Reb ot or RIP Call of the Dig­i­tal

The ac­tion is shift­ing from tra­di­tional ser­vices to dig­i­tal tech­nol­ogy, though In­dian IT ser­vices may not be ready for it yet

The Economic Times - - Deep Dive - Shel­ley Singh

A po­lit­i­cal shift in the US has brought In­dian IT ser­vices to a strate­gic cross­roads, where grow­ing on­site pres­ence and tak­ing the dig­i­tal di­rec­tion seems in­evitable. ex­plores how the in­dus­try will bridge the IT schism and what ails its front­liner In­fosys, one-time bell­wether of per­for­mance and gov­er­nance.

Man­ag­ing an ar­ray of ser­vices like busi­ness soft­ware sys­tems sup­port and main­te­nance, and sup­port­ing tech­nol­ogy for large and small global cor­po­ra­tions has been the staff of life for In­dian IT. Now, as the mar­ket shifts from tra­di­tional ERP, infrastructure and soft­ware main­te­nance to dig­i­tal tech, it’s time to move on from the bread and but­ter to the jam — which calls for deep do­main ex­per­tise in ar­eas in­clud­ing data an­a­lyt­ics, ma­chine learn­ing and au­toma­tion.

R C h a n d r a s h e k h a r, p r e s i d e nt , Nass­com, says, “Glob­ally, 60-70% busi­ness is tra­di­tional ser­vices. Dig­i­tal is grow­ing and In­dian IT will need to add those skills to be ready to take on tasks.”

Cur­rently, the in­dus­try is dom­i­nated by busi­nesses on which the sun may be ready to set. Peter Ben­dor-Samuel, CEO of US-based re­search firm Ever­est Group, adds, “Dig­i­tal makes up 22% of the In­dian ser­vices mar­ket. The re­main­ing legacy ser­vices have shown no growth over the past 12 months.”

Many new- age dig­i­tal firms — in­clud­ing Uber, Airbnb and Face­book — are not in­clined to out­source such core as­sets. An­other worry for In­dian IT is that tra­di­tional out­sourcers like banks and in­dus­trial con­glom­er­ates have cre­ated sub­sidiaries for dig­i­tal-only work, which has be­come core to them. For in­stance, Citibank has a unit Citi Fin­Tech in New York, which, among other things, de­vel­ops and man­ages Citi’s mo­bile app, wealth man­age­ment, money trans­fer ser­vices and so on. Wa­ter-to-avi­a­tion con­glom­er­ate GE has a dig­i­tal sub­sidiary as well. Both GE and Citi have been big out­sourcers and are among the top clients of many IT ser­vices com­pa­nies but they don’t ship out work from their dig­i­tal sub­sidiaries. Deepak Malkani, leader, man­age­ment con­sult­ing, Price­wa­ter­house­Coop­ers In­dia, says, “In­dian ser­vices providers have to start lead­ing thought on dig­i­tal and have to pi­o­neer adop­tion of changes. Un­til now, they have been fol­low­ers.”

As dig­i­tal is core to com­pa­nies, it is dif­fi­cult to con­vince them that it can be done over­seas. For ex­am­ple, an­other large out­sourcer, Bank of Amer­ica, had a $ 3-bil­lion dig­i­tal in­no­va­tion bud­get in 2016 to spend on fin­tech, which it ran al­most en­tirely in­house. Dig­i­tal mar­ket re­quires re­work­ing the busi­ness model. It’s more cap­i­tal­in­ten­sive and less de­pen­dent on labour ar­bi­trage. “Clients are ex­press­ing strong de­sire to keep im­ple­men­ta­tion teams (for dig­i­tal) on­shore and closer to their busi­ness users,” adds Ben­dor-Samuel. This will add to the costs of IT ser­vices com­pa­nies.

An­other chal­lenge for tech­nol­ogy ser­vices providers could arise from greater em­pha­sis on global in­house cen­tres *Pro­jected (GICs), bet­ter known as cap­tive cen­tres. Ac­cord­ing to PwC, In­dia has more than 1,000 such cen­tres em­ploy­ing 8,00,000plus peo­ple and they are at the fore­front of us­ing dig­i­tal.

To leapfrog into dig­i­tal, the in­dus­try will have to ac­quire as­sets. So far, most c ompa n ie s h ave held on to their purse strings tightly rather than look at in­or­ganic growth op­tions to get skills, busi­ness and new mar­kets. Some of the large com­pa­nies, though, are show­ing a shift to­wards dig­i­tal.

The coun­try’s largest IT ser­vices com­pany, TCS, claims its dig­i­tal busi­ness is grow­ing at 30% a year. Cog­nizant CEO Fran­cisco D’Souza men­tioned in a De­cem­ber-ended quar­ter earn­ings call that the com­pany will in­vest to scale its dig­i­tal prac­tice ar­eas. Cog­nizant’s 2016 dig­i­tal busi­ness was 23% of the to­tal. In the mid-tier, Mindtree claims 40% busi­ness is dig­i­tal and NIIT Tech­nolo­gies CEO Arvind Thakur says it has a 13% dig­i­tal work­force which con­trib­utes 19% share of rev­enue.

Malkani be­lieves less than 10% of in­dus­tryrev­enue­is­fromdig­i­tal.In­termsof­work­force de­ployed, about 10% of the 3.7 mil­lion work­ers have dig­i­tal skills, ac­cord­ing to Nass­com. Thakur adds, “Trans­for­ma­tion to dig­i­tal re­quires us to re­ori­ent busi­ness mod­els.So­farithas­been­costar­bi­trage­and now we have to shift gears.” The in­dus­try has been pluck­ing lowhang­ing fruit for long. It’s high time it aims higher.

Many new-age dig­i­tal cos — the likes of Uber, Airbnb and Face­book — are not in­clined to out­source such core as­sets even as oth­ers cre­ate sub­sidiaries

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