How to make IT re-happen
It’s that time of the year when quarterly results are announced, and something is largely missing from headlines: IT company results. Yet, another unimpressive quarter has brought back the fears of a dwindling competitiveness of India’s IT services. The $160 billion industry is expected to sharply slow down this year too, with a 5% or so growth, at best, in constant currency terms.
The core value proposition for many of the big IT services companies was that they could take care of tasks for their customers that were either not something their clients wanted to keep in-house, or that could be done more cost-effectively elsewhere. That model is well on its way to competitive erosion.
Labour here is no longer as inexpensive as it once was, and an increasingly aspirational workforce has no compunction about leaving their employers for better opportunity. Many countries like the Philippines can provide less expensive labour than India can, and offer reasonably high levels of English proficiency. More critically, the tech budgets that once grew exponentially have been pulled back.
To move up the value chain, top companies like TCS, Infosys and Wipro have been looking at building new capabilities in Internet of Things (IoT), artificial intelligence (AI), big data, cloud and digital media. But such a dramatic shift in business models is likely to be hard when the changes are triggered by a burning platform.
For one, these firms will be competing for scarce top talent in these areas not only against each other, but also against large firms not in their industries and entrepreneurial startups, who can offer the promise of less bureaucracy and a bigger pay-off. For another, the transition from a profitable and high-growth business model to a more uncertain and potentially less profitable one is very difficult for most companies to make.
Success at transformation is not guaranteed. Witness the lack lustre outcomes of these firms’ efforts to get into consulting some years ago. That just didn’t work. So, what should these companies be doing?
The $1.2 trillion global IT industry will continue to throw up opportunities, but grabbing such ‘transient advantages’ needs a different playbook. Some of the playbook is well understood globally, but not practised well here — such as innovation. Anew successful playbook can have five dimensions:
1. Continuous reconfiguration and healthy disengagement: Firms should build capability to move from one set of transient advantages to anotherrather than defend existing competitive advantage. They will want to rigorously examine their portfolios of investments, and prepare to invest in new options for future growth. Being courageous in disengaging from exhausted lines of business and services will be the way of life. Business exits that occur at a steady rhythm will trigger new learning.
2. Resource allocation to promote deftness: Firms will need to consider which new business models may prove to be attractive. Choices will have to be made to address significant industry shifts. The most obvious is to anticipate and prepare.
A subtler option is when companies take advantage of second-order effects as when new opportunities emerge because customers are changing. Resources will have to be organised around opportunities. Access to assets, rather than owning assets, will be prime.
3.Building innovation proficiency: Internalise the fact that governance and budgeting for innovation is separate from business as usual. Create a balanced portfolio of initiatives that support the core business, build new platforms and invest in options. Start with customers and innovate to help them get their jobs done.
4. Discovery-driven mindset: Leadership must assume that existing advantages will come under pressure and encourage open questioning of status quo, which Indian firms rarely encourage. Broader involvement of a diverse set of people in strategy development will be crucial. Fast and ‘roughly right’ should be the norm, instead of slow and precise.
5. Entrepreneurial career management: A shift from analytical strategising to rapid execution shall be the highlight. Employee superstars will be needed, instead of hierarchies and teams. Careers ought to be managed not by the firm but by individuals.
Rather than cost arbitrage, ‘responsibility arbitrage’ must be a new value proposition. Moving up on the relationship value chain will help build a competitive advantage of switching costs. With the new strategy playbook, a few desi IT firms should be able to trigger high-growth disruption and edge past Alibaba and Tencent to mark an Indian presence in the till-now American-Chinese $400 billion-plus club.
(McGrath is Professor of Management, Columbia Business School, and Muneer is co-founder, Medici Institute)
https://economictimes.indiatimes.com/tech/ites/how-to-make-it-re-happen/articleshow/61327775.cms
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