What Next for Indian IT?

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next-indian-itOver the past decade or so, Indian IT businesses have led the crafting of the image of a knowledge based India to the world. Reams have been written about and sound-bites by the GB have been expounded on the industry dynamics, the companies, and the good reasons for their success.

This success has attracted the attention of the world, especially the larger global players.  Global IT services companies like IBM, Accenture, EDS, Cap-Gemini and others are learning the India based off-shore delivery model and are ramping up their India based resources (they have anywhere from 10-15% of their global workforce in India today). When all is said and done, one has to acknowledge that it has been the India-centric delivery model (notwithstanding the ubiquitous use of the term "global delivery model") that has catalysed the growth of the Indian IT industry. The larger global players are now getting their act together vis-à-vis this India based delivery model. In addition, a large number of end user companies have set up their own captive units that render services to their offices worldwide. Thus it may not be long before we see that while IT services from India will keep increasing year-on-year, services by Indian companies will be decreasing as a share of the total.


Given that the competitive advantages of an India-based delivery model will likely get normalized sooner than later, the question to be asked of the India IT & ITeS businesses is "What Next?" Can the model that has brought great success thus far to the industry continue to keep leading the world in providing IT services in the years ahead? Let us not forget that the Indian IT & ITeS businesses are not all about TCS, Infosys, Wipro, Satyam and HCL. There are several thousand small and medium companies that have ridden the wave over the last decade and are now "Stuck in the Middle" in classic fashion. Commoditisation of the business, hiring & attrition issues, and rising costs have lead to highly undifferentiated companies. Almost all of these Indian companies look, smell, taste, talk, and behave like the next one. In such a low value-added world, it is the customer who calls the shots.


I believe the way ahead is for these companies to re-think the way they've been doing business. That is, discard the me-too approach and focus on innovation. The larger companies have focused on process innovation. But I believe the next frontier for Indian companies should be all about innovation in business models, innovation in technology and innovation in service delivery.


There are a few important things to keep in mind as we look at the next frontier.


a) The rise of India as a market: The cross-sectoral growth of the Indian economy, the increasing liberalization, the increasing availability of capital, and the increasing investments is resulting in an unprecedented opportunity for the first time.


b) Availability of world-class talent: It is not just the availability of high quality talent from Indian colleges but increasingly it is possible to attract high quality international talent into Indian companies.


c) Cross-domain talent availability: A large and diverse talent pool has been created thanks to the wide range of services rendered by Indian companies. From software development to maintenance to customer support to BPO to package implementation to engineering services to infrastructure management to....


d) "Made in India": The "Made in India brand" is well acknowledged worldwide especially in the area of IT


e) Process knowledge, project management, quality of an international standard have been internalized by the leadership


f) Confidence of the average Indian IT professional has gone up


What are therefore the possibilities as we look towards the Next Frontier? I have not talked about the obvious newer opportunities that deploy the well understood low cost India delivery model. For example, the much bandied term KPO is essentially the amplification of the existing BPO model except that instead of an ordinary graduate doing sales order processing, a mathematician is running a statistical model for a client in the US. I have instead attempted to look at the possibilities truly in next frontier, not "more of the same".


Understanding of markets, consumers, sector and cluster specific opportunities will become critical.



What follows is a sample of such possibilities:


a)    Innovative business model: Why can't an Indian company go to an airline company and offer to run the entire back-office operations of the airline? That is, run ticketing & reservations (across agents, the web, phone), customer support, cargo handling, intra-airline accounting & mediation, scheduling, resource allocation & planning, analytics, IT systems & data-centers and so on. The airline company then just focuses on managing its fleet, employees, customer satisfaction and acquisition issues. The IT company deploys its resources from across domains to effectively and efficiently run the entire back office of the airline. Today, many product companies just focus on R&D, engineering, sales and marketing. Everything else is largely outsourced; sometimes to such an extent that the product is manufactured and drop-shipped by a third party vendor without the company even touching it. Customer support is also outsourced. This requires the establishment of a long term strategic relationship between the two companies, terrific process, project management and quality systems and so on. The IT company gets paid on a per-transaction basis. The Bharti-IBM deal is an example of a similar type of arrangement. This model can be taken to various other domains as well - hospitality, healthcare, travel and
so on.


Intellectual Capital creation will become important; which comes from deep insights into the ways businesses are run and how newer domains are formed.



b) The small and medium businesses in India are largely ignored. "They don't pay", "They don't want to invest in IT" have been some of the refrains from IT companies whenever the subject of the SMB sector crops up. These are fair comments; but what is the solution? Is there one? In my experience, SMBs today realize the importance of IT in gaining a competitive edge but don't know what to do or how to go about the process; they are also hesitant to spend large amount as capital expenditure. They cannot hire good IT consultants. I know of a young company that has adopted an innovative approach that I think is interesting. It goes to SMBs and offers to become their outsourced IT department. It works with the SMB to develop business process flows, helps make these more efficient, models the processes, creates the IT systems necessary to run these processes, and then runs the entire system for the SMB. The employees of the SMB access the systems running off a data centre via terminals or PCs. All reports, customer support and audit data is provided for by the company as determined in a SLA. More interestingly, it even provides for all hardware, software, networking, storage, data centre resources to be made available to the SMB for a fixed monthly fee. It has back-to-back arrangements with vendors for monthly payouts. The company has also developed templates for different verticals like Healthcare, Manufacturing, Retail and so on for improved efficiencies.


c) Product design: With the opening up of opportunities, companies in this space will attract capital, talent and generate high margin revenues through innovation. Perhaps the world's best known company in this space is IDEO (www.ideo.com). As markets shift to Asia, products need to be designed that take into account socio-cultural aspects of usage. Such companies need to have an amalgam of cross-functional talent (engineering, design, user interfaces, ergonomics, psychologists, anthropologists and so on). Is there any reason such companies cannot come out of India? Already, there are some exciting companies designing innovative children's games, office accessories, dispensers, payment solutions,etc.


Discard the me-too approach and focus on innovation.



Intellectual Capital creation will become important; This in turn comes from deep and purposeful insights into the ways businesses are run and how newer domains are formed. Phenomena such as blogging, social networking, mobile phone proliferation, must learn to be harnessed to create differentiated offerings. Google and Yahoo are free services to end-consumers powered by powerful technology based on purposeful insights into how customers behave and buy.


To make these and many other truly next frontier things happen, Indian companies will have to partner with academia, innovative startups, investors, and other market players. Domain (as opposed to pure technical) knowledge based businesses will have to be developed. Understanding of markets, consumers, sector and cluster specific opportunities will become critical. While they have traditionally worked in clean-cut functional silos, companies addressing the Next Frontier will require flexible teams of cross-functional & domain experts coming together to offer solutions. 


Sanjay Anandaram brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, mentor and faculty member. He is a frequent speaker and writer on innovation and entrepreneurship; also involved with Nasscom, TiE, IIM-B, and INSEAD business school in driving innovation and entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed are his own. 


Issue BG68 Nov06


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