For over 3 decades the Indian IT industry focused largely on Banking, Financial Services and Insurance (BFSI). To that was added the verticals of telecom and hydrocarbons along the way. But the essential nature of the business continued to be one of outsourcing. Indian engineers and project managers had built up sufficient skills and know how to break down large projects into codes, manage scale, deliver results on time, operate across geographies and achieve all these at much lower costs. This was the model that created IT giants like TCS, Infosys, Wipro and HCL Tech apart from names like Cognizant.
Over the past few years, however, things have begun to silently change. The model of delivering scale at lower cost is not exactly working o perfection for a variety of reasons. Global IT spending has been on the wane, the business of IT outsourcing is becoming largely commoditized and of late the US visa norms have been tweaked to favour domestic US employees over foreign employees. That has brought the focus for IT companies back to digital. Digital is nothing new and Indian IT companies are already into digital solutions delivery, although is still a small part of their overall package. So what exactly is digital and why it is so critical to Indian IT industry?
Digital shift is all about moving from BFSI to SMAC.
Digital can broadly be defined as the combination of four components viz. Social Media, Mobility, Analytics and Cloud (SMAC). These are the high growth segments where most of the global IT investments are happening. It is the combination of these four segments that can actually propel the shift to SMAC. Here is it can work! Social Media intelligence will be used to get a holistic 360 degree view of the customer and their needs. This enables more targeted customer communication. Mobility is about delivering the ability to transact to the customer at anytime and anywhere in the most convenient manner. Analytics is all about the unique intelligence and insights hidden inside mountains of data. An organization generates useful data at various touch-points. Therefore Analytics is all about being able to smartly aggregate data, making sense out of this data, giving a structure to the output and gleaning useful insights out of the same. Lastly, Cloud is all about creating the infrastructure and platform wherein clients can operate on a variable cost basis rather than fixed cost basis. Cloud allows client to substantially scale up their business without sinking money into fixed costs and is a pre-requisite for the success of social media, mobility and analytics.
Why do Indian IT companies need to shift urgently more digital..
This is an extension of the previous point and entails a more consultancy approach to the customer. By effectively applying the four pillars of SMAC the IT Company is able to identify business needs for the client that are not otherwise articulated. This broadens the goal post when the IT Company approaches the customer with a value proposition.
The big difference between the traditional outsourcing model and the Digital model is that the former is linear, while the latter is horizontal in nature. What does that mean? In a linear model, you need to add manpower resources to expand your service offering to the client and hence does not facilitate ROI and margin expansion. On the other hand, the SMAC is about leveraging the existing platform more effectively and hence is ROI accretive.
SMAC helps Indian IT companies to get greater insights into the customer and helps them scale up the value proposition. In the outsourcing business, the IT Company rarely gets a full 360 degree view of the client and that restricts the proposition that can be offered. SMAC will, therefore, help position the IT Company to behave more like a participative consultant.
The truth is that most of the fresh investments in IT the world over are happening in the areas of social media, analytics, mobility and cloud. If Indian IT companies need to have a secure future they need to be present in a big way in the major growth areas. Also, the margins and the scope for lateral expansion is much higher in SMAC compared to the traditional outsourcing model.
A greater shift to SMAC is not just an option, but the only option for Indian IT companies. But the shift must be meaningful. If Indian continues to only provide support services in areas like cloud and analytics, the real alpha will never accrue to Indian IT companies. That could be the big challenge for Indian IT in the months ahead.
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