IT’s an Iden­tity Cri­sis

Top tech­nol­ogy cus­tomers feel days of labour ar­bi­trage are over, and it is time for com­pa­nies to adapt and trans­form their busi­ness mod­els

The Economic Times - - Disruption: Startups & Tech - Anir­ban.Sen@ times­group.com

Ben­galuru: Even as In­dia’s $160bil­lion IT sec­tor grap­ples with one of the slow­est years of growth in the in­dus­try’s his­tory, some of their largest cus­tomers such as Cit­i­group, Tar­get and Royal Bank of Scot­land feel the tra­di­tional labour ar­bi­trage model is start­ing to be­come less rel­e­vant, and that top out­sourc­ing ven­dors need to adapt and trans­form fast.

In an exclusive round­table with ET, top tech­nol­ogy heads and CIOs of com­pa­nies such as Tar­get, Royal Bank of Scot­land, Lowe’s and Cargill said In­dia’s largest soft­ware ser­vices firms need to of­fer more than just cost ben­e­fits and strengthen their ca­pa­bil­i­ties in newer, futuristic ar­eas of tech­nol­ogy.

“We were late to this game (of out­sourc­ing) -- even at the be­gin­ning, we clearly said we should not bother to do this for ar­bi­trage. If we’re do­ing it for salary ar­bi­trage, we’re al­ready too late in that door, that op­por­tu­nity is di­min­ish­ing. So it’s about com­pletely mod­ernising our world. If for some rea­son we were do­ing it for salary ar­bi­trage, I would en­cour­age us to not even start. We’re re­ally fo­cussed on the big­ger ben­e­fits,” said Kathy L Fort­mann, pres­i­dent, Cargill Busi­ness Ser­vices. Th­ese cus­tomer or­gan­i­sa­tions have, over the course of the past two decades, lever­aged In­dia as a low-cost des­ti­na­tion for soft­ware de­vel­op­ment and have out­sourced hun­dreds of mil­lions of dol­lars of back-of­fice soft­ware projects to In­dia’s largest IT firms.

“I think it’s also about chang­ing the dy­nam­ics around how it is looked at to­day, and how it was viewed in the past. For ex­am­ple, in the past when we looked at ar­bi­trage, we looked at head­count. It was more like “you’re told and we will do” ver­sus look­ing at cus­tomer out­comes. Head­count is no longer a dis­cus­sion -- so I think it’s more about cus­tomer­centric out­comes,” said Pankaj Phatarphod, country head of ser­vices at Royal Bank of Scot­land, which cur­rently out­sources IT to com­pa­nies such as In­fosys.

With in­creas­ing costs of do­ing busi­ness in In­dia over the past decade, In­dia’s IT in­dus­try is slowly but steadily los­ing its unique sell­ing point of be­ing the world’s fore­most des­ti­na­tion for low-cost soft­ware de­vel­op­ment and main­te­nance.

And more wor­ry­ingly for top ex­ec­u­tives at com­pa­nies such as In­fosys and TCS, some of their largest cus­tomers are talk­ing about in­sourc­ing and shift­ing busi­ness away from IT ser­vices firms into their own tech­nol­ogy cen­tres in places like In­dia. “There’s a lot more in­sourc­ing that we’ve been fo­cussing on. We’re see­ing it across ma­ture GICs. Most GICs have lever­aged third party providers and will con­tinue to lever­age them, but there’s a shift to­wards more in­sourc­ing be­cause tech­nol­ogy is core IP to­day and will con­tinue to be so in the fu­ture,” said Navneet Kapoor, pres­i­dent of Tar­get In­dia.

What is driv­ing th­ese moves around in­sourc­ing is also the fact that some of the largest cus­tomers of In­dian IT are fac­ing dis­rup­tion from new-age tech ri­vals such as Ap­ple, Google and Face­book. And In­dia, which was al­ways seen as a plain­vanilla out­sourc­ing des­ti­na­tion, has also be­come a key bat­tle­ground from where on­line re­tail wars are fought glob­ally, with cus­tomers like Tar­get tap­ping into lo­cal tech­nol­ogy ta­lent ag­gres­sively to gain an edge and man­age this tran­si­tion faster in­side their own com­pa­nies.

“For a fast-chang­ing busi­ness model like the one that we are in, we don’t have the lux­ury of mov­ing slower. So, I would be in In­dia, even if the cost struc­tures were sim­i­lar be­cause of scale of ta­lent avail­able. In­dia pro­vides the ta­lent in the scale that I’m look­ing for,” said Kapoor.

And cus­tomers now ex­pect In­dia's soft­ware firms to do more with less, even as tech bud­gets are com­ing un­der un­prece­dented pres­sure. “And just as global cor­po­ra­tions are trans­form­ing, we ex­pect more and dif­fer­ent out of the ser­vice providers. We ex­pect them to op­er­ate dif­fer­ently, we ex­pect them to op­er­ate ag­ile, and move away from a more his­tor­i­cal ser­vice model. The ex­pec­ta­tion is much more from a ser­vice provider be­cause the en­vi­ron­ment is much more dis­rup­tive,” said Kapoor.

“Every­body says it’s not about cost ar­bi­trage, maybe not any­more but it still plays an im­por­tant role. If we had hourly rates like in Europe and the US, no­body would come to In­dia. Cost is still a dis­cus­sion,” said Gerd Hoefner, MD, Siemens Tech­nol­ogy & Ser­vices, In­dia.

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