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The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

Nonlinearity Initiatives in Software Testing Services Business

Ajikumar TN
Wednesday, January 5, 2011
Ajikumar TN
In the earlier days, Product companies used to struggle with what is called ‘Box Mentality’. Box Mentality means that companies were getting paid only for the boxes or products they could sell and never paid for installations or system integrations they did. It took a lot of effort on the part of leaders to come out of this mentality and to start charging for their services too.

On the other hand, Services organizations had been struggling with ‘Reverse Box mentality’ for quite some time. This means they were only getting paid for the services they deliver and not getting paid for tools and IPs they deliver along. Testing Services organizations were also not different. Over the last few years, there are attempts from top and senior leaders in the industry to reverse the trend. The move is to start charging clients separately for the IPs and this became a new revenue stream as well. This method also resulted in getting more revenue from the same set of employees and thus become part of what is known as nonlinear initiatives.

Nonlinearity in a Services organization can be defined as ‘achieving substantial improvements in Gross Margin per employee’. Four things are important here.
l We are discussing about Services organizations
l Nonlinearity is defined in terms of Gross Margin (GM) which can be measured at project, account or business unit level.
l Rate of Gross Margin is defined as GM per employee. Nonlinearity is all about improving this ratio.
l ‘Substantial’ is relative to the organization. The target has to be more than the long term average of Gross Margin and also we should aim for an improvement we get as a result of usual systemic improvements.

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