IBM Eyes 50,000-Plus Indian Employees

Meet the new face of IBM software. Siddharth Purohit lives in Bangalore, India, and is an expert at developing the kind of reusable code on which the company is staking much of its future. As such, Purohit represents two of IBM's biggest bets--Indian talent and software built around service-oriented architectures.

IBM is on a hiring binge in India. The company employs about 39,000 people in the country, up 70% from 23,000 a year ago. That rate of growth should continue "for quite some time," says Amitabh Ray, who heads IBM's global delivery operations in India. At that clip, IBM will have at least 55,000 workers in India by next year. And the figure could easily pass 60,000--or 20% of its current worldwide workforce of 300,000.

Make no mistake: This isn't the kind of routine, brute-force coding for which India is known. IBM last week revealed it would spend $200 million a year on a Bangalore development center to centralize work on one of its most strategic efforts--building SOA-based software systems that consultants can resell to customers in various industries. "We're moving all of that development to India," says Jeby Cherian, head of IBM's new Global Solutions Delivery Center in Bangalore. Previously, IBM did this work in a number of development centers worldwide.

Along with churning out software components, workers at the Bangalore center will design new ways in which businesses can combine those components with other technologies to solve some of their thorniest, and costliest, problems: straight-through processing for banks, for example, and inventory optimization systems. That's hardly commodity work.

The SOA Bet
IBM needs growth. Its software sales were flat last quarter, and its global services business was down 5%. Software based on SOA is one of its big growth bets. It plans to invest $1 billion this year around SOAs, which let companies reorganize IT infrastructures around processes. Software to "check shipping status" exists as a reusable component, one of many that can be mixed and matched to create, say, an online inventory management system. SOAs are all the rage because they're easier to maintain and update, and because they offer a way to Web-enable processes with less custom programming. Most companies using SOAs spend less than $1 million annually on the technology, but 60% of them will increase spending by an average of 17% this year, AMR Research predicts.

Enter Purohit. IBM's India gamble is that it can find enough people like him to make its strategy work. Purohit, 40, obtained a master's degree in computer science from the New York Institute of Technology in the late 1980s, then spent 17 years in the United States on technology and consulting gigs. It wasn't a tough call when IBM offered him a position at the new center. "This is the vision and situation I've been waiting for," says the married father of two girls, ages 2 and 6.

Purohit is the chief architect on a number of key projects at the Bangalore center, including one to build an SOA-based system that will let shipping companies monitor the contents of containers throughout cross-ocean journeys. It's a critical capability for ensuring the integrity of goods that are temperature sensitive or could pose security concerns. The first customer is shipping company Maersk Logistics. The system features wireless container-level tracking devices developed by IBM researchers in Zurich, Switzerland. It's a sensor network that transmits data from the devices to databases that can be accessed by numerous parties, such as shipping managers, customers, and port authorities, using a variety of front-end applications.

Purohit's challenge was to identify and assemble the technologies required for such a system, develop software components where needed, and assemble everything into a working whole. "This group here has the charter to bring all of IBM's technologies and services together on behalf of the customer," Purohit says. "We're creating business solutions and assets that can be reused. This is breaking new ground."

Another example: Teams at the Bangalore center are designing a system that uses telemetry devices, embedded processors, and mathematical algorithms to help automakers predict and manage costs from warranty claims.

While IBM's hiring numbers are huge, its rivals have similar ambitions. Infosys, India's second-largest IT outsourcer, added more than 3,200 employees in its most recent quarter. India's tech and business-process outsourcing industry will employ 1 million more people in 2010 than it does today, as it grows from $22 billion in revenue to $60 billion, predicts India's National Association of Software and Service Companies and consulting firm McKinsey.Consolidation In India
IBM says its existing delivery centers outside India won't be closed but will be "remapped" into demo centers. "They will become more customer facing," Cherian says. Still, IBM's decision to put in India virtually all of the design and development of the bundled solutions its consultants offer won't comfort U.S. workers who hoped such high-end work wouldn't go abroad, at least not this quickly. The company employs about 150,000 workers in the United States but has quietly eliminated a number of domestic positions in recent months. It has lowered its costs in global services, improving gross margins about 3 percentage points last quarter, to 27.4%, compared with a year ago.

The systems created in Bangalore will be marketed and sold to customers through IBM's Business Consulting Unit, which posted a 6% decrease in revenue in its most recent quarter. With the bulk of the unit's offerings to be designed in India, IBM will need to find a lot more people with the skills and experience of a Purohit. That won't be easy in India's tightening labor market (see story, India Calls Its Talent Home).

Ray predicts IBM and its customers will get two main advantages from the move to India: Costs will be lower, and greater centralization will speed design and innovation. "In the previous model, these solutions were splintered across a number of development centers," he says. "We can get cross-visibility--something that's applicable in retail might be applicable in automotive."

IBM's challenge will be to make sure this centralized development group is close enough to customers' real-world business problems and to the consultants and researchers around the world working on them.

A pilot project in Washington and Oregon shows where IBM can excel. Called GridWise, it links 200 homes to see if it's feasible to make power consumption more price sensitive. The plan is to use the Internet to connect home thermostats to a real-time feed of energy prices, letting homeowners automatically lower the temperature in response to spikes. GridWise runs over an Internet-based messaging system that IBM developed. It works because IBM energy experts understood the problem and what information is vital to maintaining a stable power supply. "They've been able to bring a technology I presume they developed elsewhere and apply it here," says David Chassin, staff scientist at the Pacific Northwest National Laboratory, which runs the GridWise project, set to go live next month.

Chassin says he's not concerned or surprised that IBM is sending this kind of development work to India. The energy industry wants the lowest cost for the right product. Plus, global development is the reality, he laments, given the dearth of American computer science and engineering graduates. "We're dependent on foreign intellectual engineering capacity already," Chassin says.

In Need Of Growth
IBM needs big ideas that drive software and consulting sales, not just cost cutting from a lower-wage operation. But the SOA market is a risky bet because companies, while keen on the concept, aren't spending big money on it. They're doing one-off component-software projects, but very few are creating an entire architecture based on it that requires major investment. If they ever do embrace that "holistic view," says David Grossman, an analyst at Thomas Weisel Partners, IBM's broad portfolio of technologies and services give it an advantage over more specialized vendors like BEA Systems and Systinet.

IBM this week will unveil an online library to help companies track its components and services. Called SOA Business Central, it also will stock offerings from IBM software partners such as Actuate, a financial services specialist. The library is one small example of how IBM CEO Sam Palmisano "is making a double-down bet on SOA," says Sandy Carter, IBM's VP for SOA strategy. IBM's system integration arm handled 1,800 SOA engagements last year, and Carter expects a big increase this year.

Behind IBM's SOA push will be Indian managers and technologists like Purohit. Finding such experienced talent in India will be tough, but there's no doubting the ambition behind this latest expansion. Purohit says he and his colleagues at the center are expected to deliver "thought leadership." That and a heap of revenue growth is just what IBM needs to show results from its Indian hiring spree.