Why smaller IT companies are leaving Nasscom

Nasscom veterans know it only too well that the IT industry lobby group has to re-fashion itself to suit a $100-billion industry, up from $10 million in 1988 when it was set up. That's one reason for Nasscom's recent move to have a panel headed by Infosys co-founder NR Narayana Murthy to make recommendations to "restructure" the organisation and stay relevant in a fast-evolving IT environment. 

Murthy did make some suggestions, including Nasscom expanding its focus areas to more segments within the industry. One of his key suggestions was to add 3,000 new companies as its members over the next five years. And at least three members of Nasscom's governing body, the executive council (EC), whom ET Magazine spoke to, say that is easier said than done. 

The concern Murthy seems to have had — a static membership base — stems from the realisation that over the past five years Nasscom's membership has remained stagnant at just under 1,200 companies. After all, although Nasscom members account for over 90% of the revenues of the Indian IT industry, they represent less than 17% of the total players in the segment. 

An EC member said on condition of anonymity that "it is the hegemony of bigger players" that is leading to an exodus of companies from Nasscom — which is compensated for with the addition of new members. Recently around 30 software products companies of Nasscom formed a new lobby group called iSpirt, vowing to promote their interests. "I know the problems of these companies are serious. They need to be addressed," a former Nasscom chairman had told ET asking not to be named. 

Internal documents received from an EC member and reviewed by ET Magazine reveal that the problem — of high attrition levels — has assumed a dangerous proportion. 

Final caveat

In an email dated September 2, 2012, Mohan Khanna, senior director, finance and administration, Nasscom, had written to Murthy, Nasscom chairman N Chandrasekaran, vice-chairman KK Natarajan, president Som Mittal and senior officials of the body such as Rajan Anandan (Google) and Ganesh Laxminarayanan (Dell) airing his concerns about the membership base remaining stagnant over the past five years. 

He explained to them that "compensation" by way of induction of new members isn't enough. In fact, he has clearly stated that the most worrying aspect is the track record — which shows that only a "minuscule" of those of who leave the organisation return to its fold. In a presentation that is part of the email, Khanna forecasts that the "situation with regard to deletion of members may aggravate further, with the transition of company managements to the next generation, who may or may not have the same emotive linkages with Nasscom...." 

The numbers are alarming: in the four years from 2008 to 2012, Nasscom has lost 557 members. The Nasscom senior director goes on to add that as many as 45.6% of the "outgoing" members left within 1-4 years of joining the omnibus IT body. 

"Clearly, what has led to the members dropping out in large numbers is their conviction that it is an organisation that largely caters to the interests of the big players who have higher voting powers than the small and medium ones," says another Bangalore-based Nasscom EC member who also asked not to be named. 

Big & small

While the Murthy-led panel was expected to make recommendations that addressed the concerns of players in the dominant IT services segment, many EC members had called the report as a "cosmetic one in nature'; the "matrix structure" it has proposed "makes things only worse", another Nasscom EC member told ET. 

Nasscom has agreed to create more verticals and horizontals over the next two years to bring in a semblance of autonomy within the highly centralised organisation. The EC has also endorsed the Murthy-led panel's suggestion to create verticals across business segments such as IT services, business process management, global in-house centres, engineering and R&D services, internet and mobile (content and commerce), software products and domestic IT market. 

It also approved of the proposal to set up horizontals to create a matrix structure for the organisation: these "horizontals", according to the Murthy panel, can be global trade, policy & public affairs, research, events, branding and communications, membership services, skill-building and shared services. The Nasscom EC gave its nod to proposals to create worldwide country councils, too, but some members say "it was a reluctant approval merely to take talks forward". 

Still, several members of Nasscom's EC say a federal nature remains a dream. "This matrix is why BPO and product forums couldn't work. Now there will be too many councils — seven vertical councils, over six regional councils and several country councils. Plus there will be six horizontals. This is a recipe for disaster," another EC member had told ET Magazine. 

EC vs PCC

Another email from Khanna to senior Nasscom members, including Murthy, Chandrasekharan, Natarajan, Anandan, and Mittal, raised the contentious issues of the past chairmen council (PCC) — an advisory body — completely overshadowing the EC, which currently consists of 18 elected members. 

"With the passage of time and Nasscom having had 20 chairmen since incorporation, the strength of the chairmen council has outgrown the strength of the elected EC [the governing body]," his email says. "The sheer presence of the members of the chairmen council may have a super-imposing impact [considering the seniority status], which may be detrimental to the current needs of the industry...." 

He also warned of a worst-case scenario: "By 2020, the strength of the PCC would go up to 28 members against 18 members of the elected EC." In fact, Murthy's recommendation that only two PCC members (who have voting rights) attend EC meetings was immediately rejected in a late last month meeting by the PCC-dominated Nasscom. 

The Murthy panel suggested an EC comprising 18 elected members, including the chairperson and the chairperson designate, seven chairpersons of the national vertical councils (if not already elected), two immediate past chairmen (PCC members with voting rights) and up to six invitees. Khanna had suggested that "with the strength of the PCC going up, year on year, you may like to consider putting an age restriction for the chairmen council, providing a graceful exit to the retiring members...." 

Business model

Khanna had also pointed out what he thought were the inherent flaws in Nasscom's business model. His presentation to some Nasscom members suggested reviewing the possibility of reverting to the "subscription-plus" business model — in which membership fee is kept lower and funds are raised as and when a project comes up — as opposed to the "subscription-based" business model that has been in place for a few years. 

However, Nasscom is expected to make some amends in this regard. In recent meetings the EC agreed in principle to go for a subscription-plus model. Khanna had said in his presentation that "effectively with no enhancement in membership base, we are only milking our existing members. How long can this last?" 

The Noida campus

An email (dated January 17, 2013) from Khanna to Nasscom EC members dwells at length on the construction of a campus for the organisation in Noida, near Delhi. "You would note that the campus committee [which looks after setting up of the campus] needs to necessarily include some representation of the elected members of the executive council, who as part of the governing council are accountable and responsible for the overall management of Nasscom under the Societies Registration Act," he says. Currently, the committee consists of Saurabh Srivastava, Pramod Bhasin, Rajendra Pawar and Som Mittal. 

Khanna also stated that he could not "really fathom" the "undue hurry and haste being exercised for commencement of the construction of this project at this belated stage now, where the present term of the executive council expires on March 31". He added: "I would once again urge you to reconsider your decision with regard to the construction plan or at least keep the same pending till the new EC taking charge in April 2013 approves the same." 

Khanna, meanwhile, also suggested that the IT body refrain from awarding fancy designations to consultants. He lashed out at a consultant — with the designation of "chief economist and director-general of policy outreach" — recommended for a long-term UK visa for 10 years by Nasscom while his contract was only for two years. 

The way ahead

Several EC members feel election reforms — for instance, deciding voting rights based on market capitalisation rather than revenues of a company — are the way forward in ending the "supremacy of the oldies club" (referring to the chairmen council) at Nasscom. Responding to queries from ET Magazine on Khanna's emails, Nasscom chairman N Chandrasekaran conceded that there could be a difference of opinion among members, "but the organisation is taking steps to attract more members to its fold." 

He didn't disclose details. He also dismissed talks that the PCC is "dominating" the EC and said "the EC is the sole governing body." He also said Nasscom had created a committee to look for a new president to replace Mittal whose terms ends early next year. Nasscom's public relations persons did not reply to an emailed questionnaire and Murthy requested ET Magazine to direct its questions to Nasscom. Khanna, too, didn't respond to an email.