Published Editorial

IT services: New code for success

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The Hindu Business Line

by

Samiron Ghoshal
Partner & Leader – IT Advisory Practice
EY

Contributed by:

Manoj Jha
Associate Director – IT Advisory Practice
EY

Information technology is today a $100-billion industry in India, employing three million and constituting 8 per cent of the GDP. However, the sector has recently been dogged by slowing topline growth, flagging margins and uncertain numbers even as the bigger players are seemingly battling an uneasy midlife crisis.

What, then, could be the recipe for continued success? As with all things in life, the answer perhaps lies in doing a few things relentlessly and doing them well.

Movement from low-cost to high-value business: The IT sector has been synonymous with low cost, competition for reducing deal sizes and vanishing margins. A decisive and continued effort is needed to move from low-cost to high-value business.

IP creation is key: The sector will have to offer more solutions that are intellectual-property centric, fixed bid, outcome-based and consulting driven. IP creation related to key industry processes and technology combinations is the way ahead.

Start-up innovation culture: Indian IT companies have not really dirtied their hands with disruptive innovation. Ironically, it is this kind of innovation, even on a small scale, that is likely to change their fortunes over the next decade. Needed is a business model that encourages bright 30- to 40-year-olds to innovate within a co-innovation framework created by the firm without the pressures of day-to-day measurability.

Frugal approach for developing markets: Most of the growth in the next decade will arise from developing countries.

BRIC (Brazil, Russia, India and China) is passé; the next livewires are likely to be Turkey, South Africa or Colombia. Indian IT is uniquely positioned — grounded as it is in frugal innovation. So, firms need to have differentiated regional strategies for developed and developing markets.

Adopting the MNC culture: Some of the hardest challenges have to do with softer issues such as organizational climate, culture and change. Success will go to companies that spawn a culture that reflects local realities and rewards global competence. IT companies will have to hire and empower locally, instead of adopting the more common headquarter-graft culture.

Much of what happens will depend on how well the strategy is executed. The story of the IT industry poster boy is a case in point.

As the top level of this company obsessed about its future and moved into high-margin businesses, its traditional bread-and-butter business of application development and support suffered. The company’s performance suffered at the bourses where, only a few quarters ago, it used to be a bellwether stock. Only a reboot by one of its founders seems to have brought back some semblance of order to the company’s fortunes.