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Changing horizons for the Indian IT services Industry
Arvind Thakur
CEO-NIIT Technologies
Wednesday, August 1, 2012
The "Surface" tablet was unveiled recently by Microsoft to meet the demands in computing by customers. It may be an answer to Apple’s iPad or Samsung's Android based tablets but Microsoft's jump in the fray is a sure sign that tablets, mobile centric devices and interfaces will dominate enterprise thinking while searching for solutions to enhance customer experience. Add to this other emerging technologies around social media, cloud and analytics and we can see significant disruptive trends which could radically change how we do business.

How will Enterprises deal with these trends? In a depressed economy with shrinking budgets organizations will leverage investments in traditional IT systems to deliver seamless service on new devices.

Not just cost savings, providers to offer business benefits

In the last three years since the global economic slowdown, we have seen a fundamental shift in the way service providers do business with their global customers. The new mantra from customers is not only to improve efficiency and do more for less but facilitate business innovation. Even as customers face cost pressures and expect IT services companies to offer cost benefits, they expect help in building their business.

This is a significant shift for the Indian services-oriented technology industry that has traditionally focused on building applications and maintaining IT infrastructure. The value proposition so far has essentially been cost arbitrage. More than a decade of serving customers from the days of addressing the Y2K bug has brought enormous learning in Indian companies to service customers by adopting world-class processes and tools at the back end. Now the focus is on the front end where these companies are inducting industry experts, solution architects, and investing in IP to create robust platforms to offer business benefits.

New horizons for service providers

The sector is at a cross road. What made the Indian IT industry reach collective revenue of $100 billion would not bring in the next 100 billion with the same set of services. Simple labour arbitrage and commoditized services will be challenged by other global destinations. Already voice based services in BPO are seeing business move from India to the likes of the Philippines. Tax sops which have acted as a booster to growth are withdrawn and can no longer be expected as the industry has now matured.

The Indian services provider still derives its major proportion of current revenues from traditional services like application development, maintenance, testing, and system integration. It needs to look beyond these services quickly towards new horizons to sustain growth. These include in the immediate term capabilities in multi-service offerings around end-to-end services, and IP lead or platform based solutions. Some providers are already deriving substantial revenues from these services with mature offerings and shall gain from this foresight. With emerging trends of social media, analytics, mobility and the cloud becoming reality service providers however need to make further investments now for returns in future. These areas currently contribute to negligible revenues but clients expect their partners to hold their hands and navigate them through this journey and it just cannot be ignored. Y2K was an inflection point in the history of the industry. The current economic turmoil and the emerging disruptive technologies represent yet another turning point. Traditional areas for services would be at risk as new emerging technologies become main stream. IT firms with mature service capabilities, presence in diverse verticals, global footprint are venturing head-on into new emerging services while maintaining their strong-hold over core services. Diversification and transformation, the key themes for the industry, and untapped opportunities in emerging services are expected to drive the next phase of growth for the IT industry.

New service models for customers

Traditional time and material service models have been moving to fixed price engagements for quite some time. Many providers have now designed new business models moving from fixed-cost basis to outcome-based models where payments are linked to service levels. They commit to service level agreements, where they sign on penalty and incentive clauses for services delivered. For the service provider there is an upside with improved productivity while the customer is protected against down side risks of inefficiencies if service levels are not achieved.

Service providers are also making proactive investments in IP Assets or platforms. These platforms imbed considerable business knowledge providing higher value add. Customers can license these platforms or contracts are even structured based on usage or transactions executed. Engagement models are set to change even more dramatically with cloud-based solutions becoming main stream as they would bring down costs and utilize the capital allocated more efficiently.

With tablet and smart phones however customer engagement takes on a very different meaning. No longer can applications take weeks or months to implement. App creation is expected in days. This requires a deeper understanding of the industry and clients business. Service providers are more likely to proactively build apps and offer a repository to the client for integration with their systems.

Platform to innovate

India has the largest pool of trained computer professionals in the world and is adding nearly 300,000 people every year to its pool of three million. These professionals are first consumers of new technology products such as smartphones and tablets. Here, you have a rare combination of consumers of technology helping companies build solutions for the same devices that they use. Microsoft has recognized this potential.

In an attempt to build a library of apps for their devices Microsoft ran a campaign with software professionals to create apps for their platforms. Dubbed "I Unlock Joy" the program required developers to register as App hub members and encouraged them to submit Windows Phone applications. Those selected for the Windows Marketplace received Nokia Lumia phones.

The future of the services industry lies in a combination of services, solutions and
platforms which can add business value. It is mature, possessing both foresight and talent; the perfect combination to innovate and lead.

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