Nonlinear growth model for Corporate performance

suyam By suyam, 21st Dec 2010 | Follow this author | RSS Feed | Short URL
Posted in Wikinut>Business>Business Opportunities

Corporate ,increasing the headcounts in proportion to their business revenue, are not able to sustain their performance.This is more particular for IT industry in India.Hence,there is a paradigm shift towards nonlinear growth pattern,which envisages growth performance through radical innovation,which provides value proposition to consumers,while keeping the cost under control.This article examines such nonlinear growth strategies that are adopted by IT industries in India.

Nonlinear Growth business model

Nonlinear growth model for Corporate performance

01. When telecom operators introduced mobile phone operations, they were able to penetrate in to every nook and corner of the country and increased their revenue beyond their target. Order book was always full. Market potential was available to such an extent that their revenues were increasing leaps and bounds. The telecom operators started head counts to market their products to exploit the potential available. However, the same growth rate could not be continued, after sometime, since the market has reached a saturation level. Naturally, any increase in head counts, to increase the revenue, started resulting in a fall in productivity coupled with a drain on profit-the reason being the application of law of diminishing returns, in economic parlance. The growth, the company has hitherto achieved, is linear only.

02. Sustainability in growth

In view of the above, the corporate has to find out a strategy to sustain their growth. The strategy they prefer is nonlinear growth pattern. The biggest challenge for any person is not just attaining growth but it is the ability to get such growth sustained. “It is tougher to remain number one than to become number one”. When you are not on top, you have only one target—to compete the existing person. But once you become number one, all the people below you are fighting hard to dethrone you.

03. Linear Growth model

Take for example, the Indian IT industry. They do employ geeky software engineers for carrying out the works outsourced by US firms or they do employ personnel to solve customer queries over phone. They do get good salary .Employers are happy, as their clients are happy. The Indian IT industry witnessed a stellar annual growth of over 25% for more than a decade. But, could the industry ensure a sustainable growth? The following figures stand a mute witness to the above facts.

In all this gung-ho, the IT companies had to increase the employees, more than their increase in business. In increasing the revenue base at an annual rate of 35%, the corporate had to increase their head counts at a higher rate of 38%. This is the case with several Corporate .This we call it as linear growth. When companies need to hire more and more employees in order to increase the revenue, it is said to be growing linearly. It means that every increase in revenue mandates a proportional or higher increase in employee count.

04. Nonlinear business models

Now the IT industry in India started working on nonlinear business models, as this is the need of the hour. Now, let us discuss what non linearity is?
The linear growth model advocates that the customers are to be provided with value added services and several other features to the products they are being supplied, without increasing the man power. Alternatively, customer value proposition needs to be increased; there are several ways and means, which are to be explored through knowledge management so that the customers derive maximum benefit with least cost aspect. Such business growth is termed as non-linear.

A shift from service to product development has been considered as a nonlinear growth model. The profit for a company which develops products is based on the licenses/usage and not on the number of employees who worked on it. Hence, the linkage between revenue and number of resources involved are no longer exists. Once a product is developed, it is becoming company`s intellectual property, It can generate recurring revenue from the users concerned. It is quiet natural to decouple the number of employees deployed to develop the same. Such headcounts are to be made scalable for servicing different clients or for producing different products.

Such process requires an initial team to develop such products and the same can be deployed for developing another set of products, resulting in lower man power, while the revenue continues to increase.

Non linear growth is the latest buzzword in the Indian software sector, aimed mainly at pruning down manpower related HR costs. Under such a model, Corporate do not get paid based on the number of people used on the project but on the output that has resulted. As Dr. Abdul Kalam puts in “Technology can lead to non linear growth”.

05. How do IT sector ensure a nonlinear growth

Non linear growth does not measure improvement on the basis of headcount growth. On the other hand, growth is measured by the number of value added services they offer to customers, by introducing nonlinear or non headcount related services like platform –based solutions or invest in intellectual property (IP) rather than focus on just pure application development and maintenance (ADM) work.

In such model, pricing of products are not based on cost, since that is not the part of nonlinear model concept. Pricing shall be decided basing on what the market can bear. Companies are now more focused on outcome based pricing rather than input based pricing and fixed price projects.

There is a change in demand, from the consumers. In the changed environment, IT sector have changed their business model. There is change in the way the deals are executed, the way the software is made and delivered and the way the customer is charged.

In the traditional method, customers were charged for the time and resources used to build their customized software. These software applications were then deployed in customers` systems and they were provided with constant maintenance and enhancements. Now, there is a paradigm shift in the customers` approach.

They do not want to own no longer the software. This is because on demand service models are available by IT Corporate. The total cost of such services for the clients is reported as much as 40% reduction in their existing cost. By this way, clients can avoid large complex outsourcing contracts; instead pay as and when they use. Further many applications like Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) are being delivered on the SAAS model.

All that is needed by corporate is smart thinking managers for ensuring a non linear growth. “Managers win by following the rules; innovators win by breaking the rules” and such innovation is being called as “Radical innovation”. These innovations result in development of products, processes and services with a lot of performance features and it creates a dramatic change that transforms existing markets or creates newer ones. Naturally, it adds to the Corporate performance
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Cloud Computing, Headcounts, Linear Growth, Nonlinear Growth, Paradigm Shift, Radical Innovation, Saas Model, Value Proposition

Meet the author

author avatar suyam
Retired executive of Canara Bank,with 31 years experience-Good exposure in Finance,Banking,Foreign Exchange,Credit Management and Risk Management-Interested in English Literature,writing articles.

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author avatar Anonymous
3rd Mar 2012 (#)

very simple and informative...thanks a lot :)

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