Over the last five years, technology consumers — enterprises and end-users — have merely survived the ongoing revolution. Now, they have to live it up as Digitisation, SMAC (Social, Mobile, Analytics and Cloud) and Productisation of Information Technology, where every point application is now architected as if it were a product, become the new normal.
Tech consumers have traversed the entire journey from getting exposed to these trends to experiencing some of each, and the era of Digital Enterprise has finally arrived. In many ways, in 2014 we will see this IT disruption being institutionalised. As much as the Indian IT industry is at an inflection point, its leaders like TCS, Infosys, Wipro, HCL and Tech Mahindra are all at critical junctures in their evolution as world-class service providers. They have difficult choices to make and questions to answer.
Choice #1: Do more of the same or choose the products & platforms path?
Traditionally, Indian IT service providers have been delivering Application Development & Maintenance, Testing and Support services. They have been comfortable doing this from all dimensions, be it selling these services, delivering on them and adding value for the investors with smart margins and revenues. This model, however, is not sustainable in the long run. The disruption caused by the SMAC revolution is permanent; and, coupled with the productization of IT, the traditional IT services model has changed for ever. Indian service providers need to adopt by defining a suitable products and platforms strategy. Unfortunately, timing and execution issues have caused some of the initial initiatives by service providers to be shelved, setting a bad precedent for the industry. However, instead of settling this choice on precedence, service providers need to keep at it, and invest in making the right choice.
Choice #2: What is the eco-system that should be nurtured for the SMAC stack?
Whom to partner with – Google or Amazon? Which technologies to bet on – Hadoop or HANA? What skills should one ramp up and build capacity on? These are some of the questions that are currently plaguing the Indian service providers. While they may have to learn to walk multiple paths, it is essential that they start nurturing particular eco-systems (start-ups, educational institutions, training factories, recruitment agencies, development forums, etc.,) for the SMAC stack. When the marketplace settles down, say in the next five years, consolidation will begin and clear SMAC leaders will emerge. It is then that the eco-system will become an important element in enabling the service providers to align with the leaders.
Choice #3: Which verticals to build on?
Over the last three years, in every deal, there is an increasing demand from customers for domain capabilities. To add to this, global competitors, again by virtue of strong domain competencies, are back in the reckoning. In response, some Indian service providers have taken a vertical consolidation approach resulting in a few verticals being chosen over the others. This is a huge risk, and a wrong choice could create existential issues. Service providers need to (1) Look at the impact of SMAC on specific verticals and its propensity to transform the way business is done in that vertical (2) Identify and spot new verticals like Media & Entertainment, Information Services etc., (3) Identify and ride on new offerings in existing verticals like, for example, Analytics in Manufactu-ring. (4) Carefully analyse the verticals where there is an increased productization of IT, and re-work their strategies for those verticals.
For example, service providers have long taken a commoditised approach to BFSI IT, whereas it is in this vertical that IT disruption has happened the most and Banks and Financial Services organizations are looking for partners who, through effective use of technology, can give them the competitive edge. These steps will ensure that Indian service providers remain relevant in the verticals they operate in or the new ones they enter into.
What should be the talent strategy?
Hiring in tens of thousands will come to an end. The talent strategy that worked for legacy IT will not work anymore. Also, managing the aspirations of millennial talent in the digital world will be a great challenge for Indian service providers. Incorporating agile principles, encouraging teamwork amongst small, international and diverse groups of individuals, building individual contributor roles and career paths, differential management of high performers, instead of force fitting a bell curve, will have to be high on the priority of any talent strategy that service providers put together. This will clearly bring out the first amongst equals amongst TCS, Infosys, HCL, Wipro and Tech M.
How to move beyond differentiation through Global Delivery Model?
For Indian service providers, the ‘Global Delivery Model’ has been a unique winning proposition and competitive edge in their battles against MNC service providers. But this asymmetry has faded over the last five years. Most MNC service providers today have about 30 percent of their talent on average in low cost locations, especially India. Indian service providers need to look at creating unique value propositions by developing ultra-low cost delivery mechanisms for commoditised services, building deep domain competencies, fully leveraging the full service play and identifying whitespaces, such as customer segments like the Mid-Markets and service areas like Engineering Analytics. Unless service providers figure out the new differentiation in 2014, they would have a lot of catching up to do over the next decade.
What geography to focus on?
It is high time that Indian service providers start channelising their energies to Europe, Japan and India, the domestic market. Indian domestic IT-BPM opportunity has been growing faster than the exports segment and currently stands at $32 billion by itself. Servicing the domestic market can help innovation as well. India can be a testbed to launch new engagement models (working with global centres on a India-to-India model), build ultra-low pricing and business models (outcome based/revenue share models, etc.), develop strong localization capabilities and develop key insights on working in federal engagements and such. Apart from geographic expansion, Indian ser-vice providers need to aggressively start looking at the mid-market segment in strongholds like the US.
2014 will institutionalise the disruption caused by Productisation of IT, Digitization and SMAC. The new normal is ‘Digital Enterprises and Digital Consumers’. The choices that Indian service providers make to adapt to this changing dynamics will be important as those choices can potentially seal their fates over the next decade.
(Pari Natarajan is CEO of Zinnov MaÂnagement Consulting)
