After a month of mixed quarterly and annual financial results from the IT industry, there are many questions on the lips of every industry watcher and analyst. The foremost theme is of course that of continuing growth. Will the low ball estimates of some of the leading players become the trend for the industry or will the more upbeat guidance given by some CEOs, yours truly included, set the trend for a new climate of innovation led growth which will become a ?new normal? at the firm level as well as for the industry as a whole?
A white paper developed by McKinsey & Company after some collaborative research with Nasscom on the interesting topic of boosting the offshore industry through alternate business models serves to highlight some of these questions and provide a framework for addressing the issues square on to develop a new path to success. McKinsey makes the case for these business models by arguing that the increasing migration to cloud computing and software and platforms as services will lead to a migration of value and revenues to these new model providers from the traditional systems integrators, package vendors and on promise services providers. The potential loss of business to the traditional providers is estimated at $107 billion while value capture potential of $60 billion to $100 billion exists for the more innovative who can transform their business models in time.
An important point made by McKinsey is that to identify the right business model and the appropriate target market, every firm will have to take a granular view of customer segments, industry verticals, sub-verticals, business processes and services offered. Zensar?s own experience addressing the market for a hosted enterprise resource planning system for the Tier 2 and Tier 3 suppliers to one of India?s largest automobile companies bears out the validity of this approach. By identifying the target customer as a small firm capable of paying not more than R50,000 a month for a comprehensive information management service, our choice of the discrete manufacturing vertical and the auto component manufacturing sub-vertical for this new business model has not only called for significant domain expertise to be developed and recruited into the firm, but also put us on a learning path to defining the services that would be consumed by the new customer and also the process by which such a service could be delivered. The traditional model of on premise implementation and hand holding would be commercially infeasible for a low cost low touch model that this service demands. New business models also necessitate new thinking and new approaches, whether it is on what McKinsey calls the ?intrinsic? dimension? people and process expertise, technology and intellectual property creation and data and analytics expertise or the execution model, from go-to-market through talent and technology deployment to pricing that could potentially be on an outcome and risk sharing basis. One could argue that it is the smaller and more nimble companies in the IT services industry that are best positioned to turn their business models on a dime and gear themselves to this approach but organisations like TCS have proved time and again that they have both the ability and the resource strength to invest heavily in new models once they are convinced of its relevance to defining and serving future customer demand. Hence the new winners by 2020 will be the most innovative thinkers and speedy implementers, not defined by the traditional distinctions between old or new and large or small!
At an industry level, a new lens may be needed to really analyse the structure and constituents of the industry by the time the industry doubles its current revenue base, hopefully well before 2020. Successful incumbents like TCS, Accenture, Cognizant and a clutch of aggressive and innovative next tier services providers may continue to scale. TCS becoming a ten billion dollar baby in the last financial year is noteworthy not just for the monumental numerical number it has achieved, but its ability to keep the ship moving ahead and its people well motivated in spite of the many challenges and the sheer enormity of managing a manpower base exceeding two lakh young professionals in multiple countries around the world. But the real success of the industry and worthy associations like Nasscom will be measured by the number of start-ups in the product, gaming and internet space who can scale their business models to hundreds of millions of dollars in the next few years. Does India provide the eco-system to enable thousands of start-ups to get funded, find customers and scale to respectable levels? When viewed through the lens of eco-system dependence, the answer would seem to be no, given the weakness of physical, digital and social infrastructure, the abysmal quality level in technology education in all but the best of education and training establishments and the lukewarm Government support to new ideas and new locations. However a lot lies in the hands of industry players and it is we who will have to find ways to ensure that the goals we have set for ourselves are met!
The writer is vice-chairman & MD of Zensar Technologies and a member of Nasscom?s Chairmen?s Council
