Business Today

"Indian IT is in the midst of a radical re-invention"

The Indian IT companies are in the midst of a radical transformation as they move away from being software vendors to partners of their clients, a recent BT-Nasscom discussion finds.

     Print Edition: March 21, 2010

fOver the past 24 months, the Indian IT industry suffered its worst slowdown as customers across the globe cut back spending. Despite dire tidings from several quarters, including NASSCOM's, the industry expects to grow by 13-15 per cent this fiscal. It was this sense of optimism that struck a chord at the recent BT-NASSCOM panel discussion in which panellists— Pramod Bhasin, CEO & MD, Genpact and Chairman of NASSCOM, Girish S. Paranjpe, Joint CEO, Wipro, Gaurav Gupta, Country Manager, Everest Group and Paul Hermelin, Managing Director, Capgemini—spoke of moving beyond cost-cutting measures and increasing efficiency to exploring new business models and investing in new markets. BT's Rahul Sachitanand moderated the discussion, held on the sidelines of NASSCOM India Leadership Forum.

India's IT industry seems to have seen out the worst of the slowdown. What's the outlook now?

Paranjpe: The five per cent growth figure estimated by NASSCOM is for fiscal 2010; for the next year, they are more optimistic. Growth needs to return to financial services, where the spend on IT (as a percentage of revenue) is over 10 per cent compared to 2-3 per cent elsewhere.

Hermelin: With clients moving from capex to opex (preferring regular operating costs over large upfront capital costs) and vendors charging per use and "variabalising" costs, we will start to see investment and growth.

Bhasin: The current restructuring of banks and financial companies as also the pressure to become more efficient will create new opportunities over the next few years.

Gupta: The widespread M&A activity will create a new source of business.

Paul, How difficult is the transition to a non-linear business model for Indian IT?

Hermelin: We were historically in a pull mode rather than push mode. Instead of going to customers and building specific solutions for them, the challenge now is to move to push mode where companies will build solutions proactively and push these solutions to customers. We can build platforms and have multiple customers use these solutions.

Girish, What are the new emerging opportunities for Indian IT?

Paranjpe: Clients want to stay light and are averse to cash and capital outlays. This leads to a variable model— both for costs and headcount. Our customers are relooking at what is core and non-core, what can be done internally and what can be outsourced. Areas such as credit card outsourcing, F&A outsourcing, which were traditionally considered core to a financial services business, are no longer so. People now want to give you more "core" work, but they want you to deliver it as a service and incur minimal fixed costs.

How ready is the industry for such a transformation?

Bhasin: You can buy banking services, courier services and services in finance and accounting, supply chain and lots of other areas. There is a lot of innovation that we pick up along the way. I can serve my domestic clients 30-40 per cent cheaper than my international clients. Taking that and applying it to international clients will alter costs radically.

Hermelin: But we are accustomed to measure on margins. If we go for pay per use model, with pre-investment, then we have to measure performance based on return on capital employed, which we don't know how to go about properly. We will have to share risks and rewards.

Gupta: I think business models are going to change. But, some areas such as engineering services have struggled because companies need to consider how their customers will manage and procure these services.

Hermelin: We tried to release a solution as a package and we failed. Why? Because, unlike package vendors, we don't have the background to provision and support them. We will yet be services factories, but in a world which will also have templates, with partially reusable solutions. We will enter the world of reusability but not become package vendors. These are different metrics.

Bhasin: There will be many players in this mix. Buying out assets, as we fight for share, will become an increasing possibility....

What's all this talk about building platforms and delivering services to customers off them?

Paranjpe: In India, where we do a lot of systems integration work, we can find structures where we can be responsible for the outcome—as a service—and for a refresh of the assets at a certain point in time. We don't need to own the assets. Saying platform and saying products is not the same thing. What may be a mid path is the shared services model, where we don't share with 500 clients necessarily, but share with five rather than only one.

Hermelin: When you hear softwareas-a-service, someone has to invest, which few companies want to do. The usual dream is to have a customer give you a back office, re-engineer it and offer services as a platform. That never happens, because the cost of winning the next customer is expensive. We will move from being a system integrator to a technology orchestrator.

Paul, What are clients around the world telling you on the issues of platforms and shared services?

Hermelin: There is optimism because we have grown our pipeline...there is a big wave of new projects in the pipeline.

Bhasin: The number of signings and pipeline have both gone up for us, especially with new customers in the mid-market (sub $5 billion). Signings with BFSI customers have gone up and in India we have tripled growth rate from 5-15 per cent. But is it going back to the glory days? No. If you listened to the likes of Stephen Roach, you'd realise that US consumer spending won't come back for three years. There are brand new markets ripe for the picking. Japan, for example is completely under-penetrated.

Gupta: The market will not bounce back to 30 per cent growth rate any time soon but signs of recovery are evident. If you look at the signings in the last quarter of 2009, the numbers were flat and not down. If you look at the number of new centres being set up, the numbers were the largest for a long time, with over 100 centres being established. The next wave is getting to the hard-to-get-fruit.

How do you equip yourself to deal with this rapidly changing industry?

Bhasin: Many of us in the Indian industry have grown up with a different model—cost, labour arbitrage and butts-on-seats—but frankly those days went away five years ago. Customers will prevent us from commoditising and not adding any value. If you look at the people we're hiring, it's changing. We're hiring domain experts, consulting folk and re-engineering experts.

Hermelin: Our customers now know of the talent in emerging countries and they are no longer willing to pay for expensive overheads at western salary levels. Don't try to defend your own old position. That's over.

So, where will the next round of growth come from?

Bhasin: In healthcare, the solution to the US healthcare problem may lie in India. It may lie in the cloud, small mini ERP systems....

Gupta: People will stop measuring success by how large your shop is. The ones who make an impact on a customer's business will benefit. The focus has moved to transitioning your clients' business.

How big are these opportunities?

Hermelin: Every CIO has to show his boss that he has a cloud strategy in place. The web 2.0, social networking and interaction are areas where we have not seen many rich applications.

Gupta: There is a massive opportunity in digitisation of healthcare. There are spin-off opportunities in analytics and remote management from this. It will unleash another wave of processing opportunities.

Bhasin: You need technology, process, domain capabilities coupled with broadband, cloud computing, etc, to devise unique ways of reaching consumers. Tomorrow, we may be able to provide a semi-customised model to serve SMBs, which is what they need.

Paranjpe: Growth will happen from emerging markets, new sectors such as healthcare and government, and from SMBs.

Where do you see Indian IT 10 years down the line?

Paranjpe: I think there will be just 8-10 players who will have a majority share of the market. The work the industry undertakes will be more complex, partnerships with clients will be much deeper and a different model will become prevalent for emerging markets.

Gupta: There will be a lot more modularity and flexibility in the way services are bought. Also, we need to keep an eye out for China, from where the next big threat and opportunity could come.

Hermelin: We will place bigger bets on intellectual property and will create a model of revenue generation based on solutions that have partial reusability.

Bhasin: The speed of change will be greater in the next 10 years than it was in the past 10. All of us will go to China and Latin America. There will be significant innovation around areas such as cloud computing, Internet applications, web 2.0 and process expertise. All of this will mean that the IT industry—expected to be $225-300 billion in size by 2020—will have a bunch of companies out there with revenues of $15-20 billion.

Youtube
  • Print

  • COMMENT
BT-Story-Page-B.gif
A    A   A
close