understand end markets and not merely stated and implied client requirements.    
- Ability to innovate independently and add value that clients cannot add by themselves. 
- Development of a true marketing function that can sense markets, drive market and product requirements.
- Ability to understand the risks associated with the clients business and being able to factor the same into pricing models.
New economics: Revenue sharing arrangements and stock option based pricing would supplement existing pricing models.
Opportunity to move into products: Value based pricing is an ideal stepping stone for moving into products. It demands solid market understanding as well as technology savvy to drive innovations.

 

The document outsourcing market in the US was >$50 billion in 2005 according to Cap Gemini. Now, except for documentation specialists, who wants to do documentation in the software industry ? I have always hated documentation, but well, it is a necessary evil. Now the interesting part: The typical documentation overhead in a project I guess is about 8% (regular docs+ CMM and all that). Add to that, gigabytes and gigabytes of corporate documentation. A significant amount of this is non core. Now, if a documentation outsourcer can bring in cost savings of 30%, we are talking of a decent margin improvement potential. ROI modeling can be tricky though since it is very contextual and I will not attempt it. Intuitively though, I feel that as margins get squeezed due to commoditization and companies are forced to look inward, the non-core, non sensitive portion (no IP/ confidentiality issues etc) of the documentation work would get outsourced. 

Web 2.0 is indeed the hottest buzzword these days. All the biggies are investing in the plumbing and the fastest growing websites are Web 2.0 savvy. From a services perspective I predict the following:
- Emergence of niche web 2.0 shops. The skills, tools and concepts are new. We are just getting started on the hype curve and there is significant value to be skimmed quickly before commoditization sets in.  
- Significant demand for high end javascript skills in the job market. It is high time the server side gurus started giving JS due respect. JS has become a major enabler of RIA and no serious developer can choose to ignore it anymore.
- Clients would begin looking at vendors providing "move me to web 2.0" consulting  services. This would include web 2.0 strategy, application impact analysis, web 2.0 re-engineering and web 2.0 enablement. 
- Significant bill rate premium (atleast while the hype lasts) for vendors that can provide comprehensive web 2.0 consulting skills. The demand would be high and the supply low.
- The maximum value would accrue to those vendors that can combine their domain expertise with web 2.0 and deliver maximum bang for the buck.
- Cognitive design, a largely neglected area in the services space would become a core skill. People skilled in usability centric design would command a premium.
- Every lifecycle stage, starting from requirements gathering to acceptance testing would see changes due to Web 2.0. After all, as somebody said, Web 2.0 is not a thing, it is a state of mind.