Sustaining IT industry success
Date: Tuesday , December 01, 2009
The danger of treating the Indian IT story as either a flash in the pan or a never ending story of hyper growth is that one can ignore both the realities of its success and the vulnerability that exists in the changing context of our times. Professor Jay Mitra, Head of the School of Entrepreneurship and Business at the University of Essex in UK has used an innovative model for analysing the evolution of the software industry and entrepreneurship in any country. Viewed through the lens of this model, the story so far for the fifty billion dollar plus software sector in India throws up some interesting analysis and conclusions.
Drawing on the pioneering work done by researchers like Prof H.A. Aldrich, the model argues that the nature and scope of software development allows for the evolution of entrepreneurship through the operation of four generic processes: ‘variation’, ‘selection’, ‘retention and ‘diffusion’ and ‘the struggle over scarce resources’. In this context entrepreneurship is referred to as the process by which new venture creation, or innovation is generated and supported by a mix of talented and creative people, responsive and dynamic organisational values, and a conducive environment created by both external factors and effective policy formulation.
Variation and selection have occurred in the creation and reorganisation of the IT sector through a recognition of the global environment for software development, an acceptance of the value of interaction between different levels of consulting and technological capabilities, the choice of and focus on software service provision such as coding and maintenance (as opposed to design, R&D and product development), and the entrepreneurial approaches taken by the private sector in opportunity identification in both the software business and education and training of professionals for IT and BPO services.
The analysis by the early entrepreneurs like FC Kohli and Narayana Murthy of the variations possible in the Indian economic model with support from visionary bureaucrats like N.Vittal led to the selection of a new approach in the eighties which was entirely export led. The subsequent retention of the abilities of this ‘virtual’ industry through the innovative STPI scheme and the simultaneous development of scarce resources in IT through private sector initiatives from NIIT and then APTECH followed by the IIITs and the BCA and MCA programs in the country have seen the industry rise to its present heights. While there is no doubt that the early successes of the Indian industry in providing solutions to American and European customers was primarily due to lower cost highly skilled talent from our better institutions of learning, the subsequent demonstration of process excellence and innovation has been the trump card for Indian industry in recent times. There is a confidence today that India’s position at the top of the technology and process outsourcing pack will take a lot of challenging, with no competitor possessing the heady mix of a large talent pool, familiarity with Western processes and culture and relatively low cost that India has in abundance.
The industry has had a dream run till 2008 and it is only the recessionary trends in its key markets since the summer of 2008 that has led to the decline in growth from the high twenties to sixteen percent for the recent year and now the rather pessimistic anticipation of a meagre four to seven percent growth in the current fiscal.
However the principles that have led to its success are still very much valid and the new focus on innovation – in services, processes and business models will inject the variation needed to survive the slow period and emerge stronger when the next boom cycle begins. Recent quarterly results have shown that there are still companies that continue to do well by overcoming the challenges and seizing the opportunities that every recession brings.
Enabling the ongoing retention of its capability and the diffusion of its expertise is now the imperative for the industry through value addition (from coding to maintenance to specialised services through now to a mix of offshore-onsite services centred round a Global Delivery Model) and the government policy role is essentially facilitation, through the co-existence of the STPI and IT SEZ schemes and the use of other instruments like IT Investment areas and private universities to enable strategic resources and competencies to be developed and sustained around the country.
The first two quarters of the current fiscal have been interesting in the sense that cost cutting has enabled most companies to continue profit growth but the pricing environment has been weak and the revenue growth in single digits. It is smaller companies like Zensar who have stolen the show by realising that recession can be an opportunity and garnering a significant share of new deals in all markets. In the remaining two quarters of the year, the demand environment will continue to be weak overall but opportunities will increase, not only in the Western markets where less impacted sectors like Insurance, Utilities and Government, but also in the BRIC countries and Africa where the expansion of services and a renewed focus on the domestic economies will provide opportunities for consultancy led solutions from the Indian IT and BPO players. The rules of the game have already changed with brute force outsourcing giving way to a more thoughtful consultative approach to working with the customers and their key processes and providing demonstrable results in process optimisation technology infusion and multi shore outsourcing. The addressable market opportunity remains large and the next year and the decade that follows will demonstrate the resilience that now characterises this important sector of the Indian economy. Can the industry touch two hundred billion dollars by 2020? Certainly, but there will be many inflection points on the way and we will need all our ingenuity to make sure we continue our journey of success!
The author is Vice Chairman and CEO, Zensar Technologies