<div>The past year has witnessed a tremendous shake-up of the IT services sector in India. Once perceived as a “sunrise” sector, creating jobs for thousands of Indians and presenting new opportunities for a globalised nation, the past few quarters have seen some service providers stumble in the changing global economic environment. The question on many minds is – 'Are the heydays of Indian IT over'?<br /><br />The short answer: NO. The recent uncertainty is part of a shift in the industry. As maturity sets in, Indian IT is growing beyond its traditional trajectory and carving a new path for itself. In fact, focusing on the top five IT firms alone demonstrates how each one has identified a model based on inherent strengths and capabilities, as well as the changing market direction.<br /><br />In fact, just a year ago, we could compare the top five IT services companies in India in one breath. Today – and increasingly in the future – this will not be an apples-to-apples comparison. Each of the players is creating a niche for itself with distinct service offerings and areas of specialty. For example, Tata Consultancy Services is leveraging its strengths in large government projects and the significant inroads it has made in the domestic market. It would not be a surprise to see TCS in the next few years evolve as a player with offerings across verticals and geographies, but with a definite advantage in the domestic market.<br /> <br />On the other hand, Infosys is betting big on products and platforms and the Infosys 3.0 Strategy is reflective of this approach. Wipro on its part has key strengths in the product engineering space and today leads the market in this aspect. It can be expected that Wipro will reinforce its position in this area. HCL as the current leader in infrastructure management services – where it has established a USD 1 billion revenue stream – has a lot of potential in expanding this arena. If we follow each of these companies down these growth paths, we can observe a significant divergence in focus. This will only increase – unless there is a definite change in strategy – to create companies that are specialists in key areas rather than the generalists they are today, competing and winning for different types of projects. The best example of this shift is IBM and Accenture, which many years ago competed against one another but today cannot be considered players in the same space. In short, till now Indian IT services firms competed in the same, large playfield; for tomorrow, they are creating their own.<br /><br />The second key trend is in the area of M&A. Large IT firms are working with large wallets are looking for acquisitions that will bolster their consulting expertise, or multinational captives that can enhance inorganic growth. Apart from the top tier of firms, we will witness consolidation where tier-II players would look at acquiring one another to strengthen their capabilities and compete in a narrower marketplace. The big IT firms, on their part, are looking at acquisitions as a means of gaining capabilities as well as market access into new geographies.<br /><br />Thirdly, hiring at IT services firms has traditionally been observed very closely, due to the sheer volume of employment generated. While there may be fluctuations in the number of people hired, we are witnessing significant changes in how hiring is done. While earlier, hiring was skill-based, today the industry is transitioning to a competency-based model. For example, earlier a job description would be written for engineers with experience and knowledge of programming languages. Today a job description looks for domain or vertical expertise, as well as experience in technology areas such as ERP implementation or e-commerce specialists. This is in line with industry trends where customers are looking to derive more business value from their IT projects. CIOs and CTOs are being asked how IT can contribute to the organization’s bottomline, and that is reflecting in their consumption of modern IT too. Therefore, even the service providers are looking at specialists who can solve a business problem rather than just write code.<br /><br />Lastly, business models themselves are undergoing transformation among the large IT companies. Earlier, the approach was to price projects based on the number of individuals assigned to it and their time. This led to the scalable business model where fresh hires would be made for every project win, thus paving the way for a constant flow of engineers into these companies. Today the service providers are also looking at a partner-led model, where they partner large multinationals in the technology space to participate in business transformation projects. The vendor provides the technology solution while the service provider packages it with their consulting expertise. Another approach that is gaining traction is the platform-based model, where service providers are investing in creating a technology platform by themselves; this will potentially provide end-to-end solutions for specific industry verticals. This particular model involves a lot of IP creation and hence it is less dependent on large volumes of engineers. While all three models coexist today, we will see this skewing towards the platform model going forward.<br /><br />Each of these shifts – in the areas of market approach, hiring, business models and consolidation – is likely to have a definite impact in the direction that the IT services industry moves over the next few years. Quarterly results are one indicator of success or failure. However, it is critical for all of us to analyse market dynamics from a long-term perspective, rather than berating or celebrating the large service providers during the results season. The shakeout that we are in the middle of, is certainly creating room for concern and moments of difficulty. But it is just one more indicator that we are no longer in the early stages of the industry and are fast maturing in the new technology environment. <br /><br /><br />(The author is Manager-Consulting, Zinnov)</div>
