Growth In­ter­rupted

Man­ag­ing scale vs growth emerged as one of the big­gest chal­lenges for the In­dian IT in­dus­try in FY’17 as it ex­plored ways and means to nav­i­gate the dis­rup­tive tech forces

Dataquest - - EDITORIAL -

The In­dian IT in­dus­try is at the fag end of con­ven­tional out­sourc­ing, as we know it, and at the be­gin­ning of a new phase where the rules of en­gage­ment are com­pletely dif­fer­ent. As we look at FY’17, it was a mixed bag. The em-

IN ALL, FY’18 LOOKS LIKE A MAKE OR BREAK YEAR FOR IN­DIAN IT. WHAT­EVER IN­NO­VA­TION THE COM­PA­NIES ARE TALK­ING ABOUT WILL MAN­I­FEST IN FY 18

pha­sis seemed to be on sus­tain­ing the scale rather than grow­ing. Many fac­tors con­trib­uted to the stunted growth - tighter visa regime, con­trac­tion of the mar­ket, shrink­ing of the vol­ume busi­ness, over­all cau­tious tech spend­ing, lay­offs added with the change of po­lit­i­cal guard in the US and the strong anti-out­sourc­ing rhetoric by the Trump ad­min­is­tra­tion - all these have acted as damp­en­ers for the In­dian IT and out­sourc­ing in­dus­try over the last year.

As we look at the DQ Top 20 list­ings this time, the IT in­dus­try is clearly go­ing through mid-ca­reer blues. There is clear trend to­wards re­trench­ment in the in­dus­try, where at one point in time re­ten­tion was a big chal­lenge. At­tri­tion is no longer an is­sue. If one looks at the Top 5 com­pa­nies, the strug­gle to grow be­comes quiet ev­i­dent as we com­pare FY’17 with FY’16.

TRAN­SI­TION­ING TO NEW RE­AL­I­TIES

Ac­cord­ing to re­ports avail­able, the global IT in­dus­try is pegged at $1.2 tril­lion and grow­ing at a rate of 4%. In a pre­sen­ta­tion ti­tled IT-BPM In­dus­try in India: Sus­tain­ing Growth and In­vest­ing for the Fu­ture, in­dus­try body NASSCOM talked about growth driv­ers and head­winds dur­ing FY’17. The growth driv­ers as cited by NASSCOM are: the ad­di­tion of over $11 bn in rev­enue (8.6% in con­stant cur­rency; 7.6% in re­ported cur­rency) and dig­i­tal be­com­ing main­stream are two big events dur­ing FY’17. Due to the dig­i­tal trans­for­ma­tion wave, the in­dus­try is rather nudged to fo­cus on skills in de­mand and ex­panded its play in mul­ti­ple ge­ogra­phies like Con­ti­nen­tal Europe, Ja­pan, China, and Africa. More­over, the in­dus­try also did new ac­qui­si­tions and forged new part­ner­ships to en­hance dig­i­tal ca­pa­bil­i­ties, do­main, and con­sult­ing skills.

NASSCOM also cited few head­winds, the sig­nif­i­cant ones are: in­creased rhetoric on pro­tec­tion­ism, Brexit and visa is­sues, de­layed de­ci­sion mak­ing due to macro-eco­nomic un­cer­tain­ties, slower growth in tra­di­tional ser­vices, fo­cus on cost op­ti­miza­tion, cur­rency volatil­ity led to dif­fer­ence of 1–3% be­tween con­stant cur­rency and re­ported cur­rency growth and longer ges­ta­tion pe­riod for en­hanced R&D in­vest­ments in prod­ucts and plat­forms led to some im­pact on mar­gins.

As we look at some of the chal­lenges post the US elec­tions last year, it is the anti-out­sourc­ing rhetoric that be­came the con­ver­sa­tion topic. But TCS CEO and MD Ra­jesh Gopinathan in an in­ter­view to Dataquest said, “The cur­rent dis­course on the is­sue in the US is driven by emo­tions rather than the econ­omy and the best way to tackle it is through greater en­gage­ment. Some­times, com­pa­nies like us get char­ac­ter­ized is very dif­fer­ent from the re­al­ity of what we bring to the ta­ble. The in­dus­try is not an out­come of a visa reg­u­la­tion. We have gone through a huge rev­o­lu­tion on the tech­nol­ogy side. The sheer ex­tent of tech­nol­ogy work glob­ally has ex­panded many fold and India has emerged as a phe­nom­e­nal source of high-qual­ity sup­ply for it.”

Com­pa­nies in the fray are mak­ing con­certed ef­forts in tam­ing the head­winds. For in­stance, In­fosys CEO Vishal Sikka said while an­nounc­ing Q1, FY’18 re­sults, “Our per­sis­tent fo­cus on ex­e­cu­tion in Q1 is re­flected in broad-based per­for­mance on mul­ti­ple fronts– rev­enue growth, re­silient mar­gins de­spite mul­ti­ple head­winds, healthy cash gen­er­a­tion and over­all busi­ness re­sults. I am en­cour­aged by the uptick in rev­enue per em­ployee for six quar­ters in a row, and the strong mo­men­tum in our new high growth ser­vices and soft­ware, as we ac­cel­er­ate our fo­cus on in­no­va­tion­led growth.”

So clearly the rules of en­gage­ment are chang­ing and with the dig­i­tal wave sweep­ing en­ter­prise IT or­ga­ni­za­tions across the world has trig­gered a range of ram­i­fi­ca­tions- right from lay­offs to the emer­gence of new de­liv­ery mod­els.

Quips De­bashis Chat­ter­jee, Pres­i­dent, Global De­liv­ery, Cog­nizant, “Be­ing dig­i­tal is the defin­ing chal­lenge for to­day’s C-suite and the en­ter­prises they lead. To speed our progress, we have many ini­tia­tives un­der­way. We are ex­pand­ing our so­lu­tions port­fo­lio. To do so, we are de­ploy­ing re­peat­able, in­dus­try-tai­lored so­lu­tions faster across our three prac­tice ar­eas. And we’re fur­ther de­vel­op­ing of­fer­ings through se­lect part­ner­ships and ac­qui­si­tions. We are deep­en­ing and broad­en­ing our dig­i­tal skills un­der the guid­ance of Chief Dig­i­tal Of­fi­cers in each of our in­dus­try and re­gional busi­ness units. We’re fur­ther en­hanc­ing our dig­i­tal en­gage­ments with clients. For ex­am­ple, at our col­lab­o­ra­tory or co-in­no­va­tion cen­ters, our strate­gists, de­sign­ers, data sci­en­tists, hu­man sciences and cy­ber se­cu­rity ex­perts work with clients and part­ners to de­sign, pro­to­type, build, and run new cus­tomer ex­pe­ri­ences and busi­ness pro­cesses.”

WHAT LIES AHEAD?

While dooms­day pun­dits wrote last year that the In­dian IT in­dus­try has hit its nadir, but given the huge size of the global IT in­dus­try, it of­fers tremen­dous scope to In­dian IT. In­dus­try es­ti­mates say that for FY’18 soft­ware ex­ports are ex­pected to grow at sub 7% while do­mes­tic mar­ket growth is pegged to grow at about 11%.

But on a larger level, com­pa­nies need to de­vise ways and means to off­set the chal­lenges in the tra­di­tional ADM and pack­aged soft­ware seg­ments with non-lin­ear of­fer­ings and a plat­form led ap­proach will help.

Yet an­other big­gest chal­lenge lies is man­ag­ing the scale the IT com­pa­nies have built over the years. As they em­bark on down­siz­ing ini­tia­tives, it will clearly up­set the work­force de­mo­graph­ics within the or­ga­ni­za­tion. High paid lat­eral em­ploy­ees were given vol­un­tary sep­a­ra­tion of­fers and in the short run, this might jeop­ar­dize the se­nior lead­er­ship roles.

In all, FY’18 looks like a make or break year for In­dian IT. What­ever in­no­va­tion the com­pa­nies are talk­ing about will man­i­fest in FY’18. The on­go­ing year will see the full ex­tent of the lay­offs and the ex­tent of down­siz­ing and in a way, set a new di­rec­tion for In­dian IT in­dus­try.

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