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Business News/ Opinion / Watch the dollar, not ‘digital’
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Watch the dollar, not ‘digital’

A depreciating dollar is the real and present danger, not a lack of 'digital' dexterity

While many IT companies have been making references for years about transforming themselves, their attachment to the cash generating parts of their now beleaguered business models was too great for them to change course. Photo: MintPremium
While many IT companies have been making references for years about transforming themselves, their attachment to the cash generating parts of their now beleaguered business models was too great for them to change course. Photo: Mint

I have written before of the need for us to change the signs by which we measure and grade the performance of India’s—and indeed, the world’s—information technology (IT) services firms. My argument has been that the Industrial Age, which most IT services firms belong to, is now passé. The change that is besetting the IT services industry is, in fact, no different from the change that most of their clients also face. The truth of the “Intelligent Age" that is in its dawn is that many workers are likely to be displaced, pushed out by automation when the jobs are low-skilled and repetitive, and by artificial intelligence and advanced robotics when skills are high and therefore take some more time for machines to “learn".

Most analysts have, so far, rightly judged the performance of these firms by using Industrial Age metrics, such as growth in the number of employees, or growth in certain industry areas such as banking, manufacturing, and healthcare, simply because these firms were “factories" whose sole line of work was increasing the number of people they could use to bill customers and because they organized themselves to mimic the industries they serve.

Many scholastic and government onlookers are beginning to prepare as they consider several different potential solutions to combat technology-driven job losses. One scenario looks at how soon jobs that can never be “dehumanized" such as care-giving to infants, the ill, and the elderly, can become better paid and how displaced workers may be trained for such positions. The skills that these jobs need are empathy and the ability to form a personal relationship with other human beings. Empathy rests in the ability to sense and respond to someone else’s feelings. People thrive on genuine relationships, not with machines, but with each other. This sort of skill is also needed in human-to-human commerce; not all retail is based on an internet platform.

Other scholars consider Universal Basic Income, a dole which recognizes that the advances in technology will necessarily mean that all humans will now face a significant erosion in their earnings as their jobs get filled by machines. This is not an issue that confronts only IT services firms, it covers almost every single imaginable field of human endeavour, with the exclusion of the empathy-laden jobs I have spoken of above.

Meanwhile, we also need to absorb the fact that from an overall perspective, stock market valuations have never been as high as they are now. Many indices the world over seem to be on a roll, for instance, the Dow Jones in the US and the BSE Sensex in India. We are also beginning hear talk about the first ever “trillion-dollar" market-value companies. Unsurprisingly, these are from the ranks of those firms that are forerunners in creating the Intelligent Age. Meanwhile, other firms are also doing well—and an index is after all an average of several companies, and not just leading-edge technology bellwethers. This exuberance points to the fact that most investors understand that new technology holds out an exciting future for us all. Some of this exuberance may be much ahead of reality; nonetheless, investor sentiment is at an all-time high.

While many IT companies have been making references for years about transforming themselves, their attachment to the cash generating parts of their now beleaguered business models was too great for them to change course. So apart from the obvious metrics such as sequential comparisons of revenue and growth of each firm against its past performances, as well as against its peers, analysts have now started focusing on how fast IT services firms are making the shift to “digital", which is a catch-all phrase for anything that represents the coming Intelligent Age.

For instance, a recent story in the Mint focuses on how Accenture Plc. is ahead of its Indian competition in making the pivot to “digital". While there is no doubt that this was a well-researched article, there is also research that arrives at the opposite conclusion.

Ravi Menon, an analyst at Elara Capital, says that he disagrees with the popular narrative that Accenture has been quick to rotate to “digital". By his calculations, when compared with India’s top tier IT services companies, Accenture’s market share of incremental organic business (which means additional business not brought about through the acquisition of other firms) has actually reduced in constant currency terms from 36% to 34%, which is a rather significant drop.

The word “digital" is tired and overused, and I do wish that onlookers and industry participants would develop some patience and understand that IT services firms’ growth can only follow in the wake of seismic change at the clients that they support, and very rarely be lock-step with it. There is no doubt that some will win and others lose in the race to adjust business models, but the IT services industry is not in imminent danger of drowning. Demand for technology solutions is growing according to most research firms, and is certainly reflected in the trillion-dollar market capitalizations of firms that are the technology leaders. IT services firms are never technology leaders—at best they can support their clients’ moves to new technologies which are developed by other players such as Microsoft and Google, and so IT services firms’ growth stage will follow the current tech boom we are seeing.

To my mind, we should pay more attention to macro-economic indicators. One well-argued view from Elara Capital is that the Trump administration, which is already having trouble pushing its socio-economic agenda, will need to fall back to allowing a large decline in the dollar in order to adjust that country’s position in global trade. It expects that America will have to allow the dollar to decline further by 20 to 30% in order to form a real wall of competitiveness against imports.

A depreciating dollar is the real and present danger, not a lack of “digital" dexterity.

Siddharth Pai is a world-renowned technology consultant who has personally led over $20 billion in complex, first-of-a-kind outsourcing transactions.

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Published: 07 Nov 2017, 01:05 AM IST
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