Has It industry sector lost its sheen?
"It was the best of times and it was the worst of times". This line, from Charles Dickens' Tale of Two Cities, sums up the saga of the Indian IT services industry heading into 2008. The industry is coming off of the back of an incredible run of growth, large deals and an expanding presence in the global IT services industry, even in the face of seemingly insurmountable odds — resource crunch, weakening dollar, sub-prime crisis, recession fears in the US, and on and on.
The industry now faces the prospects of having the demand needed to continue to fuel the same level of growth for the short-to- medium term if it continues to do ‘more of the same’, as well as the danger of having a dwindling to non-existent value proposition in the longer term (2010 onwards) if it does do ‘more of the same’.
How each individual company, especially amongst the top 20 tier-1 providers, handles this issue will determine the longer-term outcome of the industry. The reason for the special emphasis on the performance and ‘behaviour’ of the tier-1 providers is that they will be a disproportional bellwether indicator for the overall industry.
If we of the top providers are seen to slip — even if the rest of the industry is doing reasonably well — there will be a tremendous loss of confidence in the entire offshore paradigm from India, that can drag the whole industry down.
Success is hard to argue with and the Indian companies have been wildly successful so far. Their growth rates, profitability, market capitalisation have all grown at a pace that has defied logic as compared to the traditional global IT services market. It is tempting to assume that the ‘formula’ that has gotten Indian service providers thus far should not be tampered with and it will continue to serve them well going forward as well.
However, as history within the IT industry has shown on numerous occasions (e.g., DEC, Sybase, et al) there are no sacred cows in this industry and anyone can disappear or be marginalised if they do not keep up with the times in terms of customer demand, market shifts, changing nature of competition, etc. And that exactly is the danger for the Indian IT industry.
There is a pervasive belief that ‘it isn’t broken so don’t try to fix it’. Well, it may not be broken, but the cracks have started to appear, and unless some changes in direction are put in place now, with the appropriate sense of urgency, these cracks will widen and destroy the industry.
A ‘do nothing’ approach will still almost guarantee the Indian offshore industry growth at the current pace for the next two years. The cliff potentially approaches beyond that period. The bottom line to continue the success achieved thus far is that companies (especially the larger tier-1 providers) have to assess the impact of the ‘inhibitors’ outlined above and craft a strong and enduring response to address those issues.
Some of the solutions will require strong and concerted steps from the industry overall (e.g. Nasscom) working in concert with the government, while other solutions will need to be driven by changes in individual company management vision and behaviour. Even for those issues that require broader industry-government action, which will by definition take a long time to see results, individual companies will have to put in place short-term solutions to address these needs. For example, revamping the education process to create a bigger resource pool of ‘thinkers’ versus ‘doers’ will be a very long- term process. Companies, in the mean time should revamp their recruitment strategy, hiring process and training mechanisms to groom this resource internally from the existing graduate pool.
Such ‘medium-term’ fixes will be required at the company level in a multitude of other areas as well till the long-term solutions kick in.
It remains to be seen if the Indian service providers can change their course to move in the direction of long-term success, even if it is at the cost of some short-term pain.
"It was the best of times and it was the worst of times". This line, from Charles Dickens' Tale of Two Cities, sums up the saga of the Indian IT services industry heading into 2008. The industry is coming off of the back of an incredible run of growth, large deals and an expanding presence in the global IT services industry, even in the face of seemingly insurmountable odds — resource crunch, weakening dollar, sub-prime crisis, recession fears in the US, and on and on.
The industry now faces the prospects of having the demand needed to continue to fuel the same level of growth for the short-to- medium term if it continues to do ‘more of the same’, as well as the danger of having a dwindling to non-existent value proposition in the longer term (2010 onwards) if it does do ‘more of the same’.
How each individual company, especially amongst the top 20 tier-1 providers, handles this issue will determine the longer-term outcome of the industry. The reason for the special emphasis on the performance and ‘behaviour’ of the tier-1 providers is that they will be a disproportional bellwether indicator for the overall industry.
If we of the top providers are seen to slip — even if the rest of the industry is doing reasonably well — there will be a tremendous loss of confidence in the entire offshore paradigm from India, that can drag the whole industry down.
Success is hard to argue with and the Indian companies have been wildly successful so far. Their growth rates, profitability, market capitalisation have all grown at a pace that has defied logic as compared to the traditional global IT services market. It is tempting to assume that the ‘formula’ that has gotten Indian service providers thus far should not be tampered with and it will continue to serve them well going forward as well.
However, as history within the IT industry has shown on numerous occasions (e.g., DEC, Sybase, et al) there are no sacred cows in this industry and anyone can disappear or be marginalised if they do not keep up with the times in terms of customer demand, market shifts, changing nature of competition, etc. And that exactly is the danger for the Indian IT industry.
There is a pervasive belief that ‘it isn’t broken so don’t try to fix it’. Well, it may not be broken, but the cracks have started to appear, and unless some changes in direction are put in place now, with the appropriate sense of urgency, these cracks will widen and destroy the industry.
A ‘do nothing’ approach will still almost guarantee the Indian offshore industry growth at the current pace for the next two years. The cliff potentially approaches beyond that period. The bottom line to continue the success achieved thus far is that companies (especially the larger tier-1 providers) have to assess the impact of the ‘inhibitors’ outlined above and craft a strong and enduring response to address those issues.
Some of the solutions will require strong and concerted steps from the industry overall (e.g. Nasscom) working in concert with the government, while other solutions will need to be driven by changes in individual company management vision and behaviour. Even for those issues that require broader industry-government action, which will by definition take a long time to see results, individual companies will have to put in place short-term solutions to address these needs. For example, revamping the education process to create a bigger resource pool of ‘thinkers’ versus ‘doers’ will be a very long- term process. Companies, in the mean time should revamp their recruitment strategy, hiring process and training mechanisms to groom this resource internally from the existing graduate pool.
Such ‘medium-term’ fixes will be required at the company level in a multitude of other areas as well till the long-term solutions kick in.
It remains to be seen if the Indian service providers can change their course to move in the direction of long-term success, even if it is at the cost of some short-term pain.