Verticalization is neither Classification nor Segmentation of Clients

And so Verticalization is the buzz word, as quite a few Indian IT companies undertake corporate restructuring exercises in order to do something about the pessimistic situation they are into. And it is fairly busy time for management consultants like me  to lend some insights.

So, the problem (or  the symptom?) is about too many P&L responsibilities that drain management capacity, create chaos and lead to too many local optima. The issue is that overlapping responsibilities in rapidly transforming industry create too many conflicts; and at operating levels it creates terrific confusion among people and; the workforce loose direction. Management’s time is wasted in firefighting and resolving these inter group conflicts; while its attention remain overdue to attend issues related to growth. Yes, the current structure of P&L responsibilities across geography, services and industry lines disrupt seamless flow of value creation (i.e. one plus one does not become greater than two). Kurien said in his interview to ET that it take more than 7 hops for the customer enquiry to reach decision making point in the organization through convoluted routes. If you extend the logic, then you know how much, organization structure affects flexibility of the organization, not just in doing things but in taking decisions. And this is disastrous for organizations that have grown, while the external environment is unrelentingly volatile.

What’s the basis of Verticalization ?

It is fundamental that once you have taken a position in the market and grown substantially with large clients; in order to retain and gain growth, you need to go deeper into clients psychology and organization map. It is important that your team improves its understanding of the way client businesses work, and the factors that  influence their business performance. This calls for a deep engagement and investment in people in understanding the domain, business model and workflow in clients business. It is known that your growth is entirely dependent on how well your team collaborates with your clients in creating solution for the clients growth. Does that mean you cut down the organization into independent businesses? Verticalization is not reclassification, not it is Segmentation.

Eli Goldratt, the renowned management thinker on Growth Strategy suggests that ‘Divide the market, Do not Divide the Resources’. The service specialization groups must be considered as the essential infrastructure of the organization; and their main role is in getting things done (operate) as fast as possible, while keeping an eye on developing future competencies. Today, without a vertical focus, the resources are hard coded into different P&L segments. This of course creates a lot redundancies and waiting of resource for work, too often. This also thins down the growth of consolidated competency across the organization. When an organization is big enough, and each industry segment is big enough, it becomes important 1. The develop front end competencies (at Account management, System Design, Business Modeling and workflow) in vertical industry (domain). But 2. The organization must ensure that it gets the benefits of aggregation of development resources.  Which means that the development and testing resources should not be divided vertically. Only having such an understanding of ‘Dividing the market, but not Dividing Resources’, will allow verticalization to give its benefits to the growth of the organization. Actually Verticalization is the strategic design that must be tactically well operated. Is not this what Kurien indicates, when he says  “There are going to be factories in the backend that are going to deliver but the solutioning is going to happen at the front end”

Of course you would be thinking, what is so special about this, why did not they do this  earlier? it is no brainer! etc. Verticalization is not a panacea, nor an approach to be followed for all organization blindly. It depends on what stage the organization is in its life cycle and size. It also depends on the level of competencies  of its management and depth of resource. Verticalization is not a copy n paste solution for growth; rather the need of growth and commitment to invest in growth should drive Verticalization. Of course, if an existing 3D matrix structure and the myriads of PnL reporting is creating chaos, Verticalization would bring an order into it and a level of seamlessness in management function. But do not expect overnight growth because of this. So do we say that in terms of management maturity and organization flexibility , TCS and Cognizant are far ahead of  Infosys and WIPRO…..?

When I look deeper into Kurien’s interview, I am tempted to check his expectations of templatizing verticalization, when he says, “The way we solution is also going to be different. When we meet a customer, 60% of the solution must already be done, and we can configure 20-30%. So we have to foresee and we have to take bets…” I guess that he is taking the bets and the way you take the bets is take one small but significant step at a time and do not rock the  boat. I therefore tend to think now if verticalization adopted in this way will really deliver growth? Lets watch the game now….

2 Responses to “Verticalization is neither Classification nor Segmentation of Clients”

  1. CVMARK » Operational Booster for Reviving IT Service Industry Says:

    […] various options to revive their performance. There have been attempts to change leadership style, organizational structures, market segmentation, value chain positioning, organizational diversity, locational ownership etc, […]

  2. Operational Booster for Reviving IT Service Industry | Time2Change Says:

    […] various options to revive their performance. There have been attempts to change leadership style, organizational structures, market segmentation, value chain positioning, organizational diversity, locational ownership etc, […]

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