My three weeks in India were fantastic. I visited twenty-some companies, all developing new business models in their pursuit of new revenues. From company to company, I saw people working in White Space as they sought out Success Formulas that would provide short-term gains and create long-term advantage. Even for companies with tens of thousands of employees, it was clear that operations in India are constantly disrupting themselves as they seek to compete with each other, and continue driving enhanced value.
While there, I thought about all the U.S. companies that are blissfully ignoring this phenomenon. What I saw in India wasn’t just low-cost competitive undercutting, but in fact people doing the work differently – and as a result creating considerable new value for not only themselves but their customers. I kept wondering, "why do so many U.S. and European business leaders remain so unmoved by what is happening here?"
Then I recalled the story of CSC. Entering 2000, CSC had a robust commercial consulting business with revenues reportedly over $1B. According to industry analysts, this consulting division was by far the most profitable part of CSC, contributing nearly 3 times the profit for its revenue base compared to other divisions. Further, it was claimed to be growing at nearly 20%+ year.
Now, just 6 years later that same division is reported to be under $200M revenues (an 80% decline). And insiders say it has operated at losses to break-even since 2001. The division simply ignored the oncoming avalanche of opportunity being created by the internet and offshore IT services vendors – an avalanche they could readily see from their perch creating e-business opportunities and installing new technologies.
Unfortunately, as they missed the first wave of offshoring their revenues slumped and their profits vanished. In reaction, they brought back a President who had left during the dot-com days in order to provide new "focus" to the business. Upon his return, this President declared that from his 20 years of experience he knew that customers wanted their IT services to be done locally. He re-opened a slew of local offices in the U.S. and moved the P&L from a national service line model to a geographic P&L. He expected these local offices to get into clients and "slug it out" for revenues against the competitors. And he repeatedly said that he knew this would work – because it had worked in the 1970s and 1980s.
He was Locked-in to his old Success Formula. Unfortunately, he was perilously ignorant of the oncoming wave of qualified IT consultants in India now available to his clients across the internet. Year after year he, and CSC, watched as business was lost to new competitors, layoffs followed to "stabilize" the business, only to be followed by more pressure on prices, and fewer revenues and more layoffs. A vicious circle that was inevitable.
To this day, CSC has practically no commercial consultants in India. While Tata has 60,000, Infosys 40,000, Cognizant 30,000 and WiPro 30,000 – the vast bulk of which are supporting U.S. clients. Not to mention the dozens of smaller companies doing everything from IT services to business processes. Even Accenture has nearly 20,000 and Office Tiger (both U.S. companies) has 6,000. In reaction, CSC has retrenched to large outsourcing contracts (the profitability of which is highly doubtful) and increased its federal government business – where it can avoiding competing with Indian firms.
Lock-in leads to blinders. Blinders lead to ignorance (as my teacher once said "ignorance can be fixed"). When CSC commercial consulting faced its Challenge (offshore competitors) leading to a big problem (declining margins and revenues) they did not use this Challenge to Disrupt their model and create White Space. Many American companies, such as Accenture and IBM, did just that – creating large and very viable Indian organizations supporting clients competitively. Those companies are using the White Space to develop their own new Success Formulas. But CSC has lost the commercial consulting market. And they are threatened in all their commercial business. They are under attack from hedge fund operators who want to split up the company and capture value before more is lost.
Ignorance is perilous. If we allow Lock-in to determine our behavior we lose the ability to Disrupt and face our Challenges – leading to failure. Instead, we have to use Challenges to Disrupt and open White Space so we can find new Success Formulas. And via that route, we can remain competitive in the new marketplace.