Wednesday, February 18, 2009

Indian IT/ITES:Reducing Windows or Expanding Vistas?

Over the last two decades, the information technology (IT) and information technology enabled services (ITES) industry has contributed significantly to the Indian economic growth. The industry contributes to over 5% of India’s GDP, earns over US$ 40 billion in foreign exchange and provides direct employment to over 2 million professionals. No less significant has been the ripple effect of prosperity that it has created in various sectors of the economy. Nearly 50% of its revenue of US$ 40 billion is spent in the domestic economy in a host /of sectors and services, covering infrastructure to consumption goods. This spend of about US$ 16 million is estimated in turn to generate US$ 32 billion as output impact across the economy.

In more ways than one, the IT/ITES industry has been the icon of India’s foray into the global economic league, with major growth aspirations. The industry hoped to double its turnover to US$ 80 billion in 5 years and contribute further to the shaping of India as a truly global economic powerhouse. Against this background, the unprecedented global economic meltdown has raised concerns of adverse impact on this vital industry. Although the IT/ITES industry continues to be cautiously optimistic, the industry requires now, more than ever, a new vision and strategy to address the deteriorating economic environment.

Globally, all affected industries have begun to respond to the recessionary trends in certain classic, established ways; cutting down output, reducing inventories, controlling costs, postponing payables, advancing receivables and freezing investments. Though the IT/ITES industry may be tempted to follow this route, the industry has to look also for certain strategic approaches to weather the storm and in the process emerge in a fundamentally stronger frame.

Product Innovation

Typically, several Indian IT majors have comfortable cash positions and, in addition, enjoy good balance sheets to raise additional debt financing. They also have surplus operational capacity in terms of physical infrastructure, be it campus or office space and computing or connectivity capabilities. Such firms should respond to the slowdown by creating a much-needed focus for development of original software products. Redeploying its experienced professionals, inducting fresh manpower and releasing the purse strings, IT majors should aggressively create new product innovation laboratories that are dedicated to different domains and industries.

Success of the Indian IT products has been largely in the banking and retail space. Similar product success stories can be created in the domains of design and development, project engineering and erection, procurement and manufacture, sales and distribution and customer service and relationship management. The domain practice however varies with each industry vertical. For example, the design and development needs of an automobile maker would be quite different from those of a pharmaceutical producer. Customer management in hospitality sector would be vastly different from that in hospitals sector. Each of these five fundamental domain groups combined with industry specific needs would lead to a matrix of several IT products customized for industry-domain combinations. Product development opportunities for the Indian IT majors could be endless, if only they choose to focus on such innovation goals. Conservatively, the IT industry can dedicate a significant share of its current manpower on such innovation laboratories over the next two years.

Indian ERP

Platform software is for the IT industry what steel and automobiles are for the engineering industry. Indian has captured global attention with the highly ambitious yet famously successful attempt by Tata Motors to design and manufacture, on a commercial scale, a Rs 1 lakh Nano small car. Indian IT industry has to also stretch and reinvent itself to design and develop at least one software platform which can serve as the global symbol of India’s true software capabilities. An Indian Enterprise Resource Planning (Indian ERP) system could be one such flag bearer for the Indian IT industry.

Indian firms, and even global firms, are often forced to deploy certain ERP systems which are built around programming robustness rather than process flexibility. From structural nomenclature to business processes, these ERP systems represent a different nativity, when compared to either the US or Indian management structures and processes. On top of it, the need for additional user interfaces and/or the requirement to install additional analytical solutions for management information makes the available ERP solutions less than optimal.

Top-rung Indian IT majors could collaborate to form a special purpose vehicle (SPV) which can be entrusted with a national mission of designing, validating and commercializing an Indian ERP which is practical, flexible and robust and is customized to the Indian and US business processes and tax regulations. In contrast to a model of modular or “foundation now-superstructure later” ERP solution, the proposed Indian ERP solution could be developed as a cost-effective integrated suite that provides a comprehensive coverage from transactions to analytics. Also, instead of aggregating all industrial sectors into one straightjacket model of ERP, the Indian ERP could be developed as a set of customized solutions for individual or groups of industries which have unique or similar business processes as the case may be. Such an Indian ERP could do for the Indian IT industry what a Nano car did for the Indian automobile industry, in terms of global visibility and achievement.

Application software

It is not that only the larger IT majors can survive and grow in the downturn. Small and medium enterprises as well as individual IT entrepreneurs also have their respective niches.

A marvelous development of the recent years has been the proliferation of opportunities for writing application software for new electronic devices and services. This being a highly individualized and creative endeavor, small / medium IT enterprises and IT entrepreneurs are ideally positioned to participate in this space. The Linux Ecosystem has demonstrated how a global community of individual, motivated programmers could create a whole new software architecture that could compete with a massive, monolithic and established software organization. There is therefore tremendous scope for initiating and organizing mini-communities of application developers who could innovate to upgrade existing hardware and software as well as to add new dimensions to emerging products and services. In addition, applications which have significant consumer interface offer additional opportunities for continuous creativity. Mobile telephone applications, gaming applications and various web based internet applications lend themselves ideally to device-specific and consumer-centric application development by individual entrepreneurs.

Web Portals

The World Wide Web has converted the globe into a community of internet connectivity. Firms such as Google have re-defined the Net as the new ‘store, plug and play’ platform for a host of applications. Portal-based initiatives, such as Amazon, Wikipedia, Facebook, Netscape, Yahoo and YouTube, to name just a very few, have created a multi-billion dollar web-based industry. Though India has taken its initiatives in portal technology through web-based sites such as Sify, Rediff and Naukri (again to quote a very few), these have been India-centric than pan-global. India’s much acclaimed IT leadership and manpower pool needs to put its strengths to work to create truly innovative, world-class, pan-global Internet business, economic and social sites that appeal to all global citizens.

From arts to science and from engineering to management, Indian professionals have capabilities that can cater to universal needs and multifarious tastes. These, combined with contemporary telecommunication and information technologies can create sites which are pioneering and unique in their and service offerings. For example, there could be sites where amateurs and professionals can collaborate to learn, teach or experience a wide range of socially positive avocations and hobbies or utilitarian activities like music, education, yoga, self-help and alternative healing and so on.

Domestic Services

IT/ITES industry has grown phenomenally thanks to the international orientation and outsourcing advantage. The services that the IT/ITES industry has offered to its international consumers are equally relevant and required in the Indian setting too. Medium sized IT/ITES companies could have a major role in expanding the Indian market for IT/ITES offerings.

Indian ITES industry in particular can play a pioneering role in bringing industries and their consumers significantly closer. Although banking and telecommunication sectors have been quick to utilize call centres as a tool to stay connected with the customers on a 24X7 basis, a whole range of industries, including consumer oriented retail chains are yet to explore, even partially, the potential of 24X7 connectivity. ITES companies which may be experiencing a bit of downturn due to international recession could diversify into domestic services and even expand their business through vernacular offerings.

In a similar vein, there is an immense scope for the BPO and KPO industries to provide outsourcing services to the Indian industries. Product management, sales and distribution management, intellectual property management, human resources management and legal services management as well as development of knowledge repositories are some of the areas where Indian firms require more extensive and incisive BPO and KPO services.


The global economic meltdown could be an opportunity for the Indian IT/ITES industry to redefine its global business model in terms of certain new fundamentals of product innovation, platform software, application software, web portals and domestic focus. By redeploying some of its large talent pool, tapping into the streams of bright graduating professionals and allocating some of its financial resources for creative, even if experimental, initiatives, the Indian IT/ITES industry can emerge stronger with diversified capabilities encompassing innovative products as well as generic services. The NASSCOM leadership and the several visionaries that lead the IT/ITES industry today should actively collaborate to define such a new paradigm for the industry at the earliest.

Posted by Dr CB Rao on February 18, 2009

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