Research paper
short research paper will be a detailed summary from the research. Find an article/peer-reviewed research paper.If you have a difficult time, Google Scholar is a wonderful location to find these types of articles:
https://scholar.google.com/
Once you find the article, you read and then write a review of it. Think of it as an article review where you write a short overview of the article.
Your paper should meet the following requirements:
Be approximately 2-3 pages in length, not including the required cover page and reference page.
Follow APA6 guidelines. Paper should include an introduction, a body with fully developed content, and a conclusion.
Support answers with the readings from the documents attached and at least two scholarly journal articles to support your positions, claims, and observations.
Be clearly and well-written, concise, and logical, using excellent grammar and style techniques. You are being graded in part on the quality of your writing.
172
Technology companies and global investors are beating a path to Israel
and finding unique combinations of audacity, creativity and drive
everywhere they look.1
If you mention a successful startup called Ness Technologies, there
is a good chance that a US listener will assume it is one of those
high-technology Silicon Valley companies. That listener would be
mistaken. Ness Technologies is a multinational information tech-
nology (IT) services corporation, created in Israel in 1999. It is also
the first company in this book that does not have its headquarters
in the US.
This chapter will examine how the Israeli entrepreneurs who
founded Ness dealt with the challenges of a global marketplace.
Within five years of its founding, this Israeli startup became a lead-
ing company in its field with operations in Asia, Europe, and the
Americas. Its rapid rise to prominence has fully justified its name,
which means miracle in Hebrew. It did so by melding subsidiaries
in countries with cultures as diverse as Bulgaria and Thailand into
a global corporate culture, with a common set of goals and expecta-
tions that was held across national boundaries.
Demand for IT services reshapes the world
Ness Technologies is a provider of IT services to other compan-
ies. As such it didnt invent any basic technology. Like Ronald
Stantons Transammonia, its innovations took the form of a new
7 Implementing information
technology across the globe
1 D. Senor and S. Singer, Start-up nation: The story of Israels economic miracle
(New York: Twelve, Hachette Book Group, 2009), p. 11. This book contains a
wealth of information about the Israeli environment for new business building.
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EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 1/26/2020 4:20 PM via UNIVERSITY OF THE CUMBERLANDS
AN: 465765 ; Kressel, Henry, Lento, Thomas V..; Entrepreneurship in the Global Economy : Engine for Economic Growth
Account: s8501869.main.ehost
Demand for IT services reshapes the world 173
business model and new approaches to international service. Unlike
Transammonia, however, Ness operated in an industry character-
ized by the most rapidly advancing technology in history. Even those
who lived through the rise of the computer can hardly believe how
quickly and profoundly digital data processing has changed the way
the world does business.
In just twenty years, between 1980 and 2000, corporations
replaced the river of paper that had carried business forward for cen-
turies with a stream of digital information flowing through wires.
Computers and associated software flooded into offices to handle
all aspects of business, including payrolls, supply management, cus-
tomer billing, and everything in between. This transformation, from
a paper-trail business model to a digitally wired one, required enor-
mous investments in successive generations of hardware. Processors
evolved from big, centrally located machines, accessed with dumb
terminals, to networked business computers. When low-cost PCs
became available most employees got their own.
As computers proliferated in every aspect of business, enter-
prises faced an urgent need to implement and manage their software
and communications infrastructure. To satisfy this need companies
began hiring IT specialists to configure and operate their systems.
They soon faced a classic supply-and-demand problem. Because of
the rapid growth in demand, skilled IT engineers were suddenly
in short supply. Predictably, a proliferation of enterprising startups
quickly emerged, offering contracted IT services to help companies
meet the needs of their computer users.
Corporate IT infrastructures continued to grow in complexity
as the technology advanced. Companies found they needed special-
ists to write software, install security systems to control access to
data, and install and configure data networks, to name just a few
areas of expertise. The arrival of the Internet in the mid-1990s greatly
increased the demand for highly skilled IT specialists.
IBM was certainly the giant in the IT services industry
throughout this period, but it was not alone. Many other companies,
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Implementing IT across the globe174
both large and small, provided expertise to enterprises that lacked
the internal skills to design, build, or maintain their IT infrastruc-
ture. Yet demand for IT specialists kept rising as did the amount of
concern about their cost.
Companies went looking for other sources of supply. They
came to the realization that it was possible to have enterprise soft-
ware developed and configured at lower cost by skilled engineers in
countries with lower wages, such as India. Thus was born the off-
shore IT service model, with India at its center. Of course, the out-
sourcing of jobs from countries like the US and Britain to what used
to be thought of as third-world countries attracted a lot of negative
attention. But Indias ascendancy as a nexus of outsourced IT services
revealed a striking new truth about the developing world: countries
that were once considered economic and technological backwaters
were rapidly catching up to Europe and the US, especially where IT
was concerned. They too had IT infrastructure problems that needed
solutions and they had skilled engineers who could provide those
solutions. In fact, in every part of the world where demand existed,
an army of startups was emerging to provide IT services. Most of
them were satisfied to remain small regional companies focused on
industry sectors important in their geographies.
Some Indian startups, however, built technical teams in India
and sales organizations in the US and Europe to solicit business. A
few startups there and elsewhere ultimately emerged as large multi-
national companies. Ness Technologies was one of these.
Israel: Technology company incubator
Ness, of course, was different. It was an Israeli company, which
prompts the question, why start such an ambitious venture in Israel?
Israel is a small country with a population to match: only 7.5 million
people in 2011. That is quite a contrast to India, which has a popula-
tion of 1.2 billion. And it is a relatively new player in technology. Not
so long ago oranges and flowers were key Israeli exports, not soft-
ware or medical products. Today the country can boast a remarkable
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Demand for IT services reshapes the world 175
record of technical innovation and entrepreneurship. It was ranked
fourteenth out of 125 countries in the 2011 Global Innovation Index,
published by INSEAD.2 Its economic clout extends far beyond what
its small size would predict. In 2009 Israel exported goods and ser-
vices valued at 35 percent of GDP, ranking it above Germany (34
percent), China (24 percent), and India (13 percent).
Israel developed as a technology powerhouse largely due to the
need to ensure its national survival. It took a sudden French boycott
of defense sales during the 1967 war, after years of close collabor-
ation with French industry, to wake the country up to its vulner-
ability. Because of the boycott, the government decided that it could
no longer rely on the importation of strategic defense products. It
launched a massive program to foster internal industrial develop-
ment and build a technology-based economy.
Trained engineers and scientists are the basis for any tech-
nology sector, and Israel was fortunate in having the resources to
develop engineering talent.
There are several outstanding universities, plus many private colleges.
The country has benefited from the immigration of many engineers and
scientists, particularly from the former Soviet Union.
Young engineers can gain practical experience in technical organizations
run by the Israel Defense Forces, which employ young people during
their mandatory military service.
It is worth expanding on this last point. Israel Defense Forces
draftees take rigorous tests for the opportunity to work on defense-
related product development. When those who are selected leave the
service they are well qualified for an industrial career. Many either
start companies of their own or join existing startups.
Israels focus on education and training has produced an
unusually talented and experienced pool of software and hard-
ware engineers. Their presence has attracted many major foreign
2 www.globalinnovationindex.org/gii/main/analysis/rankings.cfm, accessed
September 16, 2011.
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Implementing IT across the globe176
corporations to open engineering centers and product development
facilities in Israel, among them, Intel, Motorola, and Siemens.
In addition to its support of technical education and training,
the government has taken an active role in encouraging the creation
of innovative new companies. The Office of the Chief Scientist of
Israel provides modest amounts of seed capital to technology start-
ups that are deemed to be promising. Companies that survive the
seed stage then seek funding from venture capital funds or large cor-
porations. There is a healthy venture capital industry in Israel. In
2009 Israel ranked first in venture capital investment as a percentage
of GDP at 0.43 percent. This compares, for example, to 0.08 percent
in China and 0.2 percent in the US.3
Most Israeli startups eventually get acquired, but some remain
independent and become publicly traded companies. Over 100
Israeli-originated firms are listed on US stock exchanges, the largest
number of any foreign country. Many others are listed on the Tel
Aviv exchange.
With a deep pool of engineering talent, an abundance of entre-
preneurial spirit, a solid legal system, and a history of intellectual
property protection, Israel is a good place to build innovative busi-
nesses or develop products for the global marketplace. So when
Warburg Pincus encountered an opportunity to invest in an Israeli
company, we paid attention.
How Ness Technologies began
Our opportunity to invest in Ness Technologies came through
Morris Wolfson, an experienced American investor in Israeli busi-
nesses, who had acquired a small Israeli IT services company in
1997. He realized that he needed an experienced, professional invest-
ing partner to build it into a major company. We were introduced to
Wolfson through a mutual friend, and began to discuss the idea of
3 Data from NVCA and EVCA, quoted in C. Dickson and O. Shenkar, The great
deleveraging: Economic growth and investing strategies for the future (Saddle
River, NJ: FT Press, 2011), p. 181.
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How Ness Technologies began 177
acquiring several IT services companies in Israel and merging them
to create the foundation for a global business. We had been investing
extensively in IT businesses in a number of countries. Given what
we had heard of the business climate in Israel, we thought this was
an idea worth exploring. So we went on a fact-finding trip there.
Our first step was to meet Raviv Zoller. A former officer in
the Israeli Navy, Zoller was a certified public accountant and the
founder of an investment bank focused on technology businesses. He
was familiar with the IT industry and was working with Wolfson.
He would be the driving entrepreneur of the new venture, morph-
ing from investment banker to CFO of Ness and finally to its CEO.
Zoller had identified five companies with outstanding technology
and established market positions, one of which had already been
acquired. He believed that these firms, consolidated under a unified
management, would provide the core of a leading IT services com-
pany in Israel. Once a solid local base was established, international
expansion would be a real possibility.
We visited each of the candidate companies, met their man-
agements, and reviewed their projects, capabilities, and finances.
Their combined revenues in 1999 were $94 million with a profit of
$7.5 million. They were selected because, taken together, they cov-
ered many of the most important and valuable IT services, includ-
ing enterprise networks, custom software development for defense
systems, and IT system integration for banks, telecommunications
carriers, hospitals, and utilities. Table 7.1 summarizes their size and
areas of practice.
We then talked to their major customers, who confirmed our
favorable impression of the quality of their work and the productiv-
ity of their engineering staffs. We were sufficiently impressed that
we decided to participate in funding Ness Technologies.
Assembling a senior management team was the first step. Over
a period of six months we recruited three senior-level executives to
launch the company. Aaron Fogel, former Director General of the
Israel Ministry of Finance, became the chairman of the board. Yaron
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Implementing IT across the globe178
Polak, a seasoned and highly respected executive who had built a
software company that had gone public on NASDAQ, became CEO.
Raviv Zoller became CFO and Chief Operating Officer.
Putting the pieces together
Merging companies is never easy, but merging five entrepreneurial
companies at one time is best qualified as Mission: Impossible.
The fact that it was done successfully is a tribute to the skills of the
management team we had recruited.
We felt it was essential to establish a common culture for the
new company. That would be difficult to do with employees scat-
tered among five facilities. Hence, the initial step in the integration
process was to move most of the 1,690 employees to a single loca-
tion. Fortunately, attractive office space became available in a new
Tel Aviv industrial park, and everybody moved to that facility prac-
tically overnight.
Moving to nice new quarters was the easy part of integration. It
was much harder to decide which managers to retain so we could cre-
ate a coherent business organization to unify the original companies.
As central functions such as finance, personnel, and marketing were
Table 7.1 Israeli acquisitions that started Ness Technologies
Year
acquired Company name Business type
No. of
employees
1999 Gilad Software development
and system
integration
340
1999 Conthal Information
technology services
310
1999 Advanced
Technology
Software develop-
ment and system
integration
650
1999 IPEX System integration 350
1999 IPEX ISI Software development 40
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How Ness Technologies began 179
staffed and business units were defined, some managers lost their
jobs, while others were promoted to greater levels of responsibility.
Making such wrenching personnel decisions is always difficult and
disheartening. Israeli culture made it more stressful than usual.
Israel is a close-knit society. As peoples jobs were either threat-
ened or eliminated, their friends and relatives anxiously sought to
talk to me about the situation. They waited for me in the hotel lobby
during my frequent visits to Israel. They told me that the people los-
ing their jobs were actually the best people there, and that Ness was
starting down a ruinous path. Would I not reverse managements
decision and keep those talented folks in the company?
Of course I could do no such thing. The process of integra-
tion would work only if the companys investors backed its manage-
ments decisions. The subsequent progress of the company suggests
that they picked the right people. It took just over a year to complete
the major consolidation process, after which Yaron Polak left Ness
to become a venture capitalist.
Raviv Zoller became CEO in mid-2001, just in time to tackle
the next phase of the project: leveraging the assembled resources to
grow the companys market share in Israel, in preparation for inter-
national expansion. Zoller put new service initiatives in place, built
relationships with the biggest potential customers in Israel, and built
the Ness brand all while making the company profitable.
Ness had a roster of established customers, but it needed to
acquire new ones. It faced fierce competition not just from small
companies, but from big multinationals such as IBM and Accenture.
It won business on the basis of both quality and price against these
formidable opponents, rapidly earning a reputation as a quality
vendor. Soon it had emerged as the leader in the domestic market.
Zoller also demonstrated considerable promotional talent. He
picked former US president Bill Clinton to be the featured speaker
at the Ness annual customer meeting, which he had instituted as a
brand-building opportunity. Clinton was very popular in Israel, and
this event won Ness a great deal of national press coverage.
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Implementing IT across the globe180
By 2002 Ness could count many leading Israeli banking,
industrial, and defense firms among its customers for IT software
and solutions. It had annual revenues of $167 million and a 13 per-
cent market share in Israel, slightly ahead of IBM. It was time to look
overseas for growth opportunities.
International expansion
Ness Technologies was conceived from the start as a global company.
Now it had to execute on that vision. Its strategy was to develop an
innovative business model for international expansion, particularly
into India, that maintained the integrity of regional operations, yet
integrated them into a worldwide resource for IT services.
There were several ways to penetrate foreign markets. One
approach was to establish sales offices in various countries, have
them solicit projects locally, and execute the work in Israel. This
strategy was rejected. It would take too long for an unknown new-
comer like Ness to gain credibility in a new country. Instead, we
decided that Nesss expansion strategy had to be based on the acqui-
sition of well-established IT service companies in our geographies of
interest. As known quantities, these companies would make initial
market entry easier. We would then enhance their competitive pos-
ition with technology transferred from Israel.
All business is local
Given this approach, it was clear that retaining senior management
in each of these companies was the key to successful mergers. We
knew that acquisition by Ness could hurt a companys relationships
with local industry, utilities, and government agencies. These cus-
tomers would be concerned about contracting mission-critical IT
services to a foreign provider.
Therefore, the operating paradigm for the acquired companies
was to continue to look local while offering, wherever appropri-
ate, Israeli technology as a competitive edge. Each company would
continue to have local management, and we would keep the folks
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International expansion 181
who had relationships with customers in place on sales and service
teams. Since these local companies would be Ness Technologies
business units, however, we would standardize operating practices
across all of them as much as possible. This included, among other
things, training and technology implementation. In addition, each
local Ness unit would be able to access resources at other locations
to meet customer needs.
In short, the success of Ness Technologies was to be built on a
network of companies that offered the consistent business practices
and technical resources of a multinational, yet maintained a local
presence with local management in the countries where they oper-
ated. These basic principles drove the companys later spectacular
growth. Its biggest innovations, however, came about when putting
its principles into practice.
Ness goes global
When the word got out through investment bankers that Ness was
looking to expand beyond Israel, a large number of companies in
various countries around the world quickly identified themselves
as candidates for acquisition. The entrepreneurs who had started
these small companies realized that they were too small to com-
pete against larger rivals over the long term. At this point the only
issue was selecting appropriate acquisitions. Ness narrowed the field
by looking at GDP growth in the countries under consideration to
assess the economic opportunities there.
One of the regions that appeared attractive was Eastern Europe.
This region had developed a number of rapidly growing economies
after the fall of the Iron Curtain. Having analyzed local competition,
the nature of the potential customer base, and the availability of
native talent, Ness focused on APP Group, a company in the Czech
Republic. A startup with 180 employees, APP had received Warburg
Pincus funding when it started in 1990. In the interim it had estab-
lished itself as a quality provider of IT services to the local util-
ities, government agencies, and manufacturing enterprises. It was
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Implementing IT across the globe182
a perfect fit. Through its relationship with Warburg Pincus, Ness
kicked off its expansion program by acquiring the APP Group in
September 2002.
In line with the overall Ness strategy, APPs senior man-
agement continued to run the business after the acquisition. APP
provided Ness an entry into the whole East European region. It
eventually grew to nearly 1,000 engineers providing IT services in
Slovakia and Romania as well as the Czech Republic.
Off-shore challenges
By 2003 the IT services industry was facing the acceleration of the
trend noted above: using engineers from countries with lower wages,
such as India, to reduce IT support costs. With the cost of local
engineers on the rise, thanks to a growing demand for IT talent in
the developed economies, this had obvious appeal.
At Ness Technologies, responding to increasing customer
demand for cost control became a subject of strategic discussion. Its
opportunity to develop an innovative solution to the problem came
about through another major acquisition, this time of Apar Holdings in
India, another Warburg Pincus investment. Apar was started by Indian
entrepreneurs in 1998. Its business model was quite different from that
of Ness. Instead of having intellectual property of its own, Apar sold IT
engineering services to enterprises on a daily or annual contract basis.
Indian engineers worked for its customers either in India or on location
in the US, Singapore, and the UK. The company had 1,200 engineers,
with a core group of 300 located in India. The others were deployed in
other countries and moved to meet customer demand.
A merger with Apar represented a change from the existing
Ness business model, but added management and engineering talent
in India, and promised access to new customers. We decided that
combining the companies was appropriate, and completed the mer-
ger of Ness and Apar in 2003.
At the time of the merger we recognized that Apars business
model had to change. It suffered from a basic problem: when Apar
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International expansion 183
engineers were involved in software development, customers had no
assurance of the continuity of staff assigned to their projects. And
since there were a lot of comings and goings of engineers on the
assigned projects, there was little assurance that intellectual prop-
erty would be protected either.
Shashank Samant, a software engineer trained in India but
with extensive international experience, joined Ness as a manager
during the Apar acquisition. He came up with an idea for a totally
different business model: the managed laboratory. His idea was to
offer corporate customers their own managed laboratories for soft-
ware development, consisting of a team of engineers contracted on a
long-term basis, all located in India. Working together in a dedicated
facility, they would function as part of the customers IT organiza-
tion, even though they were actually Ness employees. The customer
would define the software projects, and the head of the managed
lab would report to the customers IT department head. Ness was
responsible for training, recruiting, and all employee personal mat-
ters. Customers would get the continuity they needed, and with a
dedicated team reporting directly to the customers IT group there
would be more control over IP.
Ness embraced this idea. Samant became head of the managed
lab business, splitting his time among India, the US, and Israel. He
molded the organization and developed the management structure
that made the business successful. The managed lab model proved
attractive to medium-sized software companies in the US and Europe
who wanted the benefit of low-cost software engineering but could
not afford to build their own facilities in India. Ness provided them
with a dedicated staff that operated as part of their organization in
terms of project oversight. To make the service more attractive to
companies who might be interested in eventually operating their
own facilities, Ness also offered an option under which it would
transfer its managed lab staff to the customer.
This model offered clear benefits to Ness, too. First, the cus-
tomer paid staff costs plus a fee for the service, assuring profitability.
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Implementing IT across the globe184
Second, the contractual nature of the IT services made the busi-
ness more predictable. Instead of hiring engineers in anticipation of
potential future projects, the company could plan manpower utiliza-
tion consistent with its current billings.
As a clear win-win situation for buyer and seller, the man-
aged lab model was quickly embraced by customers across the US
and in Europe. Nesss first managed lab customer contracted for 200
engineers in 2003. By 2006 Ness was operating fifty such facilities,
employing a total of 3,000 people and generating $120 million of
profitable revenues annually.
Although the first managed lab was in India, the concept
worked wherever wages for engineers were lower than those in the
developed countries. Ness also used engineers in Eastern Europe to
provide this service to clients in Western Europe.
Cultural considerations
Building the India operation was a lesson in cultural adaptation. As
our Israeli management team did not have an easy time managing
the rapidly growing Indian operation; management talent had to be
recruited locally. It became evident that the key to success was hav-
ing Indian senior management with prior experience in the US, an
appreciation of the local culture, and an understanding of modern IT
technology.
Staffing problems posed another serious challenge. Local com-
petition for talent was (and is) intense. At Ness and similar com-
panies, turnover of engineers in Bangalore, the technology capital of
India, was between 20 percent and 30 percent annually, compared
to less than 10 percent in Israel or Eastern Europe. Such turnover
rates put great stress on the efficiency of an engineering organization
and make training an ongoing headache. In fact, recruiting quali-
fied engineers, even in an increasingly competitive Indian market,
was the easy part. It was much harder to retain the talented ones
in a market where wages were rising at a rate of about 10 percent a
year (much faster than elsewhere) and employers were beginning to
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Going public and after 185
compete on the basis of fringe benefits, the offer of exciting projects,
and opportunities for personal development. Once good engineers
were on staff, their enthusiasm had to be kept high to retain them
by offering opportunities for professional growth.
The staff stayed young, and increasingly included women with
young children, so special provisions had to be made for them. Ness
became used to providing benefits such as meals, transportation, and
even visits by doctors to the Ness facilities to discuss family medical
needs and provide access to treatment as needed.
Going public and after
After APP and Apar, Ness made a number of smaller acquisitions
to increase its global footprint. International sales and marketing
for all these units was conducted by a staff of 200 professionals.
The strategy of leveraging technology skills globally was showing
results. For example, Ness developed and delivered a novel IT sys-
tem to a pharmaceutical company in Switzerland using engineering
teams from Europe and Israel. Similarly, a global delivery service for
an international law firm was implemented by teams from Israel,
the UK, and India. The service was made possible by a proprietary
information management system, developed by Ness engineers, that
allowed users around the world to share information and work col-
laboratively on projects.
At the end of 2003, Ness had a total staff of 4,300 employees
serving over 500 customers, including Lockheed Martin, Coca Cola,
Citibank, AT&T, Israel Aircraft Industries, the Israel Defense Forces,
Pfizer, American Express, and Czech Telecom. No single customer
represented more than 5 percent of revenues. There was a high level
of customer satisfaction, indicated by the fact that, at the end of the
year, 80 percent of the following years business was with the same
customer base as the prior year. Clearly the companys management
was doing a lot of things right, and it was on a solid footing to con-
tinue its global success.
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Implementing IT across the globe18
